[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
UNITED NATIONS OIL FOR FOOD PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 8, 2004
__________
Serial No. 108-106
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas Ranking Member
MICHAEL BILIRAKIS, Florida HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California SHERROD BROWN, Ohio
NATHAN DEAL, Georgia BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi, Vice Chairman TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma
Bud Albright, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Energy and Air Quality
RALPH M. HALL, Texas, Chairman
CHRISTOPHER COX, California RICK BOUCHER, Virginia
RICHARD BURR, North Carolina (Ranking Member)
ED WHITFIELD, Kentucky TOM ALLEN, Maine
CHARLIE NORWOOD, Georgia HENRY A. WAXMAN, California
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
Vice Chairman FRANK PALLONE, Jr., New Jersey
HEATHER WILSON, New Mexico SHERROD BROWN, Ohio
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
GEORGE RADANOVICH, California LOIS CAPPS, California
MARY BONO, California MIKE DOYLE, Pennsylvania
GREG WALDEN, Oregon CHRIS JOHN, Louisiana
MIKE ROGERS, Michigan JIM DAVIS, Florida
DARRELL E. ISSA, California JOHN D. DINGELL, Michigan,
C.L. ``BUTCH'' OTTER, Idaho (Ex Officio)
JOHN SULLIVAN, Oklahoma
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Babbin, Jed, former Deputy Under Secretary of Defense........ 36
Christoff, Joseph A., Director, International Affairs and
Trade, General Accounting Office........................... 17
Flake, Hon. Jeff, a Representative in Congress from the State
of Arizona................................................. 9
Rosett, Claudia, Journalist-in-Residence, the Foundation for
the Defense of Democracies, and Adjunct Fellow, Hudson
Institute.................................................. 31
(iii)
UNITED NATIONS OIL FOR FOOD PROGRAM
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THURSDAY, JULY 8, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Energy and Air Quality,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:50 a.m., in
room 2123, Rayburn House Office Building, Hon. Ralph M. Hall
(chairman) presiding.
Members present: Representatives Hall, Whitfield, Shimkus,
Shadegg, Walden, Rogers, Issa, Otter, Sullivan, Barton (ex
officio), Allen, McCarthy, and Strickland.
Also present: Representative Ose.
Staff present: Bill Cooper, majority counsel; Mark Menezes,
majority counsel for energy and the environment; Peter Kielty,
legislative clerk; and Sue Sheridan, minority counsel.
Mr. Hall. I want to thank everyone for coming to the
hearing on the United Nations Oil for Food Program, and I
especially want to thank the panelists for attending and for
their written testimony and for the time that they are giving
to this subcommittee, to the committee, and to the Congress,
and to the Nation. I look forward to hearing from each of you.
We invited the State Department to testify today, but they
didn't show enough interest to decide to attend. I suppose we
will hear from them at a later time one way or the other.
This subcommittee will come to order and, without
objection, the subcommittee will proceed pursuant to committee
Rule 4(e), and that is so ordered. The Chair recognizes himself
for an opening statement.
The United Nations' Oil for Food Program was spawned out of
good intentions. As someone once said, the road to perdition is
paved with good intentions. Such is the case for the Oil for
Food Program.
As we see the trail of corruption unfolding on the world
stage, it seems that the only folks with, ``good intentions,''
were those not running the program. Several congressional
committees are investigating the Oil for Food Program, as is
the United States Justice Department.
Finally, the U.N. got into the act with the appointment of
the Volcker Commission. I am encouraged to read that Chairman
Volcker sees the importance of such an independent inquiry with
a lot of good public disclosures surely to follow. He is a good
man and a good chairman, and we are anxious to see the results
of his investigation.
The General Accounting Office reports that over $10 billion
have been illegally diverted to the old Iraqi regime. I suspect
that any other nonsovereign organization even hinting of a
scandal of that magnitude would be shut down and out of
business overnight.
By allowing such fraud and deception to continue and for
U.N. employees to participate in it has probably resulted in
the deaths of thousands of Iraqis through malnutrition and lack
of appropriate medical supplies. We have a name for that in the
United States, it is called murder.
This hearing today is the second hearing this subcommittee
has held in the 108th Congress on the Oil for Food Program, and
it probably won't be the last. Such widespread corruption has
to be stopped, and those responsible must face justice. It is
only by shining the light of full public disclosure on an
otherwise dark and secretive process that we can purge
corruption. We need to hurry while there is still something to
save.
With that, I recognize Mr. Allen for an opening statement.
Mr. Allen. Thank you, Mr. Chairman.
Today's hearing is on the allegations of mismanagement in
the U.N. Oil for Food Program, an appropriate topic. My concern
is really what is the overall purpose of this hearing? Is it to
conduct proper oversight and ensure accountability so that
Iraqi oil revenues get to the Iraqi people? Or is it, to be
blunt about it, simply to bash the United Nations? Past
statements and records of our witnesses provide an indication.
My gym buddy, my friend from Arizona, Mr. Flake, has
introduced legislation to withhold U.S. Contributions from the
United Nations until the Oil for Food Program issues are
investigated. Last night, he voted for an amendment to
eliminate all U.S. contributions to the U.N.
Claudia Rosett wrote in January 2002 in the Wall Street
Journal Europe that, quote, New York is a great city, a
crossroads accustomed to hosting all sorts of nonsense. It is,
after all, home to the United Nations.
Jed Babbin recently authored a book titled, ``Inside the
Asylum: Why the U.N. and Old Europe are Worse Than you Think.''
The book's inside flap declares, ``The U.N. is more of an
international criminal than a dispenser of legitimate
international law.''
By contrast, we have no testimony from the State
Department, from the United Nations, from the independent
inquiry committee chaired by Paul Volcker, and I agree with the
chairman, he is a good man and will do an excellent job. We
have no testimony from KPMG or any other auditor.
I have no objection to hearing from the witnesses who are
here today, but the hearing panel does not reflect the breadth
of views, the balance of views we should have.
Currently, nine separate investigations are looking into
allegations that the U.N. mismanaged $65 billion in Iraqi oil
sales under the Oil for Food Program, including those by
several other congressional committees. I welcome more
congressional oversight, but I question the majority's
investigative priorities.
By contrast, there have been no public hearings as far as I
am aware on the administration's prewar Iraqi WMD claims. There
have been few, if any, hearings on the overextension of Guard
and Reserve forces, the sole source contracting to companies
like Halliburton, and allegations now under U.N. investigation
that the Coalition Provisional Authority has mismanaged Iraqi
oil revenue.
The Oil for Food Program was transferred to U.S. control 14
months ago and renamed the Development Fund for Iraq. The U.N.
Security Council established an International Advisory and
Monitoring Board to oversee the disbursements placed under the
Coalition Provisional Authority. Yet the CPA resisted this
oversight, reportedly denying the board access to CPA documents
and delaying the board's start by 5 months. After the board
formed, CPA officials failed to respond to inquiries from
international auditors. In particular, the CPA stood in the way
of the board's attempts to track sole source contracting for
Halliburton. The obstruction was significant enough that the
board eventually had to commission a special audit of
Halliburton sole-source contracts. It is unclear how the
special audit will progress, however, given the lack of
information IAMB has received to date from the United States.
Both the United States and the U.N. have an interest in
getting to the bottom of where Iraqi oil revenues have gone. We
already have nine investigations to help us get there, but the
investigations will be incomplete if we fail to direct
attention to the 14 months that the U.S. controlled these
funds. Otherwise, the U.S. Government will seem hypocritical in
the eyes of the world and the Iraqi people.
Unfortunately, I fail to see in today's testimony a focus
on the CPA's lack of transparency. Instead, I see this
committee rehashing the work of other committees in the House,
and this suggests to me that what we are doing today lacks the
breadth and balance that is required to do our work properly.
And, with that, Mr. Chairman, I thank you and yield back.
Mr. Hall. I thank the gentleman and would advise you that
this is the first of several hearings that we are going to
have, and I appreciate your opening statement. I think it was
well done. And I think you maybe quoted Jed Babbin? Did you?
Mr. Allen. I did.
Mr. Hall. And I think we will hear from him. I think we are
very fortunate to hear from him. We will not be hearing from
Claudia Rosett--is Ms. Rosett here? Great. Well, thank you very
much. We were informed to the contrary.
At this time we will recognize Mr. Whitfield. Do you have
an opening statement, sir?
Mr. Whitfield. Mr. Chairman, before I make a few remarks, I
would like to ask you a question, if I could. Were U.N.
representatives invited to testify today?
Mr. Hall. I understand they declared diplomatic immunity
and refused to testify.
Mr. Whitfield. Well, I am not particularly surprised at
that, but at least we invited them and gave them the
opportunity, and they politely refused to come.
Mr. Hall. There will be a time down the road when they may
not have the opportunity to make such a decision. I assure this
committee that we will use every effort we have to get the
testimony here that this committee and this Congress and this
Nation is entitled to.
Mr. Whitfield. Well, I am also delighted that Mr. Flake is
testifying before us today. I know this is an issue that he has
followed very closely. And, of course, the U.S. taxpayers pay
the largest percentage of the dues for the United Nations, and
I think we have an obligation and responsibility to explore
issues of corruption that relates to the U.N. There certainly
is never any reluctance to criticize the U.S. on any issue,
whether it be financial corruption, moral corruption, whatever.
So I think we have the responsibility to do that.
I am particularly delighted that Mr. Jed Babbin is here
today, who wrote the book Inside the Asylum, which I would
recommend that people read just to obtain the information from
it. I have not had the opportunity to look at all of it yet,
but I do notice in his book that he points out that the Iraqi
Governing Council, which is building the new democratic Iraq,
has hired the Roland Berger strategy consultant firm to advise
it about, among other things, the Oil for Food Program and
that, after an initial investigation, they wrote a letter to
the U.N. urging that there be an independent review of the
program, and I am delighted that Mr. Volcker and others are in
the process of doing that right now.
I would also point out that in asking one of the
representatives of the Roland Berger program, they asked the
question, which countries had clearly traded illegally with
Iraq when the U.N. sanctions prohibiting trade were in place,
and they answered they were sure without question of only one
country, and that was France. And then I would also point out
that there hasn't been any country more critical of the U.S.
role in Iraq at this time than France, and I think this book
and additional information points out very clearly that France
had a direct financial interest in Iraq and that they were
receiving favors from Saddam Hussein.
And this report also, this book also points out a newspaper
article that gave a long list of bribed individuals, entities,
and countries in the Oil for Food Program, and it specifically
listed 11 French individual and companies.
So, Mr. Chairman, I want to thank you for having this
hearing. I think there is some important information that we
can gather from it, and I look forward to the testimony of our
witnesses.
Mr. Hall. The chairman recognizes Mr. Otter.
Mr. Otter. Thank you, Mr. Chairman. I do not have an
opening statement. I am going to forego that for the benefit of
additional time for questioning. But I would make a
parliamentary inquiry, if the Chair would submit----
Mr. Hall. State your inquiry.
Mr. Otter. Would a unanimous consent request that the Chair
direct committee staff to prepare whatever necessary subpoenaes
from the committee to those agencies, including the State
Department, that refuses to come before this committee? Would
the Chair entertain a unanimous consent request at this time
that said subpoenaes be looked into and be prepared in case we
need them?
Mr. Hall. We typically discuss it beforehand. We will have
a vote on it, and I think that is certainly the intent of the
chairman, and I think we will have the support of Chairman
Barton on that. We don't want to defer, take any action on it
at this time. You are not suggesting that, are you?
Mr. Otter. That is why I made the inquiry, Mr. Chairman.
Mr. Hall. Well, let us take that up with you after we have
our opening statements.
Mr. Otter. Fair enough.
Mr. Hall. Thank you.
The Chair recognizes the arrival of Chairman Barton,
chairman of the Energy and Commerce Committee, the gentleman
from Texas. Yield to you such time as you may require.
Chairman Barton. Looks like I got here just as things were
getting interesting, it sounds like.
Mr. Chairman, I have a formal statement that I will submit
for the record. But just to briefly summarize, the more we
learn about the ill-fated United Nations Oil for Food Program,
the more outraged we get. It looks that in the neighborhood of
$10 billion was skimmed off the top for various purposes by the
Saddam Hussein regime, and while some of that money may have
been spent for its intended purposes, there is quite a bit of
anecdotal evidence that it was spent for unintended purposes,
of which one was rearming the Saddam Hussein military.
The U.N. initially wanted to sweep this under the rug; and
thanks to some investigative reporting, most notably by the
Wall Street Journal, the U.N. did reverse its position and
appoint a special commission chaired by former Chairman Paul
Volcker of the Federal Reserve System, and he has assured me in
a telephone conversation that his is going to be an independent
and thorough investigation.
Having said that, as a commission appointed by the United
Nations, his commission doesn't have the authority that a
standing committee of the U.S. Congress has, and I am proud to
say that the Energy and Commerce Committee many years, several
years ago, back during the Clinton Administration, actually was
the first committee in the House and I think the Senate to hold
any kind of a hearing or an investigation on this program.
So as I walk in, I am told that some of our witnesses
decided not to come. We will handle that. I need to get to the
bottom of it and find out what the issues are. But I can assure
our audience and our witnesses that are here that this is not a
show hearing, this is a work hearing, and we are going to use
the full authority of the House of Representatives as delegated
to the Energy and Commerce Committee to get the facts and take
whatever appropriate actions that are determined by those
facts.
So with that, Mr. Chairman, I thank you for holding this
hearing and yield back.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Thank you, Mr. Chairman. The more we learn about the United Nations
Oil for Food Program, the more repulsed we become. The General
Accounting Office estimates that Saddam Hussein skimmed at least $10
billion in illegal revenues from 1997 through 2002, through the UN-
managed Oil for Food program.
Bowing to public outrage, the UN itself has appointed the Volcker
Commission to investigate, but Congress needs to act, too. The Energy &
Commerce Committee was the first Congressional committee to question
this poorly managed program, and I am pleased we are still doing so.
Without the pressure on the United Nations, I sincerely believe the
UN would have simply closed the books on the Oil for Food Program
without so much as adding up the checkbook stubs. For an organization
that touts itself as an international organization for the purpose of
establishing and maintaining peace throughout the world, it should know
that nothing promotes strife like stealing money from those to whom it
rightfully belongs.
The Oil for Food Program appears to have provided a slush fund for
Saddam Hussein to reward friends and influence bureaucrats around the
world. This is not just a stain on Saddam Hussein's regime, but also on
the United Nations. This Committee's investigation will hopefully help
uncover the facts so that, at a minimum, no similar scheme will be
attempted in the future.
I thank the Chairman for having this hearing and look forward to
the testimony. I yield back the balance of my time.
Mr. Hall. I thank you, Mr. Chairman. I thank you for the
work that you have put on this, the attention you have given to
it, and it is not new-found attention. You have been one of the
leaders in the Congress in questioning the practice of oil for
food and groceries, questioning where the money went,
questioning the UN's participation or lack of oversight, and we
expect and appreciate your leadership in getting to a final
analysis on just exactly what has happened.
Mr. Sullivan, the gentleman from Oklahoma, we recognize you
for opening statement.
Mr. Sullivan. Thank you, Mr. Chairman, and I agree with the
full committee chairman, too, that this is a travesty that the
U.N. representatives didn't come here when we American
taxpayers are responsible for 25 percent of the dues that they
get and there is $10.1 billion spent scandalously.
Again, Mr. Chairman, I appreciate your calling this hearing
today to address the ongoing investigation into alleged
improprieties involving the United Nations Oil for Food
Program.
As a member of this subcommittee, I consider it an honor to
be here. I look forward to the testimony from our panel of
witnesses and the statements by my distinguished colleague from
Arizona, Congressman Flake.
The Oil for Food Program is fast becoming the biggest
scandal in the history of the United Nations and one of the
greatest financial scandals in modern time. The consequences of
this financial thievery is staggering. $10.1 billion in illegal
oil revenues were stolen by the former Iraqi regime by oil
smuggling and through illicit surcharges on oil sales.
Unfortunately, we are all well aware that the U.N. Oil for Food
Program was a glaring failure that served only to benefit a
tyrant and keep the Iraqi people in a state of despondency and
despair.
As a cosponsor of Representative Flake's bill, H.R. 4284,
the United Nations Oil For Food Accountability Act of 2004, I
feel very strongly that Congress must place pressure on the
U.N. to fully address this issue in a more transparent light.
Until a stronger and truly independent Security Council
investigation of this scandal is formed, I believe that
withholding our share of the U.N. assessment dues is necessary.
This investigation is an issue of trust. I do not believe
that the U.N. at present is capable of providing an accurate
and thorough investigation of this travesty. We owe it to our
Nation that the U.N. is held with greater accountability,
especially since American taxpayers currently pay 25 percent of
the UN's yearly dues.
Secretary General Kofi Annan must demonstrate a firm
resolve to make all aspects of this investigation available to
the public. If fraud was committed at the United Nations, then
we need to find ways to prosecute it and bring all parties that
were involved in this scandal to justice.
Mr. Chairman, I yield back.
Mr. Hall. I thank the gentleman.
Mr. Shadegg, the gentleman from Arizona.
Mr. Shadegg. I thank the chairman. I have a formal
statement which I will put in the record, but let me simply
comment that I appreciate you holding this hearing. I am deeply
concerned about this topic. I think that this Congress owes it
to the American people to get to the bottom of this outrageous
scandal. It is clear that at least $10.1 billion has been
misdirected, and since we pay a substantial portion of the U.N.
dues we have an obligation to the American taxpayers to get to
the bottom of this issue.
I would like to welcome and commend my colleague, Jeff
Flake of Arizona, whose legislation I think is right on point.
As a cosponsor of that bill I think it is headed in the right
direction and is something we are going to be forced to do. I
have no confidence at this point, no confidence whatsoever,
that the current investigations, at least based on what we can
know of them right now, is going to get to the bottom of this
issue.
It seems to me that if one looks at the scandal surrounding
this, one recognizes that the United Nations, which is supposed
to hold out a hope for all people around the world, has lost
all form of trust in that it appears to have been completely
corrupted from the top to the bottom by this program.
Roughly a year ago, in August of last year, I was in Iraq.
I spent 3 days in the country, and I saw many of the
outrageously flamboyant palaces that Saddam Hussein built
throughout that country and also flew over many of the huge
stockpiles of weaponry, warehouses out across the desert that
go for miles and miles and miles stock full of conventional
weapons and, quite frankly, we don't know what other kinds of
weapons, all purchased with funds stolen from the Oil for Food
Program.
At the same time, I was able to see the infrastructure in
that country and see how tragically it had deteriorated. For
those who have not been to Iraq, it is a nation where the
infrastructure, the highways, the roads, the sidewalks, even
the landscaping was clearly quite advanced at one point in time
but had been allowed to just decay to where it hardly exists
anymore. Sidewalks have weeds growing up through them, roads
have deep cracks in them. All of this was done despite the good
efforts of the United States to see that the Oil for Food
Program would help that nation.
And I commend you, Mr. Chairman, for holding this hearing
to look into the ongoing investigations. But I believe at the
end of the day this Congress must see that a thorough
investigation conducted with a body with subpoena power is
held, that we have a final accounting of the total amount of
money, and I have no confidence that the figures that are
currently being used are accurate. I think we owe it to the
American taxpayer. More importantly, I think we owe it to the
people of the world to restore confidence in the United Nations
to get to the bottom of this scandal and find out who was
corrupted, how, why, and why there was no accountability, to
assure that it never happens again.
And with that, Mr. Chairman, I yield back the balance of my
time.
Mr. Hall. Thank you, Mr. Shadegg. Without objection, you
can file your entire testimony, as can any other member of the
subcommittee.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Charlie Norwood, a Representative in
Congress from the State of Georgia
Thank you Mr. Chairman.
I'd like to start by commending you and Chairman Barton for
deciding to hold a series of hearings on the United Nations Oil for
Food Program. There certainly is plenty to discuss and scrutinize, and
I appreciate the opportunity to give the investigation of the Program
its due justice.
It's no secret that during my tenure in Congress I have not been a
fan of the United Nations.
Must we be reminded that for the past decade the UN allowed Saddam
Hussein to blatantly defy 18 UN resolutions? The United States spends
billions of dollars a year on UN programs and policies that are
contrary to many principles of freedom that most Americans hold dear.
The role of the UN should be a diplomatic and peace-promoting one,
instead it often attempts to control all of our national policies.
It is truly unfortunate that we do not have the opportunity to
question a representative of the United Nations here today. Perhaps we
can hope that at a future hearing in this series, they will entertain
our invitation.
However, the UN is not the topic of the hearing today, the UN Oil
for Food Program is.
As we all know, the Oil for Food Program was established in April
of 1995 to strike a balance between enforcing compliance of all
relevant UN Security Council resolutions and alleviating human
suffering in Iraq. Due to delays in the Program's implementation, the
first shipment of food did not occur until March of 1997.
Unfortunately, what should have been a good humanitarian program
ended up funding Saddam Hussein's regime, and quite possibly could even
have funded terrorist groups.
The GAO estimates that from 1997 through 2002 the former Iraqi
regime acquired $10.1 billion in illegal revenues. This includes $5.7
billion from oil smuggling and $4.4 billion in ``illicit surcharges on
oil sales and after-sales charges on suppliers.''
Now we find ourselves at a juncture of numerous UN, independent,
and Iraqi investigations into illicitly diverted funds. I have major
doubts about the United Nations' ability to investigate this level of
fraud. After all, it was under THEIR watch that THEIR OWN PROGRAM was
abused.
Not only is it imperative that we get to the root of the questions
of ``who stole what?'' and ``where is that money now?'' but the United
Nations needs to take a look at its own structure to expose the very
cracks in their system that allowed such corruption to occur.
I look forward to hearing the testimony of all of our witnesses
today and throughout this series of hearings. Thank you Mr. Chairman, I
yield back.
Mr. Hall. All right. I think at this time we are ready for
the first panel, and ask Honorable Jeff Flake if he will take
his place there.
Mr. Flake has introduced legislation that places conditions
on the U.N. in order to receive full U.S. funding, and these
conditions, as he will point out, include providing access for
the GAO and law enforcement officials of U.N. member nations to
all documents relating to the Oil for Food Program without
waiving diplomatic immunity in the U.S., and making necessary
reimbursements. He has a good piece of legislation, and we are
very proud to recognize you and proud to have you before this
subcommittee, and recognize you at this time.
Mr. Flake. Can you hear me?
Mr. Hall. Not yet. Move over to the right.
Mr. Flake. I don't think I can move any further right.
Mr. Hall. That is the microphone we have for any U.N. folks
in case they show up. Go ahead with your testimony, sir.
STATEMENT OF HON. JEFF FLAKE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ARIZONA
Mr. Flake. I thank the chairman. I thank the chairman in
particular for holding this hearing. I think it is very
important that we do this, as many members of the committee
have already mentioned. We have a stake in this, a huge stake.
In the year 2004, total U.S. contributions to the U.N. total $2
billion. Our assessed contributions alone are $550 million.
When you add voluntary and peacekeeping and other monies in, it
tops $2 billion. So we do need to answer to the taxpayers as to
how these funds are being spent.
I appreciate the opening statement of Mr. Allen, and he
mentioned my vote last night to defund the United Nations,
perhaps suggesting that all I am trying to do is bash that
body. I haven't always taken that vote. In fact, my first year
here I did not. I spent the year of 1989 through 1990 in the
country of Namibia in Southern Africa. Namibia gained its
independence by virtue of U.N. Resolution 435, Security Council
U.N. Resolution 435. The U.N. under great oversight did well in
that case.
There are times when we can have faith in the U.N. and what
they do. That, I would suggest, is why hearings like this are
so important and action by this body and others are important,
so that we can have justifiable faith in the U.N. I would
suggest that, after the Oil for Food scandal, that that faith
is waning among many, and rightly so. That is why it is
important that we do this.
As mentioned, Mr. Shadegg mentioned that he has been to
Iraq and went to the palaces. I did the same, and it just
sickens I think anyone to see what happened under the Oil for
Food Program, what Saddam and his sons were able to do with
that money. I was told while there that some 70 palaces around
the country were built during the Oil for Food Program. All
this time, Saddam was saying that he needed more. And we were
able to travel to Basra in the south and to see complete
neglect of the people there for a period of time. They didn't
share Saddam's views; he neglected them completely, and the
infrastructure is completely, as Mr. Shadegg said, depleted and
in horrible shape during this program when he was supposed to
be benefiting those people. They bought fleets of Mercedes Benz
vehicles when the food--I am sorry, the funds were supposed to
go to food and medicine. The list just goes on and on and on.
Now, here in the U.S. we had a series of corporate
scandals, and Congress acted quickly to deal with that. I would
suggest that this scandal, without diminishing the impact or
the seriousness of those scandals, this may be much worse
because, unfortunately, the victims of this fraud lost a lot
more than their retirement savings, portfolio values; a lot of
them lost their lives. And so this is important that we are
doing this, and I commend this committee and the chairman for
taking it up.
Regardless of how many Iraqis may have been helped during
this program, there is no justification for the fraudulent gain
of some at the price of basic necessity and the lives of
others. Americans and their elected representatives espouse the
principles of accountability at all levels of government, but
some have not insisted on accountability from administrators
and participants in the U.N. Oil for Food Program. Americans
and their elected representatives espouse transparency, but
somehow we don't expect it of the U.N. I think that that is
simply wrong, and we need to.
Fortunately, this committee has taken it up, and as
evidence of growing concern in Congress, let me just say a few
words about the bill that I have introduced here in the House.
Senator Ensign in the Senate has introduced S. 2389, the
companion bill that is mine in the House. 4284 has the support
of 61 cosponsors, many from this committee, and people are
being added regularly, and for that I appreciate those who are
helping out in that regard.
These bills establish basic criteria with regard to
investigations, accountability, and reparation, they are not
specific to any one of several investigations that are or may
be conducted. We have heard of many of them. Just here, we have
the International Relations Committee is working on this topic,
in the Senate it is being worked on, then the Volcker
Commission in New York as well. So there are investigations
going on. This legislation simply sets up criteria by which the
U.N. can be judged in terms of cooperation.
Specifically, the legislation would require the withholding
of a portion of U.S. assessed contributions to the United
Nations until the President certifies that the U.N. is
cooperating in the investigation of the Oil for Food Program.
Until the President certifies to Congress that the U.N. is
meeting the criteria spelled out in the bill, the U.S. would
withhold 10 percent of assessed contributions in 2005 and 20
percent of assessed contributions in 2006. That amounts in 2005
to about $55 million withheld; in 2006, $110 million. We
withhold assessed funding because it goes to the general budget
of the U.N. as opposed to voluntary funding that goes to
programs like UNICEF or peacekeeping operations.
The U.S. contributes 22 percent of the UN's budget. To
withhold a portion of one category of contributions is a
moderate approach, but one that we believe will be effective in
ensuring that investigations result in accountability and
transparency in the future.
The Presidential certification requirement contained in the
bill are the following: The U.N. must have procedures in place
to provide GAO access to all documents related to the Oil for
Food Program so that the Comptroller General may make
nationally mandated review of U.N. operations.
Two, the U.N. Secretary General must have formally
confirmed that the U.N. will not assert inviability of U.N.
papers and internal records related to the program.
No. 3, the Secretary General must have authorized the
release of U.N. documents, including those in the possession of
contractors--and that is important--to law enforcement
officials of any member state.
No. 4, the U.N. must have waived diplomatic immunity of
U.N. officials from the judicial process in the U.S. for civil
or criminal acts under Federal or State law.
And last, No. 5, any U.N. official who benefited from the
program must have reimbursed the full amount that was received
improperly.
This legislation is based on the Helms-Biden approach to
reforms of the U.N. in the Senate. This is an effort that
receives strong bipartisan support and was a step in the right
direction at that point to prompt reforms at the U.N.
Much can be said of the history and the background of the
nature and the design of the fraud and the results of the
abuse, the investigative efforts thus far and the risks of not
acting quickly. I am sure that the other witnesses today will
address these points. I have heard and read the research of
Claudia Rosett, and I am pleased that she is here. She has
looked into this quite thoroughly, as have the others.
So, again, I appreciate what this committee is doing. I
appreciate the opportunity to be here, and would be glad to
answer any questions about the legislation I have introduced.
[The prepared statement of Hon. Jeff Flake follows:]
Prepared Statement of Hon. Jeff Flake, a Representative in Congress
from the State of Arizona
Mr. Chairman, Ranking Member, and Members of the Subcommittee,
thank you for your invitation to participate in this hearing. The
abuses under the United Nations Oil-for-Food Program demand serious
consideration and investigation by Congress and the Executive branch of
our government. We must have assurance of a meaningful investigation,
hold wrong-doers accountable, fix institutional problems leading to the
abuses, and compensate victims of the abuse to the degree possible.
The fact that you are holding this hearing today demonstrates
appropriate and necessary concern. This is the third hearing in as many
committees in the House, and I am aware of three separate Congressional
investigations into abuses under the Oil-for-Food Program. Congress is
uniquely positioned to influence the UN and work toward accountability
and resolution of the issue. I hope we see many more hearings on this
important subject
After the first Gulf War, Saddam Hussein agreed to multilateral
economic sanction on Iraq. Under the sanctions, Saddam lived
comfortably, as dictators do, while his people starved and died for
lack of basic medicines and other necessities. Using the suffering of
the Iraqi people as a pretext, Saddam appealed for relief and managed
to dictate many of the terms of the Oil-for-Food program. According to
the General Accounting Office, over a period of about eight years,
Saddam realized over $10 billion in illicit gains under the program.
Meanwhile, too many Iraqis continued to suffer from severe depravation.
Like perhaps some of you, I have been to Iraq and seen the palaces
and the stashes of Saddam and his sons. Saddam built dozens of palaces
and built up a fleet of Mercedes-Benz vehicles with revenues that were
intended to be used for the purchase of food, medicine, and other basic
provisions for the Iraqi people.
As a result of the GAO report and the initiation of an Iraqi
investigation this year, we have seen growing interest, concern, and
contempt for the wrongs committed in the name of Oil-for-Food. Part of
me is mildly surprised that we have not seen more immediate and general
outrage. Then again, my skeptical side understands that subscription to
the stated intentions and objectives of the UN leads some to overlook
what they rightly do not forgive in the conduct of their own
governments.
For example, when corporate scandals in the United States came to
light a few years ago, the outrage in Congress moved this body to
action more quickly than we nearly ever have. We churned out expansive
new laws and regulations intended to impose accountability on the
wrong-doers and establish a more transparent system.
Without diminishing the seriousness of those scandals, I submit
that the UN Oil-for-Food scandal is much worse, and unfortunately, the
victims of this fraud lost more than their retirement savings and
portfolio values.
It sickens me that the UN and its ardent supporters excuse the Oil-
for-Food fraud because some degree of good resulted from the program.
Such reasoning would suggest forgiveness for corporate criminals guilty
of plundering the assets of thousands, just because some people were
employed and paid under their watch.
But again, we are talking about much more than financial
``winners'' and losers. We are talking about roughly 270 people who
scammed their way to financial gain--including Saddam and his regime,
UN employees, other foreign officials, business people and political
entities--while ordinary Iraqis were left destitute and felt the mortal
consequences. Iraqis went without adequate food and medicine, resulting
in many deaths, while 270 people scammed the Oil-for-Food system.
Regardless of how may Iraqis may have been helped, there is
absolutely no justification for the fraudulent gain of some at the
price of the basic necessities and the lives of others.
Americans and their elected representatives espouse the principles
of accountability at all levels of their government, but some are not
insisting on accountability from the administrators and participants in
the UN Oil-for-Food Program. Americans and their elected
representatives espouse transparency in government, but some do not
expect the same of the UN and its programs. Americans and their elected
representatives are sensitive about how their tax dollars are spent,
but some are numb to the misuse of their tax dollars by the UN.
Fortunately, Mr. Chairman, your subcommittee and a growing number
of people in this country, as well as outside the U.S. and Iraq, are
beginning to demand a thorough and meaningful investigation into the
Oil-for-Food fraud.
As evidence of the growing concern in Congress, I would point to
companion bills in the House and Senate. Senator Ensign introduced S.
2389 and I introduced H.R. 4284, which has the support of 61 cosponsors
with more being added to the list regularly.
These bills establish basic criteria with regard to investigations,
accountability, and reparation. They are not specific to any one of the
several investigations that are or may be conducted, but they do
establish reasonable requirements of cooperation and accountability
from the UN.
Specifically, the legislation would require the withholding of a
portion of United States assessed contributions to the United Nations
until the President certifies that the United Nations is cooperating in
the investigation of the United Nations Oil-for-Food Program. Until the
President certifies to Congress that the UN is meeting criteria spelled
out in the bill, the U.S. would withhold ten percent of assessed
contributions in 2005 and twenty percent of assessed contributions in
2006. We would withhold the assessed funding because it goes to the
general budget of the UN--as opposed to voluntary funding that goes to
programs like UNICEF or peace-keeping operations.
The U.S. contributes twenty-two percent of the UN's budget. To
withhold a portion of one category of contributions is a moderate
approach, but one that we believe will be effective in ensuring that
investigations result in accountability and transparency in the future.
The Presidential certification criteria contained in the bill are
the following:
1. The UN must have procedures in place to provide GAO access to all
documents related to the Oil-for-Food program so that the
Comptroller General may make nationally mandated reviews of UN
operations;
2. The UN Secretary General must have formally confirmed that the UN
will not assert inviolability of UN papers and internal records
related to the program;
3. The Secretary General must have authorized the release of UN
documents, including those in the possession of contractors, to
law enforcement officials of any member state;
4. The UN must have waived diplomatic immunity of UN officials from the
judicial process in the U.S. for civil or criminal acts under
federal or state law;
5. Any UN official who benefited from program must have reimbursed the
full amount that was received improperly.
This legislation is based on the Helms-Biden approach to reforms at
the UN--an effort that received strong support in Congress as a step in
the right direction.
Much more can be said of the history and background, the nature and
design of the fraud, the results of the abuse, the investigative
efforts thus far, and the risks of not acting quickly. I'm sure that
other witnesses here today will address these points. But after all
these points are made and debated, I believe the fact remains that the
Oil-for-Food scandal begs for immediate, meaningful, and decisive
action. Too many people suffered under Saddam's reign and were short-
changed, sometimes fatally so, by the abuses of the Oil-for-Food
program. Delaying or confusing the issue and how to proceed will mean
continued stone-walling and the loss of key information.
Our efforts should not be read as an attempt to weaken the UN, but
rather as an effort to establish the kind of accountability,
transparency, and effectiveness that we expect from institutions and
governments within the U.S. Having established such underpinnings at
the UN, Americans, Iraqis, and others will be able to take more
confidence in the organization.
I hope that we in Congress can provide the means to a complete and
real resolution to the Oil-for-Food scandal. I thank you again for
holding this hearing and working on this important issue.
Mr. Hall. And we thank you very much for your introduction
and for your explanation.
We also recognize Congressman Ose of California as one who
has pursued this problem for some time and is one of the
leaders in the Congress on, recognize you to sit in, without
objection. And we will recognize you for an opening statement
if you would like to make one.
Mr. Ose. Mr. Chairman, I appreciate your courtesy. I don't
have any opening statement. I am interested in listening in
particular to your witnesses.
Mr. Hall. Thank you. Thank you very much.
Congressman Flake, other than today, has H.R. 4284 been
given consideration in any other hearing or any other
committee?
Mr. Flake. It has not. But we are gathering cosponsors so
quickly that I am confident that it will, and I appreciate this
hearing today.
Mr. Hall. Are you aware of any assurances given in other
committees to have hearings on H.R. 4284?
Mr. Flake. Not at this point, although I can tell you that
we have received good cooperation from the International
Relations Committee with the legislation.
Mr. Hall. You made them aware of it and you requested----
Mr. Flake. Very much so.
Mr. Hall. Are you aware of any assurances that H.R. 4284
will be marked up?
Mr. Flake. No. I think that the position of the
International Relations Committee is that let us see where the
Volcker Commission goes and some of the other investigations;
and as soon as roadblocks are hit, then legislation will be
pushed.
Mr. Hall. And I guess I missed how many cosponsors you have
now.
Mr. Flake. 61 at this point.
Mr. Hall. Thank you.
The Chair recognizes Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman, and, Jeff, it is good
to see you here. We meet in the gym on a regular basis.
Mr. Flake. It is good to see you with your hair combed.
Mr. Allen. I wanted to raise a couple of questions. First,
you mentioned, you and I agree I think that it is very
important that the Oil for Food Program be investigated. What I
want to raise with you is whether at the same time in doing so
we also ought to be investigating whether the Coalition
Provisional Authority's 14 months of running the program after
they took over should be investigated as well. Let me make just
a couple of points in that regard.
You talked about some of the money being used for Mercedes
Benzes. It is interesting when you look at based on the
statement that our colleague Tom Lantos made before a committee
at the end of April of this year. He pointed out that when the
Coalition Provisional Authority took over administrative
authority for the Oil for Food Program in the fall of 2003,
they called in a defense contract audit agency to look back to
see if they could find any overpriced contracts, any skimming
that had gone on before they took it over, and they didn't have
any trouble finding that kind of skimming. In reviewing the
contracts, they found $650 million in potential overcharges.
And the part of the problem, when we look at the U.N. we also
have to look at the member states. Part of the problem,
according to the Defense Contract Audit Agency, was the State
Department's, our State Department's representatives in New
York in February of 2002 approved the sale of a fleet of 300
Mercedes Benz luxury automobiles for use by the Iraqi
government. I assume those are the same vehicles we are talking
about.
You have been a real advocate for accountability, and I
want to just ask you about our own accountability. I have been
troubled by recent reports that the United States is not
complying with Security Council resolutions governing our own
stewardship of Iraqi oil funds during our time as occupying
power. Let me describe some of these reports to you.
Last May, the Security Council passed Resolution 1483,
which created the Development Fund for Iraq, the successor to
the Oil for Food Program. The Security Council authorized the
CPA to sell Iraq's oil and spend Iraq's money for the benefit
of the Iraqi people, but they imposed conditions: The U.S. had
to be transparent about its spending, and the U.S. had to
cooperate with international auditors who report to the United
Nations, and Kofi Annan described these international auditors
as the eyes and ears of the international community.
I don't know if you are familiar with the resolution or
not. I assume you are generally familiar with it?
Mr. Flake. Generally.
Mr. Allen. The auditors hired KPMG, and they are involved
in looking at the Oil for Food Program investigation as well.
Last week, KPMG issued its first report on the CPA stewardship
of Iraqi oil proceeds. Though it is still preliminary, its
findings are troubling. KPMG reported that, ``it encountered
resistance from CPA staff,'' when it attempted to obtain audit
information. CPA officials said, quote, their workload is
already excessive, and that, quote, cooperation with KPMG's
undertaking is given a low priority.
If we want the U.N. to cooperate when we examine its
conduct of Iraqi oil funds, don't you agree that the United
States at a minimum should meet our international obligations
to account for Iraqi oil proceeds during that period when the
CPA was in charge?
Mr. Flake. I think that that is certainly an area that
oversight will be required on, and it will be at other
hearings.
Mr. Hall. If you could excuse me. I would ask Mr. Allen to
remember, it is a custom not to question a Member of Congress
when they come before us. I think we have given you plenty of--
--
Mr. Allen. I wasn't going to give him any tough questions.
It was just that----
Mr. Hall. Well, Mr. Flake invited questions, and you were
accorded the right to ask some questions. I just ask you to
stay as close to the custom as you can.
Mr. Allen. I will do that.
Mr. Hall. And give back as much of your time as you can.
Mr. Flake. I mentioned that I would answer questions with
regard to the legislation. This legislation is specific to the
Oil for Food Program, and so that is what I am prepared for
questions.
Mr. Allen. I appreciate your answering that general
question of principle anyway, and thank you for your time.
Mr. Flake. Thank you. And the last time I checked, the U.N.
wasn't providing 25 percent of our operating budget. We are
providing 25 percent of theirs.
Mr. Allen. That is fair. I understand. Thanks.
Mr. Hall. Does anyone else want to be recognized?
Mr. Otter, recognize you for 5 minutes.
Mr. Otter. Mr. Chairman, I am not going to take 5 minutes.
I would only make a couple of observations. No. 1, the United
Nations is a creation of a sovereign United States or part of a
sovereign United States and not vice versa. Sometimes we get
that confused between the States and the Federal Government. I
hope we will never get that confused between the United Nations
and the United States of America. And I think Mr. Flake is
right on.
The second thing, I have already made the inquiry, Mr.
Flake, and I find that my name is not on the list of
cosponsors, and I would make a request at this time that my
name be put on there. Thank you.
Mr. Flake. Thank you.
Mr. Hall. The Chair recognizes Mr. Shadegg.
Mr. Shadegg. Mr. Chairman, in recognition of the tradition
of not asking Members of Congress questions, I don't have a
question for Mr. Flake. I just want to make a point. I thought
the vote last night was a very interesting vote. And, quite
frankly, Congressman Flake and I traded places last night. I
have previously voted to not contribute to the U.N. out of
concern for its direction. Last night, with great
consternation, I voted to go ahead and fund the U.N. But I
would note that many of my colleagues last night I think voted
to defund or to quit making contributions to the United Nations
precisely to send the signal that they will not and this Nation
should not tolerate the corruption that is going on or the
corruption that went on in the Oil for Food Program but, even
more importantly than that, what appears to be the corruption
going on in thwarting the ongoing investigations. And I think
it very, very important that we not defend those that are
trying to block those investigations.
We are going to hear testimony yet this morning from those
who have looked into what is going on that will I think
establish quite clearly that there is an active, ongoing effort
to preclude the people of the world, including the people of
the United States, who substantially fund the United Nations,
from learning what happened. Again, for anyone who believes
strongly in the United Nations, including all my colleagues on
the other side and my colleague Mr. Allen, it is not in our
interest to defend or to preclude--to defend the conduct that
went on if in fact it was inappropriate--and I think there is
no question but that it was--nor is it in our interest to not
seek transparency for the sake of the credibility of the United
Nations. And so while I understand that many of my colleagues
last night voted to defund the United Nations or to quit the
American contributions as a way of sending a signal, I would
like to point out that Mr. Flake's legislation is a more
positive step, and I would bet we would find that the vote last
night to not fund the United Nations was higher than it ever
has been in recent history precisely because so many Members of
the Congress are upset about what has gone on in the
allegations in the oil for food scandal and, quite frankly,
what is going on in the efforts to frustrate the investigation
now. And I would point out that Mr. Flake's positive
contribution by seeking legislation that would open this up is
in fact a step in the right direction in that it isn't just a
smack at the United Nations, saying we don't like this conduct,
it is an affirmative step to try to learn what happened so that
the world can know and so that we can preclude that kind of
conduct in the future.
So I commend him for a positive step, and while I voted
last night contrary to how I voted in the past as a way to kind
of send them a signal that we are not all willing to give up
yet, I have great consternation about the conduct, and I think,
I hope, that this Congress will press for a thorough
investigation so that the people of the United States and the
people of the world will know what happened.
Mr. Hall. I thank you. Mr. Allen was merely accepting the
invitation of Congressman Flake to answer questions. He asked
his questions, they have been answered, and I think at this
time--who else seeks recognition? Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman, and I would like to
thank my colleague from Arizona, and perhaps just quickly share
something either for your comment or at least for your use, if
it fits.
At a time when we are talking about whether our engagement
in the war in Iraq was appropriate or not, the Oil for Food
Program in many ways is at the center or it all and the failure
of that. In 2001, I was part of a delegation that was in Kuwait
for the 10th anniversary of the liberation of Kuwait. And I
expected to have what we saw, the Kuwaiti people thanking
former President Bush and former General Norman Schwarzkopf and
others for their liberating their country. What I wasn't
prepared for was at all levels of government, the royal family,
and in fact just cab drivers, everyone on the street saying,
when are you going to stop the suffering of the Iraqi people?
When are you going to do something about them starving? When
are you going to do something about the conditions of Iraq?
We hear how terrible it is. We hate Saddam, but we cannot
tolerate these brethren of ours suffering like this.
And I was taken. And I came back and talked about it, and
very quickly discovered that the Oil for Food Program was doing
exactly what we now have discovered: It was funding Saddam's
continued lifestyle, and not in fact leading to the end of the
suffering of the Iraqi people.
And so I commend you for what you are doing, and I believe
that all of us should look at this not as a loss of dollars,
not as something that we should be concerned about the money
part of it, but we should be concerned about the suffering of
people, because if there is one role for the United Nations
that all of us on this panel and I know, Congressman Flake, you
share, is that we participate in the U.N. because we want to
make sure that the world does not starve, that in fact people
are treated with humanity, and that their assets are used to
benefit them.
And so I commend you very much for your work here, and I
think that this is the reason that there is such a swelling
support to hold an accountability of the U.N. so that people
not suffer again. And perhaps had this program been more
successful we could have found an Iraq that we would not have
had to spend so many of our American lives liberating.
With that, I yield back, Mr. Chairman.
Mr. Hall. All right. Does anyone else seek recognition?
Mr. Flake, thank you very much. We appreciate it.
We will ask the second panel to please come forward.
We will have Joseph Christoff, Director of International
Affairs and Trade, General Accounting Office. We have Claudia
Rosett, Journalist-in-Residence, The Foundation for the Defense
of Democracies, and Adjunct Fellow, Hudson Institute, and by
the way, in previous testimony before Congress has stated that
the Oil for Food Program not only allowed Saddam Hussein,
quote, to perpetuate his totalitarian rule of lies, violence,
and mass graves; it also allowed him to set up a global network
of dirty deals and filthy finance.
We also have Jed Babbin, noted author, former Deputy Under
Secretary of Defense, and recognize his authoring the book
Inside the Asylum, and especially invite you to read the first
and fourth chapters of very interesting reading.
And we thank you three for your attendance. And at this
time, Mr. Christoff, we recognize you for 5 minutes. We won't
hold you to 5 minutes, but we will give you the opportunity to
answer a lot of questions. Thank you. We will recognize you for
5 minutes.
STATEMENTS OF JOSEPH A. CHRISTOFF, DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE; CLAUDIA ROSETT,
JOURNALIST-IN-RESIDENCE, THE FOUNDATION FOR THE DEFENSE OF
DEMOCRACIES, AND ADJUNCT FELLOW, HUDSON INSTITUTE; AND JED
BABBIN, FORMER DEPUTY UNDER SECRETARY OF DEFENSE
Mr. Christoff. Thank you, Mr. Chairman, and members of the
committee.
Mr. Hall. Turn on your mike, if you would, please. Or do
you have the U.N. mike?
Mr. Christoff. No, I have the correct mike, and I want to
thank you for inviting GAO to this important hearing.
For several months, GAO has been reviewing the operations
of the UN's Oil for Food Program, and today I will discuss our
findings and our observations on the program and suggest areas
for further investigation.
First, let me discuss the Oil for Food Program. Under U.N.
sanctions, Iraq was allowed to sell oil to purchase food and
other humanitarian goods from 1997 to 2002. The U.N. controlled
over $67 billion in Iraqi oil revenues and issued $38 billion
in letters of credit to purchase commodities. The program
helped the Iraqi people by almost doubling their food intake
over the first 5 years of the program; however, GAO estimates
that the former Iraqi regime acquired over $10 billion in
illicit revenues during this period. This included $5.7 billion
in oil smuggled out of Iraq and $4.4 billion in surcharges on
oil sales and illicit conditions on imported commodities. Oil
was smuggled through Syria by pipeline, across the borders of
Jordan and Turkey by truck, and through the Persian Gulf by
ship. The Iraqi government also levied surcharges against oil
purchasers and commissions against suppliers of commodities.
The surcharges were up to 50 cents per barrel of oil, and the
commissions were 5 to 15 percent of the commodity contracts.
Now, how and why did these problems occur? The United
Nations and Iraq's supreme audit board have begun
investigations into the Oil for Food Program. These
investigations should determine the extent of the corruption,
the adequacy of internal controls, and ways to improve the
delivery assistance under economic sanctions.
Let me suggest some key questions for these inquiries to
address.
First, how did this structure of the Oil for Food Program
enable the Iraqi government to obtain illicit surcharges and
commissions? The Oil for Food Program authorized the Iraqi
government to negotiate contracts directly with companies that
purchased oil or supplied commodities. The MOU between the U.N.
and the government recognized the sovereignty of Iraq in
negotiating contracts. However, when the program was first
proposed in 1991, the Secretary General included alternative
procedures for contracting negotiation to allow the U.N. or an
independent agent to negotiate the contracts. These
alternatives were rejected. Iraq's control over contract
negotiations was an important factor in enabling the government
to levy illicit surcharges and commissions.
The second question, what role did U.N. member nations play
in enforcing compliance with sanctions against Iraq? Security
Council resolutions requires all members to enforce the
sanctions. However, Jordan maintained trade protocols with Iraq
that allowed it to purchase heavily discounted Iraqi oil in
exchange for up to $300 million in Jordanian goods. Syria
received up to 200,000 barrels of Iraqi oil per day, in
violation of the sanctions.
In addition, member nations were responsible for vetting
the companies that sought approval to purchase oil or sell
commodities. It is unclear what criteria member nations used to
assess the qualifications of these companies.
The third question, who assessed the reasonableness of the
prices negotiated between the Iraqi government and commodities
suppliers? In September 2003, the Defense Contract Audit Agency
found that 48 percent of the oil for food contracts it reviewed
were potentially overpriced by 21 percent. U.N. Sanctions
Committee procedures stated that the Office of Iraq Program was
to examine each commodity contract for price and value.
However, OIP officials stated that no U.N. resolution tasked
them with assessing the price reasonableness of the contracts.
The Sanctions Committee was responsible for approving
commodity contracts. However, it primarily screened contracts
for dual use items rather than for price.
Much of the information to answer these questions is in the
contracts Iraq negotiated with the companies that bought oil or
sold commodities. Current investigations should review these
contracts to document the full extent of the illicit
commissions and surcharges. The analyses should identify
companies that consistently overpriced their contracts and the
nations that condoned the overpricing.
In addition, a comparison of the Oil for Food Program in
the north and the south could provide insights on the relative
effectiveness and transparency. The Iraqi government operated
the program in central and southern Iraq while U.N. agencies
implemented the program in the north.
Mr. Chairman, that concludes my statement, and I would be
happy to answer any questions.
[The prepared statement of Joseph A. Christoff follows:]
Prepared Statement of Joseph A. Christoff, Director, International
Affairs and Trade U.S. General Accounting Office
Mr. Chairman and Members of the Committee: I am pleased to be here
today to discuss GAO's review of the United Nations (U.N.) Oil for Food
program.
In 1996, the United Nations and Iraq established the Oil for Food
program to address growing concerns about the humanitarian situation
after international sanctions were imposed in 1990. The program's
intent was to allow the Iraqi government to use the proceeds of its oil
sales to pay for food, medicine, and infrastructure maintenance and, at
the same time, prevent the regime from obtaining goods for military
purposes. From 1997 through 2002, Iraq sold more than $67 billion in
oil through the program and issued $38 billion in letters of credit to
purchase commodities.1
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\1\ All references to Oil for Food estimates are in 2003 constant
U.S. dollars.
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Today, we will (1) report on our estimates of the illegal revenue
acquired by the former Iraqi regime in violation of U.N. sanctions and
provide some observations on the administration of the program and (2)
suggest areas for additional analysis and summarize the status of
several ongoing investigations.
To address these objectives, we reviewed documents and statements
from the United Nations on its management and oversight
responsibilities for the Oil for Food program and from the Coalition
Provisional Authority (CPA), the Department of State, and the United
Nations on ongoing investigations of the program. We also reviewed
external audits to determine the use of Oil for Food funds prior to the
transfer of the program to the CPA in November 2003. We did not have
full access to the U.N. internal audits of the Oil for Food program,
but we reviewed the summaries of 7 annual internal audits from 1996 to
2003 and had access to one report made publicly available in May 2004.
We conducted our review from November 2003 through June 2004 in
accordance with generally accepted government auditing standards.
SUMMARY
From 1997 through 2002, we estimate that the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion in oil
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and
illicit charges from suppliers exporting goods to Iraq through the Oil
for Food program. The United Nations, through the Office of the Iraq
Program (OIP) and the Security Council's Iraq sanctions committee, was
responsible for overseeing the Oil for Food program. However, the
Security Council allowed the Iraqi government, as a sovereign entity,
to negotiate contracts directly with purchasers of Iraqi oil and
suppliers of commodities. This structure was an important factor in
enabling Iraq to levy illegal surcharges and illicit commissions. OIP
was responsible for examining Iraqi contracts for price and value, but
it is unclear how it performed this function. The sanctions committee
was responsible for monitoring oil smuggling, screening contracts for
items that could have military uses, and approving oil and commodity
contracts. The sanctions committee took action to stop illegal
surcharges on oil, but it is unclear what actions it took on the
commissions on commodity contracts. U.N. external audit reports
contained no findings of program fraud. Summaries of internal audit
reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight.
Ongoing investigations of the Oil for Food program may wish to
further examine how the structure of the program enabled the Iraqi
government to obtain illegal revenues, the role of member states in
monitoring and enforcing the sanctions, actions taken to reduce oil
smuggling, and the responsibilities and procedures for assessing price
reasonableness in commodity contracts. Current or planned efforts
include an inquiry initiated by the United Nations, an investigation
and audit overseen by the Iraqi Board of Supreme Audit, and efforts
undertaken by several U.S. congressional committees.
BACKGROUND
In August 1990, Iraq invaded Kuwait, and the United Nations imposed
sanctions against Iraq. Security Council resolution 661 of 1990
prohibited all nations from buying and selling Iraqi commodities,
except for food and medicine. Security Council resolution 661 also
prohibited all nations from exporting weapons or military equipment to
Iraq and established a sanctions committee to monitor compliance and
progress in implementing the sanctions. The members of the sanctions
committee were members of the Security Council. Subsequent Security
Council resolutions specifically prohibited nations from exporting to
Iraq items that could be used to build chemical, biological, or nuclear
weapons. In 1991, the Security Council offered to let Iraq sell oil
under a U.N. program to meet its peoples' basic needs. The Iraqi
government rejected the offer, and over the next 5 years, the United
Nations reported food shortages and a general deterioration in social
services.
In December 1996, the United Nations and Iraq agreed on the Oil for
Food program, which permitted Iraq to sell up to $1 billion worth of
oil every 90 days to pay for food, medicine, and humanitarian goods.
Subsequent U.N. resolutions increased the amount of oil that could be
sold and expanded the humanitarian goods that could be imported. In
1999, the Security Council removed all restrictions on the amount of
oil Iraq could sell to purchase civilian goods. The United Nations and
the Security Council monitored and screened contracts that the Iraqi
government signed with commodity suppliers and oil purchasers, and
Iraq's oil revenue was placed in a U.N.-controlled escrow account. In
May 2003, U.N. resolution 1483 requested the U.N. Secretary General to
transfer the Oil for Food program to the CPA by November 2003.
(Appendix II contains a detailed chronology of Oil for Food program and
sanctions events.) The United Nations allocated 59 percent of the oil
revenue for the 15 central and southern governorates, which were
controlled by the central government; 13 percent for the 3 northern
Kurdish governorates; 25 percent for a war reparations fund for victims
of the Iraq invasion of Kuwait in 1990; and 3 percent for U.N.
administrative costs, including the costs of weapons inspectors.
ILLICIT REVENUES BY FORMER REGIME DUE TO IRAQI CONTROL OVER CONTRACTS
AND UNCERTAIN U.N. OVERSIGHT ROLE
From 1997 to 2002, the Oil for Food program was responsible for
more than $67 billion of Iraq's oil revenue. Through a large portion of
this revenue, the United Nations provided food, medicine, and services
to 24 million people and helped the Iraqi government supply goods to 24
economic sectors. Despite concerns that sanctions may have worsened the
humanitarian situation, the Oil for Food program appears to have helped
the Iraqi people. According to the United Nations, the average daily
food intake increased from around 1,275 calories per person per day in
1996 to about 2,229 calories at the end of 2001. Malnutrition rates for
children under 5 fell by more than half. In February 2002, the United
Nations reported that the Oil for Food program had considerable success
in several sectors such as agriculture, food, health, and nutrition by
arresting the decline in living conditions and improving the
nutritional status of the average Iraqi citizen.
From 1997 through 2002, we estimate that the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion in oil
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and
illicit charges from suppliers exporting goods to Iraq through the Oil
for Food program. The United Nations, through OIP and the Security
Council's Iraq sanctions committee, was responsible for overseeing the
Oil for Food program. However, the Security Council allowed the Iraqi
government, as a sovereign entity, to negotiate contracts directly with
purchasers of Iraqi oil and suppliers of commodities. This structure,
in addition to the uncertain oversight roles of OIP and the sanctions
committee, was an important factor in enabling Iraq to levy illegal
surcharges and illicit commissions. U.N. external audit reports
contained no findings of program fraud. Summaries of internal audit
reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight.
Former Iraqi Regime Acquired an Estimated $10.1 Billion in Illicit
Revenue
We estimate that, from 1997 through 2002, the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion through oil
smuggled out of Iraq and $4.4 billion through surcharges against oil
sales and illicit commissions from commodity suppliers. This estimate
is higher than the $6.6 billion in illegal revenues we reported in May
2002.2 We updated our estimate to include (1) oil revenue
and contract amounts for 2002, (2) updated letters of credit from prior
years, and (3) newer estimates of illicit commissions from commodity
suppliers. Appendix I describes our methodology for determining illegal
revenues gained by the former Iraqi regime.
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\2\ U.S. General Accounting Office, Weapons of Mass Destruction:
U.N. Confronts Significant Challenges in implementing Sanctions Against
Iraq, GAO-02-625 (Washington, D.C.: May 23, 2002).
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Oil was smuggled out through several routes, according to U.S.
government officials and oil industry experts. Oil entered Syria by
pipeline, crossed the borders of Jordan and Turkey by truck, and was
smuggled through the Persian Gulf by ship. Jordan maintained trade
protocols with Iraq that allowed it to purchase heavily discounted oil
in exchange for up to $300 million in Jordanian goods. Syria received
up to 200,000 barrels of Iraqi oil a day in violation of the sanctions.
Oil smuggling also occurred through Turkey and Iran.
In addition to revenues from oil smuggling, the Iraqi government
levied surcharges against oil purchasers and commissions against
commodity suppliers participating in the Oil for Food program.
According to some Security Council members, the surcharge was up to 50
cents per barrel of oil and the commission was 5 to 15 percent of the
commodity contract.
In our 2002 report, we estimated that the Iraqi regime received a
5-percent illicit commission on commodity contracts. However, a
September 2003 Department of Defense review found that at least 48
percent of 759 Oil for Food contracts that it reviewed were potentially
overpriced by an average of 21 percent.3 Food commodity
contracts were the most consistently overpriced, with potential
overpricing identified in 87 percent of the contracts by an average of
22 percent. The review also found that the use of middlemen companies
potentially increased contract prices by 20 percent or more. Defense
officials found 5 contracts that included ``after-sales service
charges'' of between 10 and 20 percent.
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\3\ The Defense Contract Audit Agency and the Defense Contract
Management Agency, Report on the Pricing Evaluation of Contracts
Awarded under the Iraq Oil for Food Program (Washington, D.C.: Sept.
12, 2003).
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In addition, interviews by U.S. investigators with high-ranking
Iraqi regime officials, including the former oil and finance ministers,
confirmed that the former regime received a 10-percent commission from
commodity suppliers. According to the former oil minister, the regime
instituted a fixed 10-percent commission in early 2001 to address a
prior ``compliance'' problem with junior officials. These junior
officials had been reporting lower commissions than what they had
negotiated with suppliers and pocketing the difference.
UNITED NATIONS AND SECURITY COUNCIL HAD RESPONSIBILITY FOR OVERSIGHT OF
PROGRAM, IRAQ CONTRACTED DIRECTLY WITH PURCHASERS AND SUPPLIERS
Both OIP, as an office within the U.N. Secretariat, and the
Security Council's sanctions committee were responsible for overseeing
the Oil for Food program. However, the Iraqi government negotiated
contracts directly with purchasers of Iraqi oil and suppliers of
commodities. While OIP was to examine each contract for price and
value, it is unclear how it performed this function. The sanctions
committee was responsible for monitoring oil smuggling, screening
contracts for items that could have military uses, and approving oil
and commodity contracts. The sanctions committee responded to illegal
surcharges on oil purchases, but it is unclear what actions it took to
respond to commissions on commodity contracts.
Iraq negotiated directly with oil purchasers and suppliers
U.N. Security Council resolutions and procedures recognized the
sovereignty of Iraq and gave the Iraqi government authority to
negotiate contracts and decide on contractors. Security Council
resolution 986 of 1995 authorized states to import petroleum products
from Iraq, subject to the Iraqi government's endorsement of
transactions. Resolution 986 also stated that each export of goods
would be at the request of the government of Iraq. Security Council
procedures for implementing resolution 986 further stated that the
Iraqi government or the United Nations Inter-Agency Humanitarian
Program would contract directly with suppliers and conclude the
appropriate contractual arrangements. Iraqi control over contract
negotiations was an important factor in allowing Iraq to levy illegal
surcharges and illicit commissions.
When the United Nations first proposed the Oil for Food program in
1991, it recognized this vulnerability. At that time, the Secretary
General proposed that the United Nations, an independent agent, or the
government of Iraq be given the responsibility to negotiate contracts
with oil purchasers and commodity suppliers. The Secretary General
concluded that it would be highly unusual or impractical for the United
Nations or an independent agent to trade Iraq's oil or purchase
commodities. He recommended that Iraq negotiate the contracts and
select the contractors. However, he stated that the United Nations and
Security Council would have to ensure that Iraq's contracting did not
circumvent the sanctions and was not fraudulent. The Security Council
further proposed that U.N. agents review contracts and compliance at
Iraq's oil ministry, but Iraq refused these conditions.
Iraqi government control over contracts applied to oil purchases,
all commodities purchased for the 15 central and southern governorates,
and food and medical supplies purchased in bulk by the central
government for the three autonomous Kurdish governorates in the north.
The rest of the program in the north was run by nine specialized U.N.
agencies 4 and included activities such as distributing food
rations and constructing or rehabilitating schools, health clinics,
power generation facilities, and houses.
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\4\ The Food and Agricultural Organization; International
Telecommunications Union; U.N. Development Program; U.N. Children's
Fund; U.N. Educational, Scientific, and Cultural Organization; U.N.-
Habitat; U.N. Office for Project Services; World Health Organization;
and the World Food Program.
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OIP was responsible for key oversight aspects of the program
OIP administered the Oil for Food program from December 1996 to
November 2003. Under Security Council resolution 986 of 1995 and a
memorandum of understanding between the United Nations and the Iraqi
government, OIP monitored the sale of Iraq's oil and its purchase of
commodities and the delivery of goods, and accounted for the program's
finances. The United Nations received 3 percent of Iraq's oil export
proceeds for its administrative and operational costs, which included
the cost of U.N. weapons inspections.
The sanctions committee's procedures for implementing resolution
986 stated that independent U.N. inspection agents were responsible for
monitoring the quality and quantity of the oil shipped. The agents were
authorized to stop shipments if they found irregularities. OIP hired a
private firm to monitor Iraqi oil sales at exit points. However, the
monitoring measures contained weaknesses. According to U.N. reports and
a statement from the monitoring firm, the major offshore terminal at
Mina al-Basra 5 did not have a meter to measure the oil
pumped nor could onshore storage capacity be measured. Therefore, the
U.N. monitors could not confirm the volume of oil loaded onto vessels.
Also, in 2001, the oil tanker Essex took a large quantity of
unauthorized oil from the platform when the monitors were off duty. In
December 2001, the Security Council required OIP to improve the
monitoring at the offshore terminal. It is unclear what actions OIP
took. As part of its strategy to repair Iraq's oil infrastructure, the
CPA had planned to install reliable metering at Mina al-Basra and other
terminals, but no contracts have been let.
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\5\ Previously called Mina al-Bakar.
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OIP also was responsible for monitoring Iraq's purchase of
commodities and the delivery of goods. Security Council resolution 986,
paragraph 8a(ii) required Iraq to submit a plan, approved by the
Secretary General, to ensure equitable distribution of Iraq's commodity
purchases. The initial distribution plans focused on food and medicines
while subsequent plans were expansive and covered 24 economic sectors,
including electricity, oil, and telecommunications.
The sanctions committee's procedures for implementing Security
Council resolution 986 stated that experts in the Secretariat were to
examine each proposed Iraqi commodity contract, in particular the
details of price and value, and to determine whether the contract items
were on the distribution plan. OIP officials told the Defense Contract
Audit Agency they performed very limited, if any, pricing review. They
stated that no U.N. resolution tasked them with assessing the price
reasonableness of the contracts and no contracts were rejected solely
on the basis of price. However, OIP officials stated that, in a number
of instances, they reported to the sanctions committee that commodity
prices appeared high, but the committee did not cite pricing as a
reason to place holds on the contracts. For example, in October 2001,
OIP experts reported to the sanctions committee that the prices in a
proposed contract between Iraq and the Al-Wasel and Babel Trading
Company appeared high. However, the sanctions committee reviewed the
data and approved the contract. In April 2004, the Treasury Department
identified this company as a front company for the former regime. The
United Nations also required all countries to freeze the assets of this
company and transfer them to the Development Fund for Iraq in
accordance with Security Council resolution 1483.6
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\6\ U.N. Security Council Res. 1483 (May 22, 2003). Paragraph 19
states that a Security Council committee will identify individuals and
entities whose financial assets should be transferred to the
Development Fund for Iraq.
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The sanctions committee's procedures for implementing resolution
986 stated that independent inspection agents will confirm the arrival
of supplies in Iraq. OIP deployed about 78 U.N. contract monitors to
verify shipments and authenticate the supplies for payment. OIP
employees were able to visually inspect 7 to 10 percent of the approved
deliveries.
Audits Identified Some Operational Concerns but No Fraud
Security Council resolution 986 also requested the Secretary
General to establish an escrow account for the Oil for Food program and
to appoint independent and certified public accountants to audit the
account. The Secretary General established an escrow account at BNP
Paribas for the deposit of Iraqi oil revenues. The U.N. Board of Audit,
a body of external public auditors, audited the account.7
The external audits focused on management issues related to the Oil for
Food program and the financial condition of the Iraq account. U.N.
auditors generally concluded that the Iraq account was fairly presented
in accordance with U.N. financial standards. The reports stated that
OIP was generally responsive to external audit recommendations. The
external audits determined that oil prices were mostly in accordance
with the fair market value of oil products to be shipped and checked to
confirm that pricing was properly and consistently applied. They also
determined that humanitarian and essential services supplies procured
with oil funds generally met contract terms with some exceptions. U.N.
external audit reports contained no findings of fraud during the
program.
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\7\ The U.N. Board of Auditors is comprised of the Auditors General
of three member countries and their staff. Board members are appointed
by the General Assembly for 6-year terms and one member rotates every 2
years. During the period of the Oil for Food program (1996-2003),
France, Ghana, India, the Philippines, South Africa, and the United
Kingdom served on the Board of Auditors.
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The U.N. Office of Internal Oversight Services (OIOS) conducted
internal audits of the Oil for Food program and reported the results to
OIP's executive director. OIOS officials stated that they have
completed 55 audits and have 4 ongoing audits of the Oil for Food
program. Overall, OIOS reported that OIP had made satisfactory progress
in implementing most of its recommendations. We did not have access to
individual OIOS audit reports except for an April 2003 report made
publicly available in May 2004 that assessed the activities of the
company contracted by the United Nations to authenticate goods coming
into Iraq. It found that the contractor did not perform all required
duties and did not adequately monitor goods coming into the northern
areas of Iraq. We also reviewed 7 brief summaries of OIOS reports
covering the Oil for Food program from July 1, 1996, through June 30,
2003. These summaries identified a variety of operational concerns
involving procurement, inflated pricing and inventory controls,
coordination, monitoring, and oversight. In one case, OIOS cited
purchase prices for winter items for displaced persons in northern Iraq
that were on average 61 percent higher than local vendor quotes
obtained by OIOS. In another case, an OIOS review found that there was
only limited coordination of program planning and insufficient review
and independent assessment of project implementation activities.
The sanction Committee had a key role in enforcing sanctions and
approving contracts
The sanctions committee was responsible for three key elements of
the Oil for Food program: (1) monitoring implementation of the
sanctions, (2) screening contracts to prevent the purchase of items
that could have military uses, and (3) approving Iraq's oil and
commodity contracts.
U.N. Security Council resolution 661 of 1990 directed all states to
prevent Iraq from exporting products, including petroleum, into their
territories. Paragraph 6 of resolution 661 established a sanctions
committee to report to the Security Council on states' compliance with
the sanctions and to recommend actions regarding effective
implementation. As early as June 1996, the Maritime Interception Force,
a naval force of coalition partners including the United States and
Great Britain, informed the sanctions committee that oil was being
smuggled out of Iraq through Iranian territorial waters. In December
1996, Iran acknowledged the smuggling and reported that it had taken
action. In October 1997, the sanctions committee was again informed
about smuggling through Iranian waters. According to multiple sources,
oil smuggling also occurred through Jordan, Turkey, Syria, and the
Gulf. Smuggling was a major source of illicit revenue for the former
Iraqi regime through 2002.
A primary function of the sanctions committee was to review and
approve contracts for items that could be used for military purposes.
The United States conducted the most thorough review; about 60 U.S.
government technical experts assessed each item in a contract to
determine its potential military application. According to U.N.
Secretariat data in 2002, the United States was responsible for about
90 percent of the holds placed on goods to be exported to Iraq. As of
April 2002, about $5.1 billion worth of goods were being held for
shipment to Iraq. According to OIP, no contracts were held solely on
the basis of price.
Under Security Council resolution 986 of 1995, and its implementing
procedures, the sanctions committee was responsible for approving
Iraq's oil contracts, particularly to ensure that the contract price
was fair, and for approving Iraq's commodity contracts. The U.N.'s oil
overseers reported in November 2000 that the oil prices proposed by
Iraq appeared low and did not reflect the fair market value.
8 According to a senior OIP official, the independent oil
overseers also reported in December 2000 that purchasers of Iraqi oil
had been asked to pay surcharges. In March 2001, the United States
informed the sanctions committee about allegations that Iraqi
government officials were receiving illegal surcharges on oil contracts
and illicit commissions on commodity contracts. The sanctions committee
attempted to address these allegations by implementing retroactive
pricing for oil contracts in 2001.9
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\8\ The sanctions committee received reports from the independent
oil experts appointed by the Secretary General to determine whether
there was fraud or deception in the oil contracting process.
\9\ Under retroactive pricing, the Security Council did not approve
a price per barrel until the oil was delivered to the refinery. The
Iraq government signed contracts with suppliers without knowing the
price it would have to pay until delivery.
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It is unclear what actions the sanctions committee took to respond
to illicit commissions on commodity contracts. Due to increasing
concern about the humanitarian situation in Iraq and pressure to
expedite the review process, the Security Council passed resolution
1284 in December 1999 to direct the sanctions committee to accelerate
the review process. Under fast-track procedures, the sanctions
committee allowed OIP to approve contracts for food, medical supplies,
and agricultural equipment (beginning in March 2000), water treatment
and sanitation (August 2000), housing (February 2001), and electricity
supplies (May 2001).
ISSUES FOR FURTHER INVESTIGATION AND THE STATUS OF CURRENT EFFORTS
A number of investigations and audits of the Oil for Food program
are under way. These efforts may wish to further examine how the
structure of the program enabled the Iraqi government to obtain illegal
revenues, the role of member states in monitoring and enforcing the
sanctions, actions taken to reduce oil smuggling, and the
responsibilities and procedures for assessing price reasonableness in
commodity contracts. Current or planned efforts include an inquiry
initiated by the United Nations, an investigation and audit overseen by
the Iraqi Board of Supreme Audit, and efforts undertaken by several
U.S. congressional committees.
Issues for Further Investigation and Analysis
Ongoing and planned investigations of the Oil for Food program
provide an opportunity to better quantify the extent of corruption,
determine the adequacy of internal controls, and identify ways to
improve future humanitarian assistance programs conducted within an
economic sanctions framework. Based on our work, we identified several
areas that warrant further analysis.
Size and Structure of the Oil for Food Program
The scope of the Oil for Food program was extensive. The United
Nations attempted to oversee a $67 billion program providing
humanitarian and other assistance in 24 sectors to a country with 24
million people and borders 3,500 kilometers long.
When the program was first proposed in 1991, the Secretary General
considered having either the United Nations, an independent agent, or
the Iraqi government negotiate oil and commodity contracts. The
Secretary General concluded that the first two options were impractical
and proposed that Iraq would negotiate the contracts and U.N. staff
would work at Iraq's oil ministry to ensure compliance. The final MOU
between the Iraqi government and the United Nations granted control of
contract negotiations to Iraq in recognition of its sovereignty.
Investigations of the Oil for Food program should consider
examining how the size and structure of the Oil for Food program
enabled the Iraqi government to obtain illegal revenues through illicit
surcharges and commissions.
Role of Member States in Oversight
Under Security Council resolutions, all member states were
responsible for enforcing the sanctions and the United Nations depended
on states bordering Iraq to deter smuggling. National companies were
required to register with their respective permanent missions to the
United Nations prior to direct negotiations with the Iraqi government,
but it is unclear what criteria the missions used to assess the
qualifications of their companies. Issues that warrant further analysis
include the role of member states in monitoring and enforcing the
sanctions and the criteria countries used in registering national oil
purchasers and commodity suppliers.
Prior to the imposition of sanctions, Turkey was one of Iraq's
major trading partners. Total trade between the two countries was
valued at $3 billion per year, and Turkey received about $1 billion
each year by trucking goods to Iraq from Turkish ports. Jordan had also
been a top trading partner; in 2001, it was the fifth largest exporter
to Iraq and was the ninth largest importer of Iraqi commodities.
Jordan and Iraq had annual trade protocols during the U.N.
sanctions that allowed Iraq to sell heavily discounted oil to Jordan in
exchange for up to $300 million in Jordanian goods. The sanctions
committee noted the existence of the protocol but took no action. From
November 2000 to March 2003, Iraq exported up to 200,000 barrels per
day of oil through a Syrian pipeline in violation of UN sanctions. It
is unclear what actions the sanctions committee or the United States
took to stop the illegal exporting of Iraqi oil to Syria.
Investigations should considering examining any actions that were
taken to reduce Iraqi oil smuggling as well as the factors that may
have precluded the sanctions committee from taking action.
Assessing the Reasonableness of Contract Pricing
While sanctions committee procedures stated that the Secretariat
was to examine each contract for price and value, OIP officials stated
that no U.N. resolution tasked them with assessing the price
reasonableness of the contracts. Although the sanctions committee was
responsible for approving commodity contracts, it primarily screened
contracts to prevent the purchases of items with potential military
uses.
In December 1999, U.N. Security Council resolution 1284 directed
the sanctions committee to accelerate approval procedures for goods no
longer subject to sanctions committee review, including food and
equipment and supplies to support the health, agricultural, water
treatment and sanitation, housing, and electricity sectors.
It is unclear where the roles and responsibilities for assessing
price reasonableness rested. Audits and other inquiries should
determine which entities assessed the reasonableness of prices for
commodity contracts that were negotiated between the Iraqi government
and suppliers and what actions were taken on contracts with
questionable pricing. These efforts should also examine how prices for
commodities were assessed for reasonableness under fast-track
procedures.
Other Issues of Consideration
Much of the information on surcharges on oil sales and illicit
commissions on commodity contracts is with the ministries in Baghdad
and national purchasers and suppliers. We did not have access to this
data to verify the various allegations of corruption associated with
these transactions. Subsequent investigations of the Oil for Food
program should include a statistical sampling of these transactions to
more accurately document the extent of corruption and the identities of
companies and countries that engaged in illicit transactions. This
information would provide a basis for restoring those assets to the
Iraqi government.
Subsequent evaluations and audits should also consider an analysis
of the lessons learned from the Oil for Food program and how future
humanitarian programs of this nature should be structured to ensure
that funds are spent on intended beneficiaries and projects. For
example, analysts may wish to review the codes of conduct developed for
the CPA's Oil for Food former coordination center and suppliers. In
addition, U.N. specialized agencies implemented the program in the
northern governorates while the program in central and southern Iraq
was run by the central government in Baghdad. A comparison of these two
approaches could provide insight on the extent to which the operations
were transparent and the program delivered goods and services to the
Iraqi people.
The history of inadequate oversight and corruption in the Oil for
Food program also raises questions about the Iraqi government's ability
to manage the import and distribution of Oil for Food commodities and
the billions in international assistance expected to flow into the
country. Iraqi ministries must address corruption in the Oil for Food
program to help ensure that the remaining contracts are managed with
transparent and accountable controls. Building these internal control
and accountability measures into the operations of Iraqi ministries
will also help safeguard the $18.4 billion in fiscal year 2004 U.S.
reconstruction funds and the nearly $14 billion pledged by other
countries.
Status of Investigations
Several investigations into the Oil for Food program are under way.
In April 2004, a U.N. inquiry was announced to examine allegations of
corruption and misconduct within the United Nations Oil for Food
program and its overall management of the humanitarian program. In
addition, Iraq's Board of Supreme Audit contracted with the accounting
firm Ernst & Young to conduct an investigation of the program. Several
U.S. congressional committees have also begun inquiries into U.N.
management of the Oil for Food program and U.S. oversight through its
role on the sanctions committee.
Independent Inquiry Committee
The Independent Inquiry Committee, under the direction of former
Federal Reserve Chairman Paul Volcker, began on April 21, 2004, with a
U.N. Security Council resolution supporting the inquiry and the
appointment of two additional high-level officials to oversee the
investigation. On June 15, 2004, the Committee announced the
appointment of its senior staff and the recruitment of additional
staff, including attorneys, investigators, and accountants. The
Committee plans to issue an interim report in the summer of 2004,
followed by a final report in early 2005.
According to the terms of reference, this investigation will
collect and examine information relating to the administration and
management of the Oil for Food program, including allegations of fraud
and corruption on the part of U.N. staff and those entities that had
contracts with the United Nations or the Iraqi government. The
Committee intends to determine whether (1) procedures for processing
and approving contracts, monitoring oil sales and deliveries, and
purchasing and delivering humanitarian goods were violated; (2) U.N.
officials, staff, or contractors engaged in illicit or corrupt
activities; and (3) program accounts were maintained in accordance with
U.N. financial regulations.
The Independent Inquiry Committee, the Iraqi Board of Supreme
Audit, and the CPA signed a memorandum of understanding to facilitate
the Committee's access to Oil for Food documents in Iraq.10
As part of its contract with the Iraqi Board of Supreme Audit to audit
the Oil for Food program, the international accounting firm Ernst &
Young is to identify and organize Iraqi records related to the Oil for
Food program.
---------------------------------------------------------------------------
\10\ The Independent Inquiry Committee signed the agreement on May
26, 2004; the Iraqi Board of Supreme Audit and the CPA signed it on
June 6 and June 15, 2004, respectively.
---------------------------------------------------------------------------
Iraqi Board of Supreme Audit
In March 2004, the CPA authorized the Iraqi Board of Supreme Audit
to conduct a full and independent audit, investigation, and accounting
of the Oil for Food program and the disposition of Iraqi assets
associated with the program. As of May 19, 2004, the CPA had authorized
the expenditure of $20 million for this purpose, and the Board
contracted with Ernst & Young to carry out the investigation. The Board
is to release a final report to the interim Iraqi government and to the
public with specific findings and recommendations. The CPA expected the
report to address (1) the manner in which the program may or may not
have been mismanaged, (2) the disposition of Iraqi contracts and assets
on the program, (3) identification of individuals who may have
benefited through improper disposition of program contracts and assets,
(4) the current location and status of Iraqi assets that may have been
diverted and recommendations on recovering these assets, and (5)
possible criminal offenses.
Congressional Investigations
Several U.S. congressional committees and subcommittees are also in
various stages of examining the Oil for Food program. In May 2004, the
Senate Committee on Governmental Affairs, Permanent Subcommittee on
Investigations, announced an investigation to examine allegations of
improper conduct and whether such conduct may have negatively affected
U.S. interests. The Subcommittee is particularly interested in the
extent to which any misconduct took place within the United States and
the involvement of U.S. citizens, residents, or businesses. In
addition, the House International Relations Committee and the
Subcommittee on National Security, Emerging Threats, and International
Relations, House Committee on Government Reform, are investigating
allegations of misconduct. Along with the Senate Permanent Subcommittee
on Investigations and the Senate Committee on Foreign Relations, they
have requested program documents from the State Department and United
Nations.
Mr. Chairman and Members of the Committee, this concludes my
prepared statement. I will be happy to answer any questions you may
have.
For questions regarding this testimony, please call Joseph
Christoff at (202) 512-8979. Other key contributors to this statement
were Monica Brym, Tetsuo Miyabara, Audrey Solis, and Phillip Thomas.
Appendix I: Scope and Methodology
We used the following methodology to estimate the former Iraqi
regime's illicit revenues from oil smuggling, surcharges on oil, and
commissions from commodity contracts from 1997 through 2002:
To estimate the amount of oil the Iraqi regime smuggled, we used
Energy Information Administration (EIA) estimates of Iraqi oil
production and subtracted oil sold under the Oil for Food
program and domestic consumption. The remaining oil was
smuggled through Turkey, the Persian Gulf, Jordan, and Syria
(oil smuggling to Syria began late 2000). We estimated the
amount of oil to each destination based on information from and
discussions with officials of EIA, Cambridge Energy Research
Associates, the Middle East Economic Survey, and the private
consulting firm Petroleum Finance.
We used the price of oil sold to estimate the proceeds from smuggled
oil. We discounted the price by 9 percent for the difference in
quality. We discounted this price by 67 percent for smuggling
to Jordan and by 33 percent for smuggling through Turkey, the
Persian Gulf, and Syria. According to oil industry experts,
this is representative of the prices paid for smuggled oil.
To estimate the amount Iraq earned from surcharges on oil, we
multiplied the barrels of oil sold under the Oil for Food
program from 1997 through 2002 by 25 cents per barrel.
According to Security Council members, the surcharge varied,
but Iraq tried to get as much as 50 cents per barrel. Industry
experts also stated the surcharge varied.
To estimate the commission from commodities, we multiplied Iraq's
letters of credit for commodity purchases by 5 percent for 1997
through 1998 and 10 percent for 1999 through 2002. According to
Security Council members, the commission varied from 5 percent
to 10 percent. This percentage was also confirmed in interviews
conducted by U.S. officials with former Iraqi regime ministers
of oil, finance, and trade and with Sadaam Hussein's
presidential advisors.GAO did not obtain source documents and
records from the former regime about
its smuggling, surcharges, and commissions. Our estimate of illicit
revenues is therefore not a precise accounting number. Areas of
uncertainty in our estimate include:
GAO's estimate of the revenue from smuggled oil is less than the
estimates of U.S. intelligence agencies. We used estimates of
Iraqi oil production and domestic consumption for our
calculations. U.S. intelligence agencies used other methods to
estimate smuggling.
GAO's estimate of revenue from oil surcharges is based on a surcharge
of 25 cents per barrel from 1997 through 2002. However, the
average surcharge could be lower. U.N. Security Council members
and oil industry sources do not know when the surcharge began
or ended or the precise amount of the surcharge. One oil
industry expert stated that the surcharge was imposed at the
beginning of the program but that the amount varied. Security
Council members and the U.S. Treasury Department reported that
surcharges ranged from 10 cents to 50 cents per barrel. As a
test of reasonableness, GAO compared the price paid for oil
under the Oil for Food program with a proxy oil price for the
period 1997 through 2002. We found that for the entire period,
the price of Iraqi oil was considerably below the proxy price.
Oil purchasers would have to pay below market price to have a
margin to pay the surcharge.
GAO's estimate of the commission on commodities could be understated.
We calculated commissions based on the commodity contracts for
the 15 governorates in central and southern Iraq (known as the
``59-percent account'' because these governorates received this
percentage of Oil for Food revenues). We excluded contracts for
the three northern governorates (known as the ``13-percent
account''). However, the former Iraqi regime negotiated the
food and medical contracts for the northern governorates, and
the Defense Contract Audit Agency found that some of these
contracts were potentially overpriced. The Defense Contract
Audit Agency also found extra fees of between 10 and 20 percent
on some contracts.
Appendix II: Timeline of Major Events Related to Sanctions Against Iraq
and the Administration of the Oil for Food Program
------------------------------------------------------------------------
Date Event/Action Summary
------------------------------------------------------------------------
Aug. 2, 1990.................... U.N. Security Iraqi forces
Council invaded Kuwait.
Resolution 660. Resolution 660
condemned the
invasion and
demands immediate
withdrawal from
Kuwait.
Aug. 6, 1990.................... U.N. Security Imposed economic
Council sanctions against
Resolution 661. the Republic of
Iraq. The
resolution called
for member states
to prevent all
commodity imports
from Iraq and
exports to Iraq,
with the
exception of
supplies intended
strictly for
medical purposes
and, in
humanitarian
circumstances,
foodstuffs.
Aug. 6, 1990.................... Operation Desert President Bush
Shield. ordered the
deployment of
thousands of U.S.
forces to Saudi
Arabia.
Nov. 5, 1990.................... U.S. legislation.. Public Law 101-
513, 586C,
prohibited the
import of
products from
Iraq into the
United States and
the export of
U.S. products to
Iraq.
Jan. 12, 1991................... U.S. legislation.. Iraq War Powers
Resolution
authorized the
president to use
``all necessary
means'' to compel
Iraq to withdraw
military forces
from Kuwait.
Jan. 16, 1991................... Operation Desert Operation Desert
Storm. Storm was
launched:
coalition
operation was
targeted to force
Iraq to withdraw
from Kuwait.
Feb. 28, 1991................... Gulf War cease- Iraq announced
fire. acceptance of all
relevant U.N.
Security Council
resolutions.
Apr. 3, 1991.................... U.N. Security Mandated that Iraq
Council must respect the
Resolution 687 sovereignty of
(Cease-Fire Kuwait and
Resolution). declare and
destroy all
ballistic
missiles with a
range of more
than 150
kilometers as
well as all
weapons of mass
destruction and
production
facilities.
Jun. 17, 1991................... Creation of U.N. The U.N. Special
Special Commission
Commission. (UNSCOM) was
charged with
monitoring Iraqi
disarmament as
mandated by U.N.
resolutions and
to assist the
International
Atomic Energy
Agency in nuclear
monitoring
efforts.
Aug. 15, 1991................... U.N. Security Proposed the
Council creation of an
Resolution 706. Oil for Food
program and
authorized an
escrow account to
be established by
the Secretary
General. Iraq
rejected the
terms of this
resolution.
Sep. 19, 1991................... U.N. Security Second attempt to
Council create an Oil for
Resolution 712. Food program.
Iraq rejected the
terms of this
resolution.
Oct. 2, 1992.................... U.N. Security Authorized
Council transferring
Resolution 778. money produced by
any Iraqi oil
transaction on or
after August 6,
1990, which had
been deposited
into the escrow
account, to the
states or
accounts
concerned as long
as the oil
exports took
place or until
sanctions were
lifted.
Apr. 14, 1995................... U.N. Security Allowed Iraq to
Council sell $1 billion
Resolution 986. worth of oil
every 90 days.
Proceeds were to
be used to
procure
foodstuffs,
medicine, and
material and
supplies for
essential
civilian needs.
Resolution 986
was supplemented
by several U.N.
resolutions over
the next 7 years
that extended the
Oil for Food
program for
different periods
of time and
increased the
amount of
exported oil and
imported
humanitarian
goods.
Mar. 27, 1996................... U.N. Security Established the
Council export and import
Resolution 1051. monitoring system
for Iraq.
May 20, 1996.................... Government of Iraq Signed a
and the United memorandum of
Nations. understanding
allowing Iraq's
export of oil to
pay for food,
medicine, and
essential
civilian
supplies.
Jun. 17, 1996................... United States..... Based on
information
provided by the
Multinational
Interception
Force (MIF),
communicated
concerns about
alleged smuggling
of Iraqi
petroleum
products through
Iranian
territorial
waters in
violation of
resolution 661 to
the Security
Council sanctions
committee.
Jul. 9, 1996.................... U.N. Security Committee members
Council Sanctions asked the United
Committee. States for more
factual
information about
smuggling
allegations,
including the
final destination
and the
nationality of
the vessels
involved.
Aug. 28, 1996................... U.S. delegation to Provided briefing
the U.N. Security on the Iraqi oil
Council Sanctions smuggling
Committee. allegations to
the sanctions
committee.
Dec. 3, 1996.................... Islamic Republic Acknowledged that
of Iran Permanent some vessels
Representative to carrying illegal
the United goods and oil to
Nations. and from Iraq had
been using the
Iranian flag and
territorial
waters without
authorization and
that Iranian
authorities had
confiscated
forged documents
and manifests.
Representative
agreed to provide
the results of
the
investigations to
the sanctions
committee once
they were
available.
Dec. 10, 1996................... Iraq and the Phase I of the Oil
United Nations. for Food program
began.
Jun. 4, 1997.................... U.N. Security Extended the term
Council of resolution 986
Resolution 1111. another 180 days
(phase II).
Sep. 12, 1997................... U.N. Security Authorized special
Council provision to
Resolution 1129. allow Iraq to
sell petroleum in
a more favorable
time frame.
Oct. 8, 1997.................... Representatives of Brought the issue
the United of Iraqi
Kingdom of Great smuggling
Britain and petroleum
Northern Ireland products through
to the United Iranian
Nations. territorial
waters to the
attention of the
U.N. Security
Council sanctions
committee.
Nov. 18, 1997................... Coordinator of the Reported to the
Multinational U.N. Security
Interception Council sanctions
Force (MIF). committee that
since February
1997 there had
been a dramatic
increase in the
number of ships
smuggling
petroleum from
Iraq inside
Iranian
territorial
waters.
Dec. 4, 1997.................... U.N. Security Extended the Oil
Council for Food program
Resolution 1143. another 180 days
(phase III).
Feb. 20, 1998................... U.N. Security Raised Iraq's
Council export ceiling of
Resolution 1153. oil to about $5.3
billion per 6-
month phase
(phase IV).
Mar. 25, 1998................... U.N. Security Permitted Iraq to
Council export additional
Resolution 1158. oil in the 90
days from March
5, 1998, to
compensate for
delayed
resumption of oil
production and
reduced oil
price.
Jun. 19, 1998................... U.N. Security Authorized Iraq to
Council buy $300 million
Resolution 1175. worth of oil
spare parts to
reach the export
ceiling of about
$5.3 billion.
Aug. 14, 1998................... U.S. legislation.. Public Law 105-
235, a joint
resolution
finding Iraq in
unacceptable and
material breach
of its
international
obligations.
Oct. 31, 1998................... U.S. legislation: Public Law 105-
Iraq Liberation 338, 4,
Act. authorized the
president to
provide
assistance to
Iraqi democratic
opposition
organizations.
Oct. 31, 1998................... Iraqi termination Iraq announced it
of U.N. Special would terminate
Commission all forms of
(UNSCOM) Activity. interaction with
UNSCOM and that
it would halt all
UNSCOM activity
inside Iraq.
Nov. 24, 1998................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1210. for 6 months
beyond November
26 at the higher
levels
established by
resolution 1153.
The resolution
included
additional oil
spare parts
(phase V).
Dec. 16, 1998................... Operation Desert Following Iraq's
Fox. recurrent
blocking of U.N.
weapons
inspectors,
President Clinton
ordered 4 days of
air strikes
against military
and security
targets in Iraq
that contribute
to Iraq's ability
to produce,
store, and
maintain weapons
of mass
destruction and
potential
delivery systems.
Mar. 3, 1999.................... President Clinton President Clinton
Report to provided the
Congress. status of efforts
to obtain Iraq's
compliance with
U.N. Security
Council
resolutions. He
discussed the MIF
report of oil
smuggling out of
Iraq and
smuggling of
other prohibited
items into Iraq.
May 21, 1999.................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1242. another 6 months
(phase VI).
Oct. 4, 1999.................... U.N. Security Permitted Iraq to
Council export an
Resolution 1266. additional amount
of $3.04 billion
of oil to make up
for revenue
deficits in
phases IV and V.
Nov. 19, 1999................... U.N. Security Extended phase VI
Council of the Oil for
Resolution 1275. Food program for
2 weeks until
December 4, 1999.
Dec. 3, 1999.................... U.N. Security Extended phase VI
Council of the Oil for
Resolution 1280. Food program for
1 week until
December 11,
1999.
Dec. 10, 1999................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1281. another 6 months
(phase VII).
Dec. 17, 1999................... U.N. Security Abolished Iraq's
Council export ceiling to
Resolution 1284. purchase civilian
goods. Eased
restrictions on
the flow of
civilian goods to
Iraq and
streamlined the
approval process
for some oil
industry spare
parts. Also
established the
United Nations
Monitoring,
Verification and
Inspection
Commission
(UNMOVIC).
Mar. 31, 2000................... U.N. Security Increased oil
Council spare parts
Resolution 1293. allocation from
$300 million to
$600 million
under phases VI
and VII.
Jun. 8, 2000.................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1302. another 180 days
until December 5,
2000 (phase
VIII).
Dec. 5, 2000.................... U.N. Security Extended the Oil
Council for Food program
Resolution 1330. another 180 days
(phase IX).
Mar. 8, 2001.................... Deputy U.S. Ambassador
Representative to Cunningham
the United acknowledged
Nations Remarks Iraq's illegal re-
to the Security export of
Council. humanitarian
supplies, oil
smuggling,
establishment of
front companies,
and payment of
kickbacks to
manipulate and
gain from Oil for
Food contracts.
Also acknowledged
that the United
States had put
holds on hundreds
of Oil for Food
contracts that
posed dual-use
concerns.
Mar. 8, 2001.................... Acting U.S. Ambassador
Representative to Cunningham
the United addressed
Nations Remarks questions
to the Security regarding
Council. allegations of
surcharges on oil
and smuggling.
Acknowledged that
oil industry
representatives
and other
Security Council
members provided
the United States
anecdotal
information about
Iraqi surcharges
on oil sales.
Also acknowledged
companies
claiming they
were asked to pay
commissions on
contracts.
Jun. 1, 2001.................... U.N. Security Extended the terms
Council of resolution
Resolution 1352. 1330 (phase IX)
another 30 days.
Jul. 3, 2001.................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1360. an additional 150
days until
November 30, 2001
(phase X).
Nov. 29, 2001................... U.N. Security The resolution
Council stipulated that a
Resolution 1382. new Goods Review
List would be
adopted and that
relevant
procedures would
be subject to
refinement.
Renewed the Oil
for Food program
another 180 days
(phase XI).
May 14, 2002.................... U.N. Security UNMOVIC reviewed
Council export contracts
Resolution 1409. to ensure that
they contain no
items on a
designated list
of dual-use items
known as the
Goods Review
List. The
resolution also
extended the
program another
180 days (phase
XII).
Nov. 6, 2002.................... U.N. Security MIF reported that
Council Sanctions there had been a
Committee. significant
reduction in
illegal oil
exports from Iraq
by sea over the
past year but
noted oil
smuggling was
continuing.
Nov. 25, 2002................... U.N. Security Extended phase XII
Council of the Oil for
Resolution 1443. Food program
another 9 days.
Dec. 4, 2002.................... U.N. Security Renewed the Oil
Council for Food program
Resolution 1447. another 180 days
until June 3,
2003 (phase
XIII).
Dec. 30, 2002................... U.N. Security Approved changes
Council to the list of
Resolution 1454. goods subject to
review by the
sanctions
committee.
Mar. 12, 2003................... U.N. Security Chairman reported
Council Sanctions on a number of
Committee. alleged sanctions
violations noted
by letters from
several countries
and the media
from February to
November 2002.
Alleged incidents
involved Syria,
India, Liberia,
Jordan, Belarus,
Switzerland,
Lebanon, Ukraine,
and the United
Arab Emirates.
Mar. 19, 2003................... Operation Iraqi Operation Iraqi
Freedom. Freedom is
launched.
Coalition
operation led by
the United States
initiated
hostilities in
Iraq.
Mar. 28, 2003................... U.N. Security Adjusted the Oil
Council for Food program
Resolution 1472. and gave the
Secretary General
authority for 45
days to
facilitate the
delivery and
receipt of goods
contracted by the
Government of
Iraq for the
humanitarian
needs of its
people.
Apr. 16, 2003................... U.S. legislation.. Public Law 108-11,
1503,
authorized the
President to
suspend the
application of
any provision of
the Iraq
Sanctions Act of
1990.
Apr. 24, 2003................... U.N. Security Extended
Council provisions of
Resolution 1476. resolution 1472
until June 3,
2003.
May 1, 2003..................... Operation Iraqi End of major
Freedom. combat operations
and beginning of
post-war
rebuilding
efforts.
May 22, 2003.................... U.N. Security Lifted civilian
Council sanctions on Iraq
Resolution 1483. and provided for
the end of the
Oil for Food
program within 6
months,
transferring
responsibility
for the
administration of
any remaining
program
activities to the
Coalition
Provisional
Authority (CPA).
Nov. 21, 2003................... U.N. Secretary Transferred
General. administration of
the Oil for Food
program to the
CPA.
Mar.19, 2004.................... U.N. Secretary Responded to
General. allegations of
fraud by U.N.
officials that
were involved in
the
administration of
the Oil for Food
program.
Mar. 25, 2004................... U.N. Secretary Proposed that a
General. special
investigation be
conducted by an
independent
panel.
April 21, 2004.................. U.N. Security Supported the
Council appointment of
Resolution 1538. the independent
high-level
inquiry and
called upon the
CPA, Iraq, and
member states to
cooperated fully
with the inquiry.
June 28, 2004................... CPA and Government The CPA
of Iraq. transferred power
to the interim
Iraqi government.
------------------------------------------------------------------------
Mr. Hall. I thank you, and we will have some questions for
you.
The Chair recognizes Ms. Rosett for 5 minutes.
STATEMENT OF CLAUDIA ROSETT
Ms. Rosett. I think this is the U.N. mike. Is that working?
Mr. Hall. You have repaired it.
Ms. Rosett. Good. And good morning, Mr. Chairman, ranking
member, good morning, everybody. Thank you very much for the
chance to testify here today.
I was trying to total up the number of investigations
yesterday evening, and it was--because it has reached the point
where it would be funny were it not so serious. I think we have
at least nine here. There are various others in some other
countries, and private investigations. The thing that keeps
jumping out at me, though, is where are we? Where are the
answers? Where are the insights? Where are the remedies at this
point? And as I tried to explain in my written statement, a
great deal of what we keep going over in somewhat more details
deals with things that we were aware of in general outline a
year ago, 2 years ago, in your earlier hearings.
The problem over and over is actually getting at the
specifics, looking at and understanding this particular
scandal, and it sort of leads me to basically one message I
want to bring here today. This entire problem every time you
approach it turns into a giant document hunt. We have watched
people chasing papers in Baghdad, in New York, and much of this
involves documents that should have been readily accessible
from the beginning. The United Nations--I am not even speaking
here of the secret side deals, of the ``Dear Uday'' where the
people signed, and I have seen such a document, on the actual
kickbacks. But the mainstream documents relating to the
program, those elusive internal audits that everybody has been
after that the U.N. would not release to Congress, any detailed
accounting of interest on the bank accounts, precise amounts in
the accounts, what happened to some $4 billion owed to the
Kurds, how precisely the U.N. spent the $1.9 billion it
collected in its 3 percent commissions.
And, actually there is something that I have been debating
whether to mention, but I think I should. In discussing the
palaces, the weapons, the salon, there is an arithmetic
identity here that everybody keeps overlooking. Iraq's
government under Saddam had no source of income other than Oil
For Food. There was no tax system. There was no other source of
income except oil. Under the U.N. arrangement all oil was
supposed to go through the U.N. program. Therefore, anything
basically that got funded, the military, the ministries, it was
either illicit or went through the U.N.
Who hasn't noticed this? I am not sure why this doesn't
figure in the discussions, but it would seem to be a very
strangely concocted program that we had, and the assumptions
that went with it, that this was simply the way it should
operate, become stranger and stranger as you see more about how
this whole thing worked.
What I would like to suggest here is had the information
involved in the program been made routinely available to the
public--I am talking about things here like the contracts--
there would be a lot less need for investigation right now. You
would have seen things at the time that would have alerted all
of us that there were real problems.
And what I would just like to suggest is we have all been
playing by the U.N. rule book, which imposes absurd and self-
serving levels of secrecy. Does it strike no one here as
strange, for instance, that the United Nations report clearing
Kojo Annan, the son of the Secretary General, of any wrongdoing
via the inspections from Cotecna hired by the United Nations,
that this report was done by an employee of Kofi Annan, Joseph
Conner? And apart from a convenient leak to produce a
sympathetic article in the New York Times, it has remained the
confidential property of the United Nations.
I called and asked for it. I couldn't get it. There is no
reason they shouldn't disclose that kind of information. There
is no reason they shouldn't disclose it now. We have had a
situation where they didn't disclose it as a matter of habit,
policy, custom, nobody made them, during the program. Then they
sent hush letters out in April, reminding crucial contractors
hired by the Secretariat not to talk, and now we are not
supposed to have access to this information because there are
investigations underway. I would just suggest with these
investigations, trust but verify; and if there is one thing you
can usefully do--there is no reason in trying to get the U.N.
to cooperate--to look at the larger picture of what would
actually fix these problems before they arise and look at ways
to get the U.N. to release normal documentation to the world to
account for what it does, to actually let anyone who wants to
see what is going on inside these programs, how to look at the
paperwork. This does not compromise savory activities. That is
my basic recommendation.
I would just like to add one other thing on the matter of
the CPA versus the U.N. and what should be investigated. I
would suggest that where the U.S. has been mainly at fault in
this program was in allowing the U.N. to do what it did, was in
going along with the way the U.N. functioned; and where the CPA
has been mainly at fault was in simply taking on a lot of what
it inherited and not simply scrapping this entirely badly
conceived program when we came in.
Out of this come various problems, but I would suggest that
the two inquiries are probably somewhat separate matters and
that in inquiring into whatever the United Nations did, it
would be a shame to divert focus from this enormous problem,
affecting the entire world community, and turn it into yet
another thing where we look mainly at the United States. This
was not mainly about the United States. This was about a
failing international institution which needs to see daylight
if it is going to function well.
I thank you and would welcome your questions.
[The prepared statement of Claudia Rosett follows:]
Prepared Statement of Claudia Rosett, Journalist-in-Residence, The
Foundation for the Defense of Democracies, Adjunct Fellow, The Hudson
Institute
Mr. Chairman, distinguished members of the Committee, thank you for
the opportunity to testify here today.
In the long, secretive and unfortunately sordid saga of the United
Nations Oil-for-Food program, we have arrived at an important juncture.
Not only is Oil-for-Food finally under investigation; by some counts it
is now the subject of at least eight or nine investigations--and that's
before we even get to the private inquiries and media coverage. Given
that UN Secretary-General Kofi Annan in wrapping up the UN's role in
Oil-for-Food last November was content simply to praise the program and
close the books--with no investigation whatsoever--this is progress.
Certainly Oil-for-Food needs investigating, for three basic
reasons:
1) To bring to account any individuals who profited illicitly--and
cynically--to the collective tune of billions filched from what
was supposed to be a relief program for the tyrannized and
impoverished people of Iraq.
2) To trace, and return, as far as possible, funds illicitly diverted
from the program. There are reasons to be concerned that these
funds not only went to pay for Saddam's lavish lifestyle (Oil-
for-Palaces), but that significant amounts may been directed
toward corrupting the UN's own debates over Iraq (Oil-for-
Influence), as well as--quite possibly--to terrorists-linked
enterprises, or even to terrorist groups. This last item (Oil-
for-Terror), may still be a menace. The bulk of Saddam's ill-
gotten gains remain unaccounted for, at least in our books.
3) To explore and remedy the basic flaws in the UN setup and system
that not only allowed the corruption of Oil-for-Food, but in
some ways positively invited and even encouraged it--and if not
remedied are highly likely to do so again. The transgressions
here against honesty and common sense have been particularly
egregious, with perverse incentives and UN secrecy combining in
this instance to enable fraud and theft totaling at least $10
billion, carried out in a manner that helped shore up the
totalitarian government of Saddam Hussein while quite probably
corrupting a significant array of political figures and
businessmen worldwide. But the basic problems that allowed a UN
program to be thus warped did not in fact reside solely in
Saddam's regime, and they will not be fixed solely by
addressing specific instances of misconduct that may come to
light regarding Oil-for-Food.
To understand the deeper problem, and to grasp why we are only now
seeing investigations begun--well over a year after the fall of Saddam,
and almost eight months after the official end of the UN's role in Oil-
for-Food--it helps to note that getting straightforward answers from
the UN about specifics of the program, or fixing its most glaring
faults, has been at almost every turn quite oddly difficult. Not that
the basic contours of the huge flaws that bedeviled Oil-for-Food are
much of a mystery. In reports, press accounts and hearings going back
years at this point, the fraudulent outlines of Oil-for-Food have been
much explained already. On May 14, 2003, for example, the House
Committee on Energy and Commerce held a hearing on Oil-for-Food at
which there was reference to Treasury's findings--even then--of
Saddam's success in ``skimming and kickbacks on oil legitimately sold
through the Oil-for-Food program.'' There was also reference--and I
would again note that this was more than a year ago--to Iraq awarding
Oil-for-Food contracts to ``potentially sympathetic members of the UN
Security Council, primarily Russia, France and China.'' Nor was it news
even then that the political tilt to UN-approved relief contracts often
led to the Iraqi people, the intended beneficiaries of all those
billions, receiving substandard rations, including rotten medicines.
I cite that hearing as merely one example of how much we have
already known for some time about the corruption of the Oil-for-Food
program. There were reports from Reuters as far back as 2000 on the
oil-sale kickback schemes; there were congressional rumblings, and
complaints from contractors to the executive director of Oil-for-Food,
Benon Sevan. There was abundant anecdotal evidence, which should have
been obvious to the more than 800 UN international monitors on the
ground in Iraq. Massive corruption within the program should also have
been obvious to Oil-for-Food's Executive Director, Benon Sevan, who
dealt directly with the Iraqis, and to Mr. Annan, who devoted
considerable attention to Oil-for-Food -- initially, as Under-Secretary
General, negotiating the terms under which the oil would be sold, and
then, as Secretary-General, signing off on Saddam's distribution plans
urging the expansion of the program, and overseeing the Secretariat's
use of its 2.2% commission on Saddam's oil revenues to cover UN costs.
There was an excellent, lengthy and detailed study published back
in September, 2002, by the Coalition for International Justice,
chronicling ``Sources of Revenue for Saddam & Sons,'' which focused
heavily on Oil-for-Food and the accompanying sanctions-busting
smuggling of oil from Iraq. (The UN has tried to disown the smuggling
as outside the control of the Oil-for-Food program. But it was the oil-
industry equipment approved, supplied and monitored via Oil-for-Food
that allowed for the production of the extra oil that Saddam then
smuggled out under the UN's nose).
And there were the astounding lists of contractors selected by
Saddam, approved and kept confidential by the UN. Among the supposed
end-users authorized to buy oil, for example, were some 75 companies in
the oil-rich United Arab Emirates, 65 in Switzerland, 45 in Cyprus,
seven in Panama and four in Liechtenstein. Did anyone privy to these
secret lists, either on the Security Council Sanctions Committee, or
within the UN--from Mr. Annan on down--imagine that the world's
financial havens were sopping up Iraqi oil contracts mainly for the
purpose of local home heating?
I'll suggest an answer. The corruption was obvious. But to prove it
in any particular instance, to seriously do something about it, someone
had to be both willing and able to name names, to produce evidence, to
question strongly enough--and publicly enough-- the setup in which UN
confidentiality and lack of accountability gave Saddam cover to steal
at least $10 billion.
Those willing to speak up have not as a rule had access to much of
the vital, specific evidence. Those with access have been by and large
part of the UN system, and have been unwilling to step forward and
spill the beans, at least in ways one can attribute. In some cases, the
venal interests involved are on the scale of entire nations--France,
Russia, China, Jordan, Syria and Egypt, for instance--milling Saddam's
deals through their country missions with no apparent concern over the
corruption involved. In others, such as the U.S. and U.K., backroom
diplomacy seems to have outweighed the need to hold the UN to any
reasonable standard of integrity--which is at best a perilous habit,
bad for both the UN and the U.S. And, on a far more individual scale,
there is great reluctance among UN employees to come forward, lest they
lose their jobs and pensions in a system where one of the UN's own
surveys found recently that 46% of the staff members fear reprisals for
speaking up. The UN off-the-record is far too different a world from
the UN as officially attributed; and while some gap must be expected
with any institution, in the UN's case, it is extraordinarily large.
On this matter of whistle-blowing, while noting that the entire
Security Council was complicit in covering up Oil-for-Food, I would add
that it is the Secretary-General whose job rightfully requires that he
rise above the particular interests of individual member states in
order to protect the integrity of the UN as an institution. Not only
did Mr. Annan fail, but he has simply declined to accept
responsibility. Instead, he has kept senior members of his staff busy
deflecting blame toward to the Security Council, where it then
dissipates among the assorted member states. And having earlier this
year denied that the Oil-for-Food needed investigating, Mr. Annan would
now have us believe that the Secretariat was aware of serious problems
all along, but did not dare confront the same Security Council to which
he would now affix the blame.
Further complicating any inquiry is the sheer danger of peering too
deeply into Oil-for-Food. The murder by car bomb in Baghdad last week
of Ihsan Karim, who was in charge of the Iraqi end of the Oil-for-Food
investigation, may have been coincidence. But the apparent extent of
the bribes and kickbacks, the billions involved, the potential
prosecutions should details truly begin to emerge in quantity, and the
nature of some of Saddam's select UN-approved business partners, is
daunting--on the basic level of physical safety.
Accompanying all this is the great and absurd document chase that
has been going on for months now, if not years. I refer to charade in
which the UN has continued to clutch to itself the kind of basic
information about Oil-for-Food contracts that should have been
available to the public all along. The best protection would always
have been to maximize the program's transparency. The UN churned out
plenty of information, and if you want to read about estimates of
calories consumed and barrels of oil produced, you will not lack for
tonnage. But on crucial financial details, there is still astoundingly
little official information available to the public. The particulars of
Saddam's deals were not released, for the reason that this was not how
the UN chose to handle the program--which was no good reason at all.
Then, as allegations mounted, nothing could be released--as the UN over
Benon Sevan's signature reminded at least three contractors back in
April--because a UN investigation was pending. Now, even less can be
released because the UN investigation is underway. The U.S.
administration has unfortunately compounded this secrecy by imposing
similar rules on the extensive documentation found in Baghdad. That
might all make more sense were we not being asked to trust in the
investigative powers and determination of the same UN club that brought
us Oil-for-Food in the first place.
Former Federal Reserve Chairman Paul Volcker, now heading the UN-
authorized inquiry into Oil-for-Food, wrote in The Wall Street Journal
yesterday that his committee ``has the mandate, the international
framework and, I believe, access to resources, both human and financial
, to provide the kind of comprehensive fact-finding and analysis the
investigation requires.''
It does not seem extreme to suggest that we trust, but as far as
possible, verify. Mr. Volcker has the UN mandate. But that is hardly
where the public trust, or interest, ends. And while his UN-authorized
inquiry may have access--thanks to UN rules not only current, but
past-- to documents that this Congress, or the public, cannot get,
there are some highly valuable aims that to be served by other
investigations. Not least, important policy involving the UN is being
made even now; to suspend all inquiry, analysis or judgment for months,
while awaiting the report of a late-in-the-day UN investigation, would
be unwise.
Beyond that, it would help to put some markers out there, as to
what kind of information we should expect from the UN's own
investigations, and hope that others might elaborate upon. At a bare
minimum, the public should receive from the UN investigation, with
background documents that allow verification, full information about
the dollar amounts, quantities of goods and specific contractors who
were involved with Oil-for-Food. That would allow, for example, clear
totals of the amount of business that went to such countries as
Security Council members Russia, France and China--disclosing who did
the deals, and on what precise terms. There is an enormous amount of
local information within particular countries, or industries, that a
centralized investigative team may not possess, and which cannot be
brought to bear as a resource unless such details are disclosed.
The bills now surfacing in this Congress to withhold UN funding
until the President certifies UN cooperation in the investigation are a
good start. But that kind of pressure alone cannot begin to address the
basic flaws. Even beyond the large shortcoming that the UN in
``democratic'' fashion offers votes to even the world's most
undemocratic governments--thus lending itself more to the model of a
club of rulers serving their own interests, not those of the
populations they claim to represent--there are a number of immediate
flaws that allowed the corruption of Oil-for-Food, and are now
particularly well-placed to be explored and fixed.
If there is one message I can send today, it is that the basic flaw
which might most easily be remedied is the UN's extreme lack of
transparency. This includes basic financial and book-keeping
information. And in the case of Oil-for-Food, it should have included
full details of Saddam's deals--and I see no good reason why such
information could not, even now, be released, not only to various
investigative bodies now pounding on the UN's closed doors, but to the
general public--the world public that the UN in theory exists to serve.
Whatever custom may dictate, there is no good reason to keep such
information confidential. The UN practice of secrecy in these matters
invites graft, waste and abuse. Nor has the UN so far succeeded in
offsetting that problem with assorted auditing arrangements. Oil-for-
Food provides a vivid illustration of the problem. Despite Oil-for-Food
having been, in the words of one UN spokesman, ``audited to death''--
and by the UN's own account, one of its most extensively audited
programs, evidently neither the ``external'' not the internal audits
served to expose enough of the major damage, at least not enough to
stop it.
And while I would be glad to discuss details of specific
investigations now underway, the most useful move at the moment might
be to stop taking as a given the ground rules of continuing
confidentiality on all fronts laid down by the UN, and require that the
UN enlist not only its select panel of investigators to get to the
bottom of the problem (asking us to trust that this time they really
will) but also open its books so as to employ the resources of both
specific information and general ingenuity so broadly available in the
marketplace of ideas, and so necessary at this late date not only to
piecing together the full picture on Oil-for-Food, but to reforming the
UN itself. To be quite practical about it, if Oil-for-Food allowed
Saddam to funnel money to murderers who may yet pose a danger to us
all, it seems foolish to wait upon the ceremony of yet more UN
confidentiality and self-investigation. They need all the help they can
get. We do too.
Mr. Hall. Thank you.
Mr. Babbin, I recognize you for 5 minutes. I won't hold you
to the exact seconds but let us hear from you.
STATEMENT OF JED BABBIN
Mr. Babbin. Thank you, Mr. Chairman and members of the
subcommittee. My name is Jed Babbin. I appreciate the
opportunity to appear today.
I think we all have to recognize that none of us would
probably be here but for the rather energetic reporting of Ms.
Rosett, and I think much of what we know we know because of her
reporting.
Today I wish to accomplish only two things, Mr. Chairman.
The first is to raise some of the same concerns that have been
raised by the other witnesses and by Mr. Flake about the
various investigations into the Oil for Food program. Second, I
wish to point out to the subcommittee some of the other and
perhaps even more important aspects of U.N. corruption.
As I have documented in my book ``Inside the Asylum,'' the
U.N. Today is the handmaiden of terrorism, the errand boy of
despots and dictators, and a diplomatic quagmire that is the
antithesis of our policy to preempt terrorist attacks. The Oil
for Food investigations right now seem to be competing, and I
suggest to the committee that it is in our best interests and
in the best interests of the Iraqi people to sort out that
competition so that the investigations can be made best, most
quickly, and pointed toward the recovery of the funds from
whichever people have wrongly benefited from the bribes and
embezzlement.
The U.N. asks that Congress and the American people
subordinate their investigations to that of the United Nations.
In fact, it should be the other way around. The U.N. should
subordinate its investigation to yours and to other committees
of this Congress and make its people and records available to
the independent investigations being conducted here and in
Iraq. To state it in another way, the U.N.'s position
apparently is that the victim, a sovereign nation, should defer
its investigation to the body in whose name the crime was
committed and an investigation that is not even aimed at
redressing the crime. Obviously it should be the other way
around.
The U.N.'s so-called independent investigation has little
or no chance of solving and determining what in fact happened
in the Oil for Food program. As I explained briefly in the
book, what was then the Iraqi Governing Council commissioned an
investigation of the Oil for Food program in late 2003. The IGC
engaged the Roland Berger strategy firm in London to conduct
it. Later they joined the Freshfields firm, a law firm there,
to continue to pursue a full and complete investigation that
is, most importantly, aimed to take whatever legal action may
be necessary to recover the funds.
One of the crucial differences between the Iraqi
investigation and the U.N. investigation is that the Iraqis aim
to get the money back from the malefactors and the U.N. does
not even pretend to have that purpose.
It seems to me that there are great obstacles to both
investigations. Both suffer the inability to subpoena documents
and testimony from government officials, banks, and individuals
who were involved in the Oil for Food program. Most of the
money which resulted from oil sales in the program passed
through French and Jordanian banks, specifically BNP--the Bank
of France--and Jordanian banks, including the Jordan National
Bank, the Arab Bank and the Housing Bank. None of these banks
nor their respective national governments are under any
obligation to cooperate with the investigations. I suggest the
Congress is in a better position to try to compel this
cooperation than the U.N.
The other thing that we have going on right now is, as Ms.
Rosett said, this document chase. As I understand from my
sources within the past few days, the U.N. investigation, Mr.
Volcker is now trying to compel that all of the documents in
Iraq be gathered up from the disparate ministries at which they
are held and put in one place. I think that is a perfectly
bloody awful idea that invites an attack on them that could
very well destroy whatever records may exist. The idea of such
an attack I don't believe is fanciful in light of the recent
assassination of the head of the Iraqi Supreme Audit Authority.
In the remaining few seconds, I want to say that as serious
as the Oil for Food scandal may be it is, after all, only about
money. There is a corruption in the U.N. And its agencies that
is far more important to every American, and it is not
financial corruption. It is a moral corruption, a decadence of
thinking and reasoning that tolerates terrorism. No, it is more
than just a tolerance, it is an acceptance of terrorists and
the nations that support them, evidencing a moral bankruptcy
that is unimaginable to most Americans.
I won't go through the examples that are in my statement,
but I would just simply refer the committee to the picture that
is attached to the statement. This picture was taken at a U.N.
UNOFIL peacekeeping outpost on the Israel-Lebanon border. You
see two flags flying next to each other. One is the UNOFIL
flag. The other is the flag of Hezbollah. This is the terrorist
organization that has more American blood on its hands than
probably any other except al Qaeda. They were responsible for
the Marine barracks bombing in 1983 that killed 241 brave young
Americans. They have committed atrocities against Americans
again and again and again. How we can allow the United Nations
to tolerate this conduct by its peacekeepers keeping company
with, sharing telephones and water supplies with terrorists
with American blood on their hands is quite beyond me, Mr.
Chairman.
I would submit the rest of my statement, if I may, and I
would be pleased to answer the committee's questions.
Mr. Hall. Without objection, your statement will be
accepted into the record.
[The prepared statement of Jed Babbin follows:]
Prepared Statement of Jed Babbin 1
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\1\ Jed Babbin is a contributing editor of The American Spectator
Magazine, and a contributor to National Review Online. The opinions
expressed in this testimony are his and do not necessarily reflect the
opinions of those publications.
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Good morning Mr. Chairman and members of the subcommittee. I am Jed
Babbin, author of ``Inside the Asylum: Why the UN and Old Europe are
Worse than You Think.'' I greatly appreciate this opportunity to appear
before you today.
The subcommittee's continuing inquiry into the UN Oil for Food
Program will, I'm sure, uncover further evidence of UN malfeasance and
the comprehensive corruption of that program. Today, I wish to
accomplish two things. First is to raise serious concerns about the
various investigations being made into the Oil for Food program. These
concerns arise because the UN is engaged in actively thwarting the
investigations of this body and others, and because the investigations
that should continue have been sidelined by the Coalition Provisional
Authority. Second, I wish to point out to the Subcommittee some of the
other--even more important--aspects of UN corruption. As I have
documented in ``Inside the Asylum,'' the UN is today the handmaiden of
terrorism, the errand boy of despots and dictators, and a diplomatic
quagmire that is the antithesis of our policy to preempt terrorist
attacks.
THE OIL FOR FOOD INVESTIGATIONS
I understand that the Subcommittee has heard, in its earlier
hearing and from other witnesses today, of many of the problems that
burdened the Oil for Food program and deflected it from its intended
purpose. There are many within the UN, and among the nations and people
that apparently profited from the abuse of the program, who are working
hard to prevent the truth from being uncovered. The UN asks that
Congress and the Iraqi people subordinate their investigations to that
of the UN. In fact, it should be the UN that subordinates its
investigation, and makes its people and records available to the
independent investigations being conducted here and in Iraq.
The UN's so-called ``independent'' investigation has little or no
chance of determining what happened, and is not even tasked with the
proper goals. As I explain briefly in ``Inside the Asylum,'' what was
then the Iraqi Governing Council commissioned an investigation of the
Oil for Food Program in late 2003. The IGC engaged the Roland Berger
Strategy Consultants firm of London, UK to conduct it. In my
researches, I have spoken to a number of people including Claude
Hankes-Drielsma, the chairman of Roland Berger.
By March 2004, when my manuscript was finished, that investigation
was reasonably well-positioned. The Roland Berger firm had been
succeeded by the KPMG firm which was to work with the British law firm
of Freshfields Bruckhaus Deringer, (later succeeded by the Patton,
Boggs firm of Washington, DC) to pursue a full and complete
investigation, and--most importantly--to take whatever legal actions
may be possible to recover the stolen and embezzled funds. On April 21,
2004, appearing to bow to the pressure from the Security Council
members, Secretary General Annan commissioned former Federal Reserve
Chairman Paul Volcker to investigate the corruption in the Oil for Food
program.
At about that point, Coalition Provisional Authority head
Ambassador L. Paul Bremer decided to sidetrack and forestall the Iraqi
investigation in favor of the UN investigation. It is puzzling to see
the CPA and Mr. Bremer effectively block an investigation which--
according to Mr. Hankes-Drielsma--they were fully aware of and had
approved. Worse still, Mr. Bremer's decision to cooperate with the UN
and to block the Iraqi's own investigation may effectively prevent the
truth from ever being uncovered. In Mr. Hankes-Drielsma's words, Bremer
``pulled the rug out from under'' the KPMG/Patton-Boggs investigation.
There are obstacles to both the Iraqi investigation and the UN
investigation. First and foremost is their common inability to subpoena
documents and testimony from government officials, banks and
individuals who were involved in the Oil for Food program. Most of the
money which resulted from oil sales in the program passed through
French and Jordanian banks. Specifically, BNP (the Bank of France) and
Jordanian banks including the Jordan National Bank, Arab Bank, and
Housing Bank. None of those banks, nor their respective national
governments, are under any obligation to cooperate with the
investigations. (I note, however, that one source told me there was--in
the New York branch of BNP--a considerable number of documents related
to the Oil for Food Program. These are, I believe, within the reach of
American judicial or congressional subpoenas).
Despite the obstacles they suffer in common, there is a fundamental
difference between the Iraqi investigation and the UN investigation
which, I believe, makes it imperative that we support the Iraqi
investigation. Unlike the UN investigation, the Iraqi investigation is
tasked not only to determine whether and how the corruption took place,
but also to recover the many billions of dollars apparently stolen from
the people of Iraq. The UN's limited goal of determining how the theft
occurred will necessarily be accomplished as a preliminary step toward
recovering the stolen billions. The UN should be required to support
the Iraqi investigation, and subordinate its own to that of the Iraqi
people. Mr. Bremer's action in sidetracking the Iraqi investigation
should be reversed immediately, and the Iraqi government encouraged to
proceed at its best speed.
The UN investigation is creating a grave and unnecessary danger to
the success of the Iraqi investigation. The Saddam regime, for whatever
reason, was comprised of obsessive bureaucrats and record-keepers. They
operated under instructions which one source told me were ``very
significant and detailed.'' They are among the records that are--or
were in March of this year--still in the Baghdad ministries.
The records of the Oil for Food program transactions kept in
Baghdad were very detailed. They existed in--at least--the Oil
Ministry, the Finance Ministry, and the Trade Ministry. Given access to
them, investigators could make enormous progress, and would probably
find sufficient proof of wrongdoing that many of the guilty parties
could be identified, and public pressure on governments, banks,
companies and individuals could be marshaled to demand cooperation in
the investigation.
According to Mr. Hankes-Drielsma, to whom I spoke two days ago, Mr.
Volcker is insisting that all of the documents in the Iraqis'
possession be gathered together in one location. This is an amazingly
bad idea. Records can be lost or destroyed in any move, and
consolidating them in one place makes them a valuable target for a
terrorist strike aimed at destroying them. As is demonstrated by the
recent assassination of the head of the Iraqis' Board of Supreme Audit,
this is not a fanciful concern.
The UN's rules--and the UN always plays by the UN's rules, not
anyone else's ``require that all the documents in the possession of the
Iraqi government be made available to the UN. But the UN is refusing to
allow any KPMG/Patton, Boggs access to UN documents. And thanks to Mr.
Bremer's intervention, the KPMG/Patton, Boggs investigation has been
put on hold indefinitely.
I respectfully suggest to the Subcommittee that it should consider
seriously using its influence to ensure that the United States chooses
between these competing investigations, and does so in favor of the
Iraqi investigation. America should do all in our power to ensure that
the Iraqi investigation goes forward and is given access to the UN, its
records, employees and officials, without interference from or undue
deference to the Volcker investigation.
THE UN AS HANDMAIDEN OF TERRORISM
As serious as the Oil for Food scandal may be, it is--after all--
only about money. There is a corruption in the UN and its agencies that
is far more important to every American. It is not financial
corruption. It is a moral corruption, a decadence of thinking and
reasoning that tolerates terrorism. No, it is more than tolerance: it
is acceptance of terrorists and the nations that support them
evidencing a moral bankruptcy that is unimaginable to most Americans.
Let me give you a few examples:
Hezbollah is an Iranian-backed terrorist organization that has more
American blood on its hands than any other terrorist
organization except al-Queda. They murdered 241 Marines in the
infamous 1983 Beirut barracks bombing. They kidnapped, tortured
and murdered Marine Col. William ``Rich'' Higgins, as well as
CIA Station Chief William Buckley. On page 155 of ``Inside the
Asylum'' there is a picture of a ``UN peacekeepers'' position
on the Israel-Lebanon border. A copy of that picture is
attached to this statement. In it, you see two flags flying
side by side. One is the UN flag, the other the flag of
Hezbollah. While in Israel last November, I spoke to an Israeli
soldier who had been stationed at an IDF post on the Israeli
side. He told me how the UN ``peacekeepers'' lived in
comfortable coexistence with the murderers of Hezbollah, using
the same telephones, sharing water supplies. Were it up to me,
not another American dime would be paid to the UN while that
Hezbollah flag flies. I wonder: how many other terrorists take
advantage of similar UN hospitality elsewhere in the Middle
East and around the world?
The United Nations Relief and Works Agency for Palestinian Refugees
in the Near East--UNRWA--is supposed to be dispensing
humanitarian aid and educational services in the Palestinian
areas of the West Bank and Gaza Strip. In ``Inside the
Asylum,'' I quote from the testimony of Professor Rashid
Khalidi of the University of Chicago. In a US District Court
case, his affidavit said that UNRWA hires members of Fatah, the
Popular Front for the Liberation of Palestine (PFLP), Hamas and
Islamic Jihad in disregard of their terrorist ties. I don't
know how many US tax dollars or private donations by Americans
go to UNRWA. Whatever the total, if it's above zero, it's too
much;
Since 9-11, the UN has preached loudly about its dedication to
fighting terrorism. But its special committee on terrorism--
comprised of the entire Security Council--can't even agree on a
definition of terrorism. How can you fight something when you
can't agree on what it is? and
Most importantly, the UN is serving as midwife to the birth of
nuclear terrorism. The International Atomic Energy Agency
cannot agree on the obvious, that for more than two decades the
kakistocracy that runs Iran has been working desperately to
produce a nuclear weapon. If the IAEA acted, the Security
Council could sanction Iran and maybe, just maybe, we could
abort nuclear terrorism without having to resort to war to do
so. But the IAEA is willfully ignorant to Iran's intent and
progress. America cannot allow Iran to achieve its nuclear
ambitions. By failing to act, by refusing to allow the UN to
act diplomatically while it may yet have some effect, the UN is
making war more likely, not less.
Mr. Chairman, this concludes my written statement. I will be
pleased to answer any questions you or the members of the subcommittee
may have.
Mr. Hall. I guess, Mr. Babbin, I have asked you, I think
you are aware of the fact that Paul Volcker who heads the U.N.
Investigation said in the Wall Street Journal yesterday, I
think it was, maybe the day before yesterday, and I quote: It
is only the independent inquiry committee that I chair that has
a mandate, the international framework and, I believe, the
access to resources both human and financial to provide the
kind of comprehensive fact-finding and analysis the
investigation requires.
You apparently disagree with that?
Mr. Babbin. Yes, sir, I do. And I do because Mr. Volcker is
stating diplomatically and implying certain things which I
don't believe he can deliver on. I believe Mr. Volcker is a man
of great integrity and determination but I don't believe that
the U.N. inquiry can possibly have an international framework
which will compel or even obtain the cooperation of the nations
such as France and Jordan and others, including Russia, which
will allow them to reveal what actually happened. This is
simply not going to happen through the United Nations, Mr.
Chairman.
The United Nations and the culprits in the Oil for Food
scandal are not going to cooperate in this investigation. And
to allow this framework to go on, without disclosing to the
American people and to this Congress what the U.N. already
knows, it seems to me is going to lead to something other than
a full and open investigation. We are never going to find out
what happened this way.
Mr. Hall. Then I take it that you don't really take his
statement when he says that it has the international framework
and the access to resources to provide the kind of fact-finding
that is in need--you disagree with that?
Mr. Babbin. Well, I don't know what it means, Mr. Chairman.
The problem is Mr. Volcker again is stating in very great and
broad diplomatic language what may or may not be deliverable.
And I do not believe, despite his best efforts and whatever
solemn promises he may have obtained from the Secretary
General, I do not in my heart of hearts believe that Mr.
Volcker will be able to have an international framework that
gets the cooperation of the French banks, the Jordanian banks,
the French government officials that are probably involved in
this mess, the Russians. There are 17 or so Russian companies
and individuals that are listed in that famous list of possible
participants in the Oil for Food scandal that was published in
an Arab newspaper some time--a few months ago. We have no way--
Mr. Volcker absolutely has no way of delivering on that. I
think quite frankly he is being overly optimistic.
Mr. Hall. I thank you for that.
Mr. Christoff, I first would point out your testimony notes
that a major offshore terminal in Iraq did not have a meter to
measure oil pumped into vessels. That is on page 7 of your
report. And in your testimony on page 8 you discuss the U.N.
board of audit. You stated, ``U.N. auditors generally concluded
that the Iraq account was fairly presented in accordance with
U.N. financial standards.''
Mr. Christoff. That is correct.
Mr. Hall. How did the U.N. financial standards compare,
say, with the United States financial standards?
Mr. Christoff. I don't know the exact answer to that, Mr.
Chairman. I think that is one of the areas that we are going to
try to look into to try to do some kind of comparison.
Mr. Hall. If it doesn't even have a meter to measure oil
pumped into it, how could you even possibly compare them with
the United States standards?
Mr. Christoff. Well, you can't. The metering system is
still a problem today. There still are no meters on the
offshore platform in the Gulf.
Mr. Hall. The U.N. external audits found no fraud?
Mr. Christoff. No. They did point out several problems,
however. They pointed out the lack of metering as far back as
1998. They encouraged the U.N. to diversify the number of banks
rather than relying solely on BNP Paribus, but they did not
find any instances of fraud.
Mr. Hall. But they did find that the simple measuring
devices were not even in place to measure crude oil being sold?
Mr. Christoff. Right.
Mr. Hall. That is just the mother and father of fraud, is
it not? Enticing fraud and allowing fraud.
Mr. Christoff. It is very difficult to know how much oil
you are offloading if you don't have a meter.
Mr. Hall. I agree. When you say the Gulf, you mean the
Persian Gulf?
Mr. Christoff. Right.
Mr. Hall. All right. I think my time has probably lapsed. I
recognize Mr. Allen.
Mr. Shadegg. Mr. Chairman, point of order.
Mr. Hall. State your point of order.
Mr. Shadegg. I do not have a copy of the photograph
attached to the testimony of Mr. Babbin. I asked my staff to
check with the clerk, and he tells me that we don't have a copy
of that photograph.
Mr. Shimkus. It is in mine.
Mr. Shadegg. I don't have a copy and the clerk didn't have
a copy. I just wanted to make sure we had one in the record.
Mr. Hall. You have just been handed one.
Mr. Shadegg. Thank you.
Mr. Hall. Go ahead, Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman.
Mr. Christoff, to what extent do you believe the areas for
additional analysis your testimony identified are likely to be
pursued by the Volcker Commission or other investigations? Do
you have any view on that?
Mr. Christoff. I think clearly they will have the
information to try to assess price reasonableness, looking at
the contracts, making some assessment of the extent to which
there was intentional overpricing. I think also, whether they
do or not have a real access to, they need to look into the oil
smuggling and the extent to which the Sanctions Committee
through the 661 minutes in fact address these kind of issues,
both the smuggling, the surcharges. I have spoken to Mr.
Volcker. I think he understands that it is quite a challenge,
but I also believe that we should give him an opportunity to
report out and see what they find.
Mr. Allen. Am I right in thinking that his target is 6 to 8
months for a report, something on that order of magnitude? Do
you remember?
Mr. Christoff. Yesterday he said 6 to 8 months for the
final report and some interim reports prior to that.
Mr. Allen. Can you talk a little bit more about the
responsibility of member states to monitor and prevent Iraqi
oil smuggling? The number $10.1 billion has been thrown out
several times in the course of this hearing, but as you
testified, $5.7 billion of that appears to be related to oil
smuggling. I take it that the oil smuggling had nothing to do
with the Iraqi Oil for Food program. Is that fair?
Mr. Christoff. All member nations as well as the United
Nations was supposed to enforce sanctions. Enforcing sanctions
precludes the delivery of any oil outside of the Oil for Food
program. So in effect, the smuggling was still a violation of
U.N. sanctions. It may not have been directly part of the Oil
for Food program but still it was clearly a violation of
sanctions.
Mr. Allen. But when you locate the responsibility for the
violation itself, the smuggling itself, that was between the
Iraqi Government and Jordan or Syria or whatever other
countries were involved?
Mr. Christoff. If we are talking about responsibility,
first responsibility would be on the neighboring nations. They
were responsible for enforcing the sanctions. They should have
precluded the smuggling. But at the same time, the Sanctions
Committee, which is also the Security Council, was responsible
for implementing the overall sanctions.
Mr. Allen. And so the question raised is whether the U.N.
Sanctions Committee did enough to control oil smuggling.
Mr. Christoff. Correct.
Mr. Allen. And one of the members of the U.N. Sanctions
Committee was the United States; am I right?
Mr. Christoff. Correct.
Mr. Allen. In my mind, there are a series of important
questions that are really beyond the reach of this
subcommittee. Mr. Babbin was talking about what areas, France,
Russia, documents in France and Russia that may be beyond the
reach of Paul Volcker. They are certainly beyond our reach as
well. And it is probably too early in the investigative process
to answer these questions but I wanted to get your reaction if
you have one to these.
We have already talked about oil smuggling and I think one
question would be exactly what steps did the U.S. take or could
have taken to prevent the oil smuggling that went on through
its position on the Sanctions Committee or otherwise. I don't
know if you have anything further to add on that, what the U.S.
should have done.
Mr. Christoff. The U.S. did address oil smuggling to the
Sanctions Committee. As far back as 1996, the Maritime
Interdiction Force, which was U.S.-UK, first reported on the
oil smuggling and reported it to the Sanctions Committee and
the Security Council.
Mr. Allen. The GAO report states that the Security Council
proposed that U.N. agents review contract and compliances at
Iraq's Oil Ministry but Iraq refused these conditions. What
access did U.N. agents then have to Iraq contracts and how
could they enforce any kind of oversight? Again, I think that
is a question for full investigation, but if you have any
further comment on it, I would be interested.
Mr. Christoff. All members of the Sanctions Committee, for
example, had access to all the contracts. They had access to
look at the contracts. And I think as we pointed out in our
statement, the U.S. was the most prodigious in putting holds on
the contracts, $5 billion worth of holds as of the end of 2002.
So all of the members of that Sanctions Committee had access to
those contracts.
Mr. Allen. I see my time is expiring, Mr. Chairman, so I
yield back.
Mr. Hall. I thank you. The Chair recognizes the gentleman
from Arizona, Mr. Shadegg, for 5 minutes.
Mr. Shadegg. Thank you, Mr. Chairman.
Ms. Rosett, it seems to me that the key to your testimony
was that we need to get the U.N. to release normal
documentation. What efforts have been made to date to that
point and have you looked at Congressman Flake's bill as an
effort to force the U.N. to release what you refer to as normal
documentation?
Ms. Rosett. I think I am probably going beyond what that
bill is trying to do and what I am suggesting--I think I am
treading outside routine practical politics here, but I think
it needs to be said. The contracts, for example, that went with
this program, which Mr. Christoff mentioned, there was
important information in the original versions of those;
amended versions were handed over to the CPA, or rather the
data from amended versions. So you didn't actually see a lot of
what happened. There are leaks where in my own reporting, what
I am able to see leads you to interesting conclusions and
something of the beginning of a picture of how some of this
worked. For instance, I say--and it is speculative at this
point--I think that you had many cases in this program that
sort of collapsed back to particular groupings where what
looked like businesses in many different countries actually
tracked back to one particular place.
I would also caution it was about more than money. There
were three things going on here. This was oil for palaces, it
was oil for political influence, and it was probably also oil
for terror and arms, which is why it is so urgent. What I was
saying here is when this program was underway, the U.N. simply
didn't release any information that would tell you anything
specific about the deals being done. For instance, you could
see that there were milk contracts coming out of Russia. You
need a leaked document and these take hunting, and it is absurd
that you have to go hunting this sort of thing, all of us. What
you didn't see was that the milk, for instance, in that case
shipped in from Russia had come from Zarubezhneft, which is a
state oil company. Why were they selling milk? That would lead
you to the further question of was there ever any milk sold?
Which would lead you to wanting to look at the contract. What
bank was this paid into, when did it happen, who signed the
deal? Was he among the people the U.N. then tried to get in
touch with just after the program who disappeared, as many did?
This is basic information where in keeping it secret, the
U.N.--there is an entire Russian press corps that would look at
that and lights would go on. You would at least have that
happening. That is what I am talking about. I am saying this
that Volcker's Commission has now appropriated as its
possession, no one else should see, that is madness and
especially--I am almost to the end of this--if you are talking
about terror funding flowing through this--and I think there is
much reason to believe it did, Treasury's testimony would
suggest that. The commercial bank of Syria where more than a
billion was diverted into funds, into accounts there sitting
next to accounts that funded al Qaeda, if you will look back at
the Treasury testimony, Al Wasel & Babel in Dubai. This is
urgent. This should not wait 6 to 8 months. There should be
every resource possible deployed. That is why I am saying it
would be both healthy for the U.N. in the long run and it would
be urgently importantly helpful in this investigation now.
Mr. Shadegg. I completely agree with that. I think from
your answer you have confirmed what I believe, which is that
the Volcker investigation will not produce that information. I
guess my question to you is if the Flake bill does not go far
enough, what is the vehicle you would best recommend, whether
it is an investigation by this committee, an investigation by
the Senate, an investigation by the International Relations
Committee, and what is the mechanism if it is not Congressman
Flake's bill, if it is something beyond Congressman Flake's
bill, what is the mechanism that you can see would best force
the disclosure of this information which we agree the world
deserves to see, indeed desperately needs to see?
Ms. Rosett. Every piece of daylight possible. I am a
reporter, not a politician. I cannot advise you on strategy but
I can tell you that where congressional committees--I don't
even know exactly whether this is within your power, but you
are able to get copies of the contracts, you are able to get
the precise names, the dates. I have leaked names and dollar
figures through 2001, but I can't see a crucial chunk of the
program when I look.
I would suggest that you get everything you can and release
it. Release it to the public, the press. Let the Iraqis see it,
let us see it, let people who are expert in the related
industries go over and see it. Let people who know milk in
Russia figure out why Zarubezhneft was selling milk. That is
just one of scores and scores of strange, strange cases you can
see when you look at what has been leaked. Release it in
detail, and you will find out a great deal more than by leaving
it in these sort of careful contained investigations.
Mr. Shadegg. So to the extent that it is within the
jurisdiction of the full committee and the jurisdiction of this
committee, your message to the chairman of the full committee
and your message to the chairman of this subcommittee would be
to seek these documents, notwithstanding any of the other
investigations and make them public?
Ms. Rosett. Absolutely.
Mr. Shadegg. Thank you. I yield back.
Mr. Hall. Thank you, Mr. Shadegg. The Chair recognizes Ms.
McCarthy for 5 minutes.
Ms. McCarthy. Thank you very much, Mr. Chairman. I thank
the panelists very much for the wisdom that you are sharing
with us today. I am just curious, given the documentation that
we have--and you may have touched upon this before I arrived at
the hearing--but how is it possible that the violations
continued for so long, from 1997 to 2002? Anyone.
Ms. Rosett. Yes. The people who knew didn't want to talk
about it. The people who had the proof didn't want to talk
about it, and the people who wanted to talk about it didn't
have the proof. Which again goes back to the bottom-line
message. You have a highly nontransparent U.N. It has arrived
at the level of farce in some senses. They put in the Office of
Internal Oversight Services I think in 1994 at U.S. behest to
try and make sure that things worked better. That office is now
I believe investigating itself, to the great dissatisfaction of
the staff. They have external auditors.
When Mr. Christoff was being questioned about this--may I
just add France was chairing the board of external auditors
during the crucial year 2003. Layer after layer gets added in
which the U.N. effectively reports to itself. Again, the
example of why was the report on the son of the Secretary
General, on Kojo Annan's business activities, connected to a
company deeply connected to this program. Why was that done by
an employee of Kofi Annan and kept confidential? Why is it
still confidential?
It would be helpful to see, because if you then look at an
internal audit that leaked against U.N. wishes in May, you see
that there were enormous problems with this, including what you
start to see when you look through some of the documents that
you carefully can finally tease out is--excuse me, I am
straying a little here but this is an important point.
We all assume that because there was this program and there
were sanctions that things were under control at the borders.
Important observation about the lack of a meter. You then
discover if you dig further, or if you dig in other directions
on the inspecting of relief goods coming in, evidently the U.N.
understanding was that these inspectors were just there to make
sure that the shipping manifest matched the contract. In fact,
they inspected--was this figure yours--fewer than 10 percent of
the shipments visually. And further, according to the U.N.'s
own statements, if you had driven a truck carrying a missile
launcher past the U.N. relief inspectors, they would not have
done anything except tell the guy delivering the missile
launcher, we cannot arrange for your payment, you will have to
do that elsewhere. They wouldn't have stopped him. So you had
no real control.
Again, none of this is put out there. It is this highly
shrouded environment. What I am saying is the United Nations,
which has so little accountability anyway, responsibility
diffuses, just disperses among the members, the best
protection, if you want to save the United Nations, the best
thing you can do is crack it open, make it share with everybody
what goes on with its financial dealings, its deals, its
contracts, its procurement especially. That is why--it is one
thing to look and say, gee, that looks like a crooked program
to me. It is another thing when someone says, show me the
proof. Say, here are the documents I would need to begin to
take you down that trail. However, the U.N. will not release
them.
Mr. Babbin. Ms. McCarthy, if I just might add to that in a
few seconds. I think Claudia is making a very good point, and I
wanted to go back to what Mr. Shadegg was saying a few minutes
ago. If we are looking for ways to improve the United Nations,
what we need to do is to withhold sufficient funding from them
unless and until they open up their records. We should not have
to ask for each and every audit report. Each and every audit
report from the United Nations should be sent to the United
States of America, open and in the press, and we should not
have to grope and gripe every time we need some facts. This is
a very corrupt culture that will hide anything and everything
unless they are compelled to reveal it.
Mr. Christoff. If I could just add three brief reasons why
this continued and happened. No. 1, Iraq was sovereign. It
negotiated the contracts directly. No. 2, no one looked at
prices to assess whether or not the prices were reasonable. And
No. 3, member nations did not enforce the sanctions,
particularly those nations that bordered Iraq and did not
prevent the smuggling.
Ms. McCarthy. What are the people of Iraq doing now for
food?
Mr. Christoff. The public distribution system continues. It
was assumed controlled by Iraq on July 1. Prior to that, the
world food program was running the food distribution system
along with the CPA, and it is now the responsibility of the
Iraqi Ministry to continue the program.
Ms. McCarthy. And the funds to do that?
Mr. Christoff. The funds? Iraq is now in charge of the
Development Fund for Iraq, all the resources that are in it. It
was the primary source that was used to fund the public
distribution system that fed basically all Iraqis, $24 million.
Ms. McCarthy. Thank you very much. I yield back, Mr.
Chairman. Thank you very much. Thank you all very much.
Mr. Hall. The Chair notes that Chairman Barton is present.
Mr. Chairman, I recognize you for 5 minutes.
Chairman Barton. Thank you, Mr. Chairman. The first thing I
need to do is make an announcement. I have spoken with the
Assistant Secretary at the State Department, I have got a phone
call in to the Secretary of State who is at the White House
with the President. He is going to call me back in the next
hour or so, but we have total cooperation with the State
Department. They cannot be more willing to cooperate. They are
just excited to have the opportunity to cooperate. There will
be other hearings by this committee at which the State
Department and other Federal departments will testify, and
there is a fair chance that some of those hearings will be
oversight hearings where they will testify under oath. I want
to let the members of the committee on both sides of the aisle
know that we have had a very productive morning with the State
Department.
I have not called the U.N. I don't have quite the authority
over the U.N. that I do as chairman of a committee that has
jurisdiction over the State Department. I will get in touch
with the United Nations, however.
My first question, it is a general question: Since the U.N.
is an international body, is it possible for the U.S. Congress
to make, encourage, incentivize the U.N. to cooperate with this
type of an investigation? And if they won't cooperate with the
Congress, is there any international--do their protocols have
any accountability provision for an outside authority to
investigate them?
Mr. Christoff. I don't think there are any outside
authorities to investigate the U.N. In terms of incentivizing
U.N. cooperation, this Congress did that in the past through
Helms-Biden to try to ensure U.N. cooperation with its reform
agenda. We issued a report just a few months ago looking at
their efforts to try to engage in reform. They are succeeding
in areas to try to reform their management structures, their
personnel structures. So you have done that in the past and it
has been successful in the past.
Mr. Hall. Mr. Chairman, I think whereas there may not be
the international framework or any subpoena power and all that,
I think the courage of authors like Mr. Babbin and Ms. Rosett,
their research and their tenacity sometimes brings that to the
world's newspapers, and people read those and sometimes react
to them. That is one thing we do have going for us.
I wish you would speak to the U.N. because your changing
the State Department's attitude is another indication of why I
think you are a fine Chairman of Commerce and following the old
pattern that has been set by former members.
Chairman Barton. I appreciate that. I am going to call the
U.N. I don't want to misrepresent that I am not willing to.
Secretary Powell was in the building, and so it was much easier
to get ahold of him and his people today than it is to get
ahold of the U.N. people.
Mr. Hall. You may have the same result that poor old
Richard Nixon had when he called Dial-A-Prayer; they hung up on
him.
Chairman Barton. I still have a question. I wanted to ask
Mr. Babbin if he had any idea how to force the U.N. or
encourage the U.N. to cooperate.
Mr. Babbin. At the risk of sounding a little too
colloquial, I am reminded of the old story about two folks
trying to get a mule to move, and the city slicker pulling on
the reins and pulling and pulling and arguing with the mule,
and the farmer walking up and saying, You know, you've just got
to get his attention first; picked up a 2 by 4 and hit him on
the side of the head and the mule moved.
I think you have a mule in New York and a lowly sight. I
say this considerately. I think you are going to have to do
something very drastic in restricting the funds that go to the
United Nations in order to get them to move. There is no
internal oversight of any effect in the United Nations. There
is no opportunity to impose one. The problems with the U.N. as
I say in my book, the U.N. is broken and can't be fixed, Mr.
Chairman. The reason it can't be fixed is the nations which are
the problem would have to approve the changes. You need a two-
thirds vote of the Security Council and a two-thirds vote in
the General Assembly, plus in the Security Council a unanimous
five veto-holding members' votes supporting any change to the
U.N. charter. So if you want to change the U.N. charter and
impose some audit requirement, for example, and disclosure to
the American people, what you are going to have to do is get
the approval of all the people who are the problem.
So I don't think you can do much except withhold money and
hit that mule upside the head with a piece of 2 by 4.
Chairman Barton. Does the Volcker Commission have any
authority delegated to them officially by the U.N. that would
give them the ability to force compliance or more disclosure,
or is former Chairman Volcker operating under purely moral
authority but doesn't have any more explicit ability to
investigate and to get documents than we do?
Mr. Babbin. Mr. Chairman, the only authority that Mr.
Volcker has, as I understand it, is a U.N. Security Council
resolution; forgive me, I don't remember the number off the top
of my head, but it basically welcomed his appointment and the
Security Council applauded the investigation. I don't believe
that he has any authority to compel the production of
documents, testimony of witnesses, even to get into all of the
corners, nooks and crannies, in the United Nations itself. He
may have some very solemn assurances from Mr. Kofi Annan, but I
quite frankly don't know that Mr. Volcker can do other than be
a little too optimistic at this point.
Chairman Barton. If in fact officials at the U.N. benefited
personally from this program--and there is some anecdotal
evidence that that happened--is there existing protocol,
regulation, standards at the U.N. that would hold those
officials accountable if you could prove that such-and-such
U.N. official pocketed money in a personal account because of
this Oil for Food program?
Mr. Babbin. I don't know the answer to that question, Mr.
Chairman.
Chairman Barton. Do either of the other two?
Mr. Christoff. I don't know.
Chairman Barton. So basically if you are a U.N. official,
at least in a general sense, you literally have a license to
steal?
Mr. Babbin. Mr. Chairman, I have said this on talk radio
and I hesitate to say it here, but it is coming to the point
that the biggest difference between the United Nations and the
Mafia is that the Mafia holds its people accountable for what
they do.
Chairman Barton. I don't want to be attributed to that
quote.
Mr. Babbin. I didn't think you would, sir.
Chairman Barton. My time has expired. I want to thank these
witnesses for voluntarily coming, No. 1. I thank all three of
you for what you have done to bring this issue to light. The
GAO indicates, if I am not mistaken, that somewhere in the
range of $60 to $70 billion went to the program and your number
was at least $10 billion is probably totally skimmed off, then
used for purposes that Saddam Hussein----
Mr. Christoff. $5.7 billion in oil smuggling, $4.4 billion
through kickbacks and illegal surcharges on oil; right.
Chairman Barton. Do you have, sir, any evidence that that
money might still be secreted somewhere? I mean, there might be
some secret accounts somewhere, that that money is still in
play, so to speak?
Mr. Christoff. That is what the Iraqi Assets Working Group
is trying to do right now. It is headed by the Treasury
Department. They have been tasked for the past year to try to
find out where the hidden assets are of the regime. They are
under Juan Zarate over at Treasury and they are trying
earnestly to find that money.
Chairman Barton. I thank you all. We will be in touch as
this investigation progresses and we will also be--if you have
areas where you think the committee staff should probe, if you
will let us know, we will try to make sure that those probes
are conducted. Yes, ma'am.
Ms. Rosett. Mr. Chairman, there is one important thing I
just think you should all be aware of to do with the oil
smuggling. It speaks to a question that Congressman Allen was
also asking; because if you look at numbers that you are going
to be talking about here, that $5.7 billion in smuggling, the
oil that was produced to be smuggled was produced because the
U.N. brought in oil parts. Part of the program, Oil for Food,
was they began authorizing at the specific public urging of the
Secretary General of the United Nations and Benon Savon who ran
the program and whose office employed the oil overseers who
oversaw that in particular. They didn't have meters for this,
but the import of equipment to produce the oil. That was how
they were able to--that is the connection between the U.N.
Program, between Oil for Food and the smuggling. It supplied
the equipment. I just think that is important to know, because
the U.N. keeps explaining how it wasn't responsible for
anything. In fact, it seems--also I wanted to tell you the
phone number is 212-963-1234.
Chairman Barton. Thank you. Thank you, Mr. Chairman.
Mr. Hall. Thank you, sir. The Chair recognizes Mr. Shimkus
for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. This is a great
hearing. This is something we need to keep talking about. I
represent southern Illinois. I really enjoy public policy here
in the United States and I am involved with the NATO
Parliamentary Assembly. I do have my finger on international
activities. In my part of the country, it is not a positive to
really be pro-Atlanticists or international involvement and
there is not a lot of support for the United Nations. Period.
I would say that for the U.N. to remain viable, it has to
open up its books. I would concur with your statements. It
makes it very difficult for us who understand the importance of
having interactions with friends and allies, and even enemies,
that there is transparency. I always tell people, the NATO
Parliamentary Assembly that I am involved with is an
international organization of democratically elected
governments that have a mission, for self-defense. It is the
foundation which holds us together. Basic principles and even
some of these guys that we are talking about maybe in this U.N.
problem are members of the NATO itself, but the foundational
principles make us stronger and give us the more transparency.
It should not be surprising in the U.N. where there is no
foundational ideological basis for this grouping of member
states--Mr. Babbin, did you want to say something?
Mr. Babbin. I didn't want to interrupt. My comment is that
you are dead bang on the money. The point of the matter is we
share values, or at least we used to, with the NATO nations.
The U.N. is founded on a false principle. We are in our
Constitution enshrining the idea that all men are created
equal. But in the United Nations charter, essentially all
nations are created equal. That just is wrong.
Mr. Shimkus. That is what has to be part of the debate. Why
do we not have transparency? Why don't we have the Freedom of
Information Act? Why can't we get documents? Why do we allow
this to go on so long? Because of that basic premise. There are
no democratic principles brought to bear, there is no rule of
law, there is no focus on individual rights and freedoms. We
have got totalitarian regimes that are members of the U.N. This
should not be a surprise to the Nation that we have this
problem and why there is no transparency. And because of that,
it makes it very difficult for us in the heartland of this
country to say, you know, we ought to be sending all this money
to the U.N.
I say two things. I say it is important to have a place
where states can talk. I don't expect any action, but I do
think that that is important. They do some benefits on
inoculations and refugee issues which I believe is relatively
good work. But after that, forget it. They can't control peace.
They can't move troops. They are overfunded and overpaid. That
is what we have a problem with.
The Dominicans I think was the order that have lobbied me
numerous times before this recent war, asking for releasing
more Food for Oil programs. I have still in my office, in my
Springfield, Illinois office, a little package of food, a
little beans, a little bit of rice, a little pack; they say the
Iraqi people are starving and this is what is a ration for a
week or whatever. And so they are saying please allow more
exports of oil. And my response to them was, we are not too
sure that all this money is going to trying to feed these
people.
I think, Ms. Rosett, your comments were we had thought
there were some irregularities but we couldn't find the facts.
It made it difficult for me to tell these Dominican sisters
that we couldn't find the trail. Now we can. I would encourage
you all to continue. My time is running short.
I do have one question that I did write. The United States
may try to put a hold on some of these contracts, is that
correct, Mr. Christoff?
Mr. Christoff. Yes.
Mr. Shimkus. Did any other nation try to put a hold on any
contract?
Mr. Christoff. The U.K. Did.
Mr. Shimkus. That was it? Only two?
Mr. Christoff. Those were the two that the United Nations
reported to us as being the key countries.
Mr. Shimkus. But the answer is you don't know because the
U.N. may have had other people that they did not report to you?
Mr. Christoff. Don't know if others put holds?
Mr. Shimkus. Right. You have no ability to get information
from the United Nations, only what they provide you. Is that
correct?
Mr. Christoff. We don't have audit authority over the
United Nations, but we do get their cooperation and get
information from them.
Mr. Shimkus. And the second question that I would ask is
to--I talked about transparency and I talked about corruption.
We have talked about this internally in some Commerce Committee
meetings. A problem with former Fed Chairman Volcker is that he
really has no subpoena power. Would you agree with that?
Mr. Christoff. The U.N. doesn't have subpoena power, so of
course he doesn't.
Mr. Shimkus. That is my point. So for all the platitudes,
without subpoena power--we have subpoena power of the documents
that we have or the relationships that we have with the U.N. We
could subpoena the U.S. documents or agreements that we have
with the U.N.?
Mr. Christoff. I don't know if you can subpoena U.N.
documents, but all the members of the Sanctions Committee got
the contracts. So the contracts that were part of an
interagency U.S. process there are within the U.S. Government.
Mr. Shimkus. Mr. Chairman, I would respectfully request
that we try to get those from our representation on that
committee.
Mr. Christoff. It is over 30,000.
Mr. Shimkus. That is all right. We are going to have an
August break coming up.
Mr. Ose. Will the gentleman yield?
Mr. Hall. Does the gentleman yield?
Mr. Shimkus. The gentleman yields, but I am out of time.
Mr. Hall. The gentleman's time has expired. Who seeks
recognition?
Mr. Allen. Mr. Chairman, could I be recognized for just a
moment?
Mr. Hall. For what purpose?
Mr. Allen. I would like to offer a couple of documents for
inclusion in the record.
Mr. Hall. Without objection, they will be offered and
accepted.
Mr. Allen. Mr. Chairman, I offer for inclusion the article
in the Wall Street Journal, the op-ed in the Wall Street
Journal of July 7, written by Paul Volcker.
And something I will probably never do again, I would also
offer for inclusion in the record the Wall Street Journal
editorial on July 7 entitled ``Progress on Oil for Food'' which
celebrates the fact that Mr. Volcker's U.N.-backed probe will
not be entirely dependent on the goodwill and cooperation of
the U.N. and its member states.
True, it lacks subpoena power in its own right, but Mr.
Volcker points out that there are opportunities, indeed there
is a necessity for cooperation between his investigators and
law enforcement authorities in the United States and elsewhere.
It deals in sharp contrast to some of the statements that were
made by Mr. Babbin and by my friends on the committee. I thank
you.
Mr. Hall. Will you make available to our court reporter
there these copies?
Mr. Allen. Absolutely.
Mr. Hall. Without objection.
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Mr. Hall. The Chair recognizes Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman.
Ms. Rosett, in Mr. Babbin's book ``Inside the Asylum,'' he
states there is even emerging evidence that money from the
program might have gone to support al Qaeda. And then he
references you in the footnote from Oil for Terror, I believe.
I had to step out. Maybe you have addressed this already, but
can you expound on that? What is the reference there? Did Oil
for Food money go to fund al Qaeda?
Ms. Rosett. The financial corridors through which it would
have gone, could have gone, are certainly there. The question
that needs to be answered is did money flow, where did it end
up? I believe that Treasury may be looking at some of this, but
I don't think that any investigation is looking systematically
at the U.N. contracts. I would strongly suggest that this was
exactly the style in which Saddam Hussein would have been
likely to do it. It was hidden in plain sight. It was U.N.
approved. The contracts had this kickback structure coming and
going. There was an opportunity there to collect kickbacks and
build palaces or to fund whatever else he might have been
interested in.
As of 1998 onward, a signal year in the development of
terrorist networks in various ways, this program had been
consolidated in such a way that Saddam Hussein was proud to be
pretty sure he could dependably game in. It had become an
agency, a department in its own right at the United Nations, he
had kicked out the weapons inspectors and the U.N. had
responded by doubling the size of the oil he was allowed to
sell, and in the following year lifted the cap completely, in
other words, expanding this program. There are quite specific
links. I would urge you, if you hold further hearings, to call
as a witness--am I allowed to do this?
Mr. Walden. Sure.
Ms. Rosett. A private investigator who works at a New York
law firm, John Faucett, coauthor of one of the best reports on
corruption under Saddam. It focuses heavily on this program. It
came out in late September 2002. I have mentioned it in my
written statement here. It is worth looking at. He would be
worth calling. They are involved in bringing lawsuits on behalf
of victims of September 11, and this involves looking into
terrorist connections. There are many.
Again, the difficulty is you can see the likely corridor.
You need authority that for instance I do not have, but you may
be able to find ways to ask what really went through. But,
sure, there are several that have already been mentioned. I am
happy to supply you with articles about it. A firm in
Liechtenstein with direct ties to Bank Al Taqwa listed on the
U.N. terror watch list in the Bahamas as al Qaeda Financing. I
could tick off a set more. But yes. Also that commercial bank
of Syria mentioned in the Treasury testimony. There is plenty
of reason to be plenty, plenty worried about this. It may be
funding the murder of Iraqis and Americans right now.
Thank you.
Mr. Walden. Let me ask another question about some of the
specific programs. There has been speculation that some
countries have participated, including perhaps Australia in
their wheat sales to Iraq, that the price was greatly inflated
for what the world market was. Can any of you address that?
Mr. Christoff. I think the DCA audit did a very good job of
looking at particularly the food contracts, and they found that
87 percent of the food contracts they looked at were overpriced
by at least 22 percent. They also expressed concerns about the
use of middlemen. In other words, you would have one country
that would purchase the wheat or other commodities and then
sell it and negotiate the contracts with the Iraqi regime, and
that use of the middlemen constituted an additional 20 percent
in the price.
Mr. Walden. And so what is being done to look at those
countries?
Mr. Christoff. The key countries that were the primary
shippers of food to Iraq were Australia, Thailand, and Vietnam.
If there is any look at the contracts in detail, that should be
part of what we recommend, looking at a statistically valid
sample of all of the contracts and trying to identify which of
the companies that consistently overpriced and the countries
that condoned the overpricing.
Mr. Walden. Is somebody doing that?
Mr. Christoff. We have to get the contracts first.
Mr. Walden. And that is the heart of the issue here.
Mr. Christoff. Yes.
Mr. Walden. Mr. Chairman, my time has expired. Thank you,
sir.
Mr. Hall. Thank you. On behalf of the subcommittee, Mr.
Christoff, if you had to make one or two recommendations as to
actions Congress should take to bring the scandal to a
resolution and prevent it from happening again, what would be
your recommendations?
Mr. Christoff. I think there are many resolutions and bills
that are being enacted in Congress, or are being considered
about GAO having access to certain documents. I think that is
important. In terms of the policy decisions, I would defer to
the Congress in deciding whether or not they would want to
enact Mr. Flake's bill. But I think the more important
recommendations would be to how do you ensure that a future
U.N. program doesn't have the same kind of mismanagement in the
future; and that is that you should have a program in which you
have adequate internal controls, you have a program with a lot
of oversight, and you have to have a program that has the
oversight built into the system that is trying to provide the
food or the humanitarian services. And you can't rely on a
rogue regime to manage itself and oversee itself.
Mr. Hall. I recognize Mr. Rogers for 5 minutes.
Mr. Rogers. Thank you, Mr. Chairman. I am going to yield to
Mr. Ose for his follow-up.
Mr. Ose. I thank the gentleman. Mr. Chairman, the questions
by Mr. Shimkus actually were on point in terms of how you go
about getting these documents. We have been following that
particular issue closely. To the extent that the United States
representatives sat on the Sanctions Committee, the review of
such contracts that came before the Sanctions Committee on
behalf--the review on behalf of the United States was delegated
to an interagency working group, and the agencies of the U.S.
Government that participated in that review were the State
Department, the Treasury Department and CIA, according to the
responses we have received from previous hearings on this
matter.
The State Department, the Treasury Department, and the CIA.
So if you are going to focus your subpoena, your potential
subpoena power, it would be on this interagency working group
who advised the U.N. representative of the U.S. Government as
to whether or not these contracts should be approved or not.
And I just wanted to offer that for the committee's
consideration. And I thank the gentleman.
Mr. Rogers. Thank you, Mr. Ose. Reclaiming my time. This is
all fascinating to me. In my old career as a special agent with
the FBI, somebody, when I first got in, described the U.N. as a
place for spies, thieves, and those people who love to live in
New York but hate America. And I guess we can add a new one to
that, terrorism as well. And I am very, very concerned about
this. And I just hear two reoccurring themes: Transparency is
just about nonexistent in this agency. And the internal
investigative system there is also dysfunctional or
nonexistent. Is there--well, do you have comment on it, Mr.
Christoff? I am trying to understand it.
Mr. Christoff. Right. The U.N. does an internal audit
function, the OIOS, Office and Internal Oversight Services.
Those are the reports that we are all trying to get. They did
55 internal audits of the Oil for Food Program, four pending
audits. And I don't want to state that they didn't do a good
job, but I would like to see the internal audit reports to see
exactly what they were looking at. I hope they did a good job.
Mr. Rogers. Tell me how that works. How do you end up as an
auditor on OIOS?
Mr. Christoff. I don't know what their hiring practices
are. But the OIOS was set up in 1994. It was something that GAO
had been recommending for years, that they have some type of an
internal audit function equivalent to IGs that we have in of
our cabinet-level agencies. And so they have been in the
business for many years trying to do internal audits and
reviews of a variety of this programs within the U.N.
Mr. Rogers. I mean, do they have independence?
Mr. Christoff. The reports go to the head of the agency
that is being audited, and the head of the OIOS can also make a
decision as to whether or not those reports go to the Secretary
General. That is a little bit different than what our IGs have,
where the reports go both to the Congress, they can go to the
Congress as well as to the head of the agency.
Mr. Rogers. Can any member request, any U.N. member request
those reports?
Mr. Christoff. I don't think so. Hold on. Can they? They
are listed, and all members nations can get briefings on the
OIOS internal audit reports, but I don't believe you can get
copies of the entire report.
Mr. Rogers. Yes.
Ms. Rosett. If I might just add a bit to this, having tried
to find pieces of--the kind of briefing you would get would be,
for instance, since there is one that leaked on Cotecna, the
firm that employed Kofi Annan's son just before getting the
contract with the U.N. to inspect goods coming in. And what you
see once you have the leaked report is that the Secretary
General Kofi Annan, in fact, forwarded a mention--he forwards
it to the general assembly. He described in two paragraphs the
gist of some of this report. And he referred to a serious
problem with a company involved in Oil for Food. What dropped
out in the briefing was the name of the company.
So, suddenly in searching for that you would no longer find
Cotecna, the company in question, you would just find a
company. That is the kind of glossing over that goes on in
these briefings. Thank you.
Mr. Rogers. I see my time is running short here. And Mr.
Babbin, might it not be also prudent for us to withhold funding
until there is a truly functioning IG type apparatus within the
United Nations that has some transparency?
Mr. Babbin. I think you are on the right track, Mr. Rogers.
But I don't think even that is going to be anywhere near
enough. I think you have to have complete visibility into the
organization. And as a former law enforcement officer, I think
you can appreciate what that would mean. I can just see what we
would be seeing here right now today if Enron had decided to
say you guys in the FBI stay away, we have hired Paul Volcker,
it just doesn't work. You have to have complete transparency.
You should not have to ask for these reports. They should be
subject to immediate review and testing by our own people.
Mr. Rogers. I see my time has expired, Mr. Chairman. Thank
you very much. And thank you for your time today. I appreciate
it.
Mr. Hall. All right. I thank Mr. Strickland, no questions?
Thank you. Is there anyone else who seeks recognition? If not,
I think we have terminated a very worthwhile hearing, and I
thank you for your input and for your time. Your time is
valuable, and thank you for the work you do on behalf of the
people.
With this, we will be--don't be dismayed by the lack of
attendance here, because this all goes into the record; each of
them will get a copy, each Member of Congress will ultimately
have a copy of it, and we will read and reread these, this
testimony in the future hearings. We thank you very much, and
appreciate your time. Thank you. With that, we are adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]