Inquiry on Food-for-Oil Plan Cites U.N. Diplomat for Conflict

NYTIMES ^ | 02/04/05 | JUDITH MILLER and WARREN HOGE

[Pikamax]

Inquiry on Food-for-Oil Plan Cites U.N. Diplomat for Conflict By JUDITH MILLER and WARREN HOGE

n interim report by a commission investigating the United Nations oil-for-food program in Iraq said the former head of the program had violated the United Nations Charter by helping a company owned by a friend to obtain valuable contracts to sell Iraqi oil.

The conduct of Benon V. Sevan, a Cypriot official who ran the program between 1997 until its demise in 2003, was a "grave and continuing conflict of interest" and had "seriously undermined the integrity of the United Nations," the report concludes.

The 219-page report, issued yesterday by the Independent Inquiry Committee, the United Nations-appointed panel headed by Paul A. Volcker, the former Federal Reserve chairman, depicts what was the United Nations' largest relief effort as riddled with political favoritism and mismanagement.

The $64 billion program, under which Iraqi oil revenues were used to buy relief goods for Iraqis, is also being investigated by five Congressional committees and a federal prosecutor in New York.

The report also said officials had violated United Nations competitive bidding rules in hiring contractors for the program. It said important parts of the program had not been audited, allowing evidence that Saddam Hussein was demanding and receiving kickbacks from companies selling his oil to go undetected.

A senior United Nations official announced yesterday that Secretary General Kofi Annan would try to discipline Mr. Sevan, who retired last year, and another senior official, Joseph Stephanides, who oversaw the selection of the program's major contractors.

The new report does not say Mr. Sevan, or other officials it criticizes, benefited personally from their actions.

But it discloses that Mr. Sevan received $160,000 in cash between 1999 to 2003 from an aunt in Cyprus, who has since died. Mr. Volcker did not tie that money to his efforts on behalf of his friend's company, but the report says that the aunt's way of life did not suggest that she was wealthy and that the panel was continuing to investigate "the full scope and extent of benefits received by Mr. Sevan."

It also disclosed that the Swiss-based company that Mr. Sevan helped, Africa Middle East Petroleum, had made a $1.5 million profit by selling the oil allocations that Mr. Sevan had repeatedly solicited on its behalf from senior Iraqi officials. The report accused the company of paying an illegal surcharge of $160,088 to Iraq in 2001.

In a statement yesterday, Mr. Sevan's lawyers denied that he had acted improperly. The lawyers denied his having any interest in the oil company and said he never "accepted anything from anybody." It said he had always acted "in the best interests of" the oil-for-food program and the United Nations.

Eric L. Lewis, a lawyer for Mr. Sevan, accused the Volcker panel of trying "scapegoat" Mr. Sevan for "mentioning a company to the Iraqis as part of his role in advancing the process of trading oil for food."

"Mr. Sevan never took a penny," Mr. Lewis said, accusing the commission of succumbing to "massive political pressure."

"Mr. Sevan had no interest in that company or in any other the other companies associated with the program," the statement said.

Describing Mr. Sevan as "proud" of his forty-year service to the United Nations in some of the world's most dangerous places, the statement said that Mr. Sevan had fully disclosed the income he had received from his aunt.

The report accuses Mr. Sevan of not having been "forthcoming" with the committee about his relationship with the company or its owner, Fakhry Abdelnour, a distant relative of Boutros Boutros-Ghali, the former United Nations secretary general, whom the report criticizes separately for his role in selecting the program's main banker.

Reached by telephone in Paris, Mr. Boutros-Ghali said he had done nothing improper, calling Mr. Volcker's investigators "ignorant" of the United Nations system and their allegations in the report "silly."

Mr. Volcker said yesterday that his panel was continuing to investigate Mr. Sevan and his connections to Mr. Abdelnour, his company and other friends and associates.

Efforts to locate Mr. Abdelnour for comment today did not succeed. A call placed to his office in Geneva was not answered this evening.

Mr. Stephanides, who oversaw contractor selection, did not return messages left on his office phone Wednesday night and yesterday morning.

Mark Malloch Brown, Mr. Annan's new chief of staff, said Mr. Stephanides could pay a high price as a result of disciplinary action, but he acknowledged that there was little the United Nations could do about Mr. Sevan, since he has retired. He said Mr. Annan would immediately lift the diplomatic immunity of any United Nations official charged with criminal conduct.

This interim report deferred judgment on fundamental issues of responsibility for corruption in the oil-for-food program, saying its investigations were continuing. Mr. Volcker and the two other commissioners - Richard Goldstone, a South African judge, and Mark Pieth, a Swiss financial expert - specifically deferred comment, for example, on allegations that the secretary general had a conflict of interest because his son Kojo had worked for Cotecna Inspection, a Swiss-based company hired to inspect the aid bought by Iraq.

Mr. Annan, who became secretary general in 1997, has previously said he had no role in selecting contractors.

Mr. Volcker said he hoped to issue his final report this summer.

The interim report, however, criticized the way in which United Nations officials selected all three of the program's major contractors: Banque Nationale de Paris, a French bank that the panel said was not even on the first list of candidates for the job of escrow bank for the program; Saybolt Eastern Hemisphere BV, a Dutch oil inspection company that Mr. Stephanides was said to have promoted: and Lloyd's Register Inspection Ltd. of Britain, which the report said was chosen partly to balance lucrative contracts geographically among member nations.

The panel's investigators found "convincing and uncontested evidence" that the selection process had been "tainted" by irregularities for all three contractors.

Both the report and Mr. Volcker emphasized that the major source of Mr. Hussein's illicit money was not kickbacks from the oil-for-food program but the estimated $8 billion in illegal oil sales to Jordan, Turkey and Syria that occurred mostly before the program was created. Mr. Volcker said that those sales were known to Security Council members, including the United States, and that Washington had specifically waived American laws barring such sales.

The report reserved its harshest criticism for Mr. Sevan, whose contacts with Iraqi officials on behalf of Mr. Abdelnour and his company AMEP, it details. The report states that Mr. Sevan first asked senior Iraqi officials for an allocation of oil "to help a friend" who was from Egypt in mid-1998, soon after the Security Council permitted Iraq to use up to $300 million of oil revenues to purchase spare parts for renovations. It was "highly unlikely," the report notes, "that Iraq would sell oil to a company such as AMEP unless sponsored by a beneficiary that Iraqi officials wished to favor."

Citing several Iraqi documents, the report concluded that Iraqi officials gave the allocations to AMEP at Mr. Sevan's requests hoping that this would "ensure a good relationship with him" and would help them obtain Mr. Sevan's help in getting holds placed on spare part sales that Security Council members had placed on them.

The former Iraqi oil minister, Mohammad Rashid, specifically told the panel's investigators that the Iraqi regime had allocated oil to Mr. Sevan "because 'he was a man of influence,' " the report states.

After Mr. Sevan turned out not to be "as helpful as hoped," it continued, the allocations for AMEP were reduced. "Neither Mr. Sevan nor Mr. Abdelnour was pleased with the reduction in the oil allocation," the report says. Mr. Sevan spoke to Mr. Rashid about it at an OPEC conference in Vienna in March, 1999.

In the next phase of the program, AMEP's allocation was restored within five days after Mr. Sevan traveled to Iraqi to meet with Mr. Rashid again in the summer of 1999 to "discuss an expansion of the oil spare parts program."

The report says Mr. Sevan "denies that he asked for oil allocations or recommended any company to Iraqi officials for purchasing oil."

"But these claims are contradicted by the firsthand accounts of Iraqi officials involved," as well as by Iraqi oil company documents that list both Mr. Sevan and AMEP as recipients, "often following occasions when Mr. Sevan met with Oil Minister Rashid," the report states.

The report said Mr. Abdelnour had said Mr. Sevan did not assist him in obtaining the allocations from Iraq.

It says Mr. Sevan initially said he met Mr. Abdelnour only briefly at the OPEC Vienna conference in 1999. But in later interviews with the panel's investigators, he "admitted that he had passed at least one inquiry from Mr. Abdelnour to the Iraqi oil minister."

The report said that after being confronted with his telephone records at the United Nations show Mr. Abdelnour, Mr. Sevan had acknowledged that the two men had "developed an acquaintanceship lasting over several years." It quotes Mr. Sevan as telling investigators: "I came to like the guy. He is an interesting character you know, he's been around the world."

At the United Nations, Mr. Malloch Brown said the secretary general was shocked at the report's findings about Mr. Sevan in particular.

" The secretary general is shocked by what the report has to say about Mr. Sevan, terribly dismayed that a colleague of so many years' standing is accused of breaching the U.N. code of conduct and staff rules in the ways he did, and he very much doubts that there can be any extenuating circumstances for the behavior which appears proven in the report," Mr. Malloch Brown said.

The mood toward Mr. Sevan, a longtime friend and confidant of Mr. Annan, appeared unforgiving.

Mr. Malloch Brown said: "Let me be clear that while Benon Sevan is a very dear friend of many of us - I've worked with him for years - when you put together three international investigators, $34 million worth of investigations, 65 investigators, you don't then set yourselves up as a court of appeal over the results of that investigation." Any further investigation, he said, would be in "a judicial process."

Reaction to the report from Congressional investigators was mostly supportive of Mr. Volcker's work. Representative Henry J. Hyde, the Illinois Republican who chairs the House International Relations Committee, said that the report had painted a picture of "mismanagement, neglect and political manipulation that resulted in significant corruption of the oil-for-food program."

"I am reluctant to conclude that the UN is damaged beyond repair," the statement said, "but these revelations certainly point in this direction."

A similar, but even harsher reaction came from Senator Norm Coleman, Republican of Minn. and chairman of the Senate Permanent Committee on Investigations, who called upon Mr. Annan to lift Mr. Sevan's diplomatic immunity immediately. "The report shows that he repeatedly lied to investigators, has misled the inquiry about the source of $160,000 in cash deposits and unethically steered oil for food contracts to close associates and lied about those relationships to authorities," he said.

[FreePaul]

And how long did it take them to come to this conclusion?

[unfortunately a bluestater]

I heard 8 months----and the report says $34 million so far.