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Iraq

Iraq: Oil-for-food programme responsibilities

The Oil-for-Food programme was established by the Security Council in April 1995 (resolution 986), under Chapter VII of the United Nations Charter, to alleviate the suffering caused to innocent Iraqi civilians by the sanctions that the Council had imposed on Iraq since 1990. UN Member States had a primary responsibility to ensure that their nationals - companies and individuals - complied with the sanctions regime, and with the rules and regulations that governed the programme.

The Council's 661 Sanctions Committee was tasked with overseeing the Programme; this included following up directly with any governments whose nationals were found to be in breach of the sanctions.

Under resolution 986, and under close scrutiny by the Security Council, the Government of Iraq was allowed to choose who it sold its oil to (provided it was a company registered through the national authorities of a UN member state) and who it purchased humanitarian and other goods from, under contracts approved by the UN. The oil was delivered through two authorized oil export outlets (Ceyhan in Turkey and Mina al-Bakr in southern Iraq), and payment was made to an Iraq Escrow Account administered by the United Nations. Oil prices were approved by the Security Council Sanctions Committee and the oil revenue was used to pay for humanitarian and other goods and supplies, imported through five authorized Iraqi border entry points.

How it worked

In order to buy oil from Iraq under the Programme, companies had to register through their respective national authorities. Only after the Office of the Iraq Programme (OIP) had received a letter of registration from the buyer's permanent mission to the United Nations, could buyers enter into contract negotiations with the Iraqis and export oil from Iraq legitimately under the Programme. The oil loadings at Ceyhan and Mina al-Bakr, once authorized under a UN approved contract, were monitored by Saybolt, an independent inspection agency employed by the UN. Another independent inspection agency, Cotecna, handled the inspection and authentication of imports at the authorized entry points. The Security Council did not give the Programme any authority to monitor imports or exports anywhere except at those designated export outlets(2) and entry points(5).

Government responsibilities under Sanctions

In establishing the Programme, the Security Council made a distinction between the responsibilities of the Iraqi Government and those of the United Nations.

The Government was allowed to choose whom it sold oil to and whom it purchased goods and supplies from, subject to conditions established by the Council and close oversight by the Council's 661 Sanctions Committee.

In the 15 governorates of central and southern Iraq, the Government was fully responsible for implementing the Programme. This ranged from determining the type, quantity and quality of the various supplies to be purchased, to the selection of suppliers who were invited to bid, and, finally, the awarding of contracts.

In the three northern governorates the programme was implemented by nine UN agencies on the government's behalf.

Enforcement of sanctions

The UN Office of the Iraq Programme (OIP), did not have a policing role under the sanctions. It operated on the basis of complex rules and procedures established by the Security Council and its 661 Sanctions Committee, as well as the memorandum of understanding (MOU) concluded between the UN Secretariat and the former Government of Iraq. The Security Council's 661 Sanctions Committee, which consisted of the same 15 member states as the Council itself, was invested with enforcement and oversight powers.

If someone brought documented concerns or evidence of breaches to the attention of OIP, that information was passed directly by OIP to the 661 Committee, which could in turn bring it to the attention of the governments concerned for investigation.

Programme Reporting

The UN Secretariat and the nine UN agencies and programmes implemented the Programme in full compliance with its mandate. The Security Council and its Committee received regular written reports by the Secretary-General and the Office of the Iraq Programme, which also regularly briefed the Council and its Committee on the Programme's implementation. Members of the 661 Committee received copies of all contracts for the sale of oil and the import of humanitarian and other goods and supplies to Iraq under the Programme.

Oil-for-Food and government contractors

In compliance with the rules and regulations set by the Council, the Office of the Iraq Programme was not authorized to be in direct contact with contractors. It received applications for contracts only through the Permanent Missions of the contractors' home Governments. Any questions and responses related to those contracts were also routed through the Permanent Missions to avoid direct contact between OIP and the contractors.

There may well have been activities between the Government of Iraq and its contractors - both oil purchasers and suppliers of imports - that the Programme was not aware of. However, if someone brought documented concerns to the attention of the Programme, that information was passed directly to the 661 Committee, which had the authority to bring it to the attention of the Government concerned for investigation.

Programme Auditing

The Oil-for-Food Programme was one of the most audited operations in the United Nations system. Between 1998 and 2003 there were a total of almost 100 external and internal audits. The United Nations Board of Auditors, composed of independent external public auditors appointed by the UN General Assembly, audited the UN/Iraq Account every six months. Board members are high-ranking specialists designated by UN Member States. External audits were shared with all UN Member States. Internal audits were carried out by the UN Office of Oversight Services which, until March 2003, had resident auditors in Baghdad and in Erbil.

In addition, the Security Council and its Sanctions Committee received regular briefings and comprehensive reports from OIP on all aspects of the Programme every 90 days. Most written reports were, and are still, posted on the OIP website (www.un.org/Depts/oip).

Programme closure

When the Programme was terminated on 21 November 2003, all responsibilities were transferred to the Coalition Provisional Authority, as called for in resolution 1483 (2003). OIP is at present involved in the "liquidation" of all other matters related to the Programme, including the closing down of the Office itself.

Some recent Questions about the Programme

Q: Was the UN or Mr. Sevan, the Executive Director of the Programme, aware of alleged free allocations of oil that the former government gave to favoured friends and companies ?

A: The Office of the Iraq Programme was aware only of those oil exports that were authorized and monitored under the oil-for-food programme, in accordance with the rules, regulations and procedures established by the Council and its Committee. OIP is aware of media reports on alleged violations, as are members of the Council and the 661 Sanctions Committee.

Q: It has been reported that Mr. Sevan's name is on a list of people and companies alleged to have received oil from the former Iraqi regime in return for favours. What does Mr. Sevan have to say about that ?

A: Mr. Sevan has categorically denied that he received oil or oil monies in any form from the former Iraqi regime or profited in any way from Iraqi contracts. And the UN Office of Internal Oversight has written to both the Coalition Provisional Authority and the Iraqi Governing Council, asking whether they have any documents to substantiate the charges that have been made.

Q: It is also alleged that Saddam Hussein used the programme to buy influence around the world and that the UN didn't do enough to prevent that.

A: It is important to understand that the UN Security Council, which created the Program in 1995 in an attempt to ease the pain caused to ordinary Iraqis by the sanctions it had imposed on Iraq since 1990, continued to treat Iraq as a sovereign state. As such, the government was free to choose who it sold its oil to (provided it was a company duly registered through the national authorities of a UN member state), and also to choose from whom it would purchase food and other commodities that it was allowed to import.

Q: Were there any controls in place ?

A: Yes there were. Oil buyers had to pay the price approved by the Security Council Sanctions Committee into a UN escrow account, and the UN had to verify that the goods purchased by Iraq were indeed those allowed under the Program. But the UN had no way of knowing what other transactions might be going on directly between the Iraqi government and the buyers or sellers. Perhaps inevitably, in these circumstances, it was more and more widely suspected that the Iraqi government was extracting illicit premiums from oil purchasers, and illicit kickbacks from suppliers. From 2001 the Security Council introduced a system of retroactive oil pricing, which at least made the illicit premiums harder for Iraq to negotiate.

It is entirely possible, indeed probable, that Saddam Hussein's regime used loopholes in the Security Council's resolutions and operating framework for the Oil-for-Food Program to extract illicit funds from both purchasers and suppliers. However, these funds, did not pass through the UN. The Program itself was managed strictly within the mandate given to it by the Security Council and was subject to nearly 100 different audits, external and internal, between 1998 and 2003 and, as the Secretary-General has said, this produced no evidence of any wrongdoing by any UN official. If anyone now has such evidence, they should bring it to the UN's attention directly.

Q: Were any sales through the Oil-for-Food Programme ever rejected because the buyers were believed to have gotten oil through illicit means?

A: In accordance with Security Council resolutions and procedures of the 661 Sanctions Committee that guided the Programme, companies were registered as buyers of Iraqi oil only after receipt of a formal letter from the Permanent Mission of the buyer's home Government, attesting that the buyer was registered with the national authorities. The Office of the Iraq Programme was not in a position to know whether any prospective buyers had been rejected by their national authorities.

It is useful to keep in mind that the UN Secretariat, of which the Office of the Iraq Programme was part, was not granted any investigative authority either by Security Council resolutions or by 661 Committee procedures. It was the 661 Committee itself that was vested with investigative authority. Member States were also responsible under sanctions to ensure that their nationals - corporations and individuals - complied with sanctions.

On several occasions when OIP became aware of an irregularity either in an oil purchase contract or in exports, the matter was brought immediately to the attention of the 661Committee which then requested the Member States concerned to investigate.

Q: The UN Security Council allowed the Iraqi regime to choose its suppliers under the Oil-for-Food Programme, but it is now alleged that Saddam Hussein was able to manipulate this to extort money. It is alleged that in order to get a contract, suppliers were obliged to include a 10 per cent "after sales service fee" in their contracts. Is this true ? How did it work ?

A: After the war, the Iraqi Ministries alerted the Coalition Provision Authority (CPA) that there was an unwritten agreement between the Iraqi regime and the contractors they selected, that they should add an "after sales service fee" to their bids and pay the appropriate fee into designated accounts outside of the Oil-for-Food Programme after the goods were delivered and the suppliers received payment from the UN. As these arrangements were not reflected in contracts submitted to the Programme for approval, the UN was unaware of the practice until the CPA passed this information on.

Q: Where do things stand now. Has the UN tried to recover these surcharges ?

A: The CPA has indicated that the "service fees", in most cases 10 per cent of the value of the goods, applied mostly to contracts signed after 2000 and that a significant number of those contracts remained unfulfilled at the time of the war.

Under resolutions 1472 (28 March 2003) and 1473 (24 April 2003), the CPA, Iraqi Ministries and the UN jointly decided which approved, but unfulfilled, contracts in a $10 billion humanitarian pipeline for Iraq would be prioritized for delivery. UN agencies were tasked at that time with renegotiating those contracts with the suppliers. The Iraqi ministries and the CPA identified which of those contracts included illicit service fees and the contract holders were then asked by the UN to reduce their charges by the corresponding amount, if they wished to proceed with the contract. If the contractor agreed, the Letter of Credit would be amended as appropriate. If a supplier disputed the existence of the fee, the case would be referred back to the CPA to check with the relevant ministry. Over 90% of the suppliers who were reported by the CPA to have had "after sales service fees" included in their contracts, have agreed to deduct them.

Q: Did the Oil-for-Food Programme ever receive reports of service fees ? Did the Programme's Executive Director, Mr. Sevan ever speak about them to the Security Council ? And did he or the UN ever try to stop Iraq from demanding them ?

A: The Office of the Iraq Programme (OIP) only learned of the fees after the war when the CPA was alerted by the Iraqi ministries.

It is important to repeat, in this context, that the Security Council allowed the former Government of Iraq to negotiate contracts directly with suppliers of its choosing. The UN (OIP) became aware of a contract only after receiving it through the supplier's Permanent Mission to the UN. The contracts were then reviewed by UN customs experts at OIP and processed if the contracted supplies were on the list of goods pre-approved by the 661 Committee (foodstuffs, basic medicines, basic educational materials, etc.). If the contracted supplies were not on pre-approved lists, the contracts were then forwarded to UNMOVIC and IAEA experts for identification of any possible dual-use items or items that were on the Goods Review List (GRL - adopted by the Council in May 2002). If dual-use items were identified, the contracts were then sent to the Security Council's Sanctions Committee for a decision. This Committee included all 15 member states of the Security Council and all Council members received copies of all contracts that the Oil-for-Food Programme processed.

Q: Have there been any reports or investigations in the past on the surcharges that Iraq was levying on each barrel of oil sold ?

A: The surcharge issue began surfacing in the media in late 2000, following which the Security Council's 661 Sanctions Committee for Iraq, which was mandated to monitor the sanctions regime and investigate any alleged violations, instituted 'retroactive' pricing of Iraqi crude oil in order to reduce the possibility of a surcharge. It would appear that the surcharge was successfully eliminated by September/October 2002.

Q: What action did the UN take to safeguard the quality of food delivered to Iraq under the Programme ? Some Iraqis have complained about the quality of some items in the food ration basket.

A: Food shipments were monitored and tested both by UN independent inspection agents and by the Iraqi Ministry of Trade to ensure that the food was fit for human consumption. If food failed that test on inspection, the suppliers were not paid. The Iraqi Ministry also tested the food in its laboratories and had the option to reject any shipment it considered unfit at the dock. It is important to keep in mind here that the Security Council gave the government of Iraq the right to choose its own suppliers. There were a number of cases where Oil-for-Food shipments of rice, wheat, chick peas and vegetable oil (ghee) were rejected.

The UN however was not mandated to intervene in disputes between the government and suppliers. In the event of a dispute, the government was free to resolve it with the supplier through normal commercial dispute practices. UN observers would occasionally report statements from beneficiaries that certain items were not satisfactory. But in most cases, these issues arose over consumer preference for one brand over another, rather than unfitness for consumption.

OIP regularly briefed the Security Council and its 661 Committee on the implementation of the programme and provided details on progress as well as difficulties encountered.

Q: How many UN staffers did Saddam throw out of the country over the years of the sanctions because they asked too many questions or observed too closely?

A: Between December 1996 and March 2003, about 10 UN international staff were either declared persona non grata by the former Iraqi Government or were requested to be withdrawn from the country under various pretexts or following unsubstantiated allegations.

Q. Why did you not, or do you not now, publish a list of all the companies that had contracts under the Programme?

A. We are not authorised to do that. As a third party to these contracts the Programme has followed standard business practice in treating the company names as commercially privileged information. However, the new authorities in Iraq have all records relating to the programme and could release information if they wish. The governments of the Member States also have records of contract applications and transactions under the Programme by their nationals - individuals as well as companies.