Diplomat accused of program breach

UNITED NATIONS -- The United Nations diplomat who ran Iraq's "oil-for-food program" engaged in "ethically improper" behavior, and the program flouted the world body's financial and purchasing rules, a UN panel found in a preliminary report yesterday.

The investigation found that Benon Sevan, the Cypriot official who ran the program soon after it was begun in 1996 until it ended in 2003, "created a grave and continuing conflict of interest" by contacting Iraqi officials on behalf of a company that Sevan set up to serve as a middleman in the $65 billion program. The oil-for-food program was intended to let former dictator Saddam Hussein's government purchase food, medicine, and other goods for Iraqis suffering under strict economic sanctions.

Paul Volcker, the former Federal Reserve chairman who is directing the investigation, said that unless the UN implements stronger oversight over its agencies, it "will not be able to maintain the confidence of the world public." Such confidence, he said, is critical to deal with such international challenges as the humanitarian crisis from the recent tsunami.

The report did not accuse UN Secretary General Kofi Annan of any conflict of interest involving the role of his son, Kojo Annan, who worked for a Swiss company that had a UN contract to certify oil deals. But it criticized former UN chief Boutros Boutros-Ghali, who officials said flouted UN guidelines by personally selecting the French bank where the oil proceeds were held in escrow.

A future report is expected to outline who might have benefited financially from the dealings and detail the specific transactions of the thousands of companies that were involved in the program.

Annan said later yesterday that he was awaiting the final version of the report "with a clear conscience." He also said he would take disciplinary action against Sevan.

The Security Council set up the oil-for-food program because of deteriorating humanitarian conditions in Iraq resulting from the UN sanctions imposed after Iraq invaded Kuwait in 1990. Under the program, the Iraqi government could sell vouchers to companies so they could buy a limited amount of Iraqi oil. Profits from the sales were deposited in a UN-controlled escrow account, with which Hussein's government could then buy preapproved humanitarian goods.

The report offered a sweeping indictment of the world body's handling of what is considered the largest humanitarian aid program in its history and raised new suspicions that officials from the UN and a variety of countries may have received kickbacks or other benefits from the Hussein government or firms in the program.

"The record clearly and repeatedly demonstrates that, in deviating from the established financial and procurement rules, the decision-making process in 1996 for United Nations contractors did not meet reasonable standards of fairness and transparency," the report said.

From its start in 1996, the program suffered from major lapses in oversight, according to the Volcker report.

For example, the selection of the three main contractors to administer the program -- Banque Nationale de Paris, which held the program's funds; Saybolt Eastern Hemisphere BV, which inspected Iraqi oil exports; and Lloyd's Register of London, which inspected humanitarian imports -- "did not conform to established financial and competitive rules," according to the report. Volcker said yesterday that Boutros-Ghali chose Banque Nationale without meeting the UN requirement to accept the "lowest acceptable bidder."

The Volcker panel reserved its harshest judgments for Sevan. The report said he contacted Iraqi officials on behalf of Fakhy Abdelnour, the owner of the Swiss-based trading company Africa Middle East Petroleum Co., or AMEP, to secure permission for the firm to sell Iraqi oil under the program.

The committee concluded that Sevan solicited and received several million barrels of allocations on behalf of AMEP from 1998 to 2001. Those allocations generated $1.5 million in revenues for the company, said the report.

It concluded that Sevan was given the allocations by the Iraqi regime to obtain his support -- particularly his successful lobbying of the UN to allow Hussein to use some of the oil-for-food money to upgrade oil facilities.

In a separate investigation by US arms inspector Charles Duelfer, allegations surfaced that Sevan may have personally profited under the program. According to the Duelfer report, which got its information from the former Iraqi oil ministry, Sevan allegedly received vouchers for 7.3 million barrels of oil through various companies and representatives that he recommended as oil sellers to Iraqi ministries. The financial take would have been in the range of $700,000 to $2 million, the Duelfer report said.

The Volcker investigation said it has not been able to fully verify where Sevan received at least $160,000 in addition to his UN salary.

Through his lawyer, Sevan denied any wrongdoing yesterday, saying he "never took a penny."

"Unfortunately, in the current political climate, the IIC needs to find someone to blame," Washington attorney Eric. L. Lewis said in a statement, referring to the acronym for the Volcker inquiry. "And so the IIC tries to scapegoat Mr. Sevan for mentioning a company to the Iraqis as part of his role in advancing the process of trading oil for food."

Any criminal proceedings would have to be taken up by authorities in UN member states where laws may have been broken. UN diplomats are immune to prosecution unless their diplomatic immunity is waived.

Annan, who expressed shock at the allegations against Sevan, said in a statement that "should any findings of the inquiry give rise to criminal charges, the United Nations will cooperate with national law enforcement authorities pursuing those charges, and in the interests of justice I will waive the diplomatic immunity of the staff member concerned."

He also pledged to "remedy some of these defects" in the UN system found by the inquiry.

The UN panel, which includes investigators from 28 nations, will now focus on the UN secretariat's role and the involvement of other individuals from governments and companies involved in the program, according to a UN official who asked not to be identified.

But given the lack of cooperation by many governments seeking to protect their citizens -- and with the inquiry's lack of subpoena power -- it may be difficult to find answers, the official said.