UN official solicited oil deal from Iraq says report

UNITED NATIONS - A senior UN official solicited and received allocations of oil from Iraq for a trading company while he was directing the UN oil-for-food program, a key investigative report said on Thursday.

The official, Benon Sevan of Cyprus, engaged in conduct that was "ethically improper and seriously undermined the integrity of the United Nations," said the report by Paul Volcker, the former US Federal Reserve chairman.

Volcker was appointed by the United Nations to lead a probe of the now-defunct US$67 billion ($NZ98.45 billion) program and on Thursday gave an interim report. The final analysis is expected in June.

The report did not say that Sevan received bribes but mentioned that he got US$160,000 in cash from 1999 to 2003 from his aunt in Cyprus, who has now died. The report said the aunt's lifestyle did not suggest wealth.

But Volcker said Sevan solicited and received allocations of oil on behalf of the African Middle East Petroleum Company, a small trading firm, registered in Panama with offices in Switzerland, Monaco and elsewhere. It was run by Egyptian Fahkry, a cousin of former UN Secretary-General Boutros Boutros-Ghali, who left office at the end of 1996.

It was "highly unlikely" that such a company would have been allowed to buy oil unless someone lobbied Baghdad. In return for the allocations, Sevan was expected to make a case for Iraq receiving cash to upgrade its deteriorating oil facilities, which he and several Security Council members did.

"Mr. Sevan repeatedly solicited allocations of oil under the program," the report said. Iraqi officials in return expected Sevan's support on such issues as funds for repairing Iraq's crumbling oil facilities, it said.

The oil-for-food program, which began in December 1996 and ended in November 2003, allowed Saddam Hussein's government to sell oil in order to buy humanitarian goods. It was intended to ease the life of ordinary Iraqis under 1990 UN sanctions.

But in his report of more than 200 pages, Volcker told a news conference that "we have not found a systematic misuse of funds dedicated to the administration of the oil-for-food program." He said the investigation was continuing.

Since the US invasion of Iraq, documents have emerged that show Saddam Hussein skimming funds from the program, selling oil illegally outside the program, often with the knowledge of big powers on the Security Council, and bribing a variety of officials around the world.

Volcker also said that UN officials ignored procurement procedures and safeguards from the very start of the program.

Investigators found "convincing and uncontested evidence" that the selection process was tainted by irregularities for each of the first three contractors selected -- the French bank Banque Nationale de Paris, the Dutch firm Saybolt Eastern Hemisphere BV and the British Lloyd's Register Inspection Ltd, the report said.

A CIA investigation last September found Saddam earned US$1.7 billion through kickbacks and illegal surcharges on the program from 1996 to 2003. He got an additional US$8 billion in illegal oil sales to Jordan, Turkey and Syria, which were known to the Security Council, including the United States, in its supervision of the program.

Volcker said it was a matter of record that the United States, among others, have given Jordan and Turkey a waiver to receive Iraq oil outside of the UN program because they suffered hardships from the sanctions.

Volcker said allegations of conflict of interest by Annan would be handled in a later report. Annan's son Kojo, had once worked in West Africa for a firm under contract to the United Nations in Iraq. Annan, who only became secretary-general in 1997, has said he had no hand in assigning contracts.

The report also said that another senior official, Joseph Stephanides, who was involved in the program in 1996 and before Sevan took over the operation, intervened in procuring major contracts for large firms.

"The evidence amply demonstrates that a tainted procurement process took place in 1996, when the program was just getting under way," Volcker said, adding that political considerations came into play.

- REUTERS