UN oil scandal deepens as Annan faces friendly fire

Kofi Annan

NEW YORK - Attempts by Kofi Annan to overcome the Iraqi oil-for-food scandal that could threaten his position as UN Secretary-General have been dented by his predecessor.

Days after an interim report found the US$67 billion ($94 billion) programme had been beset by political favouritism and lax controls, Boutros Boutros-Ghali said he and Annan shared responsibility for its mismanagement.

"I share the responsibility, but don't twist the whole operation," Boutros-Ghali, who was ousted after one term because of US opposition, told the BBC.

"I regret the mismanagement and the scandal ... [but] the basis [of the programme] was decided by the Security Council, approved by the Security Council and the execution was done during the mandate of my successor."

Battling demands by some US conservatives that he resign, Annan will this week announce immediate disciplinary measures against the two men most prominently implicated by independent investigators.

The 240-page report said that the scheme's former director, Benon Sevan, had placed himself in "a conflict of interest" by soliciting oil allocations from the old Iraqi regime.

The report, compiled by an independent commission of inquiry led by the former US Federal Reserve chairman Paul Volcker, similarly accused another senior official, Joseph Stephanedes, of subverting the bidding rules when the main contractors were selected in 1996.

There is hope at UN headquarters that, while the tone of the report was harsh, particularly in regard to Sevan, who has since retired, the absence of any other damning evidence against the body may allow some easing of the scandal, at least until the northern summer when Volcker releases his final findings.

Volcker made it clear that any money misdirected by corrupt activities within the programme was surely dwarfed by the amounts illicitly gained by Saddam Hussein through illegal smuggling of oil. "The major source of revenue to Iraq came from sanctions violations outside the oil-for-food programme," he said.

That Security Council members should share some responsibility for the lapses was explicitly underscored in Washington last week by Senator Richard Lugar, the Republican chairman of the Foreign Relations Committee. He said those members, including the US, "must answer why they, too, did not pay greater scrutiny to this programme".

Annan's supporters, seeking to fight back against the torrent of criticism from a vociferous minority in Congress, are pointing out that the sums in question are dwarfed by last week's disclosure that US$9 billion is unaccounted for from the Coalition Provisional Authority's tenure in Iraq, which lasted just over a year.

Significantly, the harshest words were from Congressional members well known for their long-held distaste of the UN. They included Senator Norm Coleman, who even before the report's release was calling for Annan's resignation, and Henry Hyde, a Republican member of the House of Representatives.

"I am reluctant to conclude that the UN is damaged beyond repair, but these revelations certainly point in that direction," Hyde said after seeing the new report.

Dr Mohammed al-Jibouri, Iraq's Trade Minister, said that more has yet to be revealed on specific individuals' roles in the scandal. He did not specify any names in his comments.

Al-Jibouri said the programme initially had been a "huge success" in helping ordinary Iraqis contend with UN sanctions imposed on Saddam's regime after the 1991 Gulf War.

Problems began when Iraq began imposing a surcharge on contracts for goods bought under the programme, he said. "A lot of companies refused to do this, so a lot of them actually withdrew from that programme."

Investigators probing alleged corruption are scrutinising thousands of pages of Annan's documents, including e-mail and phone records, to determine whether he exerted influence in securing a contract for Swiss company Cotecna Inspection that employed his son Kojo.

The company had a UN contract to certify deals for humanitarian supplies imported by Iraq under the oil-for-food programme.

Volcker confirmed the search and said that new information had led investigators to delay publishing their findings about Annan's son.

About 10 investigators have focused solely on the Annan files.

There were delays in organising access to UN files, including those stored on hard-drives in Annan's office, but Volcker said the UN had been co-operating with his requests.

"It is supposed to be an open book and we have not identified conscious deliberate evasions, like shredding papers before we got there," Volcker said. "But we have been slowed - and I am not criticising this - by a sensitivity on the part of the UN."

He said officials were sensitive about his investigative panel's access to personal e-mails, but that they had resolved the matter.

Kofi Annan, who has been interviewed at least three times during the investigation, has said Volcker's panel would have complete access to UN officials and documents.

Investigators also have interviewed Kojo Annan several times, but Volcker said there had been some frustrations.

"He is a little difficult to get a hold of, but he doesn't refuse to be interviewed," Volcker said. "How forthcoming he is for the interview is another question."

Kojo Annan, 31, worked for Cotecna from 1996 to 1998, leaving at about the time the company received the UN contract. He has said that he only worked for the company in Africa and has denied any involvement in its oil-for-food dealings.

Kofi Annan has also denied that his son's employment played a role in the contracting. But the UN chief expressed "disappointment and surprise" in November when it emerged that Kojo Annan had not disclosed that Cotecna continued to pay him US$30,000 ($42,808) a year for five years after he left. The payments were compensation for an agreement not to work for competitors.

Volcker said investigators were following new leads that seemed to broaden the probe involving Kojo Annan beyond his Cotecna ties.

For example, an article published in the Times of London late last month detailed contact between Kojo Annan and Hani Yamani, the son of a former Saudi oil minister, in a failed bid for an oil-for-food deal.

The paper quoted two unnamed "business associates" of Yamani, who claimed Kojo travelled to Morocco to help finalise the US$60 million oil sale which later fell through.

"The story did not surprise us," Volcker said..

The documents from Annan's office are among five million pages digitally scanned by investigators, who also have copied hard-drives from scores of UN computers to search the files with keywords.

The document trail has proven a key tool and following it helped investigators untangle alleged deceptions by oil-for-food programme director Benon Sevan. Volcker's report accused him of conflicts of interest for soliciting oil allocations from Saddam Hussein's regime.

The report alleged Sevan had repeated contact with Iraqi officials requesting that they give a small Swiss-based oil company, African Middle East Petroleum, the opportunity to buy oil.

AMEP later sold about 6.4 million barrels of Iraqi crude oil to The Royal Dutch/Shell Group. The contracts could be sold to international traders for a markup of up to 35 cents a barrel, the Financial Times reported.

Volcker's investigators confronted Sevan with information gained from interviews with Iraqi officials and Fakhry Abdelnour, the owner of AMEP.

Abdelnour told them he paid an illegal surcharge of US$160,000 to an Iraqi-controlled bank account in Jordan in October 2001, using some of the proceeds he had received from the sale of oil to Shell. Shell has denied knowledge of the kickbacks.

The Iraqis told investigators that Sevan asked them in 1998 to allocate oil vouchers to AMEP to "help a friend", and said the friend's name was "Abdelnour," a charge that both Sevan and Abdelnour originally denied, saying that they had met each other only once.

But the apparent deception broke down when investigators produced records from Sevan's UN office.

Investigators found two business cards for Abdelnour in the UN office. The cards had different addresses, suggesting they had been obtained at different times. Detailed contact information for AMEP and Abdelnour was updated at least once as well, the report said.

AMEP was the only firm found on Sevan's telephone contact list, which investigators found on his computer.

When confronted with the documents along with detailed phone records showing numerous telephone contact with Abdelnour, Sevan's story changed.

"His description of past contacts with Mr Abdelnour evolved from a single meeting at the Opec conference to acknowledging a second chance meeting at a restaurant in Geneva and then, after being confronted with phone record evidence, to having developed an acquaintanceship with Mr Abdelnour lasting over several years: I came to like the guy. He is an interesting character you know, he's been around the world," the report quoted Sevan.

- INDEPENDENT