Saddam's Business Partners

The Weekly Standard

How the Oil-for-Food scandal happened and why it matters.
by Stephen F. Hayes

WHEN UNITED NATIONS SECRETARY GENERAL Kofi Annan quipped several years ago that he could "do business" with Saddam Hussein, he meant it figuratively. In light of the substantive charges coming out of the ever-expanding Oil-for-Food scandal, the throwaway line seems revealing or at least ironic.

"I think we have to take him literally," says Republican senator Norm Coleman, who is leading one of eight investigations into the corruption and mismanagement of the U.N.'s largest-ever humanitarian relief effort.

The basic outline of the scandal is simple: Saddam Hussein used the Oil-for-Food program to circumvent U.N. sanctions imposed after the Gulf war and to enrich himself and his allies. He did this by bribing leading journalists and diplomats and demanding kickbacks from those who profited from selling Iraqi oil. That he was able to do so indicates at least that the U.N. badly mismanaged the program it set up in December 1996. None of this is particularly astonishing. No one is surprised to learn that Saddam Hussein cheats, that politicians take bribes, and that the competence level of the U.N. bureaucracy is, well, suboptimal.

Nevertheless, the details of the Oil-for-Food scandal--who participated, and what they apparently did--are jaw-dropping. Vladimir Putin's chief of staff, Alexander Voloshin, appears to have accepted millions of dollars in oil-soaked bribes from Saddam Hussein. The same appears to be true of the former interior minister of France, Charles Pasqua, a close friend of President Jacques Chirac. And the same appears to be true of three high-ranking U.N. executives including Benon Sevan, handpicked by Kofi Annan to administer the Oil-for-Food program. Oil-for-Food money even went to terrorist organizations supported by the Iraqi regime and, according to U.S. investigators, might be funding the insurgency today.

Through seven years' worth of deals that should never have been made, compromises that should never have been struck, and concessions that should never have been granted, Oil-for-Food strengthened Saddam Hussein. What we know about all of this now is a fraction of what will eventually be uncovered. But even this limited understanding should mean an end to Kofi Annan's term as secretary general. The sad history of U.N. incompetence on Iraq generally and in the Oil-for-Food program specifically is enough to make you wonder why George W. Bush settled for John Bolton rather than, say, John Rocker to push for reform at the world body.

AMONG THE MANY BIZARRE ASPECTS of the U.N. Oil-for-Food program is its premise: If we, the international community, allow Saddam Hussein to take in more money by selling oil, we can end the suffering of the Iraqi people even while maintaining U.N. sanctions.

Saddam Hussein argued that Iraqis were dying because the sanctions deprived him of the money to save them. And while there is little doubt that the sanctions left Iraqis much poorer than they were before the Gulf war--annual incomes dropped nearly to a third of what they had been in 1990--it was less clear that Saddam Hussein was similarly destitute.

"Saddam's family profits from covert sales of Iraqi oil and dominance of the black market, where many of the donated medicines and food end up," said then-CIA director John Deutch in public testimony before the House Permanent Select Committee on Intelligence on September 25, 1996. "Iraqi government funds are used to maintain lavish lifestyles. Baghdad, for example, has begun working on 48 new palaces and VIP residences during the past five years, increasing the total number of estates available to Saddam Hussein to at least 78."

Iraqis were dying because Saddam Hussein was killing them. He was actively killing them, Deutch said, by executing his political opponents and by draining the marshes of central Iraq that provided sustenance to hundreds of thousands of Shiites. And he was passively killing them by refusing to cooperate with U.N. inspectors and stealing food and medicine intended to ease their suffering.

None of this mattered to France and Russia, Hussein's chief backers on the Security Council. From virtually the beginning, they wanted the sanctions to end so that they could resume their robust, pre-Gulf war business with the Iraqi government. But Hussein made their argument difficult. For the first five years after the 1991 cease-fire, he had continually violated its terms. He had failed to account for his stockpiles of weapons of mass destruction. He had not cooperated fully with U.N. weapons inspectors. He had smuggled oil out of his country for sale on the black market. He had harbored a fugitive from the 1993 World Trade Center bombing. He had attempted to assassinate President George H.W. Bush. He had amassed troops on the Kuwaiti border, threatening a new attack. And he had dispatched 40,000 Iraqi soldiers to attack the Kurds in northern Iraq.

The United States and Britain, Hussein's chief opponents on the Security Council, wanted to maintain the sanctions. But by the mid-1990s it had become clear that Hussein was winning the public relations battle. Much of the world blamed the Americans and the British for the suffering of the Iraqi people. The Clinton administration wanted a compromise.

In April 1995, as U.N. inspectors traversed Iraq looking for proscribed weapons that Saddam was to have destroyed, the U.N. Security Council unanimously passed a proposal that would allow Iraq to sell $2 billion worth of oil every six months. The deal would be renewed after rigorous inspections by the Security Council to ensure that Hussein wasn't cheating. The money would go into an escrow account operated under U.N. scrutiny. Some of it would be used to compensate Kuwaiti victims of the Gulf war. Some of it would cover the cost of the U.N. weapons inspections. The bulk of the money, however, would go to alleviate the suffering of the Iraqi people under the U.N. sanctions. Of the $2 billion Iraq would earn from oil sales, approximately $1.3 billion would be spent on food, medicine, and other humanitarian goods. The money would be distributed from the escrow account to vendors across the globe, again with significant input from Saddam Hussein.

Iraq rejected the proposal as a violation of its sovereignty, as it had once before. The real reason was less high-minded: Hussein needed Iraqis to keep dying. He rightly interpreted as weakness the eagerness of the United States and others on the Security Council to ease the sanctions on his regime. Hussein "understood that if he exercised the option of exporting oil under the condition that only humanitarian aid could be delivered, then it would relieve the pressure on the [Security] Council to lift sanctions in their entirety," Charles Duelfer, a CIA special adviser on Iraqi weapons of mass destruction, told a Senate panel last fall. Boutros Boutros-Ghali, who was the U.N. secretary general at the time, shrugged off Iraq's lack of cooperation with U.N. inspectors and promised Hussein that the new proposal would be a "first step toward the total lifting of the sanctions against Iraq."

When Saddam Hussein's son-in-law, Hussein Kamel, defected to Jordan on August 8, 1995, he effectively ended any hope for the total lifting of sanctions. Kamel, the nephew of Ali Hassan al-Majid, better known as "Chemical Ali," was a senior regime official with responsibility for Iraq's weapons of mass destruction programs. He revealed the elaborate schemes Hussein had put in place to hide his programs from U.N. inspectors. The Iraqi regime, not knowing what Kamel had disclosed to U.N. officials, was forced to admit a far greater level of WMD production and sophistication than had been known. The French and Russians, who had offered praise for the regime's alleged cooperation, were silenced. The drive to end sanctions was finished, or rather stalled.

Five months later, in December 1995, a U.N. agency known as the Food and Agriculture Organization produced a study that estimated 567,000 children had died as a result of the sanctions. The authors noted the seeming contradiction between the determination of U.N. humanitarian agencies to alleviate suffering and the efforts of the U.N. Security Council to enforce sanctions. The embargo, they concluded, threatened to undermine "the moral, financial, and political standing of the international community."

Another study by the United Nations Children's Fund (UNICEF) found that some 4,500 Iraqi children were dying each month from disease and starvation, and a third U.N. study, this one by the U.N. World Food Program, determined that approximately 180,000 Iraqi children under five were suffering from malnutrition. The pressure had returned.

The details of a U.N.-supervised program allowing Hussein to sell more oil in order to better provide for his people were debated for another year, with U.N. negotiators, encouraged by France and Russia, acceding to Hussein's many demands. One concession, little noticed at the time, was a provision that would allow Hussein to choose who bought and sold his oil, pending approval by the U.N. On December 10, 1996, the deal was struck.

"This is a victory for the poorest of the poor of Iraq, for the women, the children, the sick, and the disabled," said a very pleased Boutros Boutros-Ghali. The U.N. chief was not the only one who was happy. A triumphant Saddam Hussein traveled to oil-rich Kirkuk for a photo-op, where he smiled broadly as he opened a ceremonial spigot. Iraq held a nationwide celebration to mark the occasion.

Asked by a reporter about the likelihood that Hussein could circumvent or manipulate the restrictions, deputy U.S. ambassador to the U.N. Edward Gnehm was dubious. "We designed our resolution for a cheater," he explained. "We know him. We know him well."

Looking at that formulation now--"we designed our resolution for a cheater"--Gnehm seems positively prophetic.

Whatever the intentions of its planners, the Oil-for-Food program actually worked like this: Iraq designated certain individuals or entities as potential purchasers of Iraqi oil. It gave them oil "allocations" or "vouchers" (not foreseen in the program as designed by the U.N.), which they could either use to purchase oil themselves or sell to third parties. Because the regime severely limited the number of recipients of these allocations, the recipients were able to resell the oil after attaching a surcharge--usually between 3 and 30 cents a barrel. Sales were usually a minimum of 1 million barrels, so the profits from the surcharges were significant.

Beginning in 1998, Hussein began to shift his allocations from oil companies to politicians, journalists, and terrorist groups. Mark Greenblatt, a lead investigator for the Senate Permanent Subcommittee on Investigations, described it this way. "His plan was simple. Rather than giving allocations to traditional oil purchasers, he gave allocations to foreign officials, journalists, even hostile terrorist entities, who then flipped their oil allocations to traditional oil companies in return for a sizable commission. In doing so, Saddam could give a foreign official or a journalist hundreds of thousands of dollars without ever paying a dime."

Officials at the highest levels of the Iraqi regime--including Vice President Taha Yasin Ramadan, Deputy Prime Minister Tariq Aziz, and Oil Minister Amir Muhammad Rashid--chose the recipients.

The U.N. did not see any of this until the traditional oil companies contracted with Iraq's State Oil Marketing Organization, known as SOMO. (One notable exception to this U.N. ignorance appears to have been Benon Sevan, the administrator of Oil-for-Food, who knew about the illegal allocations because he personally was receiving some. More on that later.) The Iraqis, however, kept scrupulous records of each step in their bribery scheme.

On September 1, 2000, at the direction of Saddam Hussein, SOMO began demanding a "surcharge" from each purchaser of Iraqi oil. According to the Coleman-Levin investigation, these surcharges ranged from 10 to 30 cents per barrel and were paid directly to the Iraqi regime, often through another party who, of course, took a cut. The scheme worked for two years until the United States and Britain insisted that it end. By that time, however, Hussein had made profits of nearly $230 million outside of the U.N. process, in one of several illegal mechanisms he devised to enrich himself.

Over roughly the same period, according to the Duelfer report, the Iraqi regime increased exponentially its spending on the country's Military Industrial Commission--from $7.8 million in 1998 to $500 million in 2003.

It is true that much of Iraq's illicit funding during the period of the Oil-for-Food program came from ordinary oil smuggling unrelated to the U.N. But the improvements to the oil production processes that allowed Iraq to produce and distribute oil legally also helped the illegal oil trade. The Duelfer Report estimates that Iraq's oil-smuggling profits from 1996-2003 were nearly triple those of the previous five years.

AT A SENATE HEARING LAST TUESDAY, the Coleman-Levin investigators highlighted the bribes the Iraqi regime paid to foreign officials from Britain, Russia, and France. The dramatic testimony of British member of parliament George Galloway, who unconvincingly denied knowledge of any Iraqi oil transactions, garnered most of the headlines. But Galloway is a well-known apologist for Saddam Hussein, and as a propagandist for the regime he was rather ineffective.

Two other men under investigation by the Coleman-Levin committee, however, were close advisers to the two chief opponents of the Iraq war--Jacques Chirac and Vladimir Putin.

One Coleman-Levin report concerns former French interior minister Charles Pasqua, who is described as a "long-time friend and political ally" of Chirac. The report says Pasqua "was a vocal supporter of restoring economic ties with the Hussein regime" as interior minister and charges him with receiving allocations for 11 million barrels of Iraqi oil. Pasqua has denied any involvement.

A second report focuses on oil allocations to the Russian Presidential Council. "Russia topped the list of nations from whom the Hussein regime wanted support at the Security Council. As a result, the Hussein regime granted allocations to Russian individuals, political parties, and others due to their good relationship with Iraq and their support for the lifting of sanctions. . . . The scale of the oil allocations given to Russian individuals and political parties was substantial, totaling approximately 30 percent of all the oil allocated during the course of the program."

Many of these allocations went to the Unity party, a predecessor of the Unified Russia party, which currently holds 37 percent of the seats in the Russian Duma. The report describes it as "a pro-Kremlin party associated with Russian president Vladimir Putin." In a prison interview last month with Senate investigators, Tariq Aziz said the Unity party was chosen for the allocations "because Russia was taking positions at the Security Council that were favorable to Iraq."

Alexander Voloshin was the head of the Russian Presidential Council and, until his resignation in 2003, the top adviser to Russian president Vladimir Putin. He has been called the Russian Karl Rove for his close relationship to Putin, and, according to the Coleman-Levin report, "there is little debate over the magnitude of Mr. Voloshin's influence in Russian government during the Oil-for-Food Program." In all, the Russian Presidential Council is alleged to have received allocations for 90 million barrels of Iraqi oil. Another well-known but less influential Russian politician, the ultra-nationalist Vladimir Zhirinovsky, also received oil allocations under Oil-for-Food, good for more than 70 million barrels.

The Coleman-Levin reports base their conclusions on a wide variety of evidence including documents from the Iraqi Oil Ministry and the State Oil Marketing Organization that record the transactions in detail. Investigators also conducted dozens of interviews with senior Iraqi officials, including Aziz and Ramadan, who supported and in many cases expanded upon the documentation.

In early June, the Coleman-Levin committee will make available a similar report on the Iraqi regime's funding of terrorist entities. They will lay out a case study of the allocations provided to the Mujahedin e-Khalq (MEK), a terrorist group Hussein funded to conduct operations against Iran. Michael Scheuer, former head of the CIA's Osama bin Laden unit and author of Imperial Hubris, described some of the work the MEK did for Hussein in his 2002 book, Through Our Enemies' Eyes. Osama bin Laden "may have trained some fighters in Iraq at camps run by Saddam's anti-Iran force, the Mujahedin e-Khalq (MEK)," Scheuer writes. "The first group of bin Laden's fighters is reported to have been sent to MEK camps in June 1998; MEK cadre were also then providing technical and military training for Taliban forces and running the Taliban's anti-Iran propaganda."

THAT THE U.N. WAS APPARENTLY CLUELESS as this scheme unfolded is bad enough. What's worse, though, is that several high-ranking U.N. officials appear to have been involved in the illegality. Court documents related to the prosecution of Samir Vincent, the first American to be charged in the Oil-for-Food scandal, refer to Vincent's meetings with U.N. officials. Vincent was acting as an unregistered agent of the government of Iraq when he "and other individuals, including United Nations officials, met in Manhattan in an effort to secure terms favorable to the Government of Iraq in connection with the adoption and implementation of Resolution 986"--the resolution that created the Oil-for-Food program. Vincent is now cooperating with prosecutors.

And last month, a criminal complaint against South Korean Tongsun Park, who also acted on Hussein's behalf, mentions "U.N. Official #1" and "U.N. Official #2" as recipients of bribes from the former Iraqi regime. The two officials remain unnamed. Many news articles have pointed out that Park is a longtime friend of former U.N. Secretary General Boutros Boutros-Ghali and a business associate of Maurice Strong, an adviser to Kofi Annan who currently serves as the U.N. envoy to the six-party talks on North Korea. Both men have denied any wrongdoing.

So has Kojo Annan, Kofi Annan's son. The younger Annan was consulting for the Swiss firm Cotecna while the firm was bidding to win a contract to monitor the Oil-for-Food program. Cotecna won the contract on December 31, 1998, the same day Kojo Annan's consultancy ended. Cotecna continued to pay Kojo some $2,500 per month as part of a "non-compete" clause. The payments continued until February 2004. Both Annans and Cotecna contend that Kojo's work had nothing to do with Oil-for-Food.

The same cannot be said for Benon Sevan, since he is the man Kofi Annan handpicked to run the Oil-for-Food program. According to an interim report from the Oil-for-Food investigation commissioned by the U.N. itself, Sevan "repeatedly solicited" oil allocations worth about $1 million for a company called African Middle East Petroleum. Paul Volcker, chairman of the U.N.-backed investigation, said, "The Iraqi government, in providing such allocations, certainly thought they were buying influence."

Volcker added: "Mr. Sevan placed himself in a grave and continuing conflict-of-interest situation that violated explicit U.N. rules and violated the standards of integrity essential to a high-level international civil servant."

I visited Norm Coleman in his Senate office last Wednesday. He spoke in measured terms until I asked him about Benon Sevan. "The first Volcker report concludes with a summary that this is a conflict of interest. It wasn't a conflict of interest. Sevan lied to investigators. Sevan lies. He lied to us about money that he has publicly declared. He lied to investigators. He lied about his relationship with a person who ultimately got the contract for the oil. We then get documentation that in fact Sevan lobbied for this guy to get Iraqi oil for his company. That's probable cause that he has committed a crime. And yet it was characterized as a conflict of interest?"

Coleman races through his list of grievances until that last sentence, at which point he pauses between each word. Conflict . . . of . . . interest? He shakes his head in disbelief, and then he's off again.

"That's not a conflict of interest. Sevan should be available--he shouldn't have immunity. I'm kind of on a rant here, but Sevan--up until we raised the issue, the U.N. was paying his legal fees. With Oil-for-Food money! Here's a guy who has lied to investigators--probable cause to believe he has committed a crime--and Kofi was going to pay his legal fees until we raised the issue!"

In recent weeks, the Volcker committee itself has come under scrutiny after two of its top investigators, former FBI agent Robert Parton and his deputy, Miranda Duncan, quit the probe. The Volcker committee originally explained their departures by claiming simply that the pair had finished their work. Shortly thereafter, the committee cited "personal reasons." Eventually, the truth emerged. Both Parton and Duncan believed that the Volcker committee's report on Kofi and Kojo Annan was too forgiving of the U.N. secretary general. In the days since, Parton has accused the Volcker committee of violating the confidentiality agreement it had with a witness, and that witness himself has accused the Annans of witness tampering.

Is it any wonder that Coleman wants to investigate whether Kofi Annan was--quite literally--doing business with Saddam Hussein?

Stephen F. Hayes is a senior writer at The Weekly Standard.