UN: Thousands Paid Iraq Kickbacks

About 2,200 companies in the U.N. oil-for-food program, including corporations in France, Germany and Russia, paid a total of $1.8 billion in kickbacks and illicit surcharges to Saddam Hussein's government, a U.N.-backed investigation said in a report released Thursday.

The report from the committee probing claims of wrongdoing in the $64 billion program said prominent politicians also made money from extensive manipulation of the U.N. oil-for-food program in Iraq.

The investigators reported that companies and individuals from 66 countries paid illegal kickbacks using a variety of ways, and those paying illegal oil surcharges came from, or were registered in, 40 countries.

Germany-based automaker DaimlerChrysler, meanwhile, appears to have paid just $7,000 on a contract worth $70,000. DaimlerChrysler AG didn't immediately return a call seeking comment from its offices in Stuttgart, Germany.

In July, DaimlerChrysler said it had been asked for a statement and documents regarding its role in the oil-for-food program, according to documents filed with the Securities and Exchange Commission.

The report said, for example, that Brussels-based Volvo Construction Equipment paid $317,000 in extra fees to the Iraqi government on a $6.4 million contract. Volvo Construction is part of Swedish-based Volvo Group, which referred all questions to Volvo Construction Equipment's headquarters in Brussels. The group is separate from Volvo automobiles, which is owned by Ford.

Beatrice Cardon, a Volvo spokeswoman, said she was unaware the company was listed in the U.N. report, or what the alleged payments were for.

"I have no clue. This is the first I hear about it," Cardon said.

The report alleged that Jean-Bernard Merrimee, France's former U.N. ambassador, received $165,725 in commissions from oil allocations awarded to him by the Iraqi regime. He is now under investigation by the French authorities.

Merrimee "began receiving oil allocations that would ultimately total approximately 6 million barrels from the government of Iraq," the report said.

Other so-called "political beneficiaries" included British lawmaker George Galloway; Roberto Formigoni, the president of the Lombardi region in Italy, and the Rev. Jean-Marie Benjamin, a priest who once worked as an assistant to the Vatican secretary of state and became an activist for lifting Iraqi sanctions.

Thursday's final report of the investigation led by former Federal Reserve chairman Paul Volcker strongly criticizes the U.N. Secretariat and Security Council for failing to monitor the program and allowing the emergence of front companies and international trading concerns prepared to make illegal payments.

In a letter to U.N. Secretary General Kofi Annan, the committee said its task had been to find mismanagement and evidence of corruption, and "unhappily, both were found and have been documented in great detail."

It said responsibility for the program's failure should start with the U.N. Security Council, which is dominated by its five permanent members: Britain, China, France, Russia and the United States.

"The shocking part of the final report is how pervasive corruption was and in its conclusion that all member nations of the U.N. Security Council turned a blind eye, underscoring the need for reform at the U.N.," reports CBS Foreign Affairs Analyst Pamela Falk.

"The program left too much initiative with Iraq," the letter said. "It was, as one past member of the council put it, a compact with the devil, and the devil had means of manipulating the program to his ends."

Falk calls the Volker report the "hardest hitting investigation to date. "It reveals the extent to which Saddam Hussein was able to benefit from foreign and U.S. companies' manipulation of the sanctions program," Falk says.

"The Department of Justice and the Congressional committees now must follow up with the evidence to see how high up this corruption went," adds Falk.

In a statement today Ambassador John R. Bolton, U.S. Permanent Representative to the United Nations, said, "In the United States, federal and local authorities have already indicted a number of people and companies that allegedly participated in illegal activities relating to the Oil-For-Food Program." He called for law enforcement agencies in nations around the world to pursue people and companies in their countries as well.

The oil-for-food program was one of the world's largest humanitarian aid operations, running from 1996-2003.

Under the program, Iraq was allowed to sell limited and then unlimited quantities of oil provided most of the money went to buy humanitarian goods. It was launched to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam's 1990 invasion of Kuwait.

But Saddam, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, corrupted the program by awarding contracts to, and getting kickbacks from favored buyers, mostly parties who supported his regime or opposed the sanctions.

Tracing the politicization of oil contracts, the new report said Iraqi leaders in the late 1990s decided to deny American, British and Japanese companies allocations to purchase oil because of their countries' opposition to lifting sanctions on Iraq.

At the same time, it said, Iraq gave preferential treatment to France, Russia and China which were perceived to be more favorable to lifting sanctions and were also permanent members of the Security Council.

Volcker's previous report, released in September, said lax U.N. oversight allowed Saddam's regime to pocket $1.8 billion in kickbacks and surcharges in the awarding of contracts during the program's operation from 1997-2003.

According to the new findings, Iraq's largest source of illicit income from the oil-for-food program was the more than $1.5 billion from kickbacks on humanitarian contracts.

Volcker's Independent Inquiry Committee calculated that more than 2,200 companies worldwide paid kickbacks to Iraq in the form of "fees" for transporting goods to the interior of the country or "after-sales-service" fees, or both.

Tables accompanying the report give a detailed look at the value of each company's contracts and the amount of money it paid in kickbacks.

According to the findings, the Banque Nationale de Paris S.A., known as BNP, which held the U.N. oil-for-food escrow account, had a dual role and did not disclose fully to the United Nations the firsthand knowledge it acquired about the financial relationships that fostered the payment of illegal surcharges.

The report chronicles Saddam's manipulation of the program and examines in detail 23 companies that paid kickbacks on humanitarian contracts including Iraqi front companies, major food providers, major trading companies, and major industrial and manufacturing companies.

According to the findings, the program was just under three years old when the Iraqi regime began openly demanding illicit payments from its customers. The report said that while U.N. officials and the Security Council were informed, little action was taken.

The report is the fifth by Volcker and wraps up a year-long, $34 million investigation that has faulted Annan, his deputy, Canada's Louise Frechette, and the Security Council for tolerating corruption and doing little to stop Saddam's manipulations.

The smuggling of Iraqi oil outside the program in violation of U.N. sanctions poured much more money, $11 billion, into Saddam's coffers during the same period, according to the report.