Report: U.N. oil-for-food fraud widespread

updated 4:44 p.m. ET Oct. 27, 2005

UNITED NATIONS - About 2,200 companies in the U.N. oil-for-food program, including corporations in the United States, 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 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.

There were two main types of manipulation: surcharges paid for humanitarian contracts for spare parts, trucks, medical equipment and other supplies; and kickbacks for oil contracts.

Daewoo, Siemens, Texas firms implicated
Among the companies that paid illegal surcharges were South Korea’s Daewoo International and Siemens SAS of France. On the oil side, contractors listed included Texas-based Bayoil and Coastal Corp., and Russia’s oil giants Gazprom and Lukoil.

Russian companies were contracted for approximately $19.3 billion in oil from Iraq, which amounted to about 30 percent of oil sales, by far the largest proportion among all participating countries.

Germany-based automaker DaimlerChrysler, meanwhile, appears to have paid just $7,000 on a contract worth $70,000. DaimlerChrysler said it was aware of the report but declined to comment because of an ongoing investigations by the Securities and Exchange Commission and the Justice Department.

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 Iraq 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. “This is the first I hear about it,” she said.

Former French envoy accused
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 in France.

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.

Vladimir Zhirinovsky, who heads Russia’s Liberal Democratic Party, received millions of barrels of oil he could turn around and sell for a profit, the report said. Iraqi Oil Ministry records show that 4.3 million barrels were allocated to Alexander Voloshin, who at the time was chief of staff in the administration of Russia’s president. Both Voloshin and Zhirinovsky have denied any wrongdoing.

Report criticizes Security Council
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 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 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 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.”

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