Lawmaker Demands 'Oil-for-Food' Documents

Lawmaker Demands 'Oil-for-Food' Documents
Thursday, May 20, 2004

NEW YORK — A key lawmaker sent a letter Wednesday to U.N. Secretary General Kofi Annan asking for the immediate release of 55 internal audits of the controversial Iraqi oil-for-food program.

Rep. Henry Hyde, chairman of the House International Relations Committee, sent the letter after Fox News reported on a leaked audit from April 2003 that found significant problems with the program. Specifically, the audit raised questions about a company that employed Annan's son as it prepared to bid an oil-for-food contract.

Hyde wrote to Annan that he had a "deep concern" about the audit's conclusions and he noted that Congress "should not be required to depend on media leaks for source documents."

Click to read the letter from Rep. Hyde to Kofi Annan (pdf).

Click to read letters from Benon Sevan, Cotecna (pdf).

Click to read the U.N. internal audit of the oil-for-food program (pdf).

To deal with the allegations that companies and individuals — including former Iraqi dictator Saddam Hussein — siphoned off billions of dollars meant for the Iraqi people, Annan named a three-member panel led by Paul Volcker to lead an investigation. Volcker is the respected former chairman of the U.S. Federal Reserve.

Annan has said that he expects Benon Sevan, the former head of the program, and other U.N. staff members to cooperate with the investigation. But Sevan's office has sent letters to some of the companies involved in the program not to release any documents or to talk to investigators without prior approval.

One of the companies that received the letter is Cotecna, the Swiss-based company that was awarded a $4.8 billion contract for the oil-for-food program just months after Annan's son, Kojo, ended a consulting assignment with the firm.

Fox News has obtained a letter sent April 13 from Cotecna's senior vice president, Andre E. Pruniaux, asking Sevan for permission to cooperate with investigators. The letter was a follow-up to an April 8 letter Pruniaux wrote saying that U.S. governmental authorities, including a House subcommittee on the Middle East and Central Asia, had contacted the company for information.

"At this juncture, we believe it would be most beneficial to all involved to respond to such requests by authorities in order to explain Cotecna's limited, technical role in the Programme, thereby dismissing any suggestion of impropriety in recent reports by the media," Pruniaux wrote.

It is not clear if U.N. officials responded to Pruniaux or gave the company the authorization to cooperate with investigators.

Cotenca officials have declined to answer individual questions about the company's participation in the program or the role of Kojo Annan. In the past, they've issued statements denying any wrongdoing and maintaining that they properly followed all U.N. regulations.

Sevan has denied any impropriety with his management of the oil-for-food program and has said he would cooperate with investigators.

When confronted by Fox News on Thursday outside the United Nations, Sevan refused to answer questions about whether he profited personally or about his discussions with Annan and Volcker.

Fox News' Jonathan Hunt contributed to this report.

U.N. Audit Found Early 'Oil-for-Food' Problems

U.N. Audit Found Early 'Oil-for-Food' Problems
Thursday, May 20, 2004

NEW YORK — An internal United Nations audit from 2003 found significant problems with the international organization's Iraqi oil-for-food program, revealing that millions of dollars went unaccounted for.

The 23-page audit by the U.N. Office of Internal Oversight Services into the program — now the subject of an independent probe looking into allegations of abuse — also revealed problems with the oil-for-food program's administration, specifically with a company that employed Secretary General Kofi Annan's son as it prepared to bid for an oil-for-food contract.

Click to read the U.N. internal audit of the oil-for-food program.

The audit devotes almost 20 pages to the U.N.’s dealings with Cotecna, a Swiss-based company that was awarded a $4.8 million dollar contract for the oil-for-food program just months after Annan’s son, Kojo, ended a consulting assignment with the firm.

It is not clear if Annan himself ever read the audit. He has insisted in the past that he was unaware of any problems with the oil-for-food program while it was in operation. He has also denied any conflict of interest with his son’s involvement with Cotecna.

The April 8, 2003 report was addressed to Benon Sevan, former head of the oil-for-food program. Sevan has refused to talk to Fox News about the program or his role in the matter, except to say that he has done nothing wrong.

The document was obtained by Mineweb.com, an international mining publication based in South Africa that focuses on mining finance and corporate news.

The overall conclusion of the report is "that management of the Contract has not been adequate and certain provisions of the Contract have not been adhered to." The incorporation of additional costs was deemed "uneconomical" and the Contract was "amended prior to its commencement, which was inappropriate."

The Office of Iraq Programs needs to "strengthen its management of contracts and the Procurement Division should ensure that the basis of payment is appropriate in order to avoid additional costs to the Organization," the audit found.

Several references in the audit are damning to Cotecna and seem to openly question the relationship between the company and its U.N. client. Among the specific charges listed in the report:

— U.N. officials approved $356,000 in “additional costs” to the contract just four days after the proposal was signed.

— Within a year of the contract’s signing, it was amended to add other charges far above those originally approved. This included a hike in the "per man day fee" to $600 from an initial $499. This higher fee "was exactly equal to the offer of the second lowest bidder."

— Cotecna and U.N. officials understaffed inspection stations at entry points into Iraq, which “affects the performance of services."

— In northern Iraq, where Kurdish officials have said they were cheated out of billions of dollars in oil-for-food aid, there were no inspectors on the job. The result was "huge differences between the figures for goods reported to have arrived by the U.N. agencies and the contractor."

The audit found the oil-for-food administration had "been aware" of problems for years but had failed to adequately address them. And it determined no one from the United Nations monitored Cotecna agents operating in Iraq.

“In absence of a contract manager, there can be no assurance that the services provided were in consonance with the spirit and letter of the Contract,” the audit stated.

But after the report's April 2003 submission — and just three months before handing over control of the oil-for-food program to the Coalition Provisional Authority in Iraq — the United Nations signed a new $9.8 million contract for Cotenca.

Cotenca officials declined to answer individual questions about the the company's participation in the program or the role of Kojo Annan. In the past, they've issued statements denying any wrongdoing and maintaining they properly followed all U.N. regulations

U.N. officials have said the internal audits and other relevant documents have been handed over to Paul Volcker, who was named by Annan last month to investigate the growing scandal. Volcker has declined requests for interviews, but is expected to make an appearance at a U.N. press briefing on Thursday.

Fox News' Jonathan Hunt contributed to this report.

Chalabi Raid Complicates Oil-For-Food Probe

Matthew Swibel, 05.20.04, 9:15 PM ET

WASHINGTON, D.C. - While the Iraqi prisoner abuse scandal rages, yet another controversy is gathering steam, involving top U.S. accounting firms, powerful K Street lobbying firms and international oil companies widely held by institutional and individual investors.

Senior congressional staffers, policy analysts and lobbyists are all pointing to mounting evidence that "utter chaos is reigning" in Baghdad over investigations into the Iraq oil-for-food program scandal, especially in the wake of today's raid by Iraqi police and U.S. forces on the home of Iraqi Governing Council member Ahmad al-Chalabi.

The purpose of the raid was not disclosed, but Chalabi himself later told reporters that among the items seized were files related to the oil-for-food program, which he and the council have been probing.

During the program established by the United Nations Security Council in 1995, the U.N. reportedly oversaw a flow of funds totaling $15 billion a year. Revenues were held in an escrow account run by BNP Paribas for the U.N. The oil-for-food program became a lucrative source of contracts for Russian and French oil companies, including Lukoil and Total (nyse: TOT - news - people ), according to congressional testimony by Nile Gardiner of the Heritage Foundation. The U.N. itself collected a 2.2% commission on every barrel of Iraqi oil sold, generating more than $1 billion in revenue. The U.S. Congress' General Accounting Office estimates that Saddam Hussein's regime siphoned off $10 billion while the U.N. oversaw the program.

The raid on Chalabi's home--characterized by the White House as resulting from an Iraqi-led investigation--may frustrate the ability of private accounting firm KPMG to complete a comprehensive audit into the oil-for-food program, which generated $67 billion in revenue for Iraq between 1997 and 2002, according to the Heritage Foundation. KPMG began investigating in February 2004 on behalf of the Iraqi Ministry of Oil, the Central Bank of Iraq, the Finance and the Trade Ministry and the State Oil Marketing Association.

Over the last several weeks, however, a growing feud has erupted between Chalabi and the rest of the Governing Council, and L. Paul Bremer, Iraq's U.S. civilian administrator, over Bremer's recent selection of Ernst & Young to begin a separate investigation on behalf of Bremer's Coalition Provisional Authority (CPA). A key difference between the contracts: The KPMG contract includes the recovery of the assets, while Ernst & Young's contract calls for recommendations on how the monies are to be recovered.

The stunning reversal of fortune for KPMG and Chalabi comes less than a month after Iraqi Governing Council consultant Claude Hanes-Drielsma told a U.S. House of Representatives subcommittee the "the CPA said that the process run by the IGC...would indeed stand."

Meanwhile, former U.S. Federal Reserve Chairman Paul Volcker, appointed last month by U.N. Secretary General Kofi Annan to lead yet another inquiry, is pressing forward with his own investigation. Some say Annan must bear ultimate responsibility for the program's massive failings. "I think our investigation is the central, authoritative investigation," Volcker said at a press conference today. "I would like to think it's understood quite generally."

Far from it. Volcker lacks the necessary power to subpoena witnesses in an investigation, according to sources on Capitol Hill, policy experts and lobbyists. And despite today's raid, the Iraqi Governing Council doesn't appear to be giving up its fight for control over the oil-for-food audit. The council's finance committee is working with Patton Boggs, a well-connected Washington, D.C., law firm, to help it navigate the political system.

The U.S. Congress may want to conduct its own investigation, says the Middle East Media Research Institute and at least one senior congressional aide. Some observers have speculated that the Senate Foreign Relations Committee may already by preparing to organize such an independent query. It is unclear, however, whether any congressional investigation would have the authority to compel testimony from United Nations staffers involved with oversight of the oil-for-food program.

It is possible that separate oil-for-food inquiries by the U.N., the CPA and the IGC could proceed separately. "One would not cancel out another," says a source close to the matter. "However, a coordination of efforts beginning with a conference involving reps from each would avoid a wasteful and redundant and inefficient three-ring circus approach. The recovery of this money is something that has to transcend all this political [nonsense]."