Saturday, October 29, 2005

P.S. - How the UN/Iraq Oil-for-Bribery scam worked

This is a follow-up to my recent item about The Volcker Report, the UN/Iraq Oil-for-Bribery Scandal, & George Galloway. I received a request for clarification. That query & my response are below. --Jeff Weintraub

Hi Jeff~

The language being used to describe the scandal by various people is confusing. It strikes me that the connotations of the Volcker report and of the commentaries by you and Hitchens do not "add up." I am left wondering about the underlying reality.
The Volcker report says:
"More than 2,000 companies taking part in the United Nations oil-for-food programme paid illegal surcharges and kickbacks to Saddam Hussein's regime in Iraq, an inquiry has found" Clearly, this is immoral and unethical: It had the effect of financially strengthening a villian that the international community had supposedly agreed to contain. I support exposing and punishing in some appropriate way those who would do this.
You say:
"Saddam Hussein was able to rake off many billions of dollars that were supposed to be earmarked to provide food, medicine, and other basic necessities for ordinary Iraqis."

These claims seem different. The reason is that the Volcker report suggests that people were paying money directly to Saddam (or his administration, or whatever) /outside the mechanisms of the Oil-for-food Program/. That is, the Oil-for-Food program received all the money that it should have [The point is that it didn't--see below.]; but, (on the side), Saddam was able to make additional money. The words "bribes" and "kickbacks" strongly suggest such an interpretation, to me; words like "rake off billions of dollars that were supposed to be earmarked" suggests something different. Hitchens, characteristically, takes it a bit further: "It is the cynical theft of food and medicine from the desperate to pay for the palaces of a psychopath."

So the questions are:
Did Saddam take money that was supposed to flow through the Oil-for-Food program? [Yes.] If yes, then the administrators at the UN are more incompetent than I've ever imagined (which is, of course, possible). [Well, it turns out that some of these administrators were also being bribed, so maybe they weren't always as incompetent as they seemed.] Or, in contrast, did Saddam accept illegal bribes or kickbacks "on the side"? That is, Oil-for-Food netted what it was expected to net, but Saddam required additional payments directly to himself (or his administration, or whatever) in order for nations/corporations to participate in Oil-for-Food in the first place. [Actually, both--see below.]

I think the Volcker report suggests the latter.
I think you and Hitchens suggest the former.

I don't claim to know who is right. But, I do wonder what you make of the difference.

All the best,

Good question ... and the story is indeed a little confusing. But the brief answer is that there is no difference between the two accounts. Both are correct, and they're entirely compatible.

All the money paid for oil through the UN "oil-for-food" program was supposed to be paid into a UN-supervised account that would be spent for food, medicine, and other humanitarian needs.

The strategy followed by the Iraqi Ba'ath regime (standard in many forms of corporate scam) was to make deals with favored customers in which they would charge them a lower, below-market price for the oil ... and the lower price would be made up (in whole or part, depending on various specific factors) by secret surcharges that these customers would pay outside the structure of the "oil-for-food" program. That means that these funds were effectively deducted from the amounts available for humanitarian purposes, the Iraqi regime got them instead, and the Iraqi regime was then free to spend this money (unsupervised) for other purposes.

Among other things, these funds were used for an extensive system of bribes, favors, and other modes of influence-buying, and this money was spread very widely among journalists, politicians, UN officials, lobbyists, governments, foreign sympathizers, etc., all over the world. Furthermore, the fact that the Iraqi regime had a decisive say in who got oil-for-food allotments meant that they could use the allocation of sweetheart deals to buy influence and support ... and/or to finance governments, organizationa, and individuals who already supported them, like George Galloway. (It turns out that some of this money also wound up, indirectly, subsidizing the anti-war activities of Scott Ritter, which were funded in large part by an Iraqi-American businessman with close ties to Baghdad regime who was one of the beneficiaries of this scam--though I am quite willing to accept Ritter's assertion that he was entirely unaware that any of his funding came from these sources.)

On top of all that, it turns out that a lot of the money in the UN-supervised oil-for-food fund actually got spent for a range of purposes that definitely did not fall into the category of humanitarian relief ... and these expenditures somehow got approved anyway. There were various reasons for this, and much of the blame should go to member governments of the UN ... but did it have anything to do with the fact that a number of UN officials, including the guy in charge of the program, Benon Sevan, were being bribed by the Iraqi government? Well, perhaps that was just a coincidence ...

(The major exception to these non-humanitarian diversions of "oil-for-food" funds was in Iraqi Kurdistan. Of course, part of the reason was that the Kurdish authorities wanted to spend the money for humanitarian purposes. But in addition, the UN kept a tighter control on expenditures there than in the rest of Iraq. Ironically, a major reason was that the UN people on the spot, mostly from the Arab world, were more hostile to the Kurdistan regional government than they were to the Baghdad government, so they wouldn't have let the Kurdish government use the oil-for-food money as a slush fund. On the other hand, the UN never delivered a significant portion of the oil-for-food money that should have gone to Kurdistan, so that when the Iraqi Ba'ath regime was overthrown in 2003 a lot of this withheld money was still in UN accounts ... much of it deposited in French banks chosen by the Iraqi regime, incidentally. Despite this, conditions in Iraqi Kurdistan improved dramatically during the 1990s, while they deteriorated in the rest of Iraq--which is one more proof that the key factor was not the sanctions in place on both areas, but the manipulation of sanctions by the regime in Baghdad.)

And to add one more piece of the picture, the Iraqi regime also sold a large--and increasing--volume of oil that was smuggled totally outside the structure of the UN-run Oil-for-Food program (usually at highly discounted rates, which again bought a lot of support), so there was no pretense of control at all over how this was spent. (None of it got spent on humanitarian supplies, I can assure you.) But that raises different issues from the ones mentioned in your message ...

=> In short, it all adds up. Clear?

Jeff Weintraub


Update, 10/31/2005: There is a more detailed roundup of the legal & financial issues in the Galloway case posted on the "Crooked Timber" website by Daniel Davies, who has always gone out of his way to deal with Galloway in an 'even-handed' manner. (It may be worth adding that Davies has consistently been a rabid opponent of the 2003 Iraq war, so he has no sympathy with most of Galloway's critics.) Cutting through the complexities and qualifications (which are important), it seems to me that Davies's conclusion is essentially that (a) Galloway looks guilty as charged, but (b) it may well be difficult to prove it in court beyond a reasonable doubt ... unless his middleman in the scam, the Jordanian businessman Fawaz Zureikat, spills the beans, in which case Galloway's goose is cooked. We'll see.