United Nations
Observations on the Oil for Food Program and Areas for Further Investigation Gao ID: GAO-04-953T July 8, 2004The Oil for Food program was established by the United Nations and Iraq in 1996 to address concerns about the humanitarian situation after international sanctions were imposed in 1990. The program allowed the Iraqi government to use the proceeds of its oil sales to pay for food, medicine, and infrastructure maintenance. The program appears to have helped the Iraqi people. From 1996 through 2001, the average daily food intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq sold more than $67 billion of oil through the program and issued $38 billion in letters of credit to purchase commodities. GAO (1) reports on our estimates of the illegal revenue acquired by the former Iraqi regime in violation of U.N. sanctions and provides some observations on the administration of the program and (2) suggests areas for additional analysis and summarizes the status of several ongoing investigations.
From 1997 through 2002, we estimate that the former Iraqi regime acquired $10.1 billion in illegal revenues--$5.7 billion in oil smuggled out of Iraq and $4.4 billion in surcharges on oil sales and illicit charges from suppliers exporting goods to Iraq through the Oil for Food program. The United Nations, through the Office of the Iraq Program (OIP) and the Security Council's Iraq sanctions committee, was responsible for overseeing the Oil for Food program. However, the Security Council allowed the Iraqi government, as a sovereign entity, to negotiate contracts directly with purchasers of Iraqi oil and suppliers of commodities. This structure was an important factor in enabling Iraq to levy illegal surcharges and commissions. OIP was responsible for examining Iraqi contracts for price and value, but it is unclear how it performed this function. The sanctions committee was responsible for monitoring oil smuggling, screening contracts for items that could have military uses, and approving oil and commodity contracts. The sanctions committee took action to stop illegal surcharges on oil, but it is unclear what actions it took on the commissions on commodity contracts. U.N. external audit reports contained no findings of program fraud. Summaries of internal audit reports provided to GAO pointed to some operational concerns in procurement, coordination, monitoring, and oversight. Ongoing investigations of the Oil for Food program may wish to further examine how the structure of the program enabled the Iraqi government to obtain illegal revenues, the role of member states in monitoring and enforcing the sanctions, actions taken to reduce oil smuggling, and the responsibilities and procedures for assessing price reasonableness in commodity contracts. Current or planned efforts include an inquiry initiated by the United Nations, an investigation and audit overseen by the Iraqi Board of Supreme Audit, and efforts undertaken by several U.S. congressional committees.
GAO-04-953T, United Nations: Observations on the Oil for Food Program and Areas for Further Investigation
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Testimony:
Before the Committee on Energy and Commerce, Subcommittee on
Energy and Air Quality, House of Representatives:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 9: 30 a.m., EDT:
Thursday, July 8, 2004:
United Nations:
Observations on the Oil for Food Program and Areas for Further
Investigation:
Statement of Joseph A. Christoff, Director, International Affairs and
Trade:
GAO-04-953T:
GAO Highlights:
Highlights of GAO-04-953T, a testimony before the Committee on Foreign
Relations
Why GAO Did This Study:
The Oil for Food program was established by the United Nations and Iraq
in 1996 to address concerns about the humanitarian situation after
international sanctions were imposed in 1990. The program allowed the
Iraqi government to use the proceeds of its oil sales to pay for food,
medicine, and infrastructure maintenance. The program appears to have
helped the Iraqi people. From 1996 through 2001, the average daily food
intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq
sold more than $67 billion of oil through the program and issued $38
billion in letters of credit to purchase commodities.
GAO (1) reports on our estimates of the illegal revenue acquired by the
former Iraqi regime in violation of U.N. sanctions and provides some
observations on the administration of the program and (2) suggests
areas for additional analysis and summarizes the status of several
ongoing investigations.
What GAO Found:
From 1997 through 2002, we estimate that the former Iraqi regime
acquired $10.1 billion in illegal revenues”$5.7 billion in oil smuggled
out of Iraq and $4.4 billion in surcharges on oil sales and illicit
charges from suppliers exporting goods to Iraq through the Oil for Food
program. The United Nations, through the Office of the Iraq Program
(OIP) and the Security Council‘s Iraq sanctions committee, was
responsible for overseeing the Oil for Food program. However, the
Security Council allowed the Iraqi government, as a sovereign entity,
to negotiate contracts directly with purchasers of Iraqi oil and
suppliers of commodities. This structure was an important factor in
enabling Iraq to levy illegal surcharges and commissions. OIP was
responsible for examining Iraqi contracts for price and value, but it
is unclear how it performed this function. The sanctions committee was
responsible for monitoring oil smuggling, screening contracts for items
that could have military uses, and approving oil and commodity
contracts. The sanctions committee took action to stop illegal
surcharges on oil, but it is unclear what actions it took on the
commissions on commodity contracts. U.N. external audit reports
contained no findings of program fraud. Summaries of internal audit
reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight.
Ongoing investigations of the Oil for Food program may wish to further
examine how the structure of the program enabled the Iraqi government
to obtain illegal revenues, the role of member states in monitoring and
enforcing the sanctions, actions taken to reduce oil smuggling, and the
responsibilities and procedures for assessing price reasonableness in
commodity contracts. Current or planned efforts include an inquiry
initiated by the United Nations, an investigation and audit overseen by
the Iraqi Board of Supreme Audit, and efforts undertaken by several
U.S. congressional committees.
www.gao.gov/cgi-bin/getrpt?GAO-04-953T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or christoffj@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss GAO's review of the United
Nations (U.N.) Oil for Food program.
In 1996, the United Nations and Iraq established the Oil for Food
program to address growing concerns about the humanitarian situation
after international sanctions were imposed in 1990. The program's
intent was to allow the Iraqi government to use the proceeds of its oil
sales to pay for food, medicine, and infrastructure maintenance and, at
the same time, prevent the regime from obtaining goods for military
purposes. From 1997 through 2002, Iraq sold more than $67 billion in
oil through the program and issued $38 billion in letters of credit to
purchase commodities.[Footnote 1]
Today, we will (1) report on our estimates of the illegal revenue
acquired by the former Iraqi regime in violation of U.N. sanctions and
provide some observations on the administration of the program and (2)
suggest areas for additional analysis and summarize the status of
several ongoing investigations.
To address these objectives, we reviewed documents and statements from
the United Nations on its management and oversight responsibilities for
the Oil for Food program and from the Coalition Provisional Authority
(CPA), the Department of State, and the United Nations on ongoing
investigations of the program. We also reviewed external audits to
determine the use of Oil for Food funds prior to the transfer of the
program to the CPA in November 2003. We did not have full access to the
U.N. internal audits of the Oil for Food program, but we reviewed the
summaries of 7 annual internal audits from 1996 to 2003 and had access
to one report made publicly available in May 2004.
We conducted our review from November 2003 through June 2004 in
accordance with generally accepted government auditing standards.
Summary:
* From 1997 through 2002, we estimate that the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion in oil
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and
illicit charges from suppliers exporting goods to Iraq through the Oil
for Food program. The United Nations, through the Office of the Iraq
Program (OIP) and the Security Council's Iraq sanctions committee, was
responsible for overseeing the Oil for Food program. However, the
Security Council allowed the Iraqi government, as a sovereign entity,
to negotiate contracts directly with purchasers of Iraqi oil and
suppliers of commodities. This structure was an important factor in
enabling Iraq to levy illegal surcharges and illicit commissions. OIP
was responsible for examining Iraqi contracts for price and value, but
it is unclear how it performed this function. The sanctions committee
was responsible for monitoring oil smuggling, screening contracts for
items that could have military uses, and approving oil and commodity
contracts. The sanctions committee took action to stop illegal
surcharges on oil, but it is unclear what actions it took on the
commissions on commodity contracts. U.N. external audit reports
contained no findings of program fraud. Summaries of internal audit
reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight.
* Ongoing investigations of the Oil for Food program may wish to
further examine how the structure of the program enabled the Iraqi
government to obtain illegal revenues, the role of member states in
monitoring and enforcing the sanctions, actions taken to reduce oil
smuggling, and the responsibilities and procedures for assessing price
reasonableness in commodity contracts. Current or planned efforts
include an inquiry initiated by the United Nations, an investigation
and audit overseen by the Iraqi Board of Supreme Audit, and efforts
undertaken by several U.S. congressional committees.
Background:
In August 1990, Iraq invaded Kuwait, and the United Nations imposed
sanctions against Iraq. Security Council resolution 661 of 1990
prohibited all nations from buying and selling Iraqi commodities,
except for food and medicine. Security Council resolution 661 also
prohibited all nations from exporting weapons or military equipment to
Iraq and established a sanctions committee to monitor compliance and
progress in implementing the sanctions. The members of the sanctions
committee were members of the Security Council. Subsequent Security
Council resolutions specifically prohibited nations from exporting to
Iraq items that could be used to build chemical, biological, or nuclear
weapons. In 1991, the Security Council offered to let Iraq sell oil
under a U.N. program to meet its peoples' basic needs. The Iraqi
government rejected the offer, and over the next 5 years, the United
Nations reported food shortages and a general deterioration in social
services.
In December 1996, the United Nations and Iraq agreed on the Oil for
Food program, which permitted Iraq to sell up to $1 billion worth of
oil every 90 days to pay for food, medicine, and humanitarian goods.
Subsequent U.N. resolutions increased the amount of oil that could be
sold and expanded the humanitarian goods that could be imported. In
1999, the Security Council removed all restrictions on the amount of
oil Iraq could sell to purchase civilian goods. The United Nations and
the Security Council monitored and screened contracts that the Iraqi
government signed with commodity suppliers and oil purchasers, and
Iraq's oil revenue was placed in a U.N.-controlled escrow account. In
May 2003, U.N. resolution 1483 requested the U.N. Secretary General to
transfer the Oil for Food program to the CPA by November 2003.
(Appendix II contains a detailed chronology of Oil for Food program and
sanctions events.) The United Nations allocated 59 percent of the oil
revenue for the 15 central and southern governorates, which were
controlled by the central government; 13 percent for the 3 northern
Kurdish governorates; 25 percent for a war reparations fund for victims
of the Iraq invasion of Kuwait in 1990; and 3 percent for U.N.
administrative costs, including the costs of weapons inspectors.
From 1997 to 2002, the Oil for Food program was responsible for more
than $67 billion of Iraq's oil revenue. Through a large portion of this
revenue, the United Nations provided food, medicine, and services to 24
million people and helped the Iraqi government supply goods to 24
economic sectors. Despite concerns that sanctions may have worsened the
humanitarian situation, the Oil for Food program appears to have helped
the Iraqi people. According to the United Nations, the average daily
food intake increased from around 1,275 calories per person per day in
1996 to about 2,229 calories at the end of 2001. Malnutrition rates for
children under 5 fell by more than half. In February 2002, the United
Nations reported that the Oil for Food program had considerable success
in several sectors such as agriculture, food, health, and nutrition by
arresting the decline in living conditions and improving the
nutritional status of the average Iraqi citizen.
Illicit Revenues by Former Regime Due to Iraqi Control over Contracts
and Uncertain U.N. Oversight Role:
From 1997 through 2002, we estimate that the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion in oil
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and
illicit charges from suppliers exporting goods to Iraq through the Oil
for Food program. The United Nations, through OIP and the Security
Council's Iraq sanctions committee, was responsible for overseeing the
Oil for Food program. However, the Security Council allowed the Iraqi
government, as a sovereign entity, to negotiate contracts directly with
purchasers of Iraqi oil and suppliers of commodities. This structure,
in addition to the uncertain oversight roles of OIP and the sanctions
committee, was an important factor in enabling Iraq to levy illegal
surcharges and illicit commissions. U.N. external audit reports
contained no findings of program fraud. Summaries of internal audit
reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight.
Former Iraqi Regime Acquired an Estimated $10.1 Billion in Illicit
Revenue:
We estimate that, from 1997 through 2002, the former Iraqi regime
acquired $10.1 billion in illegal revenues--$5.7 billion through oil
smuggled out of Iraq and $4.4 billion through surcharges against oil
sales and illicit commissions from commodity suppliers. This estimate
is higher than the $6.6 billion in illegal revenues we reported in May
2002.[Footnote 2] We updated our estimate to include (1) oil revenue
and contract amounts for 2002, (2) updated letters of credit from prior
years, and (3) newer estimates of illicit commissions from commodity
suppliers. Appendix I describes our methodology for determining illegal
revenues gained by the former Iraqi regime.
Oil was smuggled out through several routes, according to U.S.
government officials and oil industry experts. Oil entered Syria by
pipeline, crossed the borders of Jordan and Turkey by truck, and was
smuggled through the Persian Gulf by ship. Jordan maintained trade
protocols with Iraq that allowed it to purchase heavily discounted oil
in exchange for up to $300 million in Jordanian goods. Syria received
up to 200,000 barrels of Iraqi oil a day in violation of the sanctions.
Oil smuggling also occurred through Turkey and Iran.
In addition to revenues from oil smuggling, the Iraqi government levied
surcharges against oil purchasers and commissions against commodity
suppliers participating in the Oil for Food program. According to some
Security Council members, the surcharge was up to 50 cents per barrel
of oil and the commission was 5 to 15 percent of the commodity
contract.
In our 2002 report, we estimated that the Iraqi regime received a 5-
percent illicit commission on commodity contracts. However, a September
2003 Department of Defense review found that at least 48 percent of 759
Oil for Food contracts that it reviewed were potentially overpriced by
an average of 21 percent.[Footnote 3] Food commodity contracts were the
most consistently overpriced, with potential overpricing identified in
87 percent of the contracts by an average of 22 percent. The review
also found that the use of middlemen companies potentially increased
contract prices by 20 percent or more. Defense officials found 5
contracts that included "after-sales service charges" of between 10 and
20 percent.
In addition, interviews by U.S. investigators with high-ranking Iraqi
regime officials, including the former oil and finance ministers,
confirmed that the former regime received a 10-percent commission from
commodity suppliers. According to the former oil minister, the regime
instituted a fixed 10-percent commission in early 2001 to address a
prior "compliance" problem with junior officials. These junior
officials had been reporting lower commissions than what they had
negotiated with suppliers and pocketing the difference.
United Nations and Security Council Had Responsibility for Oversight of
Program, but Iraq Contracted Directly with Purchasers and Suppliers:
* Both OIP, as an office within the U.N. Secretariat, and the Security
Council's sanctions committee were responsible for overseeing the Oil
for Food Program. However, the Iraqi government negotiated contracts
directly with purchasers of Iraqi oil and suppliers of commodities.
While OIP was to examine each contract for price and value, it is
unclear how it performed this function. The sanctions committee was
responsible for monitoring oil smuggling, screening contracts for items
that could have military uses, and approving oil and commodity
contracts. The sanctions committee responded to illegal surcharges on
oil purchases, but it is unclear what actions it took to respond to
commissions on commodity contracts.
Iraq Negotiated Directly with Oil Purchasers and Suppliers:
U.N. Security Council resolutions and procedures recognized the
sovereignty of Iraq and gave the Iraqi government authority to
negotiate contracts and decide on contractors. Security Council
resolution 986 of 1995 authorized states to import petroleum products
from Iraq, subject to the Iraqi government's endorsement of
transactions. Resolution 986 also stated that each export of goods
would be at the request of the government of Iraq. Security Council
procedures for implementing resolution 986 further stated that the
Iraqi government or the United Nations Inter-Agency Humanitarian
Program would contract directly with suppliers and conclude the
appropriate contractual arrangements. Iraqi control over contract
negotiations was an important factor in allowing Iraq to levy illegal
surcharges and illicit commissions.
When the United Nations first proposed the Oil for Food program in
1991, it recognized this vulnerability. At that time, the Secretary
General proposed that the United Nations, an independent agent, or the
government of Iraq be given the responsibility to negotiate contracts
with oil purchasers and commodity suppliers. The Secretary General
concluded that it would be highly unusual or impractical for the United
Nations or an independent agent to trade Iraq's oil or purchase
commodities. He recommended that Iraq negotiate the contracts and
select the contractors. However, he stated that the United Nations and
Security Council would have to ensure that Iraq's contracting did not
circumvent the sanctions and was not fraudulent. The Security Council
further proposed that U.N. agents review contracts and compliance at
Iraq's oil ministry, but Iraq refused these conditions.
Iraqi government control over contracts applied to oil purchases, all
commodities purchased for the 15 central and southern governorates, and
food and medical supplies purchased in bulk by the central government
for the three autonomous Kurdish governorates in the north. The rest of
the program in the north was run by nine specialized U.N.
agencies[Footnote 4] and included activities such as distributing food
rations and constructing or rehabilitating schools, health clinics,
power generation facilities, and houses.
OIP Was Responsible for Key Oversight Aspects of the Program:
OIP administered the Oil for Food program from December 1996 to
November 2003. Under Security Council resolution 986 of 1995 and a
memorandum of understanding between the United Nations and the Iraqi
government, OIP monitored the sale of Iraq's oil and its purchase of
commodities and the delivery of goods, and accounted for the program's
finances. The United Nations received 3 percent of Iraq's oil export
proceeds for its administrative and operational costs, which included
the cost of U.N. weapons inspections.
The sanctions committee's procedures for implementing resolution 986
stated that independent U.N. inspection agents were responsible for
monitoring the quality and quantity of the oil shipped. The agents were
authorized to stop shipments if they found irregularities. OIP hired a
private firm to monitor Iraqi oil sales at exit points. However, the
monitoring measures contained weaknesses. According to U.N. reports and
a statement from the monitoring firm, the major offshore terminal at
Mina al-Basra[Footnote 5] did not have a meter to measure the oil
pumped nor could onshore storage capacity be measured. Therefore, the
U.N. monitors could not confirm the volume of oil loaded onto vessels.
Also, in 2001, the oil tanker Essex took a large quantity of
unauthorized oil from the platform when the monitors were off duty. In
December 2001, the Security Council required OIP to improve the
monitoring at the offshore terminal. It is unclear what actions OIP
took. As part of its strategy to repair Iraq's oil infrastructure, the
CPA had planned to install reliable metering at Mina al-Basra and other
terminals, but no contracts have been let.
OIP also was responsible for monitoring Iraq's purchase of commodities
and the delivery of goods. Security Council resolution 986, paragraph
8a(ii) required Iraq to submit a plan, approved by the Secretary
General, to ensure equitable distribution of Iraq's commodity
purchases. The initial distribution plans focused on food and medicines
while subsequent plans were expansive and covered 24 economic sectors,
including electricity, oil, and telecommunications.
* The sanctions committee's procedures for implementing Security
Council resolution 986 stated that experts in the Secretariat were to
examine each proposed Iraqi commodity contract, in particular the
details of price and value, and to determine whether the contract items
were on the distribution plan. OIP officials told the Defense Contract
Audit Agency they performed very limited, if any, pricing review. They
stated that no U.N. resolution tasked them with assessing the price
reasonableness of the contracts and no contracts were rejected solely
on the basis of price. However, OIP officials stated that, in a number
of instances, they reported to the sanctions committee that commodity
prices appeared high, but the committee did not cite pricing as a
reason to place holds on the contracts. For example, in October 2001,
OIP experts reported to the sanctions committee that the prices in a
proposed contract between Iraq and the Al-Wasel and Babel Trading
Company appeared high. However, the sanctions committee reviewed the
data and approved the contract. In April 2004, the Treasury Department
identified this company as a front company for the former regime. The
United Nations also required all countries to freeze the assets of this
company and transfer them to the Development Fund for Iraq in
accordance with Security Council resolution 1483.[Footnote 6]
* The sanctions committee's procedures for implementing resolution 986
stated that independent inspection agents will confirm the arrival of
supplies in Iraq. OIP deployed about 78 U.N. contract monitors to
verify shipments and authenticate the supplies for payment. OIP
employees were able to visually inspect 7 to 10 percent of the approved
deliveries.
Audits Identified Some Operational Concerns but No Fraud:
Security Council resolution 986 also requested the Secretary General to
establish an escrow account for the Oil for Food program and to appoint
independent and certified public accountants to audit the account. The
Secretary General established an escrow account at BNP Paribas for the
deposit of Iraqi oil revenues. The U.N. Board of Audit, a body of
external public auditors, audited the account.[Footnote 7] The external
audits focused on management issues related to the Oil for Food program
and the financial condition of the Iraq account. U.N. auditors
generally concluded that the Iraq account was fairly presented in
accordance with U.N. financial standards. The reports stated that OIP
was generally responsive to external audit recommendations. The
external audits determined that oil prices were mostly in accordance
with the fair market value of oil products to be shipped and checked to
confirm that pricing was properly and consistently applied. They also
determined that humanitarian and essential services supplies procured
with oil funds generally met contract terms with some exceptions. U.N.
external audit reports contained no findings of fraud during the
program.
The U.N. Office of Internal Oversight Services (OIOS) conducted
internal audits of the Oil for Food program and reported the results to
OIP's executive director. OIOS officials stated that they have
completed 55 audits and have 4 ongoing audits of the Oil for Food
program. Overall, OIOS reported that OIP had made satisfactory progress
in implementing most of its recommendations. We did not have access to
individual OIOS audit reports except for an April 2003 report made
publicly available in May 2004 that assessed the activities of the
company contracted by the United Nations to authenticate goods coming
into Iraq. It found that the contractor did not perform all required
duties and did not adequately monitor goods coming into the northern
areas of Iraq. We also reviewed 7 brief summaries of OIOS reports
covering the Oil for Food program from July 1, 1996, through June 30,
2003. These summaries identified a variety of operational concerns
involving procurement, inflated pricing and inventory controls,
coordination, monitoring, and oversight. In one case, OIOS cited
purchase prices for winter items for displaced persons in northern Iraq
that were on average 61 percent higher than local vendor quotes
obtained by OIOS. In another case, an OIOS review found that there was
only limited coordination of program planning and insufficient review
and independent assessment of project implementation activities.
The Sanctions Committee Had a Key Role in Enforcing Sanctions and
Approving Contracts:
The sanctions committee was responsible for three key elements of the
Oil for Food program: (1) monitoring implementation of the sanctions,
(2) screening contracts to prevent the purchase of items that could
have military uses, and (3) approving Iraq's oil and commodity
contracts.
U.N. Security Council resolution 661 of 1990 directed all states to
prevent Iraq from exporting products, including petroleum, into their
territories. Paragraph 6 of resolution 661 established a sanctions
committee to report to the Security Council on states' compliance with
the sanctions and to recommend actions regarding effective
implementation. As early as June 1996, the Maritime Interception Force,
a naval force of coalition partners including the United States and
Great Britain, informed the sanctions committee that oil was being
smuggled out of Iraq through Iranian territorial waters. In December
1996, Iran acknowledged the smuggling and reported that it had taken
action. In October 1997, the sanctions committee was again informed
about smuggling through Iranian waters. According to multiple sources,
oil smuggling also occurred through Jordan, Turkey, Syria, and the
Gulf. Smuggling was a major source of illicit revenue for the former
Iraqi regime through 2002.
A primary function of the sanctions committee was to review and approve
contracts for items that could be used for military purposes. The
United States conducted the most thorough review; about 60 U.S.
government technical experts assessed each item in a contract to
determine its potential military application. According to U.N.
Secretariat data in 2002, the United States was responsible for about
90 percent of the holds placed on goods to be exported to Iraq. As of
April 2002, about $5.1 billion worth of goods were being held for
shipment to Iraq. According to OIP, no contracts were held solely on
the basis of price.
Under Security Council resolution 986 of 1995, and its implementing
procedures, the sanctions committee was responsible for approving
Iraq's oil contracts, particularly to ensure that the contract price
was fair, and for approving Iraq's commodity contracts. The U.N.'s oil
overseers reported in November 2000 that the oil prices proposed by
Iraq appeared low and did not reflect the fair market value.[Footnote
8] According to a senior OIP official, the independent oil overseers
also reported in December 2000 that purchasers of Iraqi oil had been
asked to pay surcharges. In March 2001, the United States informed the
sanctions committee about allegations that Iraqi government officials
were receiving illegal surcharges on oil contracts and illicit
commissions on commodity contracts. The sanctions committee attempted
to address these allegations by implementing retroactive pricing for
oil contracts in 2001.[Footnote 9]
It is unclear what actions the sanctions committee took to respond to
illicit commissions on commodity contracts. Due to increasing concern
about the humanitarian situation in Iraq and pressure to expedite the
review process, the Security Council passed resolution 1284 in December
1999 to direct the sanctions committee to accelerate the review
process. Under fast-track procedures, the sanctions committee allowed
OIP to approve contracts for food, medical supplies, and agricultural
equipment (beginning in March 2000), water treatment and sanitation
(August 2000), housing (February 2001), and electricity supplies (May
2001).
Issues for Further Investigation and the Status of Current Efforts:
A number of investigations and audits of the Oil for Food program are
under way. These efforts may wish to further examine how the structure
of the program enabled the Iraqi government to obtain illegal revenues,
the role of member states in monitoring and enforcing the sanctions,
actions taken to reduce oil smuggling, and the responsibilities and
procedures for assessing price reasonableness in commodity contracts.
Current or planned efforts include an inquiry initiated by the United
Nations, an investigation and audit overseen by the Iraqi Board of
Supreme Audit, and efforts undertaken by several U.S. congressional
committees.
Issues for Further Investigation and Analysis:
Ongoing and planned investigations of the Oil for Food program provide
an opportunity to better quantify the extent of corruption, determine
the adequacy of internal controls, and identify ways to improve future
humanitarian assistance programs conducted within an economic sanctions
framework. Based on our work, we identified several areas that warrant
further analysis.
Size and Structure of the Oil for Food Program:
The scope of the Oil for Food program was extensive. The United Nations
attempted to oversee a $67 billion program providing humanitarian and
other assistance in 24 sectors to a country with 24 million people and
borders 3,500 kilometers long.
When the program was first proposed in 1991, the Secretary General
considered having either the United Nations, an independent agent, or
the Iraqi government negotiate oil and commodity contracts. The
Secretary General concluded that the first two options were impractical
and proposed that Iraq would negotiate the contracts and U.N. staff
would work at Iraq's oil ministry to ensure compliance. The final MOU
between the Iraqi government and the United Nations granted control of
contract negotiations to Iraq in recognition of its sovereignty.
Investigations of the Oil for Food program should consider examining
how the size and structure of the Oil for Food program enabled the
Iraqi government to obtain illegal revenues through illicit surcharges
and commissions.
Role of Member States in Oversight:
Under Security Council resolutions, all member states were responsible
for enforcing the sanctions and the United Nations depended on states
bordering Iraq to deter smuggling. National companies were required to
register with their respective permanent missions to the United Nations
prior to direct negotiations with the Iraqi government, but it is
unclear what criteria the missions used to assess the qualifications of
their companies. Issues that warrant further analysis include the role
of member states in monitoring and enforcing the sanctions and the
criteria countries used in registering national oil purchasers and
commodity suppliers.
Prior to the imposition of sanctions, Turkey was one of Iraq's major
trading partners. Total trade between the two countries was valued at
$3 billion per year, and Turkey received about $1 billion each year by
trucking goods to Iraq from Turkish ports. Jordan had also been a top
trading partner; in 2001, it was the fifth largest exporter to Iraq and
was the ninth largest importer of Iraqi commodities.
Jordan and Iraq had annual trade protocols during the U.N. sanctions
that allowed Iraq to sell heavily discounted oil to Jordan in exchange
for up to $300 million in Jordanian goods. The sanctions committee
noted the existence of the protocol but took no action. From November
2000 to March 2003, Iraq exported up to 200,000 barrels per day of oil
through a Syrian pipeline in violation of UN sanctions. It is unclear
what actions the sanctions committee or the United States took to stop
the illegal exporting of Iraqi oil to Syria.
Investigations should considering examining any actions that were taken
to reduce Iraqi oil smuggling as well as the factors that may have
precluded the sanctions committee from taking action.
Assessing the Reasonableness of Contract Pricing:
While sanctions committee procedures stated that the Secretariat was to
examine each contract for price and value, OIP officials stated that no
U.N. resolution tasked them with assessing the price reasonableness of
the contracts. Although the sanctions committee was responsible for
approving commodity contracts, it primarily screened contracts to
prevent the purchases of items with potential military uses.
In December 1999, U.N. Security Council resolution 1284 directed the
sanctions committee to accelerate approval procedures for goods no
longer subject to sanctions committee review, including food and
equipment and supplies to support the health, agricultural, water
treatment and sanitation, housing, and electricity sectors.
It is unclear where the roles and responsibilities for assessing price
reasonableness rested. Audits and other inquiries should determine
which entities assessed the reasonableness of prices for commodity
contracts that were negotiated between the Iraqi government and
suppliers and what actions were taken on contracts with questionable
pricing. These efforts should also examine how prices for commodities
were assessed for reasonableness under fast-track procedures.
Other Issues for Consideration:
Much of the information on surcharges on oil sales and illicit
commissions on commodity contracts is with the ministries in Baghdad
and national purchasers and suppliers. We did not have access to this
data to verify the various allegations of corruption associated with
these transactions. Subsequent investigations of the Oil for Food
program should include a statistical sampling of these transactions to
more accurately document the extent of corruption and the identities of
companies and countries that engaged in illicit transactions. This
information would provide a basis for restoring those assets to the
Iraqi government.
Subsequent evaluations and audits should also consider an analysis of
the lessons learned from the Oil for Food program and how future
humanitarian programs of this nature should be structured to ensure
that funds are spent on intended beneficiaries and projects. For
example, analysts may wish to review the codes of conduct developed for
the CPA's Oil for Food former coordination center and suppliers. In
addition, U.N. specialized agencies implemented the program in the
northern governorates while the program in central and southern Iraq
was run by the central government in Baghdad. A comparison of these two
approaches could provide insight on the extent to which the operations
were transparent and the program delivered goods and services to the
Iraqi people.
The history of inadequate oversight and corruption in the Oil for Food
program also raises questions about the Iraqi government's ability to
manage the import and distribution of Oil for Food commodities and the
billions in international assistance expected to flow into the country.
Iraqi ministries must address corruption in the Oil for Food program to
help ensure that the remaining contracts are managed with transparent
and accountable controls. Building these internal control and
accountability measures into the operations of Iraqi ministries will
also help safeguard the $18.4 billion in fiscal year 2004 U.S.
reconstruction funds and the nearly $14 billion pledged by other
countries.
Status of Investigations:
Several investigations into the Oil for Food program are under way. In
April 2004, a U.N. inquiry was announced to examine allegations of
corruption and misconduct within the United Nations Oil for Food
program and its overall management of the humanitarian program. In
addition, Iraq's Board of Supreme Audit contracted with the accounting
firm Ernst and Young to conduct an investigation of the program.
Several U.S. congressional committees have also begun inquiries into
U.N. management of the Oil for Food program and U.S. oversight through
its role on the sanctions committee.
Independent Inquiry Committee:
The Independent Inquiry Committee, under the direction of former
Federal Reserve Chairman Paul Volcker, began on April 21, 2004, with a
U.N. Security Council resolution supporting the inquiry and the
appointment of two additional high-level officials to oversee the
investigation. On June 15, 2004, the Committee announced the
appointment of its senior staff and the recruitment of additional
staff, including attorneys, investigators, and accountants. The
Committee plans to issue an interim report in the summer of 2004,
followed by a final report in early 2005.
According to the terms of reference, this investigation will collect
and examine information relating to the administration and management
of the Oil for Food program, including allegations of fraud and
corruption on the part of U.N. staff and those entities that had
contracts with the United Nations or the Iraqi government. The
Committee intends to determine whether (1) procedures for processing
and approving contracts, monitoring oil sales and deliveries, and
purchasing and delivering humanitarian goods were violated; (2) U.N.
officials, staff, or contractors engaged in illicit or corrupt
activities; and (3) program accounts were maintained in accordance with
U.N. financial regulations.
The Independent Inquiry Committee, the Iraqi Board of Supreme Audit,
and the CPA signed a memorandum of understanding to facilitate the
Committee's access to Oil for Food documents in Iraq.[Footnote 10] As
part of its contract with the Iraqi Board of Supreme Audit to audit the
Oil for Food program, the international accounting firm Ernst & Young
is to identify and organize Iraqi records related to the Oil for Food
program.
Iraqi Board of Supreme Audit:
In March 2004, the CPA authorized the Iraqi Board of Supreme Audit to
conduct a full and independent audit, investigation, and accounting of
the Oil for Food program and the disposition of Iraqi assets associated
with the program. As of May 19, 2004, the CPA had authorized the
expenditure of $20 million for this purpose, and the Board contracted
with Ernst & Young to carry out the investigation. The Board is to
release a final report to the interim Iraqi government and to the
public with specific findings and recommendations. The CPA expected the
report to address (1) the manner in which the program may or may not
have been mismanaged, (2) the disposition of Iraqi contracts and assets
on the program, (3) identification of individuals who may have
benefited through improper disposition of program contracts and assets,
(4) the current location and status of Iraqi assets that may have been
diverted and recommendations on recovering these assets, and (5)
possible criminal offenses.
Congressional Investigations:
Several U.S. congressional committees and subcommittees are also in
various stages of examining the Oil for Food program. In May 2004, the
Senate Committee on Governmental Affairs, Permanent Subcommittee on
Investigations, announced an investigation to examine allegations of
improper conduct and whether such conduct may have negatively affected
U.S. interests. The Subcommittee is particularly interested in the
extent to which any misconduct took place within the United States and
the involvement of U.S. citizens, residents, or businesses. In
addition, the House International Relations Committee and the
Subcommittee on National Security, Emerging Threats, and International
Relations, House Committee on Government Reform, are investigating
allegations of misconduct. Along with the Senate Permanent Subcommittee
on Investigations and the Senate Committee on Foreign Relations, they
have requested program documents from the State Department and United
Nations.
Mr. Chairman and Members of the Committee, this concludes my prepared
statement. I will be happy to answer any questions you may have.
Contacts and Acknowledgments:
For questions regarding this testimony, please call Joseph Christoff at
(202) 512-8979. Other key contributors to this statement were Monica
Brym, Tetsuo Miyabara, Audrey Solis, and Phillip Thomas.
[End of section]
Appendix I: Scope and Methodology:
We used the following methodology to estimate the former Iraqi regime's
illicit revenues from oil smuggling, surcharges on oil, and commissions
from commodity contracts from 1997 through 2002:
To estimate the amount of oil the Iraqi regime smuggled, we used Energy
Information Administration (EIA) estimates of Iraqi oil production and
subtracted oil sold under the Oil for Food program and domestic
consumption. The remaining oil was smuggled through Turkey, the Persian
Gulf, Jordan, and Syria (oil smuggling to Syria began late 2000). We
estimated the amount of oil to each destination based on information
from and discussions with officials of EIA, Cambridge Energy Research
Associates, the Middle East Economic Survey, and the private consulting
firm Petroleum Finance.
We used the price of oil sold to estimate the proceeds from smuggled
oil. We discounted the price by 9 percent for the difference in
quality. We discounted this price by 67 percent for smuggling to Jordan
and by 33 percent for smuggling through Turkey, the Persian Gulf, and
Syria. According to oil industry experts, this is representative of the
prices paid for smuggled oil.
To estimate the amount Iraq earned from surcharges on oil, we
multiplied the barrels of oil sold under the Oil for Food program from
1997 through 2002 by 25 cents per barrel. According to Security Council
members, the surcharge varied, but Iraq tried to get as much as 50
cents per barrel. Industry experts also stated the surcharge varied.
To estimate the commission from commodities, we multiplied Iraq's
letters of credit for commodity purchases by 5 percent for 1997 through
1998 and 10 percent for 1999 through 2002. According to Security
Council members, the commission varied from 5 percent to 10 percent.
This percentage was also confirmed in interviews conducted by U.S.
officials with former Iraqi regime ministers of oil, finance, and trade
and with Sadaam Hussein's presidential advisors.
GAO did not obtain source documents and records from the former regime
about its smuggling, surcharges, and commissions. Our estimate of
illicit revenues is therefore not a precise accounting number. Areas of
uncertainty in our estimate include:
* GAO's estimate of the revenue from smuggled oil is less than the
estimates of U.S. intelligence agencies. We used estimates of Iraqi oil
production and domestic consumption for our calculations. U.S.
intelligence agencies used other methods to estimate smuggling.
* GAO's estimate of revenue from oil surcharges is based on a surcharge
of 25 cents per barrel from 1997 through 2002. However, the average
surcharge could be lower. U.N. Security Council members and oil
industry sources do not know when the surcharge began or ended or the
precise amount of the surcharge. One oil industry expert stated that
the surcharge was imposed at the beginning of the program but that the
amount varied. Security Council members and the U.S. Treasury
Department reported that surcharges ranged from 10 cents to 50 cents
per barrel. As a test of reasonableness, GAO compared the price paid
for oil under the Oil for Food program with a proxy oil price for the
period 1997 through 2002. We found that for the entire period, the
price of Iraqi oil was considerably below the proxy price. Oil
purchasers would have to pay below market price to have a margin to pay
the surcharge.
* GAO's estimate of the commission on commodities could be understated.
We calculated commissions based on the commodity contracts for the 15
governorates in central and southern Iraq (known as the "59-percent
account" because these governorates received this percentage of Oil for
Food revenues). We excluded contracts for the three northern
governorates (known as the "13-percent account"). However, the former
Iraqi regime negotiated the food and medical contracts for the northern
governorates, and the Defense Contract Audit Agency found that some of
these contracts were potentially overpriced. The Defense Contract Audit
Agency also found extra fees of between 10 and 20 percent on some
contracts.
[End of section]
Appendix II: Timeline of Major Events Related to Sanctions Against Iraq
and the Administration of the Oil for Food Program:
Date: Aug. 2, 1990;
Event/Action: U.N. Security Council Resolution 660;
Summary: Iraqi forces invaded Kuwait. Resolution 660 condemned the
invasion and demands immediate withdrawal from Kuwait.
Date: Aug. 6, 1990;
Event/Action: U.N. Security Council Resolution 661;
Summary: Imposed economic sanctions against the Republic of Iraq. The
resolution called for member states to prevent all commodity imports
from Iraq and exports to Iraq, with the exception of supplies intended
strictly for medical purposes and, in humanitarian circumstances,
foodstuffs.
Date: Aug. 6, 1990;
Event/Action: Operation Desert Shield;
Summary: President Bush ordered the deployment of thousands of U.S.
forces to Saudi Arabia.
Date: Nov. 5, 1990;
Event/Action: U.S. legislation;
Summary: Public Law 101-513, § 586C, prohibited the import of products
from Iraq into the United States and the export of U.S. products to
Iraq.
Date: Jan. 12, 1991;
Event/Action: U.S. legislation;
Summary: Iraq War Powers Resolution authorized the president to use
"all necessary means" to compel Iraq to withdraw military forces from
Kuwait.
Date: Jan. 16, 1991;
Event/Action: Operation Desert Storm;
Summary: Operation Desert Storm was launched: coalition operation was
targeted to force Iraq to withdraw from Kuwait.
Date: Feb. 28, 1991;
Event/Action: Gulf War cease-fire;
Summary: Iraq announced acceptance of all relevant U.N. Security
Council resolutions.
Date: Apr. 3, 1991;
Event/Action: U.N. Security Council Resolution 687 (Cease-Fire
Resolution);
Summary: Mandated that Iraq must respect the sovereignty of Kuwait and
declare and destroy all ballistic missiles with a range of more than
150 kilometers as well as all weapons of mass destruction and
production facilities.
Date: Jun. 17, 1991;
Event/Action: Creation of U.N. Special Commission;
Summary: The U.N. Special Commission (UNSCOM) was charged with
monitoring Iraqi disarmament as mandated by U.N. resolutions and to
assist the International Atomic Energy Agency in nuclear monitoring
efforts.
Date: Aug. 15, 1991;
Event/Action: U.N. Security Council Resolution 706;
Summary: Proposed the creation of an Oil for Food program and
authorized an escrow account to be established by the Secretary
General. Iraq rejected the terms of this resolution.
Date: Sep. 19, 1991;
Event/Action: U.N. Security Council Resolution 712;
Summary: Second attempt to create an Oil for Food program. Iraq
rejected the terms of this resolution.
Date: Oct. 2, 1992;
Event/Action: U.N. Security Council Resolution 778;
Summary: Authorized transferring money produced by any Iraqi oil
transaction on or after August 6, 1990, which had been deposited into
the escrow account, to the states or accounts concerned as long as the
oil exports took place or until sanctions were lifted.
Date: Apr. 14, 1995;
Event/Action: U.N. Security Council Resolution 986;
Summary: Allowed Iraq to sell $1 billion worth of oil every 90 days.
Proceeds were to be used to procure foodstuffs, medicine, and material
and supplies for essential civilian needs. Resolution 986 was
supplemented by several U.N. resolutions over the next 7 years that
extended the Oil for Food program for different periods of time and
increased the amount of exported oil and imported humanitarian goods.
Date: Mar. 27, 1996;
Event/Action: U.N. Security Council Resolution 1051;
Summary: Established the export and import monitoring system for Iraq.
Date: May 20, 1996;
Event/Action: Government of Iraq and the United Nations;
Summary: Signed a memorandum of understanding allowing Iraq's export
of oil to pay for food, medicine, and essential civilian supplies.
Date: Jun. 17, 1996;
Event/Action: United States;
Summary: Based on information provided by the Multinational
Interception Force (MIF), communicated concerns about alleged
smuggling of Iraqi petroleum products through Iranian territorial
waters in violation of resolution 661 to the Security Council sanctions
committee.
Date: Jul. 9, 1996;
Event/Action: U.N. Security Council Sanctions Committee;
Summary: Committee members asked the United States for more factual
information about smuggling allegations, including the final
destination and the nationality of the vessels involved.
Date: Aug. 28, 1996;
Event/Action: U.S. delegation to the U.N. Security Council Sanctions
Committee;
Summary: Provided briefing on the Iraqi oil smuggling allegations to
the sanctions committee.
Date: Dec. 3, 1996;
Event/Action: Islamic Republic of Iran Permanent Representative to the
United Nations;
Summary: Acknowledged that some vessels carrying illegal goods and oil
to and from Iraq had been using the Iranian flag and territorial waters
without authorization and that Iranian authorities had confiscated
forged documents and manifests. Representative agreed to provide the
results of the investigations to the sanctions committee once they
were available.
Date: Dec. 10, 1996;
Event/Action: Iraq and the United Nations;
Summary: Phase I of the Oil for Food program began.
Date: Jun. 4, 1997;
Event/Action: U.N. Security Council Resolution 1111;
Summary: Extended the term of resolution 986 another 180 days (phase
II).
Date: Sep. 12, 1997;
Event/Action: U.N. Security Council Resolution 1129;
Summary: Authorized special provision to allow Iraq to sell petroleum
in a more favorable time frame.
Date: Oct. 8, 1997;
Event/Action: Representatives of the United Kingdom of Great Britain
and Northern Ireland to the United Nations;
Summary: Brought the issue of Iraqi smuggling petroleum products
through Iranian territorial waters to the attention of the U.N.
Security Council sanctions committee.
Date: Nov. 18, 1997;
Event/Action: Coordinator of the Multinational Interception Force
(MIF);
Summary: Reported to the U.N. Security Council sanctions committee
that since February 1997 there had been a dramatic increase in the
number of ships smuggling petroleum from Iraq inside Iranian
territorial waters.
Date: Dec. 4, 1997;
Event/Action: U.N. Security Council Resolution 1143;
Summary: Extended the Oil for Food program another 180 days (phase
III).
Date: Feb. 20, 1998;
Event/Action: U.N. Security Council Resolution 1153;
Summary: Raised Iraq's export ceiling of oil to about $5.3 billion per
6-month phase (phase IV).
Date: Mar. 25, 1998;
Event/Action: U.N. Security Council Resolution 1158;
Summary: Permitted Iraq to export additional oil in the 90 days from
March 5, 1998, to compensate for delayed resumption of oil production
and reduced oil price.
Date: Jun. 19, 1998;
Event/Action: U.N. Security Council Resolution 1175;
Summary: Authorized Iraq to buy $300 million worth of oil spare parts
to reach the export ceiling of about $5.3 billion.
Date: Aug. 14, 1998;
Event/Action: U.S. legislation;
Summary: Public Law 105-235, a joint resolution finding Iraq in
unacceptable and material breach of its international obligations.
Date: Oct. 31, 1998;
Event/Action: U.S. legislation: Iraq Liberation Act;
Summary: Public Law 105-338, § 4, authorized the president to provide
assistance to Iraqi democratic opposition organizations.
Date: Oct. 31, 1998;
Event/Action: Iraqi termination of U.N. Special Commission (UNSCOM)
Activity;
Summary: Iraq announced it would terminate all forms of interaction
with UNSCOM and that it would halt all UNSCOM activity inside Iraq.
Date: Nov. 24, 1998;
Event/Action: U.N. Security Council Resolution 1210;
Summary: Renewed the Oil for Food program for 6 months beyond November
26 at the higher levels established by resolution 1153. The resolution
included additional oil spare parts (phase V).
Date: Dec. 16, 1998;
Event/Action: Operation Desert Fox;
Summary: Following Iraq's recurrent blocking of U.N. weapons
inspectors, President Clinton ordered 4 days of air strikes against
military and security targets in Iraq that contribute to Iraq's
ability to produce, store, and maintain weapons of mass destruction
and potential delivery systems.
Date: Mar. 3, 1999;
Event/Action: President Clinton Report to Congress;
Summary: President Clinton provided the status of efforts to obtain
Iraq's compliance with U.N. Security Council resolutions. He discussed
the MIF report of oil smuggling out of Iraq and smuggling of other
prohibited items into Iraq.
Date: May 21, 1999;
Event/Action: U.N. Security Council Resolution 1242;
Summary: Renewed the Oil for Food program another 6 months (phase VI).
Date: Oct. 4, 1999;
Event/Action: U.N. Security Council Resolution 1266;
Summary: Permitted Iraq to export an additional amount of $3.04
billion of oil to make up for revenue deficits in phases IV and V.
Date: Nov. 19, 1999;
Event/Action: U.N. Security Council Resolution 1275;
Summary: Extended phase VI of the Oil for Food program for 2 weeks
until December 4, 1999.
Date: Dec. 3, 1999;
Event/Action: U.N. Security Council Resolution 1280;
Summary: Extended phase VI of the Oil for Food program for 1 week
until December 11, 1999.
Date: Dec. 10, 1999;
Event/Action: U.N. Security Council Resolution 1281;
Summary: Renewed the Oil for Food program another 6 months (phase VII).
Date: Dec. 17, 1999;
Event/Action: U.N. Security Council Resolution 1284;
Summary: Abolished Iraq's export ceiling to purchase civilian goods.
Eased restrictions on the flow of civilian goods to Iraq and
streamlined the approval process for some oil industry spare parts.
Also established the United Nations Monitoring, Verification and
Inspection Commission (UNMOVIC).
Date: Mar. 31, 2000;
Event/Action: U.N. Security Council Resolution 1293;
Summary: Increased oil spare parts allocation from $300 million to
$600 million under phases VI and VII.
Date: Jun. 8, 2000;
Event/Action: U.N. Security Council Resolution 1302;
Summary: Renewed the Oil for Food program another 180 days until
December 5, 2000 (phase VIII).
Date: Dec. 5, 2000;
Event/Action: U.N. Security Council Resolution 1330;
Summary: Extended the Oil for Food program another 180 days (phase
IX).
Date: Mar. 8, 2001;
Event/Action: Deputy U.S. Representative to the United Nations Remarks
to the Security Council;
Summary: Ambassador Cunningham acknowledged Iraq's illegal re-export
of humanitarian supplies, oil smuggling, establishment of front
companies, and payment of kickbacks to manipulate and gain from Oil for
Food contracts. Also acknowledged that the United States had put holds
on hundreds of Oil for Food contracts that posed dual-use concerns.
Date: Mar. 8, 2001;
Event/Action: Acting U.S. Representative to the United Nations Remarks
to the Security Council;
Summary: Ambassador Cunningham addressed questions regarding
allegations of surcharges on oil and smuggling. Acknowledged that oil
industry representatives and other Security Council members provided
the United States anecdotal information about Iraqi surcharges on oil
sales. Also acknowledged companies claiming they were asked to pay
commissions on contracts.
Date: Jun. 1, 2001;
Event/Action: U.N. Security Council Resolution 1352;
Summary: Extended the terms of resolution 1330 (phase IX) another 30
days.
Date: Jul. 3, 2001;
Event/Action: U.N. Security Council Resolution 1360;
Summary: Renewed the Oil for Food program an additional 150 days until
November 30, 2001 (phase X).
Date: Nov. 29, 2001;
Event/Action: U.N. Security Council Resolution 1382;
Summary: The resolution stipulated that a new Goods Review List would
be adopted and that relevant procedures would be subject to refinement. Renewed the Oil for Food program another 180 days (phase XI).
Date: May 14, 2002;
Event/Action: U.N. Security Council Resolution 1409;
Summary: UNMOVIC reviewed export contracts to ensure that they contain
no items on a designated list of dual-use items known as the Goods
Review List. The resolution also extended the program another 180 days
(phase XII).
Date: Nov. 6, 2002;
Event/Action: U.N. Security Council Sanctions Committee;
Summary: MIF reported that there had been a significant reduction in
illegal oil exports from Iraq by sea over the past year but noted oil
smuggling was continuing.
Date: Nov. 25, 2002;
Event/Action: U.N. Security Council Resolution 1443;
Summary: Extended phase XII of the Oil for Food program another 9 days.
Date: Dec. 4, 2002;
Event/Action: U.N. Security Council Resolution 1447;
Summary: Renewed the Oil for Food program another 180 days until June
3, 2003 (phase XIII).
Date: Dec. 30, 2002;
Event/Action: U.N. Security Council Resolution 1454;
Summary: Approved changes to the list of goods subject to review by
the sanctions committee.
Date: Mar. 12, 2003;
Event/Action: U.N. Security Council Sanctions Committee;
Summary: Chairman reported on a number of alleged sanctions violations
noted by letters from several countries and the media from February to
November 2002. Alleged incidents involved Syria, India, Liberia,
Jordan, Belarus, Switzerland, Lebanon, Ukraine, and the United Arab
Emirates.
Date: Mar. 19, 2003;
Event/Action: Operation Iraqi Freedom;
Summary: Operation Iraqi Freedom is launched. Coalition operation led
by the United States initiated hostilities in Iraq.
Date: Mar. 28, 2003;
Event/Action: U.N. Security Council Resolution 1472;
Summary: Adjusted the Oil for Food program and gave the Secretary
General authority for 45 days to facilitate the delivery and receipt
of goods contracted by the Government of Iraq for the humanitarian
needs of its people.
Date: Apr. 16, 2003;
Event/Action: U.S. legislation;
Summary: Public Law 108-11, § 1503, authorized the President to suspend
the application of any provision of the Iraq Sanctions Act of 1990.
Date: Apr. 24, 2003;
Event/Action: U.N. Security Council Resolution 1476;
Summary: Extended provisions of resolution 1472 until June 3, 2003.
Date: May 1, 2003;
Event/Action: Operation Iraqi Freedom;
Summary: End of major combat operations and beginning of post-war
rebuilding efforts.
Date: May 22, 2003;
Event/Action: U.N. Security Council Resolution 1483;
Summary: Lifted civilian sanctions on Iraq and provided for the end of
the Oil for Food program within 6 months, transferring responsibility
for the administration of any remaining program activities to the
Coalition Provisional Authority (CPA).
Date: Nov. 21, 2003;
Event/Action: U.N. Secretary General;
Summary: Transferred administration of the Oil for Food program to the
CPA.
Date: Mar.19, 2004;
Event/Action: U.N. Secretary General;
Summary: Responded to allegations of fraud by U.N. officials that were
involved in the administration of the Oil for Food program.
Date: Mar. 25, 2004;
Event/Action: U.N. Secretary General;
Summary: Proposed that a special investigation be conducted by an
independent panel.
Date: April 21, 2004;
Event/Action: U.N. Security Council;
Resolution 1538;
Summary: Supported the appointment of the independent high-level
inquiry and called upon the CPA, Iraq, and member states to cooperated
fully with the inquiry.
Date: June 28, 2004;
Event/Action: CPA and Government of Iraq;
Summary: The CPA transferred power to the interim Iraqi government.
[End of table]
[End of section]
FOOTNOTES
[1] All references to Oil for Food estimates are in 2003 constant U.S.
dollars.
[2] U.S. General Accounting Office, Weapons of Mass Destruction: U.N.
Confronts Significant Challenges in implementing Sanctions Against
Iraq, GAO-02-625 (Washington, D.C.: May 23, 2002).
[3] The Defense Contract Audit Agency and the Defense Contract
Management Agency, Report on the Pricing Evaluation of Contracts
Awarded under the Iraq Oil for Food Program (Washington, D.C.: Sept.
12, 2003).
[4] The Food and Agricultural Organization; International
Telecommunications Union; U.N. Development Program; U.N. Children's
Fund; U.N. Educational, Scientific, and Cultural Organization; U.N.-
Habitat; U.N. Office for Project Services; World Health Organization;
and the World Food Program.
[5] Previously called Mina al-Bakar.
[6] U.N. Security Council Res. 1483 (May 22, 2003). Paragraph 19 states
that a Security Council committee will identify individuals and
entities whose financial assets should be transferred to the
Development Fund for Iraq.
[7] The U.N. Board of Auditors is comprised of the Auditors General of
three member countries and their staff. Board members are appointed by
the General Assembly for 6-year terms and one member rotates every 2
years. During the period of the Oil for Food program (1996-2003),
France, Ghana, India, the Philippines, South Africa, and the United
Kingdom served on the Board of Auditors.
[8] The sanctions committee received reports from the independent oil
experts appointed by the Secretary General to determine whether there
was fraud or deception in the oil contracting process.
[9] Under retroactive pricing, the Security Council did not approve a
price per barrel until the oil was delivered to the refinery. The Iraq
government signed contracts with suppliers without knowing the price it
would have to pay until delivery.
[10] The Independent Inquiry Committee signed the agreement on May 26,
2004; the Iraqi Board of Supreme Audit and the CPA signed it on June 6
and June 15, 2004, respectively.
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