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October 28, 2005


REVIEW & OUTLOOK


Volcker 5.0
October 28, 2005

The publication yesterday of Paul Volcker's fifth and final report on the U.N.'s Oil for Food program tells us little we didn't know about the broad outlines of the $100 billion scandal. But, oh, are the details ever instructive.

The Volcker report confirms that Saddam Hussein demanded, and got, some $1.8 billion in illegal surcharges, kickbacks and bribes from companies doing business in Iraq. It confirms that he steered billions in oil and humanitarian contracts to his politically preferred clients, particularly Russia and France, and smaller sums to agents of influence (or their associates) such as British MP George Galloway, French Senator Charles Pasqua, and Oil for Food director Benon Sevan. It confirms that Saddam did so under the noses, and frequently with the connivance, of the U.N. agencies entrusted to monitor the program.

All this is useful, but where this doorstop of a report really adds public value is its precise, comprehensive and well-substantiated details of the individuals and companies involved in the kickback schemes, and of the methods used to accomplish them. This should keep assorted attorneys general, state prosecutors and investigative magistrates in 60-odd countries busy for the next decade or so.

The scale here is breathtaking. Under Oil for Food, Iraq sold $64.2 billion in oil and purchased $34.5 billion in humanitarian goods. Of the oil purchasers, the Volcker report finds that 139 out of 248 companies paid illicit oil surcharges, which ranged from 10 to 50 cents a barrel. Among the 3,614 companies that provided humanitarian goods, 2,253 -- that's two thousand two hundred fifty-three -- companies paid some kind of kickback, or "after-sales service," as the Iraqis dubbed it.

Many of these companies are little known, and some are probably fronts. But others are giants: The construction equipment division of Sweden's Volvo is alleged to have "knowingly" paid $535,000 in kickbacks to push $11.8 million in construction equipment, while various subsidiaries of Germany's Siemens paid a total of $1.6 million out of $124.3 million in sales of electrical equipment. (For the record, Volvo denies the allegation and Siemens "cannot confirm" it.) Other major companies named in the report for paying kickbacks include Daewoo, Australian food exporter AWB and Scottish engineering giant Weir.

The report also provides a list, which runs to 60 pages, of influential individuals or groups awarded lucrative oil allocations by Iraq because they "espoused pro-Iraq views or organized anti-sanctions activities." Here again, the range is astonishing. In addition to Messrs. Galloway and Pasqua (each of whom was given oil allocations of 11 million barrels), one finds the names of a pro-Iraq Vatican priest (2.5 million), the Palestinian Liberation Front (nine million), the French-Iraqi Amity society (11.8 million), Burma's forestry minister (27 million), the Orthodox Church of Russia (two million), and the Presidential Office of Russia (21.3 million).

Among the handful of Americans named by Mr. Volcker is Shakir Al-Khafaji (12 million barrels), a well-connected Detroit-area businessman who led a delegation of anti-war Congressional Democrats to Baghdad in September 2002 and who funded an anti-sanctions documentary produced by former weapons inspector Scott Ritter. Mr. Al-Khafaji's financial involvement with Saddam was first documented in these pages by our Robert Pollock in March 20041.

Mr. Volcker's report also provides useful insight into the role of BNP-Paribas, the French bank selected by the U.N. to handle the escrow account through which Oil for Food monies were processed, and from which the bank earned an estimated $173 million in fees. Due to the way in which the program was set up, BNP was allowed to confirm letters of credit from other banks. Yet it was not forbidden from issuing letters of credit of its own, thereby creating a conflict between its disclosure obligations to the U.N. and its secrecy duties to its private customers. The result, writes Mr. Volcker, is that "BNP itself became an instrument for the payment of millions of dollars in illegal surcharges while doing little to detect or prevent such payments."

All of which reminds us again that the sanctions regime was corrupted to its roots, and that this corruption ultimately tainted nearly every branch and every leaf connected to it, including all the assorted "peace activists" and champions of internationalism who were in the pay of a despot. Of the Iraq war's many benefits to the international system, exposing that corruption, and stopping it, must be counted among the most significant.

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