UNITED NATIONS (AP) – A former French U.N. ambassador. A firebrand British politician. The president of Italy’s Lombardi region. Name-brand companies like DaimlerChrysler and Siemens AG.

Prominent politicians and more than 2,200 U.S. and foreign companies stand accused of colluding with Saddam Hussein’s regime to bilk the U.N. oil-for-food program of $1.8 billion.

In a scathing indictment of the program, investigators issued a 623-page final report Thursday that meticulously detailed how the $64 billion operation became a cash cow for Saddam and more than half the participating companies. The corruption came at the expense of regular Iraqis suffering under tough U.N. sanctions.

The report blamed shoddy U.N. management and the world’s most powerful nations for allowing the scam to go on for years.

“The corruption of the program by Saddam would not nearly have been so pervasive if there had been diligent management by the United Nations and its agencies,” said Paul Volcker, a former Federal Reserve chairman who led the investigation.

Volcker and many nations said the report underscored the urgent need to reform the United Nations. Earlier reports in his investigation have already led to criminal inquiries and indictments in the United States, France, and Switzerland.

The investigators found that companies and individuals from 66 countries paid illegal kickbacks using a variety of methods, and those paying illegal oil surcharges came from, or were registered in, 40 countries.

Most of the contracts went to Russian and French companies and individuals, who were rewarded for their governments’ outspoken opposition to the sanctions. But the report found that even firms in countries supportive of the sanctions, such as the United States, found ways to manipulate the system illegally – sometimes by using Russian firms as middlemen.

While most of the names of those individuals and companies were known, the extensive involvement of U.S. firms will be embarrassing to the United States government, which has been a leading critic of corruption in oil-for-food.

The oil-for-food program, which ran from 1996-2003, allowed Iraq to sell limited and then unlimited quantities of oil provided most of the money went to buy humanitarian goods. It was launched to help ordinary Iraqis cope with U.N. sanctions imposed after Saddam’s 1990 invasion of Kuwait.

But Saddam, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, corrupted the program by awarding contracts to – and getting kickbacks from – favored buyers.

Volcker’s $38 million investigation, which ran for about a year and a half, had earlier faulted U.N. Secretary-General Kofi Annan, his deputy, Canada’s Louise Frechette, and the Security Council for tolerating corruption and doing little to stop Saddam’s manipulations.

The final report released Thursday detailed just how companies bilked the program. There were two main ways they did it: through surcharges paid for humanitarian contracts for spare parts, trucks, medical equipment and other supplies; and kickbacks for oil contracts. Most of the illicit income – more than $1.5 billion – came from the humanitarian contracts.

Among the companies that paid illegal surcharges were South Korea’s Daewoo International and three subsidiaries of Siemens AG of Germany, as well as the Brussels, Belgium-based Volvo Construction Equipment.

On the oil side, contractors listed included Texas-based Bayoil and Coastal Corp., Russian oil giant Gazprom, and Lukoil Asia Pacific, a subsidiary of the Russian company Lukoil.

The founder and former chairman of Coastal, Texas oil tycoon Oscar Wyatt, pleaded not guilty Thursday in New York to charges that he conspired to pay several million dollars in illegal kickbacks to Saddam’s regime to win contracts through the program.

U.S. District Judge Denny Chin set a June 20 trial date for the 81-year-old Wyatt, who was arrested last week.

Volcker’s report referred to Wyatt as a “longtime and loyal oil customer of Iraq,” the lone exception to an Iraqi ban on selling oil to American companies.

Among the individuals targeted in the report, investigators found 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. He has denied wrongdoing.

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.

Formigoni, in a statement, said he received “neither a drop of oil, nor a single cent.” Galloway also denied the allegations, saying “I’ve never had a penny through oil deals and no one has produced a shred of evidence that I have.” Benjamin has also denied any personal benefit from the program.

Vladimir Zhirinovsky, who heads Russia’s Liberal Democratic Party, and Alexander Voloshin, who at the time was chief of staff in the administration of Russia’s president, were also named. Both have denied wrongdoing.

The report 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 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.”

The letter 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. “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.”

The United States said the report again showed the need for urgent reform of the United Nations.

“I do think it does highlight that there are certain management practices within the U.N. that need reform,” State Department spokesman Sean McCormack said. “We’re going to continue to urge and push for management reform at the United Nations.

In the report, Volcker’s team gave several examples of just how companies and Saddam went about manipulating the program. German car manufacturer DaimlerChrysler’s dealings were emblematic on a small scale.

According to Volcker’s team, DaimlerChrysler had oil-for-food contracts worth about $5.2 million to sell Iraq spare parts and vehicles. The contracts were paid out of a U.N. bank account funded by Iraqi oil sales, also administered by the U.N.

One of those contracts was to sell Iraq’s Oil Ministry a Mercedes armored van worth about $70,000. As a sweetener, a DaimlerChrysler agent signed a secret deal to give Iraq a $7,000 kickback – 10 percent of the van’s value.

When the final contract for the van was submitted for U.N. approval, the price of the truck was inflated to include that amount. That meant that the U.N. fund ended up paying DaimlerChrysler for the kickback.

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.



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AP-ES-10-27-05 1855EDT


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