[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                  UNITED NATIONS OIL FOR FOOD PROGRAM

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 8, 2004

                               __________

                           Serial No. 108-106

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                               __________

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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Energy and Air Quality

                     RALPH M. HALL, Texas, Chairman

CHRISTOPHER COX, California          RICK BOUCHER, Virginia
RICHARD BURR, North Carolina           (Ranking Member)
ED WHITFIELD, Kentucky               TOM ALLEN, Maine
CHARLIE NORWOOD, Georgia             HENRY A. WAXMAN, California
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      FRANK PALLONE, Jr., New Jersey
HEATHER WILSON, New Mexico           SHERROD BROWN, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
GEORGE RADANOVICH, California        LOIS CAPPS, California
MARY BONO, California                MIKE DOYLE, Pennsylvania
GREG WALDEN, Oregon                  CHRIS JOHN, Louisiana
MIKE ROGERS, Michigan                JIM DAVIS, Florida
DARRELL E. ISSA, California          JOHN D. DINGELL, Michigan,
C.L. ``BUTCH'' OTTER, Idaho            (Ex Officio)
JOHN SULLIVAN, Oklahoma
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Babbin, Jed, former Deputy Under Secretary of Defense........    36
    Christoff, Joseph A., Director, International Affairs and 
      Trade, General Accounting Office...........................    17
    Flake, Hon. Jeff, a Representative in Congress from the State 
      of Arizona.................................................     9
    Rosett, Claudia, Journalist-in-Residence, the Foundation for 
      the Defense of Democracies, and Adjunct Fellow, Hudson 
      Institute..................................................    31

                                 (iii)

  

 
                  UNITED NATIONS OIL FOR FOOD PROGRAM

                              ----------                              


                         THURSDAY, JULY 8, 2004

                  House of Representatives,
                  Committee on Energy and Commerce,
                    Subcommittee on Energy and Air Quality,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:50 a.m., in 
room 2123, Rayburn House Office Building, Hon. Ralph M. Hall 
(chairman) presiding.
    Members present: Representatives Hall, Whitfield, Shimkus, 
Shadegg, Walden, Rogers, Issa, Otter, Sullivan, Barton (ex 
officio), Allen, McCarthy, and Strickland.
    Also present: Representative Ose.
    Staff present: Bill Cooper, majority counsel; Mark Menezes, 
majority counsel for energy and the environment; Peter Kielty, 
legislative clerk; and Sue Sheridan, minority counsel.
    Mr. Hall. I want to thank everyone for coming to the 
hearing on the United Nations Oil for Food Program, and I 
especially want to thank the panelists for attending and for 
their written testimony and for the time that they are giving 
to this subcommittee, to the committee, and to the Congress, 
and to the Nation. I look forward to hearing from each of you.
    We invited the State Department to testify today, but they 
didn't show enough interest to decide to attend. I suppose we 
will hear from them at a later time one way or the other.
    This subcommittee will come to order and, without 
objection, the subcommittee will proceed pursuant to committee 
Rule 4(e), and that is so ordered. The Chair recognizes himself 
for an opening statement.
    The United Nations' Oil for Food Program was spawned out of 
good intentions. As someone once said, the road to perdition is 
paved with good intentions. Such is the case for the Oil for 
Food Program.
    As we see the trail of corruption unfolding on the world 
stage, it seems that the only folks with, ``good intentions,'' 
were those not running the program. Several congressional 
committees are investigating the Oil for Food Program, as is 
the United States Justice Department.
    Finally, the U.N. got into the act with the appointment of 
the Volcker Commission. I am encouraged to read that Chairman 
Volcker sees the importance of such an independent inquiry with 
a lot of good public disclosures surely to follow. He is a good 
man and a good chairman, and we are anxious to see the results 
of his investigation.
    The General Accounting Office reports that over $10 billion 
have been illegally diverted to the old Iraqi regime. I suspect 
that any other nonsovereign organization even hinting of a 
scandal of that magnitude would be shut down and out of 
business overnight.
    By allowing such fraud and deception to continue and for 
U.N. employees to participate in it has probably resulted in 
the deaths of thousands of Iraqis through malnutrition and lack 
of appropriate medical supplies. We have a name for that in the 
United States, it is called murder.
    This hearing today is the second hearing this subcommittee 
has held in the 108th Congress on the Oil for Food Program, and 
it probably won't be the last. Such widespread corruption has 
to be stopped, and those responsible must face justice. It is 
only by shining the light of full public disclosure on an 
otherwise dark and secretive process that we can purge 
corruption. We need to hurry while there is still something to 
save.
    With that, I recognize Mr. Allen for an opening statement.
    Mr. Allen. Thank you, Mr. Chairman.
    Today's hearing is on the allegations of mismanagement in 
the U.N. Oil for Food Program, an appropriate topic. My concern 
is really what is the overall purpose of this hearing? Is it to 
conduct proper oversight and ensure accountability so that 
Iraqi oil revenues get to the Iraqi people? Or is it, to be 
blunt about it, simply to bash the United Nations? Past 
statements and records of our witnesses provide an indication.
    My gym buddy, my friend from Arizona, Mr. Flake, has 
introduced legislation to withhold U.S. Contributions from the 
United Nations until the Oil for Food Program issues are 
investigated. Last night, he voted for an amendment to 
eliminate all U.S. contributions to the U.N.
    Claudia Rosett wrote in January 2002 in the Wall Street 
Journal Europe that, quote, New York is a great city, a 
crossroads accustomed to hosting all sorts of nonsense. It is, 
after all, home to the United Nations.
    Jed Babbin recently authored a book titled, ``Inside the 
Asylum: Why the U.N. and Old Europe are Worse Than you Think.'' 
The book's inside flap declares, ``The U.N. is more of an 
international criminal than a dispenser of legitimate 
international law.''
    By contrast, we have no testimony from the State 
Department, from the United Nations, from the independent 
inquiry committee chaired by Paul Volcker, and I agree with the 
chairman, he is a good man and will do an excellent job. We 
have no testimony from KPMG or any other auditor.
    I have no objection to hearing from the witnesses who are 
here today, but the hearing panel does not reflect the breadth 
of views, the balance of views we should have.
    Currently, nine separate investigations are looking into 
allegations that the U.N. mismanaged $65 billion in Iraqi oil 
sales under the Oil for Food Program, including those by 
several other congressional committees. I welcome more 
congressional oversight, but I question the majority's 
investigative priorities.
    By contrast, there have been no public hearings as far as I 
am aware on the administration's prewar Iraqi WMD claims. There 
have been few, if any, hearings on the overextension of Guard 
and Reserve forces, the sole source contracting to companies 
like Halliburton, and allegations now under U.N. investigation 
that the Coalition Provisional Authority has mismanaged Iraqi 
oil revenue.
    The Oil for Food Program was transferred to U.S. control 14 
months ago and renamed the Development Fund for Iraq. The U.N. 
Security Council established an International Advisory and 
Monitoring Board to oversee the disbursements placed under the 
Coalition Provisional Authority. Yet the CPA resisted this 
oversight, reportedly denying the board access to CPA documents 
and delaying the board's start by 5 months. After the board 
formed, CPA officials failed to respond to inquiries from 
international auditors. In particular, the CPA stood in the way 
of the board's attempts to track sole source contracting for 
Halliburton. The obstruction was significant enough that the 
board eventually had to commission a special audit of 
Halliburton sole-source contracts. It is unclear how the 
special audit will progress, however, given the lack of 
information IAMB has received to date from the United States.
    Both the United States and the U.N. have an interest in 
getting to the bottom of where Iraqi oil revenues have gone. We 
already have nine investigations to help us get there, but the 
investigations will be incomplete if we fail to direct 
attention to the 14 months that the U.S. controlled these 
funds. Otherwise, the U.S. Government will seem hypocritical in 
the eyes of the world and the Iraqi people.
    Unfortunately, I fail to see in today's testimony a focus 
on the CPA's lack of transparency. Instead, I see this 
committee rehashing the work of other committees in the House, 
and this suggests to me that what we are doing today lacks the 
breadth and balance that is required to do our work properly.
    And, with that, Mr. Chairman, I thank you and yield back.
    Mr. Hall. I thank the gentleman and would advise you that 
this is the first of several hearings that we are going to 
have, and I appreciate your opening statement. I think it was 
well done. And I think you maybe quoted Jed Babbin? Did you?
    Mr. Allen. I did.
    Mr. Hall. And I think we will hear from him. I think we are 
very fortunate to hear from him. We will not be hearing from 
Claudia Rosett--is Ms. Rosett here? Great. Well, thank you very 
much. We were informed to the contrary.
    At this time we will recognize Mr. Whitfield. Do you have 
an opening statement, sir?
    Mr. Whitfield. Mr. Chairman, before I make a few remarks, I 
would like to ask you a question, if I could. Were U.N. 
representatives invited to testify today?
    Mr. Hall. I understand they declared diplomatic immunity 
and refused to testify.
    Mr. Whitfield. Well, I am not particularly surprised at 
that, but at least we invited them and gave them the 
opportunity, and they politely refused to come.
    Mr. Hall. There will be a time down the road when they may 
not have the opportunity to make such a decision. I assure this 
committee that we will use every effort we have to get the 
testimony here that this committee and this Congress and this 
Nation is entitled to.
    Mr. Whitfield. Well, I am also delighted that Mr. Flake is 
testifying before us today. I know this is an issue that he has 
followed very closely. And, of course, the U.S. taxpayers pay 
the largest percentage of the dues for the United Nations, and 
I think we have an obligation and responsibility to explore 
issues of corruption that relates to the U.N. There certainly 
is never any reluctance to criticize the U.S. on any issue, 
whether it be financial corruption, moral corruption, whatever. 
So I think we have the responsibility to do that.
    I am particularly delighted that Mr. Jed Babbin is here 
today, who wrote the book Inside the Asylum, which I would 
recommend that people read just to obtain the information from 
it. I have not had the opportunity to look at all of it yet, 
but I do notice in his book that he points out that the Iraqi 
Governing Council, which is building the new democratic Iraq, 
has hired the Roland Berger strategy consultant firm to advise 
it about, among other things, the Oil for Food Program and 
that, after an initial investigation, they wrote a letter to 
the U.N. urging that there be an independent review of the 
program, and I am delighted that Mr. Volcker and others are in 
the process of doing that right now.
    I would also point out that in asking one of the 
representatives of the Roland Berger program, they asked the 
question, which countries had clearly traded illegally with 
Iraq when the U.N. sanctions prohibiting trade were in place, 
and they answered they were sure without question of only one 
country, and that was France. And then I would also point out 
that there hasn't been any country more critical of the U.S. 
role in Iraq at this time than France, and I think this book 
and additional information points out very clearly that France 
had a direct financial interest in Iraq and that they were 
receiving favors from Saddam Hussein.
    And this report also, this book also points out a newspaper 
article that gave a long list of bribed individuals, entities, 
and countries in the Oil for Food Program, and it specifically 
listed 11 French individual and companies.
    So, Mr. Chairman, I want to thank you for having this 
hearing. I think there is some important information that we 
can gather from it, and I look forward to the testimony of our 
witnesses.
    Mr. Hall. The chairman recognizes Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. I do not have an 
opening statement. I am going to forego that for the benefit of 
additional time for questioning. But I would make a 
parliamentary inquiry, if the Chair would submit----
    Mr. Hall. State your inquiry.
    Mr. Otter. Would a unanimous consent request that the Chair 
direct committee staff to prepare whatever necessary subpoenaes 
from the committee to those agencies, including the State 
Department, that refuses to come before this committee? Would 
the Chair entertain a unanimous consent request at this time 
that said subpoenaes be looked into and be prepared in case we 
need them?
    Mr. Hall. We typically discuss it beforehand. We will have 
a vote on it, and I think that is certainly the intent of the 
chairman, and I think we will have the support of Chairman 
Barton on that. We don't want to defer, take any action on it 
at this time. You are not suggesting that, are you?
    Mr. Otter. That is why I made the inquiry, Mr. Chairman.
    Mr. Hall. Well, let us take that up with you after we have 
our opening statements.
    Mr. Otter. Fair enough.
    Mr. Hall. Thank you.
    The Chair recognizes the arrival of Chairman Barton, 
chairman of the Energy and Commerce Committee, the gentleman 
from Texas. Yield to you such time as you may require.
    Chairman Barton. Looks like I got here just as things were 
getting interesting, it sounds like.
    Mr. Chairman, I have a formal statement that I will submit 
for the record. But just to briefly summarize, the more we 
learn about the ill-fated United Nations Oil for Food Program, 
the more outraged we get. It looks that in the neighborhood of 
$10 billion was skimmed off the top for various purposes by the 
Saddam Hussein regime, and while some of that money may have 
been spent for its intended purposes, there is quite a bit of 
anecdotal evidence that it was spent for unintended purposes, 
of which one was rearming the Saddam Hussein military.
    The U.N. initially wanted to sweep this under the rug; and 
thanks to some investigative reporting, most notably by the 
Wall Street Journal, the U.N. did reverse its position and 
appoint a special commission chaired by former Chairman Paul 
Volcker of the Federal Reserve System, and he has assured me in 
a telephone conversation that his is going to be an independent 
and thorough investigation.
    Having said that, as a commission appointed by the United 
Nations, his commission doesn't have the authority that a 
standing committee of the U.S. Congress has, and I am proud to 
say that the Energy and Commerce Committee many years, several 
years ago, back during the Clinton Administration, actually was 
the first committee in the House and I think the Senate to hold 
any kind of a hearing or an investigation on this program.
    So as I walk in, I am told that some of our witnesses 
decided not to come. We will handle that. I need to get to the 
bottom of it and find out what the issues are. But I can assure 
our audience and our witnesses that are here that this is not a 
show hearing, this is a work hearing, and we are going to use 
the full authority of the House of Representatives as delegated 
to the Energy and Commerce Committee to get the facts and take 
whatever appropriate actions that are determined by those 
facts.
    So with that, Mr. Chairman, I thank you for holding this 
hearing and yield back.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you, Mr. Chairman. The more we learn about the United Nations 
Oil for Food Program, the more repulsed we become. The General 
Accounting Office estimates that Saddam Hussein skimmed at least $10 
billion in illegal revenues from 1997 through 2002, through the UN-
managed Oil for Food program.
    Bowing to public outrage, the UN itself has appointed the Volcker 
Commission to investigate, but Congress needs to act, too. The Energy & 
Commerce Committee was the first Congressional committee to question 
this poorly managed program, and I am pleased we are still doing so.
    Without the pressure on the United Nations, I sincerely believe the 
UN would have simply closed the books on the Oil for Food Program 
without so much as adding up the checkbook stubs. For an organization 
that touts itself as an international organization for the purpose of 
establishing and maintaining peace throughout the world, it should know 
that nothing promotes strife like stealing money from those to whom it 
rightfully belongs.
    The Oil for Food Program appears to have provided a slush fund for 
Saddam Hussein to reward friends and influence bureaucrats around the 
world. This is not just a stain on Saddam Hussein's regime, but also on 
the United Nations. This Committee's investigation will hopefully help 
uncover the facts so that, at a minimum, no similar scheme will be 
attempted in the future.
    I thank the Chairman for having this hearing and look forward to 
the testimony. I yield back the balance of my time.

    Mr. Hall. I thank you, Mr. Chairman. I thank you for the 
work that you have put on this, the attention you have given to 
it, and it is not new-found attention. You have been one of the 
leaders in the Congress in questioning the practice of oil for 
food and groceries, questioning where the money went, 
questioning the UN's participation or lack of oversight, and we 
expect and appreciate your leadership in getting to a final 
analysis on just exactly what has happened.
    Mr. Sullivan, the gentleman from Oklahoma, we recognize you 
for opening statement.
    Mr. Sullivan. Thank you, Mr. Chairman, and I agree with the 
full committee chairman, too, that this is a travesty that the 
U.N. representatives didn't come here when we American 
taxpayers are responsible for 25 percent of the dues that they 
get and there is $10.1 billion spent scandalously.
    Again, Mr. Chairman, I appreciate your calling this hearing 
today to address the ongoing investigation into alleged 
improprieties involving the United Nations Oil for Food 
Program.
    As a member of this subcommittee, I consider it an honor to 
be here. I look forward to the testimony from our panel of 
witnesses and the statements by my distinguished colleague from 
Arizona, Congressman Flake.
    The Oil for Food Program is fast becoming the biggest 
scandal in the history of the United Nations and one of the 
greatest financial scandals in modern time. The consequences of 
this financial thievery is staggering. $10.1 billion in illegal 
oil revenues were stolen by the former Iraqi regime by oil 
smuggling and through illicit surcharges on oil sales. 
Unfortunately, we are all well aware that the U.N. Oil for Food 
Program was a glaring failure that served only to benefit a 
tyrant and keep the Iraqi people in a state of despondency and 
despair.
    As a cosponsor of Representative Flake's bill, H.R. 4284, 
the United Nations Oil For Food Accountability Act of 2004, I 
feel very strongly that Congress must place pressure on the 
U.N. to fully address this issue in a more transparent light. 
Until a stronger and truly independent Security Council 
investigation of this scandal is formed, I believe that 
withholding our share of the U.N. assessment dues is necessary.
    This investigation is an issue of trust. I do not believe 
that the U.N. at present is capable of providing an accurate 
and thorough investigation of this travesty. We owe it to our 
Nation that the U.N. is held with greater accountability, 
especially since American taxpayers currently pay 25 percent of 
the UN's yearly dues.
    Secretary General Kofi Annan must demonstrate a firm 
resolve to make all aspects of this investigation available to 
the public. If fraud was committed at the United Nations, then 
we need to find ways to prosecute it and bring all parties that 
were involved in this scandal to justice.
    Mr. Chairman, I yield back.
    Mr. Hall. I thank the gentleman.
    Mr. Shadegg, the gentleman from Arizona.
    Mr. Shadegg. I thank the chairman. I have a formal 
statement which I will put in the record, but let me simply 
comment that I appreciate you holding this hearing. I am deeply 
concerned about this topic. I think that this Congress owes it 
to the American people to get to the bottom of this outrageous 
scandal. It is clear that at least $10.1 billion has been 
misdirected, and since we pay a substantial portion of the U.N. 
dues we have an obligation to the American taxpayers to get to 
the bottom of this issue.
    I would like to welcome and commend my colleague, Jeff 
Flake of Arizona, whose legislation I think is right on point. 
As a cosponsor of that bill I think it is headed in the right 
direction and is something we are going to be forced to do. I 
have no confidence at this point, no confidence whatsoever, 
that the current investigations, at least based on what we can 
know of them right now, is going to get to the bottom of this 
issue.
    It seems to me that if one looks at the scandal surrounding 
this, one recognizes that the United Nations, which is supposed 
to hold out a hope for all people around the world, has lost 
all form of trust in that it appears to have been completely 
corrupted from the top to the bottom by this program.
    Roughly a year ago, in August of last year, I was in Iraq. 
I spent 3 days in the country, and I saw many of the 
outrageously flamboyant palaces that Saddam Hussein built 
throughout that country and also flew over many of the huge 
stockpiles of weaponry, warehouses out across the desert that 
go for miles and miles and miles stock full of conventional 
weapons and, quite frankly, we don't know what other kinds of 
weapons, all purchased with funds stolen from the Oil for Food 
Program.
    At the same time, I was able to see the infrastructure in 
that country and see how tragically it had deteriorated. For 
those who have not been to Iraq, it is a nation where the 
infrastructure, the highways, the roads, the sidewalks, even 
the landscaping was clearly quite advanced at one point in time 
but had been allowed to just decay to where it hardly exists 
anymore. Sidewalks have weeds growing up through them, roads 
have deep cracks in them. All of this was done despite the good 
efforts of the United States to see that the Oil for Food 
Program would help that nation.
    And I commend you, Mr. Chairman, for holding this hearing 
to look into the ongoing investigations. But I believe at the 
end of the day this Congress must see that a thorough 
investigation conducted with a body with subpoena power is 
held, that we have a final accounting of the total amount of 
money, and I have no confidence that the figures that are 
currently being used are accurate. I think we owe it to the 
American taxpayer. More importantly, I think we owe it to the 
people of the world to restore confidence in the United Nations 
to get to the bottom of this scandal and find out who was 
corrupted, how, why, and why there was no accountability, to 
assure that it never happens again.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Hall. Thank you, Mr. Shadegg. Without objection, you 
can file your entire testimony, as can any other member of the 
subcommittee.
    [Additional statement submitted for the record follows:]

    Prepared Statement of Hon. Charlie Norwood, a Representative in 
                   Congress from the State of Georgia

    Thank you Mr. Chairman.
    I'd like to start by commending you and Chairman Barton for 
deciding to hold a series of hearings on the United Nations Oil for 
Food Program. There certainly is plenty to discuss and scrutinize, and 
I appreciate the opportunity to give the investigation of the Program 
its due justice.
    It's no secret that during my tenure in Congress I have not been a 
fan of the United Nations.
    Must we be reminded that for the past decade the UN allowed Saddam 
Hussein to blatantly defy 18 UN resolutions? The United States spends 
billions of dollars a year on UN programs and policies that are 
contrary to many principles of freedom that most Americans hold dear. 
The role of the UN should be a diplomatic and peace-promoting one, 
instead it often attempts to control all of our national policies.
    It is truly unfortunate that we do not have the opportunity to 
question a representative of the United Nations here today. Perhaps we 
can hope that at a future hearing in this series, they will entertain 
our invitation.
    However, the UN is not the topic of the hearing today, the UN Oil 
for Food Program is.
    As we all know, the Oil for Food Program was established in April 
of 1995 to strike a balance between enforcing compliance of all 
relevant UN Security Council resolutions and alleviating human 
suffering in Iraq. Due to delays in the Program's implementation, the 
first shipment of food did not occur until March of 1997.
    Unfortunately, what should have been a good humanitarian program 
ended up funding Saddam Hussein's regime, and quite possibly could even 
have funded terrorist groups.
    The GAO estimates that from 1997 through 2002 the former Iraqi 
regime acquired $10.1 billion in illegal revenues. This includes $5.7 
billion from oil smuggling and $4.4 billion in ``illicit surcharges on 
oil sales and after-sales charges on suppliers.''
    Now we find ourselves at a juncture of numerous UN, independent, 
and Iraqi investigations into illicitly diverted funds. I have major 
doubts about the United Nations' ability to investigate this level of 
fraud. After all, it was under THEIR watch that THEIR OWN PROGRAM was 
abused.
    Not only is it imperative that we get to the root of the questions 
of ``who stole what?'' and ``where is that money now?'' but the United 
Nations needs to take a look at its own structure to expose the very 
cracks in their system that allowed such corruption to occur.
    I look forward to hearing the testimony of all of our witnesses 
today and throughout this series of hearings. Thank you Mr. Chairman, I 
yield back.

    Mr. Hall. All right. I think at this time we are ready for 
the first panel, and ask Honorable Jeff Flake if he will take 
his place there.
    Mr. Flake has introduced legislation that places conditions 
on the U.N. in order to receive full U.S. funding, and these 
conditions, as he will point out, include providing access for 
the GAO and law enforcement officials of U.N. member nations to 
all documents relating to the Oil for Food Program without 
waiving diplomatic immunity in the U.S., and making necessary 
reimbursements. He has a good piece of legislation, and we are 
very proud to recognize you and proud to have you before this 
subcommittee, and recognize you at this time.
    Mr. Flake. Can you hear me?
    Mr. Hall. Not yet. Move over to the right.
    Mr. Flake. I don't think I can move any further right.
    Mr. Hall. That is the microphone we have for any U.N. folks 
in case they show up. Go ahead with your testimony, sir.

   STATEMENT OF HON. JEFF FLAKE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ARIZONA

    Mr. Flake. I thank the chairman. I thank the chairman in 
particular for holding this hearing. I think it is very 
important that we do this, as many members of the committee 
have already mentioned. We have a stake in this, a huge stake. 
In the year 2004, total U.S. contributions to the U.N. total $2 
billion. Our assessed contributions alone are $550 million. 
When you add voluntary and peacekeeping and other monies in, it 
tops $2 billion. So we do need to answer to the taxpayers as to 
how these funds are being spent.
    I appreciate the opening statement of Mr. Allen, and he 
mentioned my vote last night to defund the United Nations, 
perhaps suggesting that all I am trying to do is bash that 
body. I haven't always taken that vote. In fact, my first year 
here I did not. I spent the year of 1989 through 1990 in the 
country of Namibia in Southern Africa. Namibia gained its 
independence by virtue of U.N. Resolution 435, Security Council 
U.N. Resolution 435. The U.N. under great oversight did well in 
that case.
    There are times when we can have faith in the U.N. and what 
they do. That, I would suggest, is why hearings like this are 
so important and action by this body and others are important, 
so that we can have justifiable faith in the U.N. I would 
suggest that, after the Oil for Food scandal, that that faith 
is waning among many, and rightly so. That is why it is 
important that we do this.
    As mentioned, Mr. Shadegg mentioned that he has been to 
Iraq and went to the palaces. I did the same, and it just 
sickens I think anyone to see what happened under the Oil for 
Food Program, what Saddam and his sons were able to do with 
that money. I was told while there that some 70 palaces around 
the country were built during the Oil for Food Program. All 
this time, Saddam was saying that he needed more. And we were 
able to travel to Basra in the south and to see complete 
neglect of the people there for a period of time. They didn't 
share Saddam's views; he neglected them completely, and the 
infrastructure is completely, as Mr. Shadegg said, depleted and 
in horrible shape during this program when he was supposed to 
be benefiting those people. They bought fleets of Mercedes Benz 
vehicles when the food--I am sorry, the funds were supposed to 
go to food and medicine. The list just goes on and on and on.
    Now, here in the U.S. we had a series of corporate 
scandals, and Congress acted quickly to deal with that. I would 
suggest that this scandal, without diminishing the impact or 
the seriousness of those scandals, this may be much worse 
because, unfortunately, the victims of this fraud lost a lot 
more than their retirement savings, portfolio values; a lot of 
them lost their lives. And so this is important that we are 
doing this, and I commend this committee and the chairman for 
taking it up.
    Regardless of how many Iraqis may have been helped during 
this program, there is no justification for the fraudulent gain 
of some at the price of basic necessity and the lives of 
others. Americans and their elected representatives espouse the 
principles of accountability at all levels of government, but 
some have not insisted on accountability from administrators 
and participants in the U.N. Oil for Food Program. Americans 
and their elected representatives espouse transparency, but 
somehow we don't expect it of the U.N. I think that that is 
simply wrong, and we need to.
    Fortunately, this committee has taken it up, and as 
evidence of growing concern in Congress, let me just say a few 
words about the bill that I have introduced here in the House. 
Senator Ensign in the Senate has introduced S. 2389, the 
companion bill that is mine in the House. 4284 has the support 
of 61 cosponsors, many from this committee, and people are 
being added regularly, and for that I appreciate those who are 
helping out in that regard.
    These bills establish basic criteria with regard to 
investigations, accountability, and reparation, they are not 
specific to any one of several investigations that are or may 
be conducted. We have heard of many of them. Just here, we have 
the International Relations Committee is working on this topic, 
in the Senate it is being worked on, then the Volcker 
Commission in New York as well. So there are investigations 
going on. This legislation simply sets up criteria by which the 
U.N. can be judged in terms of cooperation.
    Specifically, the legislation would require the withholding 
of a portion of U.S. assessed contributions to the United 
Nations until the President certifies that the U.N. is 
cooperating in the investigation of the Oil for Food Program. 
Until the President certifies to Congress that the U.N. is 
meeting the criteria spelled out in the bill, the U.S. would 
withhold 10 percent of assessed contributions in 2005 and 20 
percent of assessed contributions in 2006. That amounts in 2005 
to about $55 million withheld; in 2006, $110 million. We 
withhold assessed funding because it goes to the general budget 
of the U.N. as opposed to voluntary funding that goes to 
programs like UNICEF or peacekeeping operations.
    The U.S. contributes 22 percent of the UN's budget. To 
withhold a portion of one category of contributions is a 
moderate approach, but one that we believe will be effective in 
ensuring that investigations result in accountability and 
transparency in the future.
    The Presidential certification requirement contained in the 
bill are the following: The U.N. must have procedures in place 
to provide GAO access to all documents related to the Oil for 
Food Program so that the Comptroller General may make 
nationally mandated review of U.N. operations.
    Two, the U.N. Secretary General must have formally 
confirmed that the U.N. will not assert inviability of U.N. 
papers and internal records related to the program.
    No. 3, the Secretary General must have authorized the 
release of U.N. documents, including those in the possession of 
contractors--and that is important--to law enforcement 
officials of any member state.
    No. 4, the U.N. must have waived diplomatic immunity of 
U.N. officials from the judicial process in the U.S. for civil 
or criminal acts under Federal or State law.
    And last, No. 5, any U.N. official who benefited from the 
program must have reimbursed the full amount that was received 
improperly.
    This legislation is based on the Helms-Biden approach to 
reforms of the U.N. in the Senate. This is an effort that 
receives strong bipartisan support and was a step in the right 
direction at that point to prompt reforms at the U.N.
    Much can be said of the history and the background of the 
nature and the design of the fraud and the results of the 
abuse, the investigative efforts thus far and the risks of not 
acting quickly. I am sure that the other witnesses today will 
address these points. I have heard and read the research of 
Claudia Rosett, and I am pleased that she is here. She has 
looked into this quite thoroughly, as have the others.
    So, again, I appreciate what this committee is doing. I 
appreciate the opportunity to be here, and would be glad to 
answer any questions about the legislation I have introduced.
    [The prepared statement of Hon. Jeff Flake follows:]

  Prepared Statement of Hon. Jeff Flake, a Representative in Congress 
                       from the State of Arizona

    Mr. Chairman, Ranking Member, and Members of the Subcommittee, 
thank you for your invitation to participate in this hearing. The 
abuses under the United Nations Oil-for-Food Program demand serious 
consideration and investigation by Congress and the Executive branch of 
our government. We must have assurance of a meaningful investigation, 
hold wrong-doers accountable, fix institutional problems leading to the 
abuses, and compensate victims of the abuse to the degree possible.
    The fact that you are holding this hearing today demonstrates 
appropriate and necessary concern. This is the third hearing in as many 
committees in the House, and I am aware of three separate Congressional 
investigations into abuses under the Oil-for-Food Program. Congress is 
uniquely positioned to influence the UN and work toward accountability 
and resolution of the issue. I hope we see many more hearings on this 
important subject
    After the first Gulf War, Saddam Hussein agreed to multilateral 
economic sanction on Iraq. Under the sanctions, Saddam lived 
comfortably, as dictators do, while his people starved and died for 
lack of basic medicines and other necessities. Using the suffering of 
the Iraqi people as a pretext, Saddam appealed for relief and managed 
to dictate many of the terms of the Oil-for-Food program. According to 
the General Accounting Office, over a period of about eight years, 
Saddam realized over $10 billion in illicit gains under the program. 
Meanwhile, too many Iraqis continued to suffer from severe depravation.
    Like perhaps some of you, I have been to Iraq and seen the palaces 
and the stashes of Saddam and his sons. Saddam built dozens of palaces 
and built up a fleet of Mercedes-Benz vehicles with revenues that were 
intended to be used for the purchase of food, medicine, and other basic 
provisions for the Iraqi people.
    As a result of the GAO report and the initiation of an Iraqi 
investigation this year, we have seen growing interest, concern, and 
contempt for the wrongs committed in the name of Oil-for-Food. Part of 
me is mildly surprised that we have not seen more immediate and general 
outrage. Then again, my skeptical side understands that subscription to 
the stated intentions and objectives of the UN leads some to overlook 
what they rightly do not forgive in the conduct of their own 
governments.
    For example, when corporate scandals in the United States came to 
light a few years ago, the outrage in Congress moved this body to 
action more quickly than we nearly ever have. We churned out expansive 
new laws and regulations intended to impose accountability on the 
wrong-doers and establish a more transparent system.
    Without diminishing the seriousness of those scandals, I submit 
that the UN Oil-for-Food scandal is much worse, and unfortunately, the 
victims of this fraud lost more than their retirement savings and 
portfolio values.
    It sickens me that the UN and its ardent supporters excuse the Oil-
for-Food fraud because some degree of good resulted from the program. 
Such reasoning would suggest forgiveness for corporate criminals guilty 
of plundering the assets of thousands, just because some people were 
employed and paid under their watch.
    But again, we are talking about much more than financial 
``winners'' and losers. We are talking about roughly 270 people who 
scammed their way to financial gain--including Saddam and his regime, 
UN employees, other foreign officials, business people and political 
entities--while ordinary Iraqis were left destitute and felt the mortal 
consequences. Iraqis went without adequate food and medicine, resulting 
in many deaths, while 270 people scammed the Oil-for-Food system.
    Regardless of how may Iraqis may have been helped, there is 
absolutely no justification for the fraudulent gain of some at the 
price of the basic necessities and the lives of others.
    Americans and their elected representatives espouse the principles 
of accountability at all levels of their government, but some are not 
insisting on accountability from the administrators and participants in 
the UN Oil-for-Food Program. Americans and their elected 
representatives espouse transparency in government, but some do not 
expect the same of the UN and its programs. Americans and their elected 
representatives are sensitive about how their tax dollars are spent, 
but some are numb to the misuse of their tax dollars by the UN.
    Fortunately, Mr. Chairman, your subcommittee and a growing number 
of people in this country, as well as outside the U.S. and Iraq, are 
beginning to demand a thorough and meaningful investigation into the 
Oil-for-Food fraud.
    As evidence of the growing concern in Congress, I would point to 
companion bills in the House and Senate. Senator Ensign introduced S. 
2389 and I introduced H.R. 4284, which has the support of 61 cosponsors 
with more being added to the list regularly.
    These bills establish basic criteria with regard to investigations, 
accountability, and reparation. They are not specific to any one of the 
several investigations that are or may be conducted, but they do 
establish reasonable requirements of cooperation and accountability 
from the UN.
    Specifically, the legislation would require the withholding of a 
portion of United States assessed contributions to the United Nations 
until the President certifies that the United Nations is cooperating in 
the investigation of the United Nations Oil-for-Food Program. Until the 
President certifies to Congress that the UN is meeting criteria spelled 
out in the bill, the U.S. would withhold ten percent of assessed 
contributions in 2005 and twenty percent of assessed contributions in 
2006. We would withhold the assessed funding because it goes to the 
general budget of the UN--as opposed to voluntary funding that goes to 
programs like UNICEF or peace-keeping operations.
    The U.S. contributes twenty-two percent of the UN's budget. To 
withhold a portion of one category of contributions is a moderate 
approach, but one that we believe will be effective in ensuring that 
investigations result in accountability and transparency in the future.
    The Presidential certification criteria contained in the bill are 
the following:

1. The UN must have procedures in place to provide GAO access to all 
        documents related to the Oil-for-Food program so that the 
        Comptroller General may make nationally mandated reviews of UN 
        operations;
2. The UN Secretary General must have formally confirmed that the UN 
        will not assert inviolability of UN papers and internal records 
        related to the program;
3. The Secretary General must have authorized the release of UN 
        documents, including those in the possession of contractors, to 
        law enforcement officials of any member state;
4. The UN must have waived diplomatic immunity of UN officials from the 
        judicial process in the U.S. for civil or criminal acts under 
        federal or state law;
5. Any UN official who benefited from program must have reimbursed the 
        full amount that was received improperly.
    This legislation is based on the Helms-Biden approach to reforms at 
the UN--an effort that received strong support in Congress as a step in 
the right direction.
    Much more can be said of the history and background, the nature and 
design of the fraud, the results of the abuse, the investigative 
efforts thus far, and the risks of not acting quickly. I'm sure that 
other witnesses here today will address these points. But after all 
these points are made and debated, I believe the fact remains that the 
Oil-for-Food scandal begs for immediate, meaningful, and decisive 
action. Too many people suffered under Saddam's reign and were short-
changed, sometimes fatally so, by the abuses of the Oil-for-Food 
program. Delaying or confusing the issue and how to proceed will mean 
continued stone-walling and the loss of key information.
    Our efforts should not be read as an attempt to weaken the UN, but 
rather as an effort to establish the kind of accountability, 
transparency, and effectiveness that we expect from institutions and 
governments within the U.S. Having established such underpinnings at 
the UN, Americans, Iraqis, and others will be able to take more 
confidence in the organization.
    I hope that we in Congress can provide the means to a complete and 
real resolution to the Oil-for-Food scandal. I thank you again for 
holding this hearing and working on this important issue.

    Mr. Hall. And we thank you very much for your introduction 
and for your explanation.
    We also recognize Congressman Ose of California as one who 
has pursued this problem for some time and is one of the 
leaders in the Congress on, recognize you to sit in, without 
objection. And we will recognize you for an opening statement 
if you would like to make one.
    Mr. Ose. Mr. Chairman, I appreciate your courtesy. I don't 
have any opening statement. I am interested in listening in 
particular to your witnesses.
    Mr. Hall. Thank you. Thank you very much.
    Congressman Flake, other than today, has H.R. 4284 been 
given consideration in any other hearing or any other 
committee?
    Mr. Flake. It has not. But we are gathering cosponsors so 
quickly that I am confident that it will, and I appreciate this 
hearing today.
    Mr. Hall. Are you aware of any assurances given in other 
committees to have hearings on H.R. 4284?
    Mr. Flake. Not at this point, although I can tell you that 
we have received good cooperation from the International 
Relations Committee with the legislation.
    Mr. Hall. You made them aware of it and you requested----
    Mr. Flake. Very much so.
    Mr. Hall. Are you aware of any assurances that H.R. 4284 
will be marked up?
    Mr. Flake. No. I think that the position of the 
International Relations Committee is that let us see where the 
Volcker Commission goes and some of the other investigations; 
and as soon as roadblocks are hit, then legislation will be 
pushed.
    Mr. Hall. And I guess I missed how many cosponsors you have 
now.
    Mr. Flake. 61 at this point.
    Mr. Hall. Thank you.
    The Chair recognizes Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman, and, Jeff, it is good 
to see you here. We meet in the gym on a regular basis.
    Mr. Flake. It is good to see you with your hair combed.
    Mr. Allen. I wanted to raise a couple of questions. First, 
you mentioned, you and I agree I think that it is very 
important that the Oil for Food Program be investigated. What I 
want to raise with you is whether at the same time in doing so 
we also ought to be investigating whether the Coalition 
Provisional Authority's 14 months of running the program after 
they took over should be investigated as well. Let me make just 
a couple of points in that regard.
    You talked about some of the money being used for Mercedes 
Benzes. It is interesting when you look at based on the 
statement that our colleague Tom Lantos made before a committee 
at the end of April of this year. He pointed out that when the 
Coalition Provisional Authority took over administrative 
authority for the Oil for Food Program in the fall of 2003, 
they called in a defense contract audit agency to look back to 
see if they could find any overpriced contracts, any skimming 
that had gone on before they took it over, and they didn't have 
any trouble finding that kind of skimming. In reviewing the 
contracts, they found $650 million in potential overcharges. 
And the part of the problem, when we look at the U.N. we also 
have to look at the member states. Part of the problem, 
according to the Defense Contract Audit Agency, was the State 
Department's, our State Department's representatives in New 
York in February of 2002 approved the sale of a fleet of 300 
Mercedes Benz luxury automobiles for use by the Iraqi 
government. I assume those are the same vehicles we are talking 
about.
    You have been a real advocate for accountability, and I 
want to just ask you about our own accountability. I have been 
troubled by recent reports that the United States is not 
complying with Security Council resolutions governing our own 
stewardship of Iraqi oil funds during our time as occupying 
power. Let me describe some of these reports to you.
    Last May, the Security Council passed Resolution 1483, 
which created the Development Fund for Iraq, the successor to 
the Oil for Food Program. The Security Council authorized the 
CPA to sell Iraq's oil and spend Iraq's money for the benefit 
of the Iraqi people, but they imposed conditions: The U.S. had 
to be transparent about its spending, and the U.S. had to 
cooperate with international auditors who report to the United 
Nations, and Kofi Annan described these international auditors 
as the eyes and ears of the international community.
    I don't know if you are familiar with the resolution or 
not. I assume you are generally familiar with it?
    Mr. Flake. Generally.
    Mr. Allen. The auditors hired KPMG, and they are involved 
in looking at the Oil for Food Program investigation as well. 
Last week, KPMG issued its first report on the CPA stewardship 
of Iraqi oil proceeds. Though it is still preliminary, its 
findings are troubling. KPMG reported that, ``it encountered 
resistance from CPA staff,'' when it attempted to obtain audit 
information. CPA officials said, quote, their workload is 
already excessive, and that, quote, cooperation with KPMG's 
undertaking is given a low priority.
    If we want the U.N. to cooperate when we examine its 
conduct of Iraqi oil funds, don't you agree that the United 
States at a minimum should meet our international obligations 
to account for Iraqi oil proceeds during that period when the 
CPA was in charge?
    Mr. Flake. I think that that is certainly an area that 
oversight will be required on, and it will be at other 
hearings.
    Mr. Hall. If you could excuse me. I would ask Mr. Allen to 
remember, it is a custom not to question a Member of Congress 
when they come before us. I think we have given you plenty of--
--
    Mr. Allen. I wasn't going to give him any tough questions. 
It was just that----
    Mr. Hall. Well, Mr. Flake invited questions, and you were 
accorded the right to ask some questions. I just ask you to 
stay as close to the custom as you can.
    Mr. Allen. I will do that.
    Mr. Hall. And give back as much of your time as you can.
    Mr. Flake. I mentioned that I would answer questions with 
regard to the legislation. This legislation is specific to the 
Oil for Food Program, and so that is what I am prepared for 
questions.
    Mr. Allen. I appreciate your answering that general 
question of principle anyway, and thank you for your time.
    Mr. Flake. Thank you. And the last time I checked, the U.N. 
wasn't providing 25 percent of our operating budget. We are 
providing 25 percent of theirs.
    Mr. Allen. That is fair. I understand. Thanks.
    Mr. Hall. Does anyone else want to be recognized?
    Mr. Otter, recognize you for 5 minutes.
    Mr. Otter. Mr. Chairman, I am not going to take 5 minutes. 
I would only make a couple of observations. No. 1, the United 
Nations is a creation of a sovereign United States or part of a 
sovereign United States and not vice versa. Sometimes we get 
that confused between the States and the Federal Government. I 
hope we will never get that confused between the United Nations 
and the United States of America. And I think Mr. Flake is 
right on.
    The second thing, I have already made the inquiry, Mr. 
Flake, and I find that my name is not on the list of 
cosponsors, and I would make a request at this time that my 
name be put on there. Thank you.
    Mr. Flake. Thank you.
    Mr. Hall. The Chair recognizes Mr. Shadegg.
    Mr. Shadegg. Mr. Chairman, in recognition of the tradition 
of not asking Members of Congress questions, I don't have a 
question for Mr. Flake. I just want to make a point. I thought 
the vote last night was a very interesting vote. And, quite 
frankly, Congressman Flake and I traded places last night. I 
have previously voted to not contribute to the U.N. out of 
concern for its direction. Last night, with great 
consternation, I voted to go ahead and fund the U.N. But I 
would note that many of my colleagues last night I think voted 
to defund or to quit making contributions to the United Nations 
precisely to send the signal that they will not and this Nation 
should not tolerate the corruption that is going on or the 
corruption that went on in the Oil for Food Program but, even 
more importantly than that, what appears to be the corruption 
going on in thwarting the ongoing investigations. And I think 
it very, very important that we not defend those that are 
trying to block those investigations.
    We are going to hear testimony yet this morning from those 
who have looked into what is going on that will I think 
establish quite clearly that there is an active, ongoing effort 
to preclude the people of the world, including the people of 
the United States, who substantially fund the United Nations, 
from learning what happened. Again, for anyone who believes 
strongly in the United Nations, including all my colleagues on 
the other side and my colleague Mr. Allen, it is not in our 
interest to defend or to preclude--to defend the conduct that 
went on if in fact it was inappropriate--and I think there is 
no question but that it was--nor is it in our interest to not 
seek transparency for the sake of the credibility of the United 
Nations. And so while I understand that many of my colleagues 
last night voted to defund the United Nations or to quit the 
American contributions as a way of sending a signal, I would 
like to point out that Mr. Flake's legislation is a more 
positive step, and I would bet we would find that the vote last 
night to not fund the United Nations was higher than it ever 
has been in recent history precisely because so many Members of 
the Congress are upset about what has gone on in the 
allegations in the oil for food scandal and, quite frankly, 
what is going on in the efforts to frustrate the investigation 
now. And I would point out that Mr. Flake's positive 
contribution by seeking legislation that would open this up is 
in fact a step in the right direction in that it isn't just a 
smack at the United Nations, saying we don't like this conduct, 
it is an affirmative step to try to learn what happened so that 
the world can know and so that we can preclude that kind of 
conduct in the future.
    So I commend him for a positive step, and while I voted 
last night contrary to how I voted in the past as a way to kind 
of send them a signal that we are not all willing to give up 
yet, I have great consternation about the conduct, and I think, 
I hope, that this Congress will press for a thorough 
investigation so that the people of the United States and the 
people of the world will know what happened.
    Mr. Hall. I thank you. Mr. Allen was merely accepting the 
invitation of Congressman Flake to answer questions. He asked 
his questions, they have been answered, and I think at this 
time--who else seeks recognition? Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman, and I would like to 
thank my colleague from Arizona, and perhaps just quickly share 
something either for your comment or at least for your use, if 
it fits.
    At a time when we are talking about whether our engagement 
in the war in Iraq was appropriate or not, the Oil for Food 
Program in many ways is at the center or it all and the failure 
of that. In 2001, I was part of a delegation that was in Kuwait 
for the 10th anniversary of the liberation of Kuwait. And I 
expected to have what we saw, the Kuwaiti people thanking 
former President Bush and former General Norman Schwarzkopf and 
others for their liberating their country. What I wasn't 
prepared for was at all levels of government, the royal family, 
and in fact just cab drivers, everyone on the street saying, 
when are you going to stop the suffering of the Iraqi people? 
When are you going to do something about them starving? When 
are you going to do something about the conditions of Iraq?
    We hear how terrible it is. We hate Saddam, but we cannot 
tolerate these brethren of ours suffering like this.
    And I was taken. And I came back and talked about it, and 
very quickly discovered that the Oil for Food Program was doing 
exactly what we now have discovered: It was funding Saddam's 
continued lifestyle, and not in fact leading to the end of the 
suffering of the Iraqi people.
    And so I commend you for what you are doing, and I believe 
that all of us should look at this not as a loss of dollars, 
not as something that we should be concerned about the money 
part of it, but we should be concerned about the suffering of 
people, because if there is one role for the United Nations 
that all of us on this panel and I know, Congressman Flake, you 
share, is that we participate in the U.N. because we want to 
make sure that the world does not starve, that in fact people 
are treated with humanity, and that their assets are used to 
benefit them.
    And so I commend you very much for your work here, and I 
think that this is the reason that there is such a swelling 
support to hold an accountability of the U.N. so that people 
not suffer again. And perhaps had this program been more 
successful we could have found an Iraq that we would not have 
had to spend so many of our American lives liberating.
    With that, I yield back, Mr. Chairman.
    Mr. Hall. All right. Does anyone else seek recognition?
    Mr. Flake, thank you very much. We appreciate it.
    We will ask the second panel to please come forward.
    We will have Joseph Christoff, Director of International 
Affairs and Trade, General Accounting Office. We have Claudia 
Rosett, Journalist-in-Residence, The Foundation for the Defense 
of Democracies, and Adjunct Fellow, Hudson Institute, and by 
the way, in previous testimony before Congress has stated that 
the Oil for Food Program not only allowed Saddam Hussein, 
quote, to perpetuate his totalitarian rule of lies, violence, 
and mass graves; it also allowed him to set up a global network 
of dirty deals and filthy finance.
    We also have Jed Babbin, noted author, former Deputy Under 
Secretary of Defense, and recognize his authoring the book 
Inside the Asylum, and especially invite you to read the first 
and fourth chapters of very interesting reading.
    And we thank you three for your attendance. And at this 
time, Mr. Christoff, we recognize you for 5 minutes. We won't 
hold you to 5 minutes, but we will give you the opportunity to 
answer a lot of questions. Thank you. We will recognize you for 
5 minutes.

  STATEMENTS OF JOSEPH A. CHRISTOFF, DIRECTOR, INTERNATIONAL 
 AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE; CLAUDIA ROSETT, 
  JOURNALIST-IN-RESIDENCE, THE FOUNDATION FOR THE DEFENSE OF 
  DEMOCRACIES, AND ADJUNCT FELLOW, HUDSON INSTITUTE; AND JED 
        BABBIN, FORMER DEPUTY UNDER SECRETARY OF DEFENSE

    Mr. Christoff. Thank you, Mr. Chairman, and members of the 
committee.
    Mr. Hall. Turn on your mike, if you would, please. Or do 
you have the U.N. mike?
    Mr. Christoff. No, I have the correct mike, and I want to 
thank you for inviting GAO to this important hearing.
    For several months, GAO has been reviewing the operations 
of the UN's Oil for Food Program, and today I will discuss our 
findings and our observations on the program and suggest areas 
for further investigation.
    First, let me discuss the Oil for Food Program. Under U.N. 
sanctions, Iraq was allowed to sell oil to purchase food and 
other humanitarian goods from 1997 to 2002. The U.N. controlled 
over $67 billion in Iraqi oil revenues and issued $38 billion 
in letters of credit to purchase commodities. The program 
helped the Iraqi people by almost doubling their food intake 
over the first 5 years of the program; however, GAO estimates 
that the former Iraqi regime acquired over $10 billion in 
illicit revenues during this period. This included $5.7 billion 
in oil smuggled out of Iraq and $4.4 billion in surcharges on 
oil sales and illicit conditions on imported commodities. Oil 
was smuggled through Syria by pipeline, across the borders of 
Jordan and Turkey by truck, and through the Persian Gulf by 
ship. The Iraqi government also levied surcharges against oil 
purchasers and commissions against suppliers of commodities. 
The surcharges were up to 50 cents per barrel of oil, and the 
commissions were 5 to 15 percent of the commodity contracts.
    Now, how and why did these problems occur? The United 
Nations and Iraq's supreme audit board have begun 
investigations into the Oil for Food Program. These 
investigations should determine the extent of the corruption, 
the adequacy of internal controls, and ways to improve the 
delivery assistance under economic sanctions.
    Let me suggest some key questions for these inquiries to 
address.
    First, how did this structure of the Oil for Food Program 
enable the Iraqi government to obtain illicit surcharges and 
commissions? The Oil for Food Program authorized the Iraqi 
government to negotiate contracts directly with companies that 
purchased oil or supplied commodities. The MOU between the U.N. 
and the government recognized the sovereignty of Iraq in 
negotiating contracts. However, when the program was first 
proposed in 1991, the Secretary General included alternative 
procedures for contracting negotiation to allow the U.N. or an 
independent agent to negotiate the contracts. These 
alternatives were rejected. Iraq's control over contract 
negotiations was an important factor in enabling the government 
to levy illicit surcharges and commissions.
    The second question, what role did U.N. member nations play 
in enforcing compliance with sanctions against Iraq? Security 
Council resolutions requires all members to enforce the 
sanctions. However, Jordan maintained trade protocols with Iraq 
that allowed it to purchase heavily discounted Iraqi oil in 
exchange for up to $300 million in Jordanian goods. Syria 
received up to 200,000 barrels of Iraqi oil per day, in 
violation of the sanctions.
    In addition, member nations were responsible for vetting 
the companies that sought approval to purchase oil or sell 
commodities. It is unclear what criteria member nations used to 
assess the qualifications of these companies.
    The third question, who assessed the reasonableness of the 
prices negotiated between the Iraqi government and commodities 
suppliers? In September 2003, the Defense Contract Audit Agency 
found that 48 percent of the oil for food contracts it reviewed 
were potentially overpriced by 21 percent. U.N. Sanctions 
Committee procedures stated that the Office of Iraq Program was 
to examine each commodity contract for price and value. 
However, OIP officials stated that no U.N. resolution tasked 
them with assessing the price reasonableness of the contracts.
    The Sanctions Committee was responsible for approving 
commodity contracts. However, it primarily screened contracts 
for dual use items rather than for price.
    Much of the information to answer these questions is in the 
contracts Iraq negotiated with the companies that bought oil or 
sold commodities. Current investigations should review these 
contracts to document the full extent of the illicit 
commissions and surcharges. The analyses should identify 
companies that consistently overpriced their contracts and the 
nations that condoned the overpricing.
    In addition, a comparison of the Oil for Food Program in 
the north and the south could provide insights on the relative 
effectiveness and transparency. The Iraqi government operated 
the program in central and southern Iraq while U.N. agencies 
implemented the program in the north.
    Mr. Chairman, that concludes my statement, and I would be 
happy to answer any questions.
    [The prepared statement of Joseph A. Christoff follows:]

  Prepared Statement of Joseph A. Christoff, Director, International 
            Affairs and Trade U.S. General Accounting Office

    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.1
---------------------------------------------------------------------------
    \1\ All references to Oil for Food estimates are in 2003 constant 
U.S. dollars.
---------------------------------------------------------------------------
    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.

 ILLICIT REVENUES BY FORMER REGIME DUE TO IRAQI CONTROL OVER CONTRACTS 
                   AND UNCERTAIN U.N. OVERSIGHT ROLE

    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.
    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 
2002.2 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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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, 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 4 and included activities such as distributing food 
rations and constructing or rehabilitating schools, health clinics, 
power generation facilities, and houses.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
    \5\ Previously called Mina al-Bakar.
---------------------------------------------------------------------------
    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 1483.6
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 sanction 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. 
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 2001.9
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 of 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 & 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.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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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.
    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.

                   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.

 Appendix II: Timeline of Major Events Related to Sanctions Against Iraq
           and the Administration of the Oil for Food Program
------------------------------------------------------------------------
              Date                   Event/Action           Summary
------------------------------------------------------------------------
Aug. 2, 1990....................  U.N. Security       Iraqi forces
                                   Council             invaded Kuwait.
                                   Resolution 660.     Resolution 660
                                                       condemned the
                                                       invasion and
                                                       demands immediate
                                                       withdrawal from
                                                       Kuwait.
Aug. 6, 1990....................  U.N. Security       Imposed economic
                                   Council             sanctions against
                                   Resolution 661.     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.
Aug. 6, 1990....................  Operation Desert    President Bush
                                   Shield.             ordered the
                                                       deployment of
                                                       thousands of U.S.
                                                       forces to Saudi
                                                       Arabia.
Nov. 5, 1990....................  U.S. legislation..  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.
Jan. 12, 1991...................  U.S. legislation..  Iraq War Powers
                                                       Resolution
                                                       authorized the
                                                       president to use
                                                       ``all necessary
                                                       means'' to compel
                                                       Iraq to withdraw
                                                       military forces
                                                       from Kuwait.
Jan. 16, 1991...................  Operation Desert    Operation Desert
                                   Storm.              Storm was
                                                       launched:
                                                       coalition
                                                       operation was
                                                       targeted to force
                                                       Iraq to withdraw
                                                       from Kuwait.
Feb. 28, 1991...................  Gulf War cease-     Iraq announced
                                   fire.               acceptance of all
                                                       relevant U.N.
                                                       Security Council
                                                       resolutions.
Apr. 3, 1991....................  U.N. Security       Mandated that Iraq
                                   Council             must respect the
                                   Resolution 687      sovereignty of
                                   (Cease-Fire         Kuwait and
                                   Resolution).        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.
Jun. 17, 1991...................  Creation of U.N.    The U.N. Special
                                   Special             Commission
                                   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.
Aug. 15, 1991...................  U.N. Security       Proposed the
                                   Council             creation of an
                                   Resolution 706.     Oil for Food
                                                       program and
                                                       authorized an
                                                       escrow account to
                                                       be established by
                                                       the Secretary
                                                       General. Iraq
                                                       rejected the
                                                       terms of this
                                                       resolution.
Sep. 19, 1991...................  U.N. Security       Second attempt to
                                   Council             create an Oil for
                                   Resolution 712.     Food program.
                                                       Iraq rejected the
                                                       terms of this
                                                       resolution.
Oct. 2, 1992....................  U.N. Security       Authorized
                                   Council             transferring
                                   Resolution 778.     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.
Apr. 14, 1995...................  U.N. Security       Allowed Iraq to
                                   Council             sell $1 billion
                                   Resolution 986.     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.
Mar. 27, 1996...................  U.N. Security       Established the
                                   Council             export and import
                                   Resolution 1051.    monitoring system
                                                       for Iraq.
May 20, 1996....................  Government of Iraq  Signed a
                                   and the United      memorandum of
                                   Nations.            understanding
                                                       allowing Iraq's
                                                       export of oil to
                                                       pay for food,
                                                       medicine, and
                                                       essential
                                                       civilian
                                                       supplies.
Jun. 17, 1996...................  United States.....  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.
Jul. 9, 1996....................  U.N. Security       Committee members
                                   Council Sanctions   asked the United
                                   Committee.          States for more
                                                       factual
                                                       information about
                                                       smuggling
                                                       allegations,
                                                       including the
                                                       final destination
                                                       and the
                                                       nationality of
                                                       the vessels
                                                       involved.
Aug. 28, 1996...................  U.S. delegation to  Provided briefing
                                   the U.N. Security   on the Iraqi oil
                                   Council Sanctions   smuggling
                                   Committee.          allegations to
                                                       the sanctions
                                                       committee.
Dec. 3, 1996....................  Islamic Republic    Acknowledged that
                                   of Iran Permanent   some vessels
                                   Representative to   carrying illegal
                                   the United          goods and oil to
                                   Nations.            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.
Dec. 10, 1996...................  Iraq and the        Phase I of the Oil
                                   United Nations.     for Food program
                                                       began.
Jun. 4, 1997....................  U.N. Security       Extended the term
                                   Council             of resolution 986
                                   Resolution 1111.    another 180 days
                                                       (phase II).
Sep. 12, 1997...................  U.N. Security       Authorized special
                                   Council             provision to
                                   Resolution 1129.    allow Iraq to
                                                       sell petroleum in
                                                       a more favorable
                                                       time frame.
Oct. 8, 1997....................  Representatives of  Brought the issue
                                   the United          of Iraqi
                                   Kingdom of Great    smuggling
                                   Britain and         petroleum
                                   Northern Ireland    products through
                                   to the United       Iranian
                                   Nations.            territorial
                                                       waters to the
                                                       attention of the
                                                       U.N. Security
                                                       Council sanctions
                                                       committee.
Nov. 18, 1997...................  Coordinator of the  Reported to the
                                   Multinational       U.N. Security
                                   Interception        Council sanctions
                                   Force (MIF).        committee that
                                                       since February
                                                       1997 there had
                                                       been a dramatic
                                                       increase in the
                                                       number of ships
                                                       smuggling
                                                       petroleum from
                                                       Iraq inside
                                                       Iranian
                                                       territorial
                                                       waters.
Dec. 4, 1997....................  U.N. Security       Extended the Oil
                                   Council             for Food program
                                   Resolution 1143.    another 180 days
                                                       (phase III).
Feb. 20, 1998...................  U.N. Security       Raised Iraq's
                                   Council             export ceiling of
                                   Resolution 1153.    oil to about $5.3
                                                       billion per 6-
                                                       month phase
                                                       (phase IV).
Mar. 25, 1998...................  U.N. Security       Permitted Iraq to
                                   Council             export additional
                                   Resolution 1158.    oil in the 90
                                                       days from March
                                                       5, 1998, to
                                                       compensate for
                                                       delayed
                                                       resumption of oil
                                                       production and
                                                       reduced oil
                                                       price.
Jun. 19, 1998...................  U.N. Security       Authorized Iraq to
                                   Council             buy $300 million
                                   Resolution 1175.    worth of oil
                                                       spare parts to
                                                       reach the export
                                                       ceiling of about
                                                       $5.3 billion.
Aug. 14, 1998...................  U.S. legislation..  Public Law 105-
                                                       235, a joint
                                                       resolution
                                                       finding Iraq in
                                                       unacceptable and
                                                       material breach
                                                       of its
                                                       international
                                                       obligations.
Oct. 31, 1998...................  U.S. legislation:   Public Law 105-
                                   Iraq Liberation     338,  4,
                                   Act.                authorized the
                                                       president to
                                                       provide
                                                       assistance to
                                                       Iraqi democratic
                                                       opposition
                                                       organizations.
Oct. 31, 1998...................  Iraqi termination   Iraq announced it
                                   of U.N. Special     would terminate
                                   Commission          all forms of
                                   (UNSCOM) Activity.  interaction with
                                                       UNSCOM and that
                                                       it would halt all
                                                       UNSCOM activity
                                                       inside Iraq.
Nov. 24, 1998...................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1210.    for 6 months
                                                       beyond November
                                                       26 at the higher
                                                       levels
                                                       established by
                                                       resolution 1153.
                                                       The resolution
                                                       included
                                                       additional oil
                                                       spare parts
                                                       (phase V).
Dec. 16, 1998...................  Operation Desert    Following Iraq's
                                   Fox.                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.
Mar. 3, 1999....................  President Clinton   President Clinton
                                   Report to           provided the
                                   Congress.           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.
May 21, 1999....................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1242.    another 6 months
                                                       (phase VI).
Oct. 4, 1999....................  U.N. Security       Permitted Iraq to
                                   Council             export an
                                   Resolution 1266.    additional amount
                                                       of $3.04 billion
                                                       of oil to make up
                                                       for revenue
                                                       deficits in
                                                       phases IV and V.
Nov. 19, 1999...................  U.N. Security       Extended phase VI
                                   Council             of the Oil for
                                   Resolution 1275.    Food program for
                                                       2 weeks until
                                                       December 4, 1999.
Dec. 3, 1999....................  U.N. Security       Extended phase VI
                                   Council             of the Oil for
                                   Resolution 1280.    Food program for
                                                       1 week until
                                                       December 11,
                                                       1999.
Dec. 10, 1999...................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1281.    another 6 months
                                                       (phase VII).
Dec. 17, 1999...................  U.N. Security       Abolished Iraq's
                                   Council             export ceiling to
                                   Resolution 1284.    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).
Mar. 31, 2000...................  U.N. Security       Increased oil
                                   Council             spare parts
                                   Resolution 1293.    allocation from
                                                       $300 million to
                                                       $600 million
                                                       under phases VI
                                                       and VII.
Jun. 8, 2000....................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1302.    another 180 days
                                                       until December 5,
                                                       2000 (phase
                                                       VIII).
Dec. 5, 2000....................  U.N. Security       Extended the Oil
                                   Council             for Food program
                                   Resolution 1330.    another 180 days
                                                       (phase IX).
Mar. 8, 2001....................  Deputy U.S.         Ambassador
                                   Representative to   Cunningham
                                   the United          acknowledged
                                   Nations Remarks     Iraq's illegal re-
                                   to the Security     export of
                                   Council.            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.
Mar. 8, 2001....................  Acting U.S.         Ambassador
                                   Representative to   Cunningham
                                   the United          addressed
                                   Nations Remarks     questions
                                   to the Security     regarding
                                   Council.            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.
Jun. 1, 2001....................  U.N. Security       Extended the terms
                                   Council             of resolution
                                   Resolution 1352.    1330 (phase IX)
                                                       another 30 days.
Jul. 3, 2001....................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1360.    an additional 150
                                                       days until
                                                       November 30, 2001
                                                       (phase X).
Nov. 29, 2001...................  U.N. Security       The resolution
                                   Council             stipulated that a
                                   Resolution 1382.    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).
May 14, 2002....................  U.N. Security       UNMOVIC reviewed
                                   Council             export contracts
                                   Resolution 1409.    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).
Nov. 6, 2002....................  U.N. Security       MIF reported that
                                   Council Sanctions   there had been a
                                   Committee.          significant
                                                       reduction in
                                                       illegal oil
                                                       exports from Iraq
                                                       by sea over the
                                                       past year but
                                                       noted oil
                                                       smuggling was
                                                       continuing.
Nov. 25, 2002...................  U.N. Security       Extended phase XII
                                   Council             of the Oil for
                                   Resolution 1443.    Food program
                                                       another 9 days.
Dec. 4, 2002....................  U.N. Security       Renewed the Oil
                                   Council             for Food program
                                   Resolution 1447.    another 180 days
                                                       until June 3,
                                                       2003 (phase
                                                       XIII).
Dec. 30, 2002...................  U.N. Security       Approved changes
                                   Council             to the list of
                                   Resolution 1454.    goods subject to
                                                       review by the
                                                       sanctions
                                                       committee.
Mar. 12, 2003...................  U.N. Security       Chairman reported
                                   Council Sanctions   on a number of
                                   Committee.          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.
Mar. 19, 2003...................  Operation Iraqi     Operation Iraqi
                                   Freedom.            Freedom is
                                                       launched.
                                                       Coalition
                                                       operation led by
                                                       the United States
                                                       initiated
                                                       hostilities in
                                                       Iraq.
Mar. 28, 2003...................  U.N. Security       Adjusted the Oil
                                   Council             for Food program
                                   Resolution 1472.    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.
Apr. 16, 2003...................  U.S. legislation..  Public Law 108-11,
                                                        1503,
                                                       authorized the
                                                       President to
                                                       suspend the
                                                       application of
                                                       any provision of
                                                       the Iraq
                                                       Sanctions Act of
                                                       1990.
Apr. 24, 2003...................  U.N. Security       Extended
                                   Council             provisions of
                                   Resolution 1476.    resolution 1472
                                                       until June 3,
                                                       2003.
May 1, 2003.....................  Operation Iraqi     End of major
                                   Freedom.            combat operations
                                                       and beginning of
                                                       post-war
                                                       rebuilding
                                                       efforts.
May 22, 2003....................  U.N. Security       Lifted civilian
                                   Council             sanctions on Iraq
                                   Resolution 1483.    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).
Nov. 21, 2003...................  U.N. Secretary      Transferred
                                   General.            administration of
                                                       the Oil for Food
                                                       program to the
                                                       CPA.
Mar.19, 2004....................  U.N. Secretary      Responded to
                                   General.            allegations of
                                                       fraud by U.N.
                                                       officials that
                                                       were involved in
                                                       the
                                                       administration of
                                                       the Oil for Food
                                                       program.
Mar. 25, 2004...................  U.N. Secretary      Proposed that a
                                   General.            special
                                                       investigation be
                                                       conducted by an
                                                       independent
                                                       panel.
April 21, 2004..................  U.N. Security       Supported the
                                   Council             appointment of
                                   Resolution 1538.    the independent
                                                       high-level
                                                       inquiry and
                                                       called upon the
                                                       CPA, Iraq, and
                                                       member states to
                                                       cooperated fully
                                                       with the inquiry.
June 28, 2004...................  CPA and Government  The CPA
                                   of Iraq.            transferred power
                                                       to the interim
                                                       Iraqi government.
------------------------------------------------------------------------


    Mr. Hall. I thank you, and we will have some questions for 
you.
    The Chair recognizes Ms. Rosett for 5 minutes.

                   STATEMENT OF CLAUDIA ROSETT

    Ms. Rosett. I think this is the U.N. mike. Is that working?
    Mr. Hall. You have repaired it.
    Ms. Rosett. Good. And good morning, Mr. Chairman, ranking 
member, good morning, everybody. Thank you very much for the 
chance to testify here today.
    I was trying to total up the number of investigations 
yesterday evening, and it was--because it has reached the point 
where it would be funny were it not so serious. I think we have 
at least nine here. There are various others in some other 
countries, and private investigations. The thing that keeps 
jumping out at me, though, is where are we? Where are the 
answers? Where are the insights? Where are the remedies at this 
point? And as I tried to explain in my written statement, a 
great deal of what we keep going over in somewhat more details 
deals with things that we were aware of in general outline a 
year ago, 2 years ago, in your earlier hearings.
    The problem over and over is actually getting at the 
specifics, looking at and understanding this particular 
scandal, and it sort of leads me to basically one message I 
want to bring here today. This entire problem every time you 
approach it turns into a giant document hunt. We have watched 
people chasing papers in Baghdad, in New York, and much of this 
involves documents that should have been readily accessible 
from the beginning. The United Nations--I am not even speaking 
here of the secret side deals, of the ``Dear Uday'' where the 
people signed, and I have seen such a document, on the actual 
kickbacks. But the mainstream documents relating to the 
program, those elusive internal audits that everybody has been 
after that the U.N. would not release to Congress, any detailed 
accounting of interest on the bank accounts, precise amounts in 
the accounts, what happened to some $4 billion owed to the 
Kurds, how precisely the U.N. spent the $1.9 billion it 
collected in its 3 percent commissions.
    And, actually there is something that I have been debating 
whether to mention, but I think I should. In discussing the 
palaces, the weapons, the salon, there is an arithmetic 
identity here that everybody keeps overlooking. Iraq's 
government under Saddam had no source of income other than Oil 
For Food. There was no tax system. There was no other source of 
income except oil. Under the U.N. arrangement all oil was 
supposed to go through the U.N. program. Therefore, anything 
basically that got funded, the military, the ministries, it was 
either illicit or went through the U.N.
    Who hasn't noticed this? I am not sure why this doesn't 
figure in the discussions, but it would seem to be a very 
strangely concocted program that we had, and the assumptions 
that went with it, that this was simply the way it should 
operate, become stranger and stranger as you see more about how 
this whole thing worked.
    What I would like to suggest here is had the information 
involved in the program been made routinely available to the 
public--I am talking about things here like the contracts--
there would be a lot less need for investigation right now. You 
would have seen things at the time that would have alerted all 
of us that there were real problems.
    And what I would just like to suggest is we have all been 
playing by the U.N. rule book, which imposes absurd and self-
serving levels of secrecy. Does it strike no one here as 
strange, for instance, that the United Nations report clearing 
Kojo Annan, the son of the Secretary General, of any wrongdoing 
via the inspections from Cotecna hired by the United Nations, 
that this report was done by an employee of Kofi Annan, Joseph 
Conner? And apart from a convenient leak to produce a 
sympathetic article in the New York Times, it has remained the 
confidential property of the United Nations.
    I called and asked for it. I couldn't get it. There is no 
reason they shouldn't disclose that kind of information. There 
is no reason they shouldn't disclose it now. We have had a 
situation where they didn't disclose it as a matter of habit, 
policy, custom, nobody made them, during the program. Then they 
sent hush letters out in April, reminding crucial contractors 
hired by the Secretariat not to talk, and now we are not 
supposed to have access to this information because there are 
investigations underway. I would just suggest with these 
investigations, trust but verify; and if there is one thing you 
can usefully do--there is no reason in trying to get the U.N. 
to cooperate--to look at the larger picture of what would 
actually fix these problems before they arise and look at ways 
to get the U.N. to release normal documentation to the world to 
account for what it does, to actually let anyone who wants to 
see what is going on inside these programs, how to look at the 
paperwork. This does not compromise savory activities. That is 
my basic recommendation.
    I would just like to add one other thing on the matter of 
the CPA versus the U.N. and what should be investigated. I 
would suggest that where the U.S. has been mainly at fault in 
this program was in allowing the U.N. to do what it did, was in 
going along with the way the U.N. functioned; and where the CPA 
has been mainly at fault was in simply taking on a lot of what 
it inherited and not simply scrapping this entirely badly 
conceived program when we came in.
    Out of this come various problems, but I would suggest that 
the two inquiries are probably somewhat separate matters and 
that in inquiring into whatever the United Nations did, it 
would be a shame to divert focus from this enormous problem, 
affecting the entire world community, and turn it into yet 
another thing where we look mainly at the United States. This 
was not mainly about the United States. This was about a 
failing international institution which needs to see daylight 
if it is going to function well.
    I thank you and would welcome your questions.
    [The prepared statement of Claudia Rosett follows:]

  Prepared Statement of Claudia Rosett, Journalist-in-Residence, The 
 Foundation for the Defense of Democracies, Adjunct Fellow, The Hudson 
                               Institute

    Mr. Chairman, distinguished members of the Committee, thank you for 
the opportunity to testify here today.
    In the long, secretive and unfortunately sordid saga of the United 
Nations Oil-for-Food program, we have arrived at an important juncture. 
Not only is Oil-for-Food finally under investigation; by some counts it 
is now the subject of at least eight or nine investigations--and that's 
before we even get to the private inquiries and media coverage. Given 
that UN Secretary-General Kofi Annan in wrapping up the UN's role in 
Oil-for-Food last November was content simply to praise the program and 
close the books--with no investigation whatsoever--this is progress.
    Certainly Oil-for-Food needs investigating, for three basic 
reasons:

1) To bring to account any individuals who profited illicitly--and 
        cynically--to the collective tune of billions filched from what 
        was supposed to be a relief program for the tyrannized and 
        impoverished people of Iraq.
2) To trace, and return, as far as possible, funds illicitly diverted 
        from the program. There are reasons to be concerned that these 
        funds not only went to pay for Saddam's lavish lifestyle (Oil-
        for-Palaces), but that significant amounts may been directed 
        toward corrupting the UN's own debates over Iraq (Oil-for-
        Influence), as well as--quite possibly--to terrorists-linked 
        enterprises, or even to terrorist groups. This last item (Oil-
        for-Terror), may still be a menace. The bulk of Saddam's ill-
        gotten gains remain unaccounted for, at least in our books.
3) To explore and remedy the basic flaws in the UN setup and system 
        that not only allowed the corruption of Oil-for-Food, but in 
        some ways positively invited and even encouraged it--and if not 
        remedied are highly likely to do so again. The transgressions 
        here against honesty and common sense have been particularly 
        egregious, with perverse incentives and UN secrecy combining in 
        this instance to enable fraud and theft totaling at least $10 
        billion, carried out in a manner that helped shore up the 
        totalitarian government of Saddam Hussein while quite probably 
        corrupting a significant array of political figures and 
        businessmen worldwide. But the basic problems that allowed a UN 
        program to be thus warped did not in fact reside solely in 
        Saddam's regime, and they will not be fixed solely by 
        addressing specific instances of misconduct that may come to 
        light regarding Oil-for-Food.
    To understand the deeper problem, and to grasp why we are only now 
seeing investigations begun--well over a year after the fall of Saddam, 
and almost eight months after the official end of the UN's role in Oil-
for-Food--it helps to note that getting straightforward answers from 
the UN about specifics of the program, or fixing its most glaring 
faults, has been at almost every turn quite oddly difficult. Not that 
the basic contours of the huge flaws that bedeviled Oil-for-Food are 
much of a mystery. In reports, press accounts and hearings going back 
years at this point, the fraudulent outlines of Oil-for-Food have been 
much explained already. On May 14, 2003, for example, the House 
Committee on Energy and Commerce held a hearing on Oil-for-Food at 
which there was reference to Treasury's findings--even then--of 
Saddam's success in ``skimming and kickbacks on oil legitimately sold 
through the Oil-for-Food program.'' There was also reference--and I 
would again note that this was more than a year ago--to Iraq awarding 
Oil-for-Food contracts to ``potentially sympathetic members of the UN 
Security Council, primarily Russia, France and China.'' Nor was it news 
even then that the political tilt to UN-approved relief contracts often 
led to the Iraqi people, the intended beneficiaries of all those 
billions, receiving substandard rations, including rotten medicines.
    I cite that hearing as merely one example of how much we have 
already known for some time about the corruption of the Oil-for-Food 
program. There were reports from Reuters as far back as 2000 on the 
oil-sale kickback schemes; there were congressional rumblings, and 
complaints from contractors to the executive director of Oil-for-Food, 
Benon Sevan. There was abundant anecdotal evidence, which should have 
been obvious to the more than 800 UN international monitors on the 
ground in Iraq. Massive corruption within the program should also have 
been obvious to Oil-for-Food's Executive Director, Benon Sevan, who 
dealt directly with the Iraqis, and to Mr. Annan, who devoted 
considerable attention to Oil-for-Food -- initially, as Under-Secretary 
General, negotiating the terms under which the oil would be sold, and 
then, as Secretary-General, signing off on Saddam's distribution plans 
urging the expansion of the program, and overseeing the Secretariat's 
use of its 2.2% commission on Saddam's oil revenues to cover UN costs.
    There was an excellent, lengthy and detailed study published back 
in September, 2002, by the Coalition for International Justice, 
chronicling ``Sources of Revenue for Saddam & Sons,'' which focused 
heavily on Oil-for-Food and the accompanying sanctions-busting 
smuggling of oil from Iraq. (The UN has tried to disown the smuggling 
as outside the control of the Oil-for-Food program. But it was the oil-
industry equipment approved, supplied and monitored via Oil-for-Food 
that allowed for the production of the extra oil that Saddam then 
smuggled out under the UN's nose).
    And there were the astounding lists of contractors selected by 
Saddam, approved and kept confidential by the UN. Among the supposed 
end-users authorized to buy oil, for example, were some 75 companies in 
the oil-rich United Arab Emirates, 65 in Switzerland, 45 in Cyprus, 
seven in Panama and four in Liechtenstein. Did anyone privy to these 
secret lists, either on the Security Council Sanctions Committee, or 
within the UN--from Mr. Annan on down--imagine that the world's 
financial havens were sopping up Iraqi oil contracts mainly for the 
purpose of local home heating?
    I'll suggest an answer. The corruption was obvious. But to prove it 
in any particular instance, to seriously do something about it, someone 
had to be both willing and able to name names, to produce evidence, to 
question strongly enough--and publicly enough-- the setup in which UN 
confidentiality and lack of accountability gave Saddam cover to steal 
at least $10 billion.
    Those willing to speak up have not as a rule had access to much of 
the vital, specific evidence. Those with access have been by and large 
part of the UN system, and have been unwilling to step forward and 
spill the beans, at least in ways one can attribute. In some cases, the 
venal interests involved are on the scale of entire nations--France, 
Russia, China, Jordan, Syria and Egypt, for instance--milling Saddam's 
deals through their country missions with no apparent concern over the 
corruption involved. In others, such as the U.S. and U.K., backroom 
diplomacy seems to have outweighed the need to hold the UN to any 
reasonable standard of integrity--which is at best a perilous habit, 
bad for both the UN and the U.S. And, on a far more individual scale, 
there is great reluctance among UN employees to come forward, lest they 
lose their jobs and pensions in a system where one of the UN's own 
surveys found recently that 46% of the staff members fear reprisals for 
speaking up. The UN off-the-record is far too different a world from 
the UN as officially attributed; and while some gap must be expected 
with any institution, in the UN's case, it is extraordinarily large.
    On this matter of whistle-blowing, while noting that the entire 
Security Council was complicit in covering up Oil-for-Food, I would add 
that it is the Secretary-General whose job rightfully requires that he 
rise above the particular interests of individual member states in 
order to protect the integrity of the UN as an institution. Not only 
did Mr. Annan fail, but he has simply declined to accept 
responsibility. Instead, he has kept senior members of his staff busy 
deflecting blame toward to the Security Council, where it then 
dissipates among the assorted member states. And having earlier this 
year denied that the Oil-for-Food needed investigating, Mr. Annan would 
now have us believe that the Secretariat was aware of serious problems 
all along, but did not dare confront the same Security Council to which 
he would now affix the blame.
    Further complicating any inquiry is the sheer danger of peering too 
deeply into Oil-for-Food. The murder by car bomb in Baghdad last week 
of Ihsan Karim, who was in charge of the Iraqi end of the Oil-for-Food 
investigation, may have been coincidence. But the apparent extent of 
the bribes and kickbacks, the billions involved, the potential 
prosecutions should details truly begin to emerge in quantity, and the 
nature of some of Saddam's select UN-approved business partners, is 
daunting--on the basic level of physical safety.
    Accompanying all this is the great and absurd document chase that 
has been going on for months now, if not years. I refer to charade in 
which the UN has continued to clutch to itself the kind of basic 
information about Oil-for-Food contracts that should have been 
available to the public all along. The best protection would always 
have been to maximize the program's transparency. The UN churned out 
plenty of information, and if you want to read about estimates of 
calories consumed and barrels of oil produced, you will not lack for 
tonnage. But on crucial financial details, there is still astoundingly 
little official information available to the public. The particulars of 
Saddam's deals were not released, for the reason that this was not how 
the UN chose to handle the program--which was no good reason at all. 
Then, as allegations mounted, nothing could be released--as the UN over 
Benon Sevan's signature reminded at least three contractors back in 
April--because a UN investigation was pending. Now, even less can be 
released because the UN investigation is underway. The U.S. 
administration has unfortunately compounded this secrecy by imposing 
similar rules on the extensive documentation found in Baghdad. That 
might all make more sense were we not being asked to trust in the 
investigative powers and determination of the same UN club that brought 
us Oil-for-Food in the first place.
    Former Federal Reserve Chairman Paul Volcker, now heading the UN-
authorized inquiry into Oil-for-Food, wrote in The Wall Street Journal 
yesterday that his committee ``has the mandate, the international 
framework and, I believe, access to resources, both human and financial 
, to provide the kind of comprehensive fact-finding and analysis the 
investigation requires.''
    It does not seem extreme to suggest that we trust, but as far as 
possible, verify. Mr. Volcker has the UN mandate. But that is hardly 
where the public trust, or interest, ends. And while his UN-authorized 
inquiry may have access--thanks to UN rules not only current, but 
past-- to documents that this Congress, or the public, cannot get, 
there are some highly valuable aims that to be served by other 
investigations. Not least, important policy involving the UN is being 
made even now; to suspend all inquiry, analysis or judgment for months, 
while awaiting the report of a late-in-the-day UN investigation, would 
be unwise.
    Beyond that, it would help to put some markers out there, as to 
what kind of information we should expect from the UN's own 
investigations, and hope that others might elaborate upon. At a bare 
minimum, the public should receive from the UN investigation, with 
background documents that allow verification, full information about 
the dollar amounts, quantities of goods and specific contractors who 
were involved with Oil-for-Food. That would allow, for example, clear 
totals of the amount of business that went to such countries as 
Security Council members Russia, France and China--disclosing who did 
the deals, and on what precise terms. There is an enormous amount of 
local information within particular countries, or industries, that a 
centralized investigative team may not possess, and which cannot be 
brought to bear as a resource unless such details are disclosed.
    The bills now surfacing in this Congress to withhold UN funding 
until the President certifies UN cooperation in the investigation are a 
good start. But that kind of pressure alone cannot begin to address the 
basic flaws. Even beyond the large shortcoming that the UN in 
``democratic'' fashion offers votes to even the world's most 
undemocratic governments--thus lending itself more to the model of a 
club of rulers serving their own interests, not those of the 
populations they claim to represent--there are a number of immediate 
flaws that allowed the corruption of Oil-for-Food, and are now 
particularly well-placed to be explored and fixed.
    If there is one message I can send today, it is that the basic flaw 
which might most easily be remedied is the UN's extreme lack of 
transparency. This includes basic financial and book-keeping 
information. And in the case of Oil-for-Food, it should have included 
full details of Saddam's deals--and I see no good reason why such 
information could not, even now, be released, not only to various 
investigative bodies now pounding on the UN's closed doors, but to the 
general public--the world public that the UN in theory exists to serve. 
Whatever custom may dictate, there is no good reason to keep such 
information confidential. The UN practice of secrecy in these matters 
invites graft, waste and abuse. Nor has the UN so far succeeded in 
offsetting that problem with assorted auditing arrangements. Oil-for-
Food provides a vivid illustration of the problem. Despite Oil-for-Food 
having been, in the words of one UN spokesman, ``audited to death''--
and by the UN's own account, one of its most extensively audited 
programs, evidently neither the ``external'' not the internal audits 
served to expose enough of the major damage, at least not enough to 
stop it.
    And while I would be glad to discuss details of specific 
investigations now underway, the most useful move at the moment might 
be to stop taking as a given the ground rules of continuing 
confidentiality on all fronts laid down by the UN, and require that the 
UN enlist not only its select panel of investigators to get to the 
bottom of the problem (asking us to trust that this time they really 
will) but also open its books so as to employ the resources of both 
specific information and general ingenuity so broadly available in the 
marketplace of ideas, and so necessary at this late date not only to 
piecing together the full picture on Oil-for-Food, but to reforming the 
UN itself. To be quite practical about it, if Oil-for-Food allowed 
Saddam to funnel money to murderers who may yet pose a danger to us 
all, it seems foolish to wait upon the ceremony of yet more UN 
confidentiality and self-investigation. They need all the help they can 
get. We do too.

    Mr. Hall. Thank you.
    Mr. Babbin, I recognize you for 5 minutes. I won't hold you 
to the exact seconds but let us hear from you.

                     STATEMENT OF JED BABBIN

    Mr. Babbin. Thank you, Mr. Chairman and members of the 
subcommittee. My name is Jed Babbin. I appreciate the 
opportunity to appear today.
    I think we all have to recognize that none of us would 
probably be here but for the rather energetic reporting of Ms. 
Rosett, and I think much of what we know we know because of her 
reporting.
    Today I wish to accomplish only two things, Mr. Chairman. 
The first is to raise some of the same concerns that have been 
raised by the other witnesses and by Mr. Flake about the 
various investigations into the Oil for Food program. Second, I 
wish to point out to the subcommittee some of the other and 
perhaps even more important aspects of U.N. corruption.
    As I have documented in my book ``Inside the Asylum,'' the 
U.N. Today is the handmaiden of terrorism, the errand boy of 
despots and dictators, and a diplomatic quagmire that is the 
antithesis of our policy to preempt terrorist attacks. The Oil 
for Food investigations right now seem to be competing, and I 
suggest to the committee that it is in our best interests and 
in the best interests of the Iraqi people to sort out that 
competition so that the investigations can be made best, most 
quickly, and pointed toward the recovery of the funds from 
whichever people have wrongly benefited from the bribes and 
embezzlement.
    The U.N. asks that Congress and the American people 
subordinate their investigations to that of the United Nations. 
In fact, it should be the other way around. The U.N. should 
subordinate its investigation to yours and to other committees 
of this Congress and make its people and records available to 
the independent investigations being conducted here and in 
Iraq. To state it in another way, the U.N.'s position 
apparently is that the victim, a sovereign nation, should defer 
its investigation to the body in whose name the crime was 
committed and an investigation that is not even aimed at 
redressing the crime. Obviously it should be the other way 
around.
    The U.N.'s so-called independent investigation has little 
or no chance of solving and determining what in fact happened 
in the Oil for Food program. As I explained briefly in the 
book, what was then the Iraqi Governing Council commissioned an 
investigation of the Oil for Food program in late 2003. The IGC 
engaged the Roland Berger strategy firm in London to conduct 
it. Later they joined the Freshfields firm, a law firm there, 
to continue to pursue a full and complete investigation that 
is, most importantly, aimed to take whatever legal action may 
be necessary to recover the funds.
    One of the crucial differences between the Iraqi 
investigation and the U.N. investigation is that the Iraqis aim 
to get the money back from the malefactors and the U.N. does 
not even pretend to have that purpose.
    It seems to me that there are great obstacles to both 
investigations. Both suffer the inability to subpoena documents 
and testimony from government officials, banks, and individuals 
who were involved in the Oil for Food program. Most of the 
money which resulted from oil sales in the program passed 
through French and Jordanian banks, specifically BNP--the Bank 
of France--and Jordanian banks, including the Jordan National 
Bank, the Arab Bank and the Housing Bank. None of these banks 
nor their respective national governments are under any 
obligation to cooperate with the investigations. I suggest the 
Congress is in a better position to try to compel this 
cooperation than the U.N.
    The other thing that we have going on right now is, as Ms. 
Rosett said, this document chase. As I understand from my 
sources within the past few days, the U.N. investigation, Mr. 
Volcker is now trying to compel that all of the documents in 
Iraq be gathered up from the disparate ministries at which they 
are held and put in one place. I think that is a perfectly 
bloody awful idea that invites an attack on them that could 
very well destroy whatever records may exist. The idea of such 
an attack I don't believe is fanciful in light of the recent 
assassination of the head of the Iraqi Supreme Audit Authority.
    In the remaining few seconds, I want to say that as serious 
as the Oil for Food scandal may be it is, after all, only about 
money. There is a corruption in the U.N. And its agencies that 
is far more important to every American, and it is not 
financial corruption. It is a moral corruption, a decadence of 
thinking and reasoning that tolerates terrorism. No, it is more 
than just a tolerance, it is an acceptance of terrorists and 
the nations that support them, evidencing a moral bankruptcy 
that is unimaginable to most Americans.
    I won't go through the examples that are in my statement, 
but I would just simply refer the committee to the picture that 
is attached to the statement. This picture was taken at a U.N. 
UNOFIL peacekeeping outpost on the Israel-Lebanon border. You 
see two flags flying next to each other. One is the UNOFIL 
flag. The other is the flag of Hezbollah. This is the terrorist 
organization that has more American blood on its hands than 
probably any other except al Qaeda. They were responsible for 
the Marine barracks bombing in 1983 that killed 241 brave young 
Americans. They have committed atrocities against Americans 
again and again and again. How we can allow the United Nations 
to tolerate this conduct by its peacekeepers keeping company 
with, sharing telephones and water supplies with terrorists 
with American blood on their hands is quite beyond me, Mr. 
Chairman.
    I would submit the rest of my statement, if I may, and I 
would be pleased to answer the committee's questions.
    Mr. Hall. Without objection, your statement will be 
accepted into the record.
    [The prepared statement of Jed Babbin follows:]

             Prepared Statement of Jed Babbin 1
---------------------------------------------------------------------------
    \1\ Jed Babbin is a contributing editor of The American Spectator 
Magazine, and a contributor to National Review Online. The opinions 
expressed in this testimony are his and do not necessarily reflect the 
opinions of those publications.
---------------------------------------------------------------------------
    Good morning Mr. Chairman and members of the subcommittee. I am Jed 
Babbin, author of ``Inside the Asylum: Why the UN and Old Europe are 
Worse than You Think.'' I greatly appreciate this opportunity to appear 
before you today.
    The subcommittee's continuing inquiry into the UN Oil for Food 
Program will, I'm sure, uncover further evidence of UN malfeasance and 
the comprehensive corruption of that program. Today, I wish to 
accomplish two things. First is to raise serious concerns about the 
various investigations being made into the Oil for Food program. These 
concerns arise because the UN is engaged in actively thwarting the 
investigations of this body and others, and because the investigations 
that should continue have been sidelined by the Coalition Provisional 
Authority. Second, I wish to point out to the Subcommittee some of the 
other--even more important--aspects of UN corruption. As I have 
documented in ``Inside the Asylum,'' the UN is today the handmaiden of 
terrorism, the errand boy of despots and dictators, and a diplomatic 
quagmire that is the antithesis of our policy to preempt terrorist 
attacks.

                    THE OIL FOR FOOD INVESTIGATIONS

    I understand that the Subcommittee has heard, in its earlier 
hearing and from other witnesses today, of many of the problems that 
burdened the Oil for Food program and deflected it from its intended 
purpose. There are many within the UN, and among the nations and people 
that apparently profited from the abuse of the program, who are working 
hard to prevent the truth from being uncovered. The UN asks that 
Congress and the Iraqi people subordinate their investigations to that 
of the UN. In fact, it should be the UN that subordinates its 
investigation, and makes its people and records available to the 
independent investigations being conducted here and in Iraq.
    The UN's so-called ``independent'' investigation has little or no 
chance of determining what happened, and is not even tasked with the 
proper goals. As I explain briefly in ``Inside the Asylum,'' what was 
then the Iraqi Governing Council commissioned an investigation of the 
Oil for Food Program in late 2003. The IGC engaged the Roland Berger 
Strategy Consultants firm of London, UK to conduct it. In my 
researches, I have spoken to a number of people including Claude 
Hankes-Drielsma, the chairman of Roland Berger.
    By March 2004, when my manuscript was finished, that investigation 
was reasonably well-positioned. The Roland Berger firm had been 
succeeded by the KPMG firm which was to work with the British law firm 
of Freshfields Bruckhaus Deringer, (later succeeded by the Patton, 
Boggs firm of Washington, DC) to pursue a full and complete 
investigation, and--most importantly--to take whatever legal actions 
may be possible to recover the stolen and embezzled funds. On April 21, 
2004, appearing to bow to the pressure from the Security Council 
members, Secretary General Annan commissioned former Federal Reserve 
Chairman Paul Volcker to investigate the corruption in the Oil for Food 
program.
    At about that point, Coalition Provisional Authority head 
Ambassador L. Paul Bremer decided to sidetrack and forestall the Iraqi 
investigation in favor of the UN investigation. It is puzzling to see 
the CPA and Mr. Bremer effectively block an investigation which--
according to Mr. Hankes-Drielsma--they were fully aware of and had 
approved. Worse still, Mr. Bremer's decision to cooperate with the UN 
and to block the Iraqi's own investigation may effectively prevent the 
truth from ever being uncovered. In Mr. Hankes-Drielsma's words, Bremer 
``pulled the rug out from under'' the KPMG/Patton-Boggs investigation.
    There are obstacles to both the Iraqi investigation and the UN 
investigation. First and foremost is their common inability to subpoena 
documents and testimony from government officials, banks and 
individuals who were involved in the Oil for Food program. Most of the 
money which resulted from oil sales in the program passed through 
French and Jordanian banks. Specifically, BNP (the Bank of France) and 
Jordanian banks including the Jordan National Bank, Arab Bank, and 
Housing Bank. None of those banks, nor their respective national 
governments, are under any obligation to cooperate with the 
investigations. (I note, however, that one source told me there was--in 
the New York branch of BNP--a considerable number of documents related 
to the Oil for Food Program. These are, I believe, within the reach of 
American judicial or congressional subpoenas).
    Despite the obstacles they suffer in common, there is a fundamental 
difference between the Iraqi investigation and the UN investigation 
which, I believe, makes it imperative that we support the Iraqi 
investigation. Unlike the UN investigation, the Iraqi investigation is 
tasked not only to determine whether and how the corruption took place, 
but also to recover the many billions of dollars apparently stolen from 
the people of Iraq. The UN's limited goal of determining how the theft 
occurred will necessarily be accomplished as a preliminary step toward 
recovering the stolen billions. The UN should be required to support 
the Iraqi investigation, and subordinate its own to that of the Iraqi 
people. Mr. Bremer's action in sidetracking the Iraqi investigation 
should be reversed immediately, and the Iraqi government encouraged to 
proceed at its best speed.
    The UN investigation is creating a grave and unnecessary danger to 
the success of the Iraqi investigation. The Saddam regime, for whatever 
reason, was comprised of obsessive bureaucrats and record-keepers. They 
operated under instructions which one source told me were ``very 
significant and detailed.'' They are among the records that are--or 
were in March of this year--still in the Baghdad ministries.
    The records of the Oil for Food program transactions kept in 
Baghdad were very detailed. They existed in--at least--the Oil 
Ministry, the Finance Ministry, and the Trade Ministry. Given access to 
them, investigators could make enormous progress, and would probably 
find sufficient proof of wrongdoing that many of the guilty parties 
could be identified, and public pressure on governments, banks, 
companies and individuals could be marshaled to demand cooperation in 
the investigation.
    According to Mr. Hankes-Drielsma, to whom I spoke two days ago, Mr. 
Volcker is insisting that all of the documents in the Iraqis' 
possession be gathered together in one location. This is an amazingly 
bad idea. Records can be lost or destroyed in any move, and 
consolidating them in one place makes them a valuable target for a 
terrorist strike aimed at destroying them. As is demonstrated by the 
recent assassination of the head of the Iraqis' Board of Supreme Audit, 
this is not a fanciful concern.
    The UN's rules--and the UN always plays by the UN's rules, not 
anyone else's ``require that all the documents in the possession of the 
Iraqi government be made available to the UN. But the UN is refusing to 
allow any KPMG/Patton, Boggs access to UN documents. And thanks to Mr. 
Bremer's intervention, the KPMG/Patton, Boggs investigation has been 
put on hold indefinitely.
    I respectfully suggest to the Subcommittee that it should consider 
seriously using its influence to ensure that the United States chooses 
between these competing investigations, and does so in favor of the 
Iraqi investigation. America should do all in our power to ensure that 
the Iraqi investigation goes forward and is given access to the UN, its 
records, employees and officials, without interference from or undue 
deference to the Volcker investigation.

                   THE UN AS HANDMAIDEN OF TERRORISM

    As serious as the Oil for Food scandal may be, it is--after all--
only about money. There is a corruption in the UN and its agencies that 
is far more important to every American. It is not financial 
corruption. It is a moral corruption, a decadence of thinking and 
reasoning that tolerates terrorism. No, it is more than tolerance: it 
is acceptance of terrorists and the nations that support them 
evidencing a moral bankruptcy that is unimaginable to most Americans. 
Let me give you a few examples:

 Hezbollah is an Iranian-backed terrorist organization that has more 
        American blood on its hands than any other terrorist 
        organization except al-Queda. They murdered 241 Marines in the 
        infamous 1983 Beirut barracks bombing. They kidnapped, tortured 
        and murdered Marine Col. William ``Rich'' Higgins, as well as 
        CIA Station Chief William Buckley. On page 155 of ``Inside the 
        Asylum'' there is a picture of a ``UN peacekeepers'' position 
        on the Israel-Lebanon border. A copy of that picture is 
        attached to this statement. In it, you see two flags flying 
        side by side. One is the UN flag, the other the flag of 
        Hezbollah. While in Israel last November, I spoke to an Israeli 
        soldier who had been stationed at an IDF post on the Israeli 
        side. He told me how the UN ``peacekeepers'' lived in 
        comfortable coexistence with the murderers of Hezbollah, using 
        the same telephones, sharing water supplies. Were it up to me, 
        not another American dime would be paid to the UN while that 
        Hezbollah flag flies. I wonder: how many other terrorists take 
        advantage of similar UN hospitality elsewhere in the Middle 
        East and around the world?
 The United Nations Relief and Works Agency for Palestinian Refugees 
        in the Near East--UNRWA--is supposed to be dispensing 
        humanitarian aid and educational services in the Palestinian 
        areas of the West Bank and Gaza Strip. In ``Inside the 
        Asylum,'' I quote from the testimony of Professor Rashid 
        Khalidi of the University of Chicago. In a US District Court 
        case, his affidavit said that UNRWA hires members of Fatah, the 
        Popular Front for the Liberation of Palestine (PFLP), Hamas and 
        Islamic Jihad in disregard of their terrorist ties. I don't 
        know how many US tax dollars or private donations by Americans 
        go to UNRWA. Whatever the total, if it's above zero, it's too 
        much;
 Since 9-11, the UN has preached loudly about its dedication to 
        fighting terrorism. But its special committee on terrorism--
        comprised of the entire Security Council--can't even agree on a 
        definition of terrorism. How can you fight something when you 
        can't agree on what it is? and
 Most importantly, the UN is serving as midwife to the birth of 
        nuclear terrorism. The International Atomic Energy Agency 
        cannot agree on the obvious, that for more than two decades the 
        kakistocracy that runs Iran has been working desperately to 
        produce a nuclear weapon. If the IAEA acted, the Security 
        Council could sanction Iran and maybe, just maybe, we could 
        abort nuclear terrorism without having to resort to war to do 
        so. But the IAEA is willfully ignorant to Iran's intent and 
        progress. America cannot allow Iran to achieve its nuclear 
        ambitions. By failing to act, by refusing to allow the UN to 
        act diplomatically while it may yet have some effect, the UN is 
        making war more likely, not less.
    Mr. Chairman, this concludes my written statement. I will be 
pleased to answer any questions you or the members of the subcommittee 
may have.

    Mr. Hall. I guess, Mr. Babbin, I have asked you, I think 
you are aware of the fact that Paul Volcker who heads the U.N. 
Investigation said in the Wall Street Journal yesterday, I 
think it was, maybe the day before yesterday, and I quote: It 
is only the independent inquiry committee that I chair that has 
a mandate, the international framework and, I believe, the 
access to resources both human and financial to provide the 
kind of comprehensive fact-finding and analysis the 
investigation requires.
    You apparently disagree with that?
    Mr. Babbin. Yes, sir, I do. And I do because Mr. Volcker is 
stating diplomatically and implying certain things which I 
don't believe he can deliver on. I believe Mr. Volcker is a man 
of great integrity and determination but I don't believe that 
the U.N. inquiry can possibly have an international framework 
which will compel or even obtain the cooperation of the nations 
such as France and Jordan and others, including Russia, which 
will allow them to reveal what actually happened. This is 
simply not going to happen through the United Nations, Mr. 
Chairman.
    The United Nations and the culprits in the Oil for Food 
scandal are not going to cooperate in this investigation. And 
to allow this framework to go on, without disclosing to the 
American people and to this Congress what the U.N. already 
knows, it seems to me is going to lead to something other than 
a full and open investigation. We are never going to find out 
what happened this way.
    Mr. Hall. Then I take it that you don't really take his 
statement when he says that it has the international framework 
and the access to resources to provide the kind of fact-finding 
that is in need--you disagree with that?
    Mr. Babbin. Well, I don't know what it means, Mr. Chairman. 
The problem is Mr. Volcker again is stating in very great and 
broad diplomatic language what may or may not be deliverable. 
And I do not believe, despite his best efforts and whatever 
solemn promises he may have obtained from the Secretary 
General, I do not in my heart of hearts believe that Mr. 
Volcker will be able to have an international framework that 
gets the cooperation of the French banks, the Jordanian banks, 
the French government officials that are probably involved in 
this mess, the Russians. There are 17 or so Russian companies 
and individuals that are listed in that famous list of possible 
participants in the Oil for Food scandal that was published in 
an Arab newspaper some time--a few months ago. We have no way--
Mr. Volcker absolutely has no way of delivering on that. I 
think quite frankly he is being overly optimistic.
    Mr. Hall. I thank you for that.
    Mr. Christoff, I first would point out your testimony notes 
that a major offshore terminal in Iraq did not have a meter to 
measure oil pumped into vessels. That is on page 7 of your 
report. And in your testimony on page 8 you discuss the U.N. 
board of audit. You stated, ``U.N. auditors generally concluded 
that the Iraq account was fairly presented in accordance with 
U.N. financial standards.''
    Mr. Christoff. That is correct.
    Mr. Hall. How did the U.N. financial standards compare, 
say, with the United States financial standards?
    Mr. Christoff. I don't know the exact answer to that, Mr. 
Chairman. I think that is one of the areas that we are going to 
try to look into to try to do some kind of comparison.
    Mr. Hall. If it doesn't even have a meter to measure oil 
pumped into it, how could you even possibly compare them with 
the United States standards?
    Mr. Christoff. Well, you can't. The metering system is 
still a problem today. There still are no meters on the 
offshore platform in the Gulf.
    Mr. Hall. The U.N. external audits found no fraud?
    Mr. Christoff. No. They did point out several problems, 
however. They pointed out the lack of metering as far back as 
1998. They encouraged the U.N. to diversify the number of banks 
rather than relying solely on BNP Paribus, but they did not 
find any instances of fraud.
    Mr. Hall. But they did find that the simple measuring 
devices were not even in place to measure crude oil being sold?
    Mr. Christoff. Right.
    Mr. Hall. That is just the mother and father of fraud, is 
it not? Enticing fraud and allowing fraud.
    Mr. Christoff. It is very difficult to know how much oil 
you are offloading if you don't have a meter.
    Mr. Hall. I agree. When you say the Gulf, you mean the 
Persian Gulf?
    Mr. Christoff. Right.
    Mr. Hall. All right. I think my time has probably lapsed. I 
recognize Mr. Allen.
    Mr. Shadegg. Mr. Chairman, point of order.
    Mr. Hall. State your point of order.
    Mr. Shadegg. I do not have a copy of the photograph 
attached to the testimony of Mr. Babbin. I asked my staff to 
check with the clerk, and he tells me that we don't have a copy 
of that photograph.
    Mr. Shimkus. It is in mine.
    Mr. Shadegg. I don't have a copy and the clerk didn't have 
a copy. I just wanted to make sure we had one in the record.
    Mr. Hall. You have just been handed one.
    Mr. Shadegg. Thank you.
    Mr. Hall. Go ahead, Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman.
    Mr. Christoff, to what extent do you believe the areas for 
additional analysis your testimony identified are likely to be 
pursued by the Volcker Commission or other investigations? Do 
you have any view on that?
    Mr. Christoff. I think clearly they will have the 
information to try to assess price reasonableness, looking at 
the contracts, making some assessment of the extent to which 
there was intentional overpricing. I think also, whether they 
do or not have a real access to, they need to look into the oil 
smuggling and the extent to which the Sanctions Committee 
through the 661 minutes in fact address these kind of issues, 
both the smuggling, the surcharges. I have spoken to Mr. 
Volcker. I think he understands that it is quite a challenge, 
but I also believe that we should give him an opportunity to 
report out and see what they find.
    Mr. Allen. Am I right in thinking that his target is 6 to 8 
months for a report, something on that order of magnitude? Do 
you remember?
    Mr. Christoff. Yesterday he said 6 to 8 months for the 
final report and some interim reports prior to that.
    Mr. Allen. Can you talk a little bit more about the 
responsibility of member states to monitor and prevent Iraqi 
oil smuggling? The number $10.1 billion has been thrown out 
several times in the course of this hearing, but as you 
testified, $5.7 billion of that appears to be related to oil 
smuggling. I take it that the oil smuggling had nothing to do 
with the Iraqi Oil for Food program. Is that fair?
    Mr. Christoff. All member nations as well as the United 
Nations was supposed to enforce sanctions. Enforcing sanctions 
precludes the delivery of any oil outside of the Oil for Food 
program. So in effect, the smuggling was still a violation of 
U.N. sanctions. It may not have been directly part of the Oil 
for Food program but still it was clearly a violation of 
sanctions.
    Mr. Allen. But when you locate the responsibility for the 
violation itself, the smuggling itself, that was between the 
Iraqi Government and Jordan or Syria or whatever other 
countries were involved?
    Mr. Christoff. If we are talking about responsibility, 
first responsibility would be on the neighboring nations. They 
were responsible for enforcing the sanctions. They should have 
precluded the smuggling. But at the same time, the Sanctions 
Committee, which is also the Security Council, was responsible 
for implementing the overall sanctions.
    Mr. Allen. And so the question raised is whether the U.N. 
Sanctions Committee did enough to control oil smuggling.
    Mr. Christoff. Correct.
    Mr. Allen. And one of the members of the U.N. Sanctions 
Committee was the United States; am I right?
    Mr. Christoff. Correct.
    Mr. Allen. In my mind, there are a series of important 
questions that are really beyond the reach of this 
subcommittee. Mr. Babbin was talking about what areas, France, 
Russia, documents in France and Russia that may be beyond the 
reach of Paul Volcker. They are certainly beyond our reach as 
well. And it is probably too early in the investigative process 
to answer these questions but I wanted to get your reaction if 
you have one to these.
    We have already talked about oil smuggling and I think one 
question would be exactly what steps did the U.S. take or could 
have taken to prevent the oil smuggling that went on through 
its position on the Sanctions Committee or otherwise. I don't 
know if you have anything further to add on that, what the U.S. 
should have done.
    Mr. Christoff. The U.S. did address oil smuggling to the 
Sanctions Committee. As far back as 1996, the Maritime 
Interdiction Force, which was U.S.-UK, first reported on the 
oil smuggling and reported it to the Sanctions Committee and 
the Security Council.
    Mr. Allen. The GAO report states that the Security Council 
proposed that U.N. agents review contract and compliances at 
Iraq's Oil Ministry but Iraq refused these conditions. What 
access did U.N. agents then have to Iraq contracts and how 
could they enforce any kind of oversight? Again, I think that 
is a question for full investigation, but if you have any 
further comment on it, I would be interested.
    Mr. Christoff. All members of the Sanctions Committee, for 
example, had access to all the contracts. They had access to 
look at the contracts. And I think as we pointed out in our 
statement, the U.S. was the most prodigious in putting holds on 
the contracts, $5 billion worth of holds as of the end of 2002. 
So all of the members of that Sanctions Committee had access to 
those contracts.
    Mr. Allen. I see my time is expiring, Mr. Chairman, so I 
yield back.
    Mr. Hall. I thank you. The Chair recognizes the gentleman 
from Arizona, Mr. Shadegg, for 5 minutes.
    Mr. Shadegg. Thank you, Mr. Chairman.
    Ms. Rosett, it seems to me that the key to your testimony 
was that we need to get the U.N. to release normal 
documentation. What efforts have been made to date to that 
point and have you looked at Congressman Flake's bill as an 
effort to force the U.N. to release what you refer to as normal 
documentation?
    Ms. Rosett. I think I am probably going beyond what that 
bill is trying to do and what I am suggesting--I think I am 
treading outside routine practical politics here, but I think 
it needs to be said. The contracts, for example, that went with 
this program, which Mr. Christoff mentioned, there was 
important information in the original versions of those; 
amended versions were handed over to the CPA, or rather the 
data from amended versions. So you didn't actually see a lot of 
what happened. There are leaks where in my own reporting, what 
I am able to see leads you to interesting conclusions and 
something of the beginning of a picture of how some of this 
worked. For instance, I say--and it is speculative at this 
point--I think that you had many cases in this program that 
sort of collapsed back to particular groupings where what 
looked like businesses in many different countries actually 
tracked back to one particular place.
    I would also caution it was about more than money. There 
were three things going on here. This was oil for palaces, it 
was oil for political influence, and it was probably also oil 
for terror and arms, which is why it is so urgent. What I was 
saying here is when this program was underway, the U.N. simply 
didn't release any information that would tell you anything 
specific about the deals being done. For instance, you could 
see that there were milk contracts coming out of Russia. You 
need a leaked document and these take hunting, and it is absurd 
that you have to go hunting this sort of thing, all of us. What 
you didn't see was that the milk, for instance, in that case 
shipped in from Russia had come from Zarubezhneft, which is a 
state oil company. Why were they selling milk? That would lead 
you to the further question of was there ever any milk sold? 
Which would lead you to wanting to look at the contract. What 
bank was this paid into, when did it happen, who signed the 
deal? Was he among the people the U.N. then tried to get in 
touch with just after the program who disappeared, as many did?
    This is basic information where in keeping it secret, the 
U.N.--there is an entire Russian press corps that would look at 
that and lights would go on. You would at least have that 
happening. That is what I am talking about. I am saying this 
that Volcker's Commission has now appropriated as its 
possession, no one else should see, that is madness and 
especially--I am almost to the end of this--if you are talking 
about terror funding flowing through this--and I think there is 
much reason to believe it did, Treasury's testimony would 
suggest that. The commercial bank of Syria where more than a 
billion was diverted into funds, into accounts there sitting 
next to accounts that funded al Qaeda, if you will look back at 
the Treasury testimony, Al Wasel & Babel in Dubai. This is 
urgent. This should not wait 6 to 8 months. There should be 
every resource possible deployed. That is why I am saying it 
would be both healthy for the U.N. in the long run and it would 
be urgently importantly helpful in this investigation now.
    Mr. Shadegg. I completely agree with that. I think from 
your answer you have confirmed what I believe, which is that 
the Volcker investigation will not produce that information. I 
guess my question to you is if the Flake bill does not go far 
enough, what is the vehicle you would best recommend, whether 
it is an investigation by this committee, an investigation by 
the Senate, an investigation by the International Relations 
Committee, and what is the mechanism if it is not Congressman 
Flake's bill, if it is something beyond Congressman Flake's 
bill, what is the mechanism that you can see would best force 
the disclosure of this information which we agree the world 
deserves to see, indeed desperately needs to see?
    Ms. Rosett. Every piece of daylight possible. I am a 
reporter, not a politician. I cannot advise you on strategy but 
I can tell you that where congressional committees--I don't 
even know exactly whether this is within your power, but you 
are able to get copies of the contracts, you are able to get 
the precise names, the dates. I have leaked names and dollar 
figures through 2001, but I can't see a crucial chunk of the 
program when I look.
    I would suggest that you get everything you can and release 
it. Release it to the public, the press. Let the Iraqis see it, 
let us see it, let people who are expert in the related 
industries go over and see it. Let people who know milk in 
Russia figure out why Zarubezhneft was selling milk. That is 
just one of scores and scores of strange, strange cases you can 
see when you look at what has been leaked. Release it in 
detail, and you will find out a great deal more than by leaving 
it in these sort of careful contained investigations.
    Mr. Shadegg. So to the extent that it is within the 
jurisdiction of the full committee and the jurisdiction of this 
committee, your message to the chairman of the full committee 
and your message to the chairman of this subcommittee would be 
to seek these documents, notwithstanding any of the other 
investigations and make them public?
    Ms. Rosett. Absolutely.
    Mr. Shadegg. Thank you. I yield back.
    Mr. Hall. Thank you, Mr. Shadegg. The Chair recognizes Ms. 
McCarthy for 5 minutes.
    Ms. McCarthy. Thank you very much, Mr. Chairman. I thank 
the panelists very much for the wisdom that you are sharing 
with us today. I am just curious, given the documentation that 
we have--and you may have touched upon this before I arrived at 
the hearing--but how is it possible that the violations 
continued for so long, from 1997 to 2002? Anyone.
    Ms. Rosett. Yes. The people who knew didn't want to talk 
about it. The people who had the proof didn't want to talk 
about it, and the people who wanted to talk about it didn't 
have the proof. Which again goes back to the bottom-line 
message. You have a highly nontransparent U.N. It has arrived 
at the level of farce in some senses. They put in the Office of 
Internal Oversight Services I think in 1994 at U.S. behest to 
try and make sure that things worked better. That office is now 
I believe investigating itself, to the great dissatisfaction of 
the staff. They have external auditors.
    When Mr. Christoff was being questioned about this--may I 
just add France was chairing the board of external auditors 
during the crucial year 2003. Layer after layer gets added in 
which the U.N. effectively reports to itself. Again, the 
example of why was the report on the son of the Secretary 
General, on Kojo Annan's business activities, connected to a 
company deeply connected to this program. Why was that done by 
an employee of Kofi Annan and kept confidential? Why is it 
still confidential?
    It would be helpful to see, because if you then look at an 
internal audit that leaked against U.N. wishes in May, you see 
that there were enormous problems with this, including what you 
start to see when you look through some of the documents that 
you carefully can finally tease out is--excuse me, I am 
straying a little here but this is an important point.
    We all assume that because there was this program and there 
were sanctions that things were under control at the borders. 
Important observation about the lack of a meter. You then 
discover if you dig further, or if you dig in other directions 
on the inspecting of relief goods coming in, evidently the U.N. 
understanding was that these inspectors were just there to make 
sure that the shipping manifest matched the contract. In fact, 
they inspected--was this figure yours--fewer than 10 percent of 
the shipments visually. And further, according to the U.N.'s 
own statements, if you had driven a truck carrying a missile 
launcher past the U.N. relief inspectors, they would not have 
done anything except tell the guy delivering the missile 
launcher, we cannot arrange for your payment, you will have to 
do that elsewhere. They wouldn't have stopped him. So you had 
no real control.
    Again, none of this is put out there. It is this highly 
shrouded environment. What I am saying is the United Nations, 
which has so little accountability anyway, responsibility 
diffuses, just disperses among the members, the best 
protection, if you want to save the United Nations, the best 
thing you can do is crack it open, make it share with everybody 
what goes on with its financial dealings, its deals, its 
contracts, its procurement especially. That is why--it is one 
thing to look and say, gee, that looks like a crooked program 
to me. It is another thing when someone says, show me the 
proof. Say, here are the documents I would need to begin to 
take you down that trail. However, the U.N. will not release 
them.
    Mr. Babbin. Ms. McCarthy, if I just might add to that in a 
few seconds. I think Claudia is making a very good point, and I 
wanted to go back to what Mr. Shadegg was saying a few minutes 
ago. If we are looking for ways to improve the United Nations, 
what we need to do is to withhold sufficient funding from them 
unless and until they open up their records. We should not have 
to ask for each and every audit report. Each and every audit 
report from the United Nations should be sent to the United 
States of America, open and in the press, and we should not 
have to grope and gripe every time we need some facts. This is 
a very corrupt culture that will hide anything and everything 
unless they are compelled to reveal it.
    Mr. Christoff. If I could just add three brief reasons why 
this continued and happened. No. 1, Iraq was sovereign. It 
negotiated the contracts directly. No. 2, no one looked at 
prices to assess whether or not the prices were reasonable. And 
No. 3, member nations did not enforce the sanctions, 
particularly those nations that bordered Iraq and did not 
prevent the smuggling.
    Ms. McCarthy. What are the people of Iraq doing now for 
food?
    Mr. Christoff. The public distribution system continues. It 
was assumed controlled by Iraq on July 1. Prior to that, the 
world food program was running the food distribution system 
along with the CPA, and it is now the responsibility of the 
Iraqi Ministry to continue the program.
    Ms. McCarthy. And the funds to do that?
    Mr. Christoff. The funds? Iraq is now in charge of the 
Development Fund for Iraq, all the resources that are in it. It 
was the primary source that was used to fund the public 
distribution system that fed basically all Iraqis, $24 million.
    Ms. McCarthy. Thank you very much. I yield back, Mr. 
Chairman. Thank you very much. Thank you all very much.
    Mr. Hall. The Chair notes that Chairman Barton is present. 
Mr. Chairman, I recognize you for 5 minutes.
    Chairman Barton. Thank you, Mr. Chairman. The first thing I 
need to do is make an announcement. I have spoken with the 
Assistant Secretary at the State Department, I have got a phone 
call in to the Secretary of State who is at the White House 
with the President. He is going to call me back in the next 
hour or so, but we have total cooperation with the State 
Department. They cannot be more willing to cooperate. They are 
just excited to have the opportunity to cooperate. There will 
be other hearings by this committee at which the State 
Department and other Federal departments will testify, and 
there is a fair chance that some of those hearings will be 
oversight hearings where they will testify under oath. I want 
to let the members of the committee on both sides of the aisle 
know that we have had a very productive morning with the State 
Department.
    I have not called the U.N. I don't have quite the authority 
over the U.N. that I do as chairman of a committee that has 
jurisdiction over the State Department. I will get in touch 
with the United Nations, however.
    My first question, it is a general question: Since the U.N. 
is an international body, is it possible for the U.S. Congress 
to make, encourage, incentivize the U.N. to cooperate with this 
type of an investigation? And if they won't cooperate with the 
Congress, is there any international--do their protocols have 
any accountability provision for an outside authority to 
investigate them?
    Mr. Christoff. I don't think there are any outside 
authorities to investigate the U.N. In terms of incentivizing 
U.N. cooperation, this Congress did that in the past through 
Helms-Biden to try to ensure U.N. cooperation with its reform 
agenda. We issued a report just a few months ago looking at 
their efforts to try to engage in reform. They are succeeding 
in areas to try to reform their management structures, their 
personnel structures. So you have done that in the past and it 
has been successful in the past.
    Mr. Hall. Mr. Chairman, I think whereas there may not be 
the international framework or any subpoena power and all that, 
I think the courage of authors like Mr. Babbin and Ms. Rosett, 
their research and their tenacity sometimes brings that to the 
world's newspapers, and people read those and sometimes react 
to them. That is one thing we do have going for us.
    I wish you would speak to the U.N. because your changing 
the State Department's attitude is another indication of why I 
think you are a fine Chairman of Commerce and following the old 
pattern that has been set by former members.
    Chairman Barton. I appreciate that. I am going to call the 
U.N. I don't want to misrepresent that I am not willing to. 
Secretary Powell was in the building, and so it was much easier 
to get ahold of him and his people today than it is to get 
ahold of the U.N. people.
    Mr. Hall. You may have the same result that poor old 
Richard Nixon had when he called Dial-A-Prayer; they hung up on 
him.
    Chairman Barton. I still have a question. I wanted to ask 
Mr. Babbin if he had any idea how to force the U.N. or 
encourage the U.N. to cooperate.
    Mr. Babbin. At the risk of sounding a little too 
colloquial, I am reminded of the old story about two folks 
trying to get a mule to move, and the city slicker pulling on 
the reins and pulling and pulling and arguing with the mule, 
and the farmer walking up and saying, You know, you've just got 
to get his attention first; picked up a 2 by 4 and hit him on 
the side of the head and the mule moved.
    I think you have a mule in New York and a lowly sight. I 
say this considerately. I think you are going to have to do 
something very drastic in restricting the funds that go to the 
United Nations in order to get them to move. There is no 
internal oversight of any effect in the United Nations. There 
is no opportunity to impose one. The problems with the U.N. as 
I say in my book, the U.N. is broken and can't be fixed, Mr. 
Chairman. The reason it can't be fixed is the nations which are 
the problem would have to approve the changes. You need a two-
thirds vote of the Security Council and a two-thirds vote in 
the General Assembly, plus in the Security Council a unanimous 
five veto-holding members' votes supporting any change to the 
U.N. charter. So if you want to change the U.N. charter and 
impose some audit requirement, for example, and disclosure to 
the American people, what you are going to have to do is get 
the approval of all the people who are the problem.
    So I don't think you can do much except withhold money and 
hit that mule upside the head with a piece of 2 by 4.
    Chairman Barton. Does the Volcker Commission have any 
authority delegated to them officially by the U.N. that would 
give them the ability to force compliance or more disclosure, 
or is former Chairman Volcker operating under purely moral 
authority but doesn't have any more explicit ability to 
investigate and to get documents than we do?
    Mr. Babbin. Mr. Chairman, the only authority that Mr. 
Volcker has, as I understand it, is a U.N. Security Council 
resolution; forgive me, I don't remember the number off the top 
of my head, but it basically welcomed his appointment and the 
Security Council applauded the investigation. I don't believe 
that he has any authority to compel the production of 
documents, testimony of witnesses, even to get into all of the 
corners, nooks and crannies, in the United Nations itself. He 
may have some very solemn assurances from Mr. Kofi Annan, but I 
quite frankly don't know that Mr. Volcker can do other than be 
a little too optimistic at this point.
    Chairman Barton. If in fact officials at the U.N. benefited 
personally from this program--and there is some anecdotal 
evidence that that happened--is there existing protocol, 
regulation, standards at the U.N. that would hold those 
officials accountable if you could prove that such-and-such 
U.N. official pocketed money in a personal account because of 
this Oil for Food program?
    Mr. Babbin. I don't know the answer to that question, Mr. 
Chairman.
    Chairman Barton. Do either of the other two?
    Mr. Christoff. I don't know.
    Chairman Barton. So basically if you are a U.N. official, 
at least in a general sense, you literally have a license to 
steal?
    Mr. Babbin. Mr. Chairman, I have said this on talk radio 
and I hesitate to say it here, but it is coming to the point 
that the biggest difference between the United Nations and the 
Mafia is that the Mafia holds its people accountable for what 
they do.
    Chairman Barton. I don't want to be attributed to that 
quote.
    Mr. Babbin. I didn't think you would, sir.
    Chairman Barton. My time has expired. I want to thank these 
witnesses for voluntarily coming, No. 1. I thank all three of 
you for what you have done to bring this issue to light. The 
GAO indicates, if I am not mistaken, that somewhere in the 
range of $60 to $70 billion went to the program and your number 
was at least $10 billion is probably totally skimmed off, then 
used for purposes that Saddam Hussein----
    Mr. Christoff. $5.7 billion in oil smuggling, $4.4 billion 
through kickbacks and illegal surcharges on oil; right.
    Chairman Barton. Do you have, sir, any evidence that that 
money might still be secreted somewhere? I mean, there might be 
some secret accounts somewhere, that that money is still in 
play, so to speak?
    Mr. Christoff. That is what the Iraqi Assets Working Group 
is trying to do right now. It is headed by the Treasury 
Department. They have been tasked for the past year to try to 
find out where the hidden assets are of the regime. They are 
under Juan Zarate over at Treasury and they are trying 
earnestly to find that money.
    Chairman Barton. I thank you all. We will be in touch as 
this investigation progresses and we will also be--if you have 
areas where you think the committee staff should probe, if you 
will let us know, we will try to make sure that those probes 
are conducted. Yes, ma'am.
    Ms. Rosett. Mr. Chairman, there is one important thing I 
just think you should all be aware of to do with the oil 
smuggling. It speaks to a question that Congressman Allen was 
also asking; because if you look at numbers that you are going 
to be talking about here, that $5.7 billion in smuggling, the 
oil that was produced to be smuggled was produced because the 
U.N. brought in oil parts. Part of the program, Oil for Food, 
was they began authorizing at the specific public urging of the 
Secretary General of the United Nations and Benon Savon who ran 
the program and whose office employed the oil overseers who 
oversaw that in particular. They didn't have meters for this, 
but the import of equipment to produce the oil. That was how 
they were able to--that is the connection between the U.N. 
Program, between Oil for Food and the smuggling. It supplied 
the equipment. I just think that is important to know, because 
the U.N. keeps explaining how it wasn't responsible for 
anything. In fact, it seems--also I wanted to tell you the 
phone number is 212-963-1234.
    Chairman Barton. Thank you. Thank you, Mr. Chairman.
    Mr. Hall. Thank you, sir. The Chair recognizes Mr. Shimkus 
for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. This is a great 
hearing. This is something we need to keep talking about. I 
represent southern Illinois. I really enjoy public policy here 
in the United States and I am involved with the NATO 
Parliamentary Assembly. I do have my finger on international 
activities. In my part of the country, it is not a positive to 
really be pro-Atlanticists or international involvement and 
there is not a lot of support for the United Nations. Period.
    I would say that for the U.N. to remain viable, it has to 
open up its books. I would concur with your statements. It 
makes it very difficult for us who understand the importance of 
having interactions with friends and allies, and even enemies, 
that there is transparency. I always tell people, the NATO 
Parliamentary Assembly that I am involved with is an 
international organization of democratically elected 
governments that have a mission, for self-defense. It is the 
foundation which holds us together. Basic principles and even 
some of these guys that we are talking about maybe in this U.N. 
problem are members of the NATO itself, but the foundational 
principles make us stronger and give us the more transparency. 
It should not be surprising in the U.N. where there is no 
foundational ideological basis for this grouping of member 
states--Mr. Babbin, did you want to say something?
    Mr. Babbin. I didn't want to interrupt. My comment is that 
you are dead bang on the money. The point of the matter is we 
share values, or at least we used to, with the NATO nations. 
The U.N. is founded on a false principle. We are in our 
Constitution enshrining the idea that all men are created 
equal. But in the United Nations charter, essentially all 
nations are created equal. That just is wrong.
    Mr. Shimkus. That is what has to be part of the debate. Why 
do we not have transparency? Why don't we have the Freedom of 
Information Act? Why can't we get documents? Why do we allow 
this to go on so long? Because of that basic premise. There are 
no democratic principles brought to bear, there is no rule of 
law, there is no focus on individual rights and freedoms. We 
have got totalitarian regimes that are members of the U.N. This 
should not be a surprise to the Nation that we have this 
problem and why there is no transparency. And because of that, 
it makes it very difficult for us in the heartland of this 
country to say, you know, we ought to be sending all this money 
to the U.N.
    I say two things. I say it is important to have a place 
where states can talk. I don't expect any action, but I do 
think that that is important. They do some benefits on 
inoculations and refugee issues which I believe is relatively 
good work. But after that, forget it. They can't control peace. 
They can't move troops. They are overfunded and overpaid. That 
is what we have a problem with.
    The Dominicans I think was the order that have lobbied me 
numerous times before this recent war, asking for releasing 
more Food for Oil programs. I have still in my office, in my 
Springfield, Illinois office, a little package of food, a 
little beans, a little bit of rice, a little pack; they say the 
Iraqi people are starving and this is what is a ration for a 
week or whatever. And so they are saying please allow more 
exports of oil. And my response to them was, we are not too 
sure that all this money is going to trying to feed these 
people.
    I think, Ms. Rosett, your comments were we had thought 
there were some irregularities but we couldn't find the facts. 
It made it difficult for me to tell these Dominican sisters 
that we couldn't find the trail. Now we can. I would encourage 
you all to continue. My time is running short.
    I do have one question that I did write. The United States 
may try to put a hold on some of these contracts, is that 
correct, Mr. Christoff?
    Mr. Christoff. Yes.
    Mr. Shimkus. Did any other nation try to put a hold on any 
contract?
    Mr. Christoff. The U.K. Did.
    Mr. Shimkus. That was it? Only two?
    Mr. Christoff. Those were the two that the United Nations 
reported to us as being the key countries.
    Mr. Shimkus. But the answer is you don't know because the 
U.N. may have had other people that they did not report to you?
    Mr. Christoff. Don't know if others put holds?
    Mr. Shimkus. Right. You have no ability to get information 
from the United Nations, only what they provide you. Is that 
correct?
    Mr. Christoff. We don't have audit authority over the 
United Nations, but we do get their cooperation and get 
information from them.
    Mr. Shimkus. And the second question that I would ask is 
to--I talked about transparency and I talked about corruption. 
We have talked about this internally in some Commerce Committee 
meetings. A problem with former Fed Chairman Volcker is that he 
really has no subpoena power. Would you agree with that?
    Mr. Christoff. The U.N. doesn't have subpoena power, so of 
course he doesn't.
    Mr. Shimkus. That is my point. So for all the platitudes, 
without subpoena power--we have subpoena power of the documents 
that we have or the relationships that we have with the U.N. We 
could subpoena the U.S. documents or agreements that we have 
with the U.N.?
    Mr. Christoff. I don't know if you can subpoena U.N. 
documents, but all the members of the Sanctions Committee got 
the contracts. So the contracts that were part of an 
interagency U.S. process there are within the U.S. Government.
    Mr. Shimkus. Mr. Chairman, I would respectfully request 
that we try to get those from our representation on that 
committee.
    Mr. Christoff. It is over 30,000.
    Mr. Shimkus. That is all right. We are going to have an 
August break coming up.
    Mr. Ose. Will the gentleman yield?
    Mr. Hall. Does the gentleman yield?
    Mr. Shimkus. The gentleman yields, but I am out of time.
    Mr. Hall. The gentleman's time has expired. Who seeks 
recognition?
    Mr. Allen. Mr. Chairman, could I be recognized for just a 
moment?
    Mr. Hall. For what purpose?
    Mr. Allen. I would like to offer a couple of documents for 
inclusion in the record.
    Mr. Hall. Without objection, they will be offered and 
accepted.
    Mr. Allen. Mr. Chairman, I offer for inclusion the article 
in the Wall Street Journal, the op-ed in the Wall Street 
Journal of July 7, written by Paul Volcker.
    And something I will probably never do again, I would also 
offer for inclusion in the record the Wall Street Journal 
editorial on July 7 entitled ``Progress on Oil for Food'' which 
celebrates the fact that Mr. Volcker's U.N.-backed probe will 
not be entirely dependent on the goodwill and cooperation of 
the U.N. and its member states.
    True, it lacks subpoena power in its own right, but Mr. 
Volcker points out that there are opportunities, indeed there 
is a necessity for cooperation between his investigators and 
law enforcement authorities in the United States and elsewhere. 
It deals in sharp contrast to some of the statements that were 
made by Mr. Babbin and by my friends on the committee. I thank 
you.
    Mr. Hall. Will you make available to our court reporter 
there these copies?
    Mr. Allen. Absolutely.
    Mr. Hall. Without objection.
    [The information referred to follows:]

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    Mr. Hall. The Chair recognizes Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman.
    Ms. Rosett, in Mr. Babbin's book ``Inside the Asylum,'' he 
states there is even emerging evidence that money from the 
program might have gone to support al Qaeda. And then he 
references you in the footnote from Oil for Terror, I believe. 
I had to step out. Maybe you have addressed this already, but 
can you expound on that? What is the reference there? Did Oil 
for Food money go to fund al Qaeda?
    Ms. Rosett. The financial corridors through which it would 
have gone, could have gone, are certainly there. The question 
that needs to be answered is did money flow, where did it end 
up? I believe that Treasury may be looking at some of this, but 
I don't think that any investigation is looking systematically 
at the U.N. contracts. I would strongly suggest that this was 
exactly the style in which Saddam Hussein would have been 
likely to do it. It was hidden in plain sight. It was U.N. 
approved. The contracts had this kickback structure coming and 
going. There was an opportunity there to collect kickbacks and 
build palaces or to fund whatever else he might have been 
interested in.
    As of 1998 onward, a signal year in the development of 
terrorist networks in various ways, this program had been 
consolidated in such a way that Saddam Hussein was proud to be 
pretty sure he could dependably game in. It had become an 
agency, a department in its own right at the United Nations, he 
had kicked out the weapons inspectors and the U.N. had 
responded by doubling the size of the oil he was allowed to 
sell, and in the following year lifted the cap completely, in 
other words, expanding this program. There are quite specific 
links. I would urge you, if you hold further hearings, to call 
as a witness--am I allowed to do this?
    Mr. Walden. Sure.
    Ms. Rosett. A private investigator who works at a New York 
law firm, John Faucett, coauthor of one of the best reports on 
corruption under Saddam. It focuses heavily on this program. It 
came out in late September 2002. I have mentioned it in my 
written statement here. It is worth looking at. He would be 
worth calling. They are involved in bringing lawsuits on behalf 
of victims of September 11, and this involves looking into 
terrorist connections. There are many.
    Again, the difficulty is you can see the likely corridor. 
You need authority that for instance I do not have, but you may 
be able to find ways to ask what really went through. But, 
sure, there are several that have already been mentioned. I am 
happy to supply you with articles about it. A firm in 
Liechtenstein with direct ties to Bank Al Taqwa listed on the 
U.N. terror watch list in the Bahamas as al Qaeda Financing. I 
could tick off a set more. But yes. Also that commercial bank 
of Syria mentioned in the Treasury testimony. There is plenty 
of reason to be plenty, plenty worried about this. It may be 
funding the murder of Iraqis and Americans right now.
    Thank you.
    Mr. Walden. Let me ask another question about some of the 
specific programs. There has been speculation that some 
countries have participated, including perhaps Australia in 
their wheat sales to Iraq, that the price was greatly inflated 
for what the world market was. Can any of you address that?
    Mr. Christoff. I think the DCA audit did a very good job of 
looking at particularly the food contracts, and they found that 
87 percent of the food contracts they looked at were overpriced 
by at least 22 percent. They also expressed concerns about the 
use of middlemen. In other words, you would have one country 
that would purchase the wheat or other commodities and then 
sell it and negotiate the contracts with the Iraqi regime, and 
that use of the middlemen constituted an additional 20 percent 
in the price.
    Mr. Walden. And so what is being done to look at those 
countries?
    Mr. Christoff. The key countries that were the primary 
shippers of food to Iraq were Australia, Thailand, and Vietnam. 
If there is any look at the contracts in detail, that should be 
part of what we recommend, looking at a statistically valid 
sample of all of the contracts and trying to identify which of 
the companies that consistently overpriced and the countries 
that condoned the overpricing.
    Mr. Walden. Is somebody doing that?
    Mr. Christoff. We have to get the contracts first.
    Mr. Walden. And that is the heart of the issue here.
    Mr. Christoff. Yes.
    Mr. Walden. Mr. Chairman, my time has expired. Thank you, 
sir.
    Mr. Hall. Thank you. On behalf of the subcommittee, Mr. 
Christoff, if you had to make one or two recommendations as to 
actions Congress should take to bring the scandal to a 
resolution and prevent it from happening again, what would be 
your recommendations?
    Mr. Christoff. I think there are many resolutions and bills 
that are being enacted in Congress, or are being considered 
about GAO having access to certain documents. I think that is 
important. In terms of the policy decisions, I would defer to 
the Congress in deciding whether or not they would want to 
enact Mr. Flake's bill. But I think the more important 
recommendations would be to how do you ensure that a future 
U.N. program doesn't have the same kind of mismanagement in the 
future; and that is that you should have a program in which you 
have adequate internal controls, you have a program with a lot 
of oversight, and you have to have a program that has the 
oversight built into the system that is trying to provide the 
food or the humanitarian services. And you can't rely on a 
rogue regime to manage itself and oversee itself.
    Mr. Hall. I recognize Mr. Rogers for 5 minutes.
    Mr. Rogers. Thank you, Mr. Chairman. I am going to yield to 
Mr. Ose for his follow-up.
    Mr. Ose. I thank the gentleman. Mr. Chairman, the questions 
by Mr. Shimkus actually were on point in terms of how you go 
about getting these documents. We have been following that 
particular issue closely. To the extent that the United States 
representatives sat on the Sanctions Committee, the review of 
such contracts that came before the Sanctions Committee on 
behalf--the review on behalf of the United States was delegated 
to an interagency working group, and the agencies of the U.S. 
Government that participated in that review were the State 
Department, the Treasury Department and CIA, according to the 
responses we have received from previous hearings on this 
matter.
    The State Department, the Treasury Department, and the CIA. 
So if you are going to focus your subpoena, your potential 
subpoena power, it would be on this interagency working group 
who advised the U.N. representative of the U.S. Government as 
to whether or not these contracts should be approved or not. 
And I just wanted to offer that for the committee's 
consideration. And I thank the gentleman.
    Mr. Rogers. Thank you, Mr. Ose. Reclaiming my time. This is 
all fascinating to me. In my old career as a special agent with 
the FBI, somebody, when I first got in, described the U.N. as a 
place for spies, thieves, and those people who love to live in 
New York but hate America. And I guess we can add a new one to 
that, terrorism as well. And I am very, very concerned about 
this. And I just hear two reoccurring themes: Transparency is 
just about nonexistent in this agency. And the internal 
investigative system there is also dysfunctional or 
nonexistent. Is there--well, do you have comment on it, Mr. 
Christoff? I am trying to understand it.
    Mr. Christoff. Right. The U.N. does an internal audit 
function, the OIOS, Office and Internal Oversight Services. 
Those are the reports that we are all trying to get. They did 
55 internal audits of the Oil for Food Program, four pending 
audits. And I don't want to state that they didn't do a good 
job, but I would like to see the internal audit reports to see 
exactly what they were looking at. I hope they did a good job.
    Mr. Rogers. Tell me how that works. How do you end up as an 
auditor on OIOS?
    Mr. Christoff.  I don't know what their hiring practices 
are. But the OIOS was set up in 1994. It was something that GAO 
had been recommending for years, that they have some type of an 
internal audit function equivalent to IGs that we have in of 
our cabinet-level agencies. And so they have been in the 
business for many years trying to do internal audits and 
reviews of a variety of this programs within the U.N.
    Mr. Rogers. I mean, do they have independence?
    Mr. Christoff. The reports go to the head of the agency 
that is being audited, and the head of the OIOS can also make a 
decision as to whether or not those reports go to the Secretary 
General. That is a little bit different than what our IGs have, 
where the reports go both to the Congress, they can go to the 
Congress as well as to the head of the agency.
    Mr. Rogers. Can any member request, any U.N. member request 
those reports?
    Mr. Christoff. I don't think so. Hold on. Can they? They 
are listed, and all members nations can get briefings on the 
OIOS internal audit reports, but I don't believe you can get 
copies of the entire report.
    Mr. Rogers. Yes.
    Ms. Rosett. If I might just add a bit to this, having tried 
to find pieces of--the kind of briefing you would get would be, 
for instance, since there is one that leaked on Cotecna, the 
firm that employed Kofi Annan's son just before getting the 
contract with the U.N. to inspect goods coming in. And what you 
see once you have the leaked report is that the Secretary 
General Kofi Annan, in fact, forwarded a mention--he forwards 
it to the general assembly. He described in two paragraphs the 
gist of some of this report. And he referred to a serious 
problem with a company involved in Oil for Food. What dropped 
out in the briefing was the name of the company.
    So, suddenly in searching for that you would no longer find 
Cotecna, the company in question, you would just find a 
company. That is the kind of glossing over that goes on in 
these briefings. Thank you.
    Mr. Rogers. I see my time is running short here. And Mr. 
Babbin, might it not be also prudent for us to withhold funding 
until there is a truly functioning IG type apparatus within the 
United Nations that has some transparency?
    Mr. Babbin. I think you are on the right track, Mr. Rogers. 
But I don't think even that is going to be anywhere near 
enough. I think you have to have complete visibility into the 
organization. And as a former law enforcement officer, I think 
you can appreciate what that would mean. I can just see what we 
would be seeing here right now today if Enron had decided to 
say you guys in the FBI stay away, we have hired Paul Volcker, 
it just doesn't work. You have to have complete transparency. 
You should not have to ask for these reports. They should be 
subject to immediate review and testing by our own people.
    Mr. Rogers. I see my time has expired, Mr. Chairman. Thank 
you very much. And thank you for your time today. I appreciate 
it.
    Mr. Hall. All right. I thank Mr. Strickland, no questions? 
Thank you. Is there anyone else who seeks recognition? If not, 
I think we have terminated a very worthwhile hearing, and I 
thank you for your input and for your time. Your time is 
valuable, and thank you for the work you do on behalf of the 
people.
    With this, we will be--don't be dismayed by the lack of 
attendance here, because this all goes into the record; each of 
them will get a copy, each Member of Congress will ultimately 
have a copy of it, and we will read and reread these, this 
testimony in the future hearings. We thank you very much, and 
appreciate your time. Thank you. With that, we are adjourned.
    [Whereupon, at 11:50 a.m., the subcommittee was adjourned.]

                                 
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