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





       THE IRAQ OIL-FOR-FOOD PROGRAM: STARVING FOR ACCOUNTABILITY

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   EMERGING THREATS AND INTERNATIONAL
                               RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 21, 2004

                               __________

                           Serial No. 108-216

                               __________

       Printed for the use of the Committee on Government Reform


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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          ------ ------
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

 Subcommittee on National Security, Emerging Threats and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman

MICHAEL R. TURNER, Ohio
DAN BURTON, Indiana                  DENNIS J. KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           TOM LANTOS, California
RON LEWIS, Kentucky                  BERNARD SANDERS, Vermont
TODD RUSSELL PLATTS, Pennsylvania    STEPHEN F. LYNCH, Massachusetts
ADAM H. PUTNAM, Florida              CAROLYN B. MALONEY, New York
EDWARD L. SCHROCK, Virginia          LINDA T. SANCHEZ, California
JOHN J. DUNCAN, Jr., Tennessee       C.A. ``DUTCH'' RUPPERSBERGER, 
TIM MURPHY, Pennsylvania                 Maryland
KATHERINE HARRIS, Florida            JOHN F. TIERNEY, Massachusetts
                                     DIANE E. WATSON, California

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                Thomas Costa, Professional Staff Member
                        Robert A. Briggs, Clerk
             Andrew Su, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 21, 2004...................................     1
Statement of:
    Hankes-Drielsma, Claude, advisor, Iraq Governing Council and 
      chairman, Roland Berger, Strategy Consultants..............    88
    Kennedy, Patrick F., U.S. Representative for United Nations 
      Management and Reform, U.S. Mission to the United Nations, 
      U.S. Department of State; Robin L. Raphel, coordinator, 
      Office of Iraq Reconstruction, U.S. Department of State; 
      Michael J. Thibault, Deputy Director, Defense Contract 
      Audit Agency, U.S. Department of Defense; and Lee Jeffrey 
      Ross, Jr., Senior Advisor, Executive Office for Terrorist 
      Financing and Financial Crimes, U.S. Department of the 
      Treasury...................................................    25
    Luck, Edward C., professor of practice in international and 
      public affairs and director, center on international 
      organization, School of International and Public Affairs, 
      Columbia University; Claudia Rosett, journalist, senior 
      fellow, the Foundation for the Defense of Democracies, 
      adjunct fellow, the Hudson Institute; Nile Gardiner, 
      fellow, Anglo-American Security Policy, the Heritage 
      Foundation; and Nimrod Raphaeli, senior analyst, Middle 
      East Media Research Institute..............................   130
Letters, statements, etc., submitted for the record by:
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................     5
    Gardiner, Nile, fellow, Anglo-American Security Policy, the 
      Heritage Foundation, prepared statement of.................   153
    Hankes-Drielsma, Claude, advisor, Iraq Governing Council and 
      chairman, Roland Berger, Strategy Consultants, prepared 
      statement of...............................................    92
    Kennedy, Patrick F., U.S. Representative for United Nations 
      Management and Reform, U.S. Mission to the United Nations, 
      U.S. Department of State, prepared statement of............    29
    Luck, Edward C., professor of practice in international and 
      public affairs and director, center on international 
      organization, School of International and Public Affairs, 
      Columbia University, prepared statement of.................   134
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............    17
    Raphaeli, Nimrod, senior analyst, Middle East Media Research 
      Institute, prepared statement of...........................   165
    Raphel, Robin L., coordinator, Office of Iraq Reconstruction, 
      U.S. Department of State, prepared statement of............    41
    Rosett, Claudia, journalist, senior fellow, the Foundation 
      for the Defense of Democracies, adjunct fellow, the Hudson 
      Institute, prepared statement of...........................   145
    Ross, Lee Jeffrey, Jr., Senior Advisor, Executive Office for 
      Terrorist Financing and Financial Crimes, U.S. Department 
      of the Treasury, prepared statement of.....................    58
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........    21
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, letted dated April 19, 2004......    83
    Thibault, Michael J., Deputy Director, Defense Contract Audit 
      Agency, U.S. Department of Defense, prepared statement of..    50
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    11

 
       THE IRAQ OIL-FOR-FOOD PROGRAM: STARVING FOR ACCOUNTABILITY

                              ----------                              


                       WEDNESDAY, APRIL 21, 2004

                  House of Representatives,
Subcommittee on National Security, Emerging Threats 
                       and International Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 210, Cannon House Office Building, Hon. Christopher Shays 
(chairman of the subcommittee) presiding.
    Present: Representatives Shays, Turner, Lewis, Putnam, 
Schrock, Duncan, Murphy, Kucinich, Lantos, Lynch, Maloney, 
Ruppersberger, Tierney, Watson, Waxman [ex officio], and Tom 
Davis of Virginia [ex officio].
    Staff present: Lawrence Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; R. Nicholas 
Palarino, senior policy advisor; Thomas Costa and Kristine 
McElroy, professional staff members; Robert Briggs, clerk; 
Richard Lundberg, detailee; Karen Lightfoot, minority 
communications director/senior policy advisor; Jeff Baran and 
David Rappalo, minority counsels; Earley Green, minority chief 
clerk; Jean Gosa, minority assistant clerk; and Andrew Su, 
minority professional staff member.
    Mr. Shays. A quorum being present, the Subcommittee on 
National Security, Emerging Threats and International Relations 
hearing entitled, ``The Iraq Oil-for-Food Program: Starving for 
Accountability,'' is called to order.
    From its inception in 1996, the United Nations Oil-for-Food 
Program was susceptible to political manipulation and financial 
corruption. Trusting Saddam Hussein to exercise sovereign 
control over billions of dollars of oil sales and commodity 
purchase invited the illicit premiums and kickback schemes now 
coming to light. Because oversight was left to a security 
council committee that could only act by unanimous consent, and 
to a U.N. bureaucracy receiving a percentage of the proceeds, 
no one had sufficient authority or incentive to police the 
program.
    So what began as a temporary safety valve to meet the 
humanitarian needs of the oppressed Iraqi people was allowed to 
become a permanent torrent of sanctions busting and 
profiteering. As one report observed in September 2002, 
whenever Saddam Hussein wanted to increase his hard currency 
earnings at the expense of the Oil-for-Food program, the Iraqis 
shut down oil exports or claimed imminent infrastructure 
collapse, as if on cue, his supporters in the international 
community, warned of the horrific consequences that would 
befall the Iraqi people, the security council eased the 
sanction regime and Saddam got the hard currency he needed to 
sustain his brutal regime.
    But much is still not known about the exact details of Oil-
for-Food transactions. That is one reason we convened this 
hearing today, to help pierce the veil of secrecy that still 
shrouds the largest humanitarian aid effort in history. We want 
the State Department, the CPA and the U.N. to know there has to 
be a full accounting of all Oil-for-Food transactions, even if 
that unaccustomed degree of transparency embarrasses some 
members of the Security Council. We want to know what is being 
done to recoup the billions of dollars that literally slipped 
through the U.N. fingers, and we want to know that the United 
Nations will investigate the people and reform the institutions 
responsible for a scandal of almost unthinkable seriousness.
    Yesterday, U.N. Secretary General Kofi Annan assured me he 
wants to get to the bottom of this scandal and restore faith in 
the ability of the U.N. to do its job. He said security council 
members, including Russia, will support a resolution giving the 
commission the independence and authority necessary to 
investigate allegations of corruption in the Oil-for-Food 
program. We will monitor their work to be certain that the 
commission can follow and is following the facts wherever they 
lead.
    In defense of the program, some say it is enough, the U.N. 
fulfilled its complex Oil-for-Food mandate under extraordinary 
circumstances, successfully rescuing the bulk of the Iraqi 
population from starvation and disease. They say padded prices 
and other leakage around the sanctions were inevitable, widely 
known and politically necessary to secure international 
consequence on Iraq. Current charges of corruption, some 
believe, are merely signs of a local power struggle with the 
Iraqi governing council of the conspiratorial fantasies of 
perpetual U.N. haters. They argue indulging in finger pointing 
now could inhibit the U.N.'s ability or willingness to help 
restore a sovereign Iraq.
    True, the program did succeed in raising the national 
nutrition levels of most Iraqis. But to ignore profoundly 
serious allegations of malfeasance, or worse, in the Oil-for-
Food program would be to deny the Iraqi people the accounting 
they deserve and leave the U.N. under an ominous cloud.
    In Iraq, and elsewhere, the world needs an impeccably 
clean, transparent U.N. The dominant instrument of multi-
lateral diplomacy should embody our highest principles and 
aspirations, not routinely sink to the lowest common political 
denominator. We have to be certain security council votes on 
vital questions of global security, and international order, 
are not for sale to the highest bidder. The U.N. may be called 
upon to act as trustee for another failed state in 
receivership. It should have the capacity to do so effectively, 
honestly and openly.
    Three panels of distinguished witnesses will testify today. 
We appreciate their time, their expertise and their insights, 
as we explore the impacts and implications of the U.N. Oil-for-
Food program.
    At this time the Chair will recognize, with the acceptance 
and suggestion of Mr. Kucinich, the chairman of the full 
committee, Mr. Davis.
    [The prepared statement of Hon. Christopher Shays follows:]

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    [GRAPHIC] [TIFF OMITTED] T6525.184
    
    [GRAPHIC] [TIFF OMITTED] T6525.185
    
    Mr. Tom Davis of Virginia. Thank you. I want to commend you 
for holding this important hearing on the beleaguered United 
Nations Oil-for-Food program.
    In 1995, U.N. Security Council Resolution 986 officially 
sanctioned the Oil-for-Food program. This program permitted 
Saddam Hussein's regime to sell oil to purchase food, medicine 
and other humanitarian goods. Unfortunately, we now know that 
the program conceded far too much control to Saddam, who 
apparently pocketed billions of dollars by demanding kickbacks 
from companies who wanted to buy the oil, and charging illicit 
commissions to businesses that were sending the humanitarian 
goods to Iraq. So instead of serving the program's commendable 
official purpose, the money went to breaking sanctions, 
building palaces and buying arms. What terrible, terrible 
irony.
    For those of us who believe the United Nations is a beacon 
of hope for humanity, who believe in its promise of peace and 
prosperity and principle and progress, this program's failure 
is disappointing, to say the least. I'll be blunt: this scandal 
threatens the U.N.'s reputation and effectiveness and raises 
serious questions for those who portray the world body as a 
ready, willing and able route of retreat for U.S. forces. For 
every complex problem, there is a simple solution that may not 
work. News about this kickback scandal weakens the United 
Nation's standing around the globe, including in Iraq, and 
should force everyone to tone down the rhetoric asserting that 
a return to U.N.-led multilateralism would be some sort of 
magic panacea.
    In August 2003 and February of this year, I led bipartisan 
delegations to war-torn Iraq. As part of these trips, I 
witnessed first-hand what Saddam did with the profits from the 
Oil-for-Food program. I saw the lavish palaces he built around 
Iraq, including one I visited in Tikrit, which is now occupied 
by the U.S. Army. It's hard not to marvel at the enormity and 
beauty of these buildings. But then when you take even a 
glimpse of the average Iraqi's living conditions, the brutal 
criminality of Saddam's regime, and the terrible bastardization 
of the Oil-for-Food program, it hits home. Suddenly the palaces 
are tragically gaudy.
    In short, the Oil-for-Food program was not one of the 
U.N.'s shining moments. In fact, it was a complete and utter 
disaster. There are well-documented reports of how Saddam was 
able to skirt the rules of the Oil-for-Food program, so that he 
could enrich himself, his Baathist cronies and unfortunately, 
many non-Iraqis, who should have known better. My question, and 
one that I hope this hearing will get to the bottom of is, 
where was the United Nations all these years? Did the U.N. know 
that Saddam was using profits from this program to enhance his 
regime of terror? Or were they simply naive and blind.
    It's one thing if Saddam was able to pull this off in 
secrecy. It's quite another if those charged with administering 
the program knew about the corruption and yet could not or 
would not raise the red flag. I hope that everyone involved in 
the program, from Secretary General Kofi Annan on down fully 
grasp the ramifications of this scandal. I have a feeling this 
won't be the last time a program like this will be implemented, 
so we need to let experience be the teacher here.
    Let's not let anyone slide the issue under the carpet. The 
U.N. is too important for that. Over the years, there have been 
attempts to pull the United States out of the United Nations, 
to withhold funds and dues and cut funding. I've opposed those 
moves, because as I said at the outset, I believe the United 
Nations offers unique and important hope for humanity. But 
corruption of the sort we're seeing here gives all of us pause. 
We can't miss the opportunity to learn from the mistakes that 
have been made and in turn, help restore trust and faith in 
this body.
    Mr. Chairman, I appreciate your persistence on this issue 
and look forward to the testimony we're about to hear today.
    [The prepared statement of Hon. Tom Davis follows:]

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    [GRAPHIC] [TIFF OMITTED] T6525.002
    
    Mr. Shays. I thank you, and Mr. Kucinich and I appreciate 
the resources you give this subcommittee to do our job. Thank 
you.
    At this time, the Chair recognizes the ranking member, Mr. 
Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, and thank 
you to the chairman of the full committee and to Mr. Waxman our 
ranking member of the full committee. Thank you for holding 
this hearing.
    Recently, allegations have surfaced that the Iraqi people 
did not receive all the goods and benefits to which they were 
entitled under the Oil-for-Food program. Rather, program 
revenue and goods may have been funneled to Saddam Hussein and 
his supporters through smuggling, kickbacks and pricing 
schemes, possibly even with the complicity of United Nations 
officials. These troublesome charges need to be thoroughly 
investigated by an independent authority.
    I'm pleased that U.N. Secretary General Kofi Annan has 
recently agreed to do just that and appointed a man of 
integrity and professionalism, Paul Volcker, to lead the 
inquiry. The committee hearing today is important and 
necessary.
    However, when it comes to the conduct of our own 
Government, oversight is not the responsibility of any other 
authority than Congress, and the conduct of the U.S. Government 
in mounting an espionage campaign against the security council 
and member country delegations prior to the vote on Iraq is 
deeply troubling and also deserves investigation.
    In March of last year, a U.S. Nation Security Agency memo 
was leaked to a British newspaper. The memo detailed plans for 
the U.S. Government to wiretap telephones and track e-mails of 
swing vote countries on the security council in order to 
pressure these countries to vote with the United States in 
favor of military action in Iraq. The memo stated that the 
National Security Agency was going to ``mount a surge'' 
directed at the U.N. Security Council members for insights as 
to how membership was reacting to ``the ongoing debate 
regarding Iraq, plans to vote on any related resolutions, what 
related policies and negotiating positions they may be 
considering, alliances and dependencies . . . .''
    In particular, they were going ``to revive and create 
efforts against the UNSC members in Angola, Cameroon, Chile, 
Bulgaria and Guinea, as well as an extra focus on Pakistan U.N. 
matters.'' According to Mexico's U.N. Ambassador, Enrique 
Berruga, it was obvious that the United States was spying on 
his activities. In an interview with the Associated Press, he 
described a meeting of six nations to work out a compromise 
Iraq resolution in early March. ``Only people in that room knew 
what that document said,'' he recalled. Early the next morning 
he received a call from a U.S. diplomat, saying the United 
States found that text totally unacceptable.
    Ambassador Negroponte was scheduled to testify today. His 
testimony on questions about the espionage would be relevant 
since as head of the U.S. delegation, he would have been aware 
of and approved of spying activities against his peers at the 
security council. I want to let the members of the committee 
know that I think it's important that this subcommittee, while 
we're holding this hearing today, also consider holding another 
hearing about the espionage our Government directed at our 
allies on the security council of the United Nations.
    These acts of espionage may have severely undermined the 
stature of the United States within the international community 
and our ability to work effectively in the U.N. system. In 
short, our ability to be a moral force in judging the 
activities of the United Nations today also depends on our 
ability to be able to be forthcoming with respect to our own 
conduct at the U.N. Today I will send a letter to Ambassador 
Negroponte requesting information about his role in the 
espionage incident. I would like to put that letter into the 
record.
    And finally, the troubling revelations that are being 
discussed toady should not mislead Congress. We need the U.N. 
in order to save the U.S. position in Iraq. Even President Bush 
understands that and is counting on U.N. Envoy Lakhdar Brahimi 
to find a political solution to the governance question.
    I look forward to the testimony of the distinguished 
witnesses, and urge the subcommittee to hold additional 
oversight hearings on the U.S. espionage directed against other 
members of the security council. Thank you.
    Mr. Shays. Thank you. At this time, the Chair would 
recognize the ranking member of the full committee, Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    Today's hearing is about the Oil-for-Food program, which 
was established in 1995 to provide for the basic needs of 
Iraqis while U.N. sanctions were in effect. Recently auditors, 
journalists and even U.N. officials have made serious 
allegations of corruption, overpricing, kickbacks and smuggling 
under the Oil-for-Food program. These disturbing allegations 
should be fully investigated. We must learn what went wrong and 
how it was permitted to occur, and those responsible for 
illicit activities must be held accountable. We must make every 
effort to retrieve Iraqi assets lost to mismanagement and 
abuse.
    Congress is responding to allegations of misconduct in this 
U.N. program, as we should. Already, GAO has investigated and 
reported on overpricing and illicit surcharges. The Senate 
Foreign Relations Committee held a hearing on this topic, and 
the House International Relations Committee intends to do so. I 
commend the chairman for holding this hearing to further 
examine these issues.
    But while congressional committees are eager to investigate 
a U.N. program, we seem to be ignoring potential abuses 
involving the U.S-run development fund for Iraq, which is a 
successor to the Oil-for-Food program. These priorities don't 
make sense. While it is important for Congress to examine 
problems in U.N. programs, we have an even greater 
responsibility to examine problems in programs our own 
Government directs.
    In my statement today, I want to outline some of the 
problems that have arisen in the administration of the 
Development Fund for Iraq [DFI], and some of the questions that 
Congress should be asking about this program. The Development 
Fund for Iraq was established on May 22, 2003. U.N. Security 
Council Resolution 1483 authorized the coalition divisional 
authorities to direct disbursements from the fund in a 
transparent manner to benefit and meet the humanitarian needs 
of the Iraqi people.
    The Oil-for-Food program ended in November 2003, and $7.6 
billion in unused program funds have been transferred to the 
DFI; 95 percent of Iraq's oil revenues are also placed in the 
account. As a result, a total of $16.7 billion has been 
deposited in the DFI. This is a tremendous amount of money, and 
it has the potential to do an enormous amount of good for the 
Iraqi people.
    Unfortunately, the DFI has been plagued by some of the same 
problems that we've seen in the Oil-for-Food program, 
overpricing and the use of middlemen. One example involves the 
use of DFI funds to import gasoline into Iraq. Since last May, 
about $1.6 billion of DFI funds have been obligated to 
Halliburton for the importation of fuels into Iraq. This makes 
Halliburton one of the largest, if not the largest, recipient 
of DFI funds.
    Over the past several months, Representative Dingle and I 
have been investigating Halliburton's no-bid contract to import 
gasoline into Iraq, and its use of an obscure Kuwaiti company, 
Altanmia Commercial Marketing Co., to buy gasoline and 
transport the gasoline. We have found evidence of significant 
overcharging involving DFI funds.
    The size of the potential overpayment to Halliburton is 
large. In December, the Defense Contract Audit Agency announced 
that its draft audit found Halliburton had overcharged by as 
much as $61 million through September 30, with significant 
additional overcharges likely in the months thereafter. Almost 
all of this money came from the DFI.
    Another example of apparent waste involves the Coalition 
Provisional Authority's use of DFI funds to purchase 34,000 AK-
47 assault rifles and 14 million boxes of ammunition. Pentagon 
officials raised concerns with these weapons purchases, noting 
that existing arms stockpiles were available. According to 
media reports, the U.S. Marines found a cache of 100,000 AK-47s 
near Tikrit last year.
    Despite the evidence of overcharging and waste, the vast 
amounts of money involved and our experience with the Oil-for-
Food program, there has been a serious lack of oversight of the 
DFI. The Defense Contract Audit Agency, Defense Contract 
Management Agency, General Accounting Office, Coalition 
Provisional Authority Inspector General and Treasury Department 
are all investigating the now-terminated Oil-for-Food program. 
But who is auditing the expenditures of its successor, the DFI?
    DCAA only audits DFI expenditures when they are 
intermingled with appropriated funds, and its audit of 
Halliburton's gasoline importation was stymied by the 
administration. The Pentagon Inspector General refused to audit 
the DFI, saying that GAO was already performing these audits. 
We learned from the GAO that the IG was mistaken. The CPA IG 
indicated that the International Advisory and Monitoring Board 
would handle the audits of the DFI. However, this U.N.-
mandated, international board is only just beginning its work.
    If our experience with the Oil-for-Food program has taught 
us anything, it is the importance of aggressively monitoring 
the use of Iraqi funds. Federal agencies should be actively 
assuring the transparency and accountability of the DFI. This 
fund has crucial implications for the success of our efforts in 
Iraq and for the well-being of the Iraqi people.
    Mr. Chairman, I strongly encourage you to hold additional 
hearings regarding oversight of the DFI. This committee is 
appropriately examining the record of the Oil-for-Food program. 
It is important that we follow through and provide proper 
oversight of its successor, the DFI.
    Thank you for this chance to make an opening statement.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Mr. Shays. I thank the gentleman.
    At this time the Chair would recognize the vice chairman of 
the committee, Mr. Michael Turner.
    Mr. Turner. Thank you, Mr. Chairman. I want to thank you 
for your leadership in holding this important hearing. I 
certainly look forward to the testimony of the esteemed 
witnesses.
    Although the Oil-for-Food program may have avoided a 
humanitarian crisis and generally achieved its goals, recent 
information shows that the program was prone to abuse. What is 
most disturbing is that foreign governments may have been 
involved in some of the fraud and kickback schemes. These 
activities were expressly against the U.S. United States 
Security Council efforts, thus undermining the effectiveness of 
the organization. As Chairman Davis has acknowledged, as the 
future of the U.N. role in Iraq is discussed, reviewing this 
program is very important.
    Secretary General Annan's announcement of an investigation 
into these abuses is important. We must ensure that the 
investigation is complete, transparent and done without 
national bias. I look forward to hearing the testimony of our 
panelists and learning of their ideas for better accountability 
for future programs, and I thank our chairman for his 
leadership.
    Mr. Shays. I thank the gentleman.
    The Chair recognizes Carolyn Maloney from New York.
    Mrs. Maloney. Thank you, Chairman Shays and Ranking Member 
Kucinich. I would also like to commend the leadership of 
Chairman Davis and Ranking Member Waxman in their oversight of 
taxpayer dollars in the contracting process.
    I have the honor of representing the United Nations in 
Congress. I sincerely hope that we can get to the bottom of 
these allegations very quickly, so that they do not in any way 
taint the credibility and good work that the United Nations 
does in providing humanitarian assistance and leadership around 
the world. The U.N. Oil-for-Food program was established in 
1995 by the Security Council. It was intended with all good 
purpose to allow Iraq to export oil to oil traders for imports 
of food and other necessities in response of concerns in the 
international community and in America about the welfare of the 
Iraqi people, due to the post-Gulf war sanctions against Iraq.
    Overall, the program was a success. It delivered sufficient 
amounts of food for all the 27 million Iraqi people. It 
resulted in a drop of malnutrition among Iraqi children by 50 
percent, and contributed to national vaccination campaigns that 
helped reduce child mortality and eradicated polio in Iraq for 
the last 3 years.
    I think that we can all agree that the program had its 
flaws, and that these recent allegations of mismanagement and 
corruption are tremendously serious. We need to understand if 
any of the U.N. employees or the member States knew about 
Saddam Hussein's manipulation of the Oil-for-Food program. I 
must say, and I welcome Ambassador Kennedy, whom I had an 
opportunity to meet with in Iraq under the leadership of 
Chairman Davis, a number of us went there twice in a bipartisan 
delegation to review procurement practices and policies in 
Iraq.
    One thing that was vibrant and clear were the many, many 
palaces, I believe there were 74 of them, with all shades of 
marble. When you contrasted this abuse of using public money 
for this purpose to the facilities for the people, one of the 
hospitals we visited in Iraq did not even have linoleum on the 
floor. They did not even have curtains separating the operating 
rooms. There was a definite misuse of funds daily in the 
priorities in that country.
    I am tremendously heartened that U.N. Secretary General 
Kofi Annan announced very strongly that he will appoint an 
independent panel to conduct an inquiry into the Oil-for-Food 
program. This is a critical step. The respected Paul Volcker 
will be heading that panel. This is a testimony to Secretary 
Annan's determination to address the allegations, find out 
where the problems were and apply the proper punishment. I 
think I can speak for most of my constituents and the majority 
of Americans when I say that the fact that Saddam Hussein 
invented a kickback system to profit from the Oil-for-Food 
program is absolutely reprehensible. And if these allegations 
prove to be true, I believe we must punish those who profited 
illegally off the Iraqi people. I hope that we will learn very 
importantly from the inquiry so that we can apply the lessons 
that we learn to the future programs and policies. We need to 
understand what were the fundamental flaws in the design of 
this program that allowed these abuses to take place.
    It seems to me that one solution to the problem would be 
possibly to require that the World Bank handle all funding 
transactions for any future humanitarian assistance programs, 
not an independent private bank. This would remove even the 
appearance of secret behavior, as the World Bank's transactions 
are open to the Government, the United Nations, the public and 
transparency is required in their actions.
    I also hope to learn more about where these allegations are 
coming from and how we can prove them and did the U.N. staff 
know anything about it, how much did the member states know. 
I'm sure that we will learn a great deal from the testimony 
today. I look forward to hearing your testimony and thank you 
for being here.
    Thank you again, Chairman Shays, for being on the ball and 
calling this hearing.
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]

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    Mr. Shays. I thank you very much.
    At this time, the Chair recognizes the gentleman from 
Tennessee, Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman. I won't take anywhere 
close to my full 5 minutes.
    But the memorandum we've been given says that the GAO 
estimates that the Hussein regime obtained $10.1 billion in 
illegal revenues from this program, and that allegations of 
corruption have generally fallen into four categories, oil 
smuggling, surcharges on oil exports, kickbacks on humanitarian 
contracts, and last, abuse by U.N. personnel. I remember just a 
few years ago when 60 Minutes had a scandalous report about the 
waste, fraud and abuse and the corruption at the United 
Nations, and in response to that, we withheld dues for a period 
of time, trying to put pressure to bring about some reforms.
    And the United States was rightly criticized for that, in 
spite of the fact--and very few people pointed it out at that 
time--that the lowest share of any U.N. peacekeeping operation 
that the United States has paid has been 31 percent, and we 
have for many years paid 25 percent at least of all the 
humanitarian efforts. In fact, in some of these peacekeeping 
efforts, like in Iraq now, we're paying 95 or 98 percent of the 
cost, and we've paid almost all the costs in the Balkans and so 
forth.
    So the United States has paid many billions more than its 
share of the activities of the United Nations over the years. 
It's obvious that we will be in the United Nations for as long 
as that institution exists. Therefore, I think we as Members of 
Congress have an obligation to try to do whatever we can to 
make sure that these many, many billions that the United States 
has and will continue to contribute to the United Nations is 
not spent in some corrupt fashion, as has occurred in this 
scandal that has taken place in this Oil-for-Food program.
    So I appreciate the fact that you've called this hearing 
today, and I look forward to hearing the testimony of the 
witnesses. Thank you very much.
    Mr. Shays. I thank the gentleman.
    At this time, the Chair would recognize Mr. Ruppersberger.
    Mr. Ruppersberger. Thank you, Chairman Shays and Chairman 
Davis, Ranking Member Waxman. I think we can all agree this is 
an extremely important subject. We're talking about the 
operational process that involves substantially easing human 
suffering in Iraq throughout the 1990's and ending last spring. 
I don't think we should lose sight of that noble mission and 
the people who worked hard to help Iraqi civilians.
    With that said, I was struck by some of the very 
fundamental questions as I read through the testimony, memos, 
faxes, news articles and op-ed pieces about the Oil-for-Food 
program. There are many allegations abounding, and we're 
talking about possible criminal activity, smuggled oil, 
manipulated oil prices, kickbacks, bribes and direct U.N. 
personnel involvement. These are not simple transgressions. 
They are very serious allegations.
    So the former prosecutor in me is standing up and saying, 
where are the facts? What do we know? How do we know it? And 
what evidence do we have to prove it? I think we as lawmakers 
need to step back and ask these fundamental questions wherever 
possible.
    There seems to be a lot of political posturing both 
domestically and internationally. The Democrats are saying 
this, Republicans are saying that. Politicians, diplomats, and 
yes, even the journalists are weighing in on who did what to 
whom and who benefited. That sells papers, that makes things 
more lively. But I think we owe it to our ideas of democratic 
beliefs to rise above that and follow the evidence.
    One would hope that as a democratic system of justice, we 
would follow the facts over the conjecture when a crime is 
alleged. We need to do that here. We should not assume 
allegations are true. We should prove them true or false. We 
should question our sources, our evidence and our conclusions. 
Trust me, the politics will take care of themselves.
    So I applaud the leadership of this committee for holding 
this hearing. I also applaud the Secretary General of the 
United Nations for convening a panel to investigate these 
allegations. Where the investigation is going to go with all 
the other countries and issues there, who knows. But at least 
he took the first step.
    Beyond the finger pointing, this is an opportunity to 
examine what has happened, to correct it where we must, and to 
make sure that if wrongdoings have occurred, that they do not 
happen again. That is my hope and that should be our goal. 
Thank you, Mr. Chairman.
    [The prepared statement of Hon. C.A. Dutch Ruppersberger 
follows:]

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    Mr. Shays. I thank the gentleman.
    Mr. Ron Lewis, a valued member of the committee, is going 
to forego his statement. We thank him for being here. And we'll 
call now on Mr. Tierney.
    Mr. Tierney. Mr. Chairman, I don't want to make a full 
statement either. I think it's important that we have this 
hearing. I commend you for calling it, I think it's also 
critical that we have this investigation done fully and 
transparently, and make sure that the United Nations has an 
independent investigation.
    I would also like to associate myself with the remarks made 
by Mr. Waxman concerning the need for this committee to have 
further hearings on the current situation as it transpires. 
With that, I'll yield back my time.
    Mr. Shays. I thank you very much.
    At this time, the Chair would recognize the gentleman from 
Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I also want to thank 
the ranking member for calling this hearing. I will also waive 
my rights to the full 5 minutes.
    But I would note, if I could, in endorsing all the remarks 
made here today, also point out that in Ambassador Kennedy's 
written testimony that he's provided to the committee, he 
points out the fact that the central victims in this are the 
Iraqi people.
    I would also note two other victims in this, one, the 
American taxpayer, and second, and quite importantly I believe, 
the United Nations. Because if the credibility of the United 
Nations is further damaged by the uncovering of certain facts 
and wrongdoing here on the part of U.N. officials during these 
investigations, and I understand some are ongoing even now, it 
may inhibit the U.N. from occupying the proper role as we move 
down the road, and at a point where we definitely need the good 
services of the United Nations.
    So this is a very, very troubling development. It's one 
that I think has brought the leadership of the U.N. some 
disrepute, quite frankly. And we need to get to the bottom of 
this, the very bottom of this, so we can be assured that moneys 
sent by this country to the United Nations are used prudently 
and without the taint of any corruption.
    Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman.
    At this time, the Chair would recognize Congresswoman 
Watson, also Ambassador.
    Ms. Watson. Thank you, Mr. Chair, and I'll just take a few 
seconds. I appreciate these hearings so that we can get to the 
bottom details of what happened with the Oil-for-Food. I would 
hope, and knowing Kofi Annan and dealing with the U.N. as a 
former Ambassador, that we trust this man to get to the bottom 
of this corruption. He is a person of good intend. Those who 
make up the various administrative groups within the U.N. are 
not always monitored as closely as he would like. There is a 
lack of funding and for years, we did not pay our full 
component and therefore, personnel was not available to do the 
kind of monitoring that is required in this regard.
    So in trying to find facts and get to the truth, I think 
that we can recognize and encourage Kofi Annan to be a partner 
in this investigation. I thank you, Mr. Chair, for calling 
those with information to this hearing. I'm sorry I won't be 
able to stay. We do have another hearing in International 
Relations. But I hope we have an opportunity to investigate the 
Oil-for-Food scandal at another time. Thank you, Mr. Chairman.
    Mr. Shays. I thank you very much, Madam Ambassador.
    At this time the Chair would recognize the presence of Mr. 
Ose, a member of the full committee. I would ask unanimous 
consent that Mr. Ose and any other member of the full committee 
be allowed to participate. Without objection, so ordered.
    Mr. Ose, do you have a statement before we begin?
    Mr. Ose. Thank you, Mr. Chairman. I am pleased to be here 
today. I think you have been pursuing this issue and I want to 
commend you for it.
    I have been visited by any number of groups over the course 
of my career, but the ones that come to mind are the ones that 
come in and visit with us about bid shopping under Federal 
contracts. In effect, this is a very similar issue. I can't 
help but believe that where there is smoke, there's fire. I'm 
sufficiently cynical as it comes to these kinds of numbers of 
dollars to believe that where there's smoke, there's fire. If 
the U.N. will not do its job of exercising proper oversight, or 
if the 661 Committee will not do its job of exercising proper 
oversight, or if certain members of the security council will 
not allow such oversight to take place, then it will fall to us 
to exercise that oversight.
    So I want to commend you on this. I do not believe this has 
anything to do with past difficulties of the United States 
making its approximately 25 percent contribution to the U.N. I 
think this has to do with people seeing an opportunity, 
potentially, to line their own pockets at our expense or at the 
expense of the world with the belief that there was little if 
any oversight taking place. So I look forward to this hearing 
and future hearings on the subject.
    Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman.
    Seeing no other members asking for recognition, I would 
recognize our panel and swear them in and allow them to make 
their statements. We have before us Ambassador Patrick Kennedy, 
U.S. Representative for United Nations Management and Reform, 
U.S. Mission to the United Nations, U.S. Department of State. 
We also have Ambassador Robin Raphel, Coordinator, Office of 
Iraq Reconstruction, U.S. Department of State. We also have 
present Deputy Director, Defense Contract Audit Agency, Mr. 
Michael Thibault, U.S. Department of Defense, as well as the 
Senior Advisor to the Deputy Assistant Secretary, Executive 
Office for Terrorist Financing and Financial Crimes, U.S. 
Department of Treasury, Mr. Jeff Ross.
    As you know, we swear in our witnesses and I would at this 
time ask you to stand. Raise your right hands.
    [Witnesses sworn.]
    Mr. Shays. Note for the record our witnesses have responded 
in the affirmative. Before inviting you to speak in the order I 
recognized you, I ask unanimous consent that all members of the 
subcommittee be permitted to place and opening statement into 
the record, and that the record remain open for 3 days for that 
purpose. Without objection, so ordered.
    I ask further unanimous consent that all witnesses be 
permitted to include their written statement in the record. 
Without objection, so ordered.
    I would just again reiterate, before calling on Ambassador 
Kennedy to start, that this committee has received a phone call 
from the Secretary General of the United Nations, who has made 
it very clear that he takes this issue extraordinarily 
seriously and in the course of announcing the investigative 
body that will be doing this work, said it will be backed up by 
a resolution from the Security Council. So I think that's 
important, that he would take the time to make sure our 
committee knew this and would take this action.
    At this time, Ambassador Kennedy. What we do is, you've 
listened to a lot of us make statements, the least we can do is 
make sure we hear from you clearly. Our policy is 5 minutes, we 
roll over another 5 minutes, and we would like you to stop 
within that second, somewhere in between that second 5 minutes. 
Thank you. You have the floor, so to speak, Ambassador.

   STATEMENTS OF PATRICK F. KENNEDY, U.S. REPRESENTATIVE FOR 
   UNITED NATIONS MANAGEMENT AND REFORM, U.S. MISSION TO THE 
  UNITED NATIONS, U.S. DEPARTMENT OF STATE; ROBIN L. RAPHEL, 
COORDINATOR, OFFICE OF IRAQ RECONSTRUCTION, U.S. DEPARTMENT OF 
 STATE; MICHAEL J. THIBAULT, DEPUTY DIRECTOR, DEFENSE CONTRACT 
AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE; AND LEE JEFFREY ROSS, 
 JR., SENIOR ADVISOR, EXECUTIVE OFFICE FOR TERRORIST FINANCING 
     AND FINANCIAL CRIMES, U.S. DEPARTMENT OF THE TREASURY

    Ambassador Kennedy. Thank you, Mr. Chairman, distinguished 
members of the committee. I appreciate your permitting my 
longer written statement to be entered into the record, and I 
just have a few brief oral remarks.
    I welcome the opportunity to appear here today before you 
to discuss the U.N. Oil-for-Food program, and recent 
allegations of possible mismanagement and abuse involving the 
program. At the outset, I want to make perfectly clear that we 
share your concerns. And I want to underscore that we are fully 
committed to ensuring that all allegations are comprehensively 
investigated and addressed.
    Following the recent allegations of corruption by U.N. 
officials, we were immediately instructed by Secretary Powell 
to convey our concerns to you and Secretary General Annan. 
Ambassador Negroponte had discussed this on several occasions 
with the Secretary General, who has on his own initiative 
launched an investigation that is intended to be independent, 
transparent and comprehensive.
    We joined our fellow Security Council members in a March 31 
letter from the Council President to the Secretary General, 
welcoming this expanded investigation and pledging our full 
cooperation. Today, the Secretary General is expected to 
announce, as you have said, Mr. Chairman, the appointment of a 
three member independent inquiry panel. The panel will include 
Richard Goldstone, the former chief prosecutor for the U.N. 
International Criminal Tribunals for the former Yugoslavia and 
Mark Pike, a professor of criminal law at Basle University in 
Switzerland. It will be headed by Paul Volcker, the former 
chairman of the Federal Reserve Board.
    The Security Council has also agreed to adopt a council 
resolution today welcoming the appointment of the panel and 
calling on member states to cooperate fully with that 
investigation. The council is meeting this morning to adopt 
this resolution.
    Mr. Chairman, we must not forget, allegations aside, it is 
the Iraqi people who would have been most hurt by any 
wrongdoing. It is for them most of all that we must take this 
responsibility very seriously, and we have urged all U.N. 
member states to do the same. The Oil-for-Food program was 
created to alleviate the hardships faced by the Iraqi people, 
hardships caused by Saddam Hussein's regime's refusal to comply 
with the obligations and resulting comprehensive, multi-lateral 
sanctions regime imposed by the Security Council on Iraq 
following the invasion of Kuwait in August 1990.
    The Oil-for-Food program allowed for the import of 
humanitarian goods using the proceeds from authorized Iraqi oil 
sales while maintaining sanctions and imports of other than 
foods and medicines. It represented the largest humanitarian 
relief operation ever launched by the international community. 
Its authorizing act did not mandate the Oil-for-Food program to 
serve as an enforcement mechanism to prevent Saddam Hussein 
from acting outside the program to evade sanctions through 
corruption, smuggling and collusion with those member states 
and companies willing to support his illegal activities. It 
was, in the end, the responsibility of each member state and 
their national companies to ensure full compliance with the 
sanctions imposed by the Security Council on the Saddam Hussein 
regime under Resolution 661, and subsequent council 
resolutions.
    The United States supported the program's general objective 
of creating a system to address the humanitarian needs of the 
Iraqi civilian population, while maintaining strict sanctions 
enforcement on items that Saddam Hussein could use to re-arm or 
reconstitute his WMD program. We believe the system the Council 
devised largely met those objectives. However, the rules and 
procedures governing implementation of the program were the 
product of negotiation among the 15 members of Security Council 
and between the U.N. and the former Iraqi regime.
    The United States was able to set basic parameters and 
monitor the functioning of the program through our 
participation in Security Council discussions and as a member 
of the Iraqi sanctions committee, also known as the 661 
committee, named for the Security Council resolution that 
created it. However, we were not in a position to exercise 
exclusive control over the process as the committee made 
decisions only through consensus. Although the flow of 
humanitarian and civilian goods to Iraq was a matter of strong 
interest to the U.S. Government, an even greater goal 
throughout the period of sanctions was to ensure that no items 
were imported which could in any way contribute to Iraq's WMD 
programs or capabilities. At the U.S. mission, we concentrated 
our efforts on this aspect of the sanctions.
    It is important to note that no U.S. Government funds, 
including those that might have been drawn from U.N. 
assessments, were involved in the establishment and functioning 
of the program. With the exception of voluntary funds provided 
by the United States for the U.N. Guards Contingency program in 
Northern Iraq, whose task was to protect humanitarian personnel 
working there, all expenses associated with the management of 
the program were drawn from Iraqi oil revenue that was 
deposited into a U.N. escrow account established in 1995 under 
Resolution 986.
    Recent press reports allege there was corruption and abuse 
in the implementation of the program. These allegations, as was 
pointed out by a member of your panel, fell into four 
categories: direct oil smuggling by the former Iraqi regime; 
manipulation of pricing on Iraqi oil exports; kickbacks on OFF 
humanitarian contracts; and possible abuse by U.N. personnel. 
At the heart of this were the determined efforts by Saddam 
Hussein to obtain funds illicitly and hide his sanctions-
busting activities.
    In the written statement that I have submitted for the 
record, I have provided greater detail about what we know about 
the allegations in each category. Where we could identify abuse 
and fraud in the implementation of the Oil-for-Food program, we 
and the United Kingdom endeavored to stop that, including 
through bilateral diplomacy and special briefings to the 
Security Council and the 661 Committee of the ways in which we 
observed the Saddam Hussein regime diverting funds from the 
program, smuggling, and generally violating Council 
resolutions.
    What we did not have before the fall of the Saddam regime 
was documentation and witnesses who were willing to step 
forward to provide direct evidence of corruption. Documentation 
is now becoming available in the wake of Saddam Hussein's 
regime's demise. Witnesses are now coming forward who may be 
able to shed more light on how Saddam Hussein and his 
supporters evaded sanctions, and on instances of corruption 
that may have existed in implementing the Oil-for-Food program. 
The independent, high level inquiry initiated by the Secretary 
General will shortly get underway. The inquiry will investigate 
allegations of fraud and corruption in the administration and 
management of the Oil-for-Food program, including those against 
U.N. personnel, contractors and entities that entered into 
contract with the U.N. or with Iraq under the program.
    We and other Security Council members have welcomed the 
Secretary General's initiative and called for international 
cooperation. Both the summary and the final report of the 
findings of this panel will be made public. We believe that 
this inquiry can serve as an important vehicle in addressing 
the various allegations. In Baghdad, the Coalition Provisional 
Authority is also assisting the Iraqi Board of Supreme Audit to 
launch an investigation into the allegations of corruption 
regarding the Oil-for-Food program. CPA Administrator Bremer 
issued a directive to the CPA and all Iraqi ministries in early 
March, instructing ministry officials to identify and secure 
relevant OFF documents. Representatives of the Iraqi Board of 
Supreme Audit have met with the CPA and Iraqi ministry 
officials to ensure cooperation and transparency in this 
process.
    We hope that the inquiries now being launched will identify 
those who conspired with the Hussein regime and perhaps assist 
in recouping lost funds for the Iraqi people. Mr. Chairman, 
again, I thank you for the opportunity to provide this 
information on the Oil-for-Food program. You have my fullest 
support and that of my colleagues in your effort to identify 
and determine the extent and involvement of wrongdoing 
associated with the program.
    Thank you, Mr. Chairman.
    [The prepared statement of Ambassador Kennedy follows:]

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    Mr. Shays. Thank you, Ambassador Kennedy.
    Ambassador Raphel.
    Ambassador Raphel. Thank you, Mr. Chairman.
    Mr. Chairman and distinguished members of the committee, I 
want to thank you for the opportunity to appear before you here 
this morning to share my experience with the U.N. Oil-for-Food 
program in Iraq. I was the CPA's senior advisor to the Ministry 
of Trade in Baghdad from April through August of last year, 
which gave me an on the ground perspective of the program 
during that period.
    The Trade Ministry was responsible for Iraq's public 
distribution system, which rationed basic goods, including 
food, made scarce by international sanctions after the first 
Gulf war. After 1996, the public distribution system was 
supplied largely by OFF procured commodities. The public 
distribution system used a Ministry of Trade data base which 
was designed to list every family in Iraq. Families would pick 
up their rations each month from more than 45,000 neighborhood 
food agents. Trade Ministry trucks moved the commodities from 
ports of entry to warehouses across Iraq.
    About 60 percent of the population was totally dependent 
upon these food rations. Most Iraqis considered them an 
entitlement. When the Coalition arrived in Baghdad in April, 
one of our goals was to ensure that this ration system was re-
established, to ensure that people had enough to eat, and to 
provide a sense of stability and continuity to the Iraqi 
people. The U.N.'s World Food Program was already hard at work, 
ensuring food was delivered and distributed throughout Iraq.
    Between April and October of last year, the World Food 
Program delivered more than 2 million tons of food, the largest 
amount ever delivered anywhere so quickly. Through May, my 
colleagues and I concentrated on the infrastructure supporting 
the public distribution system. We reconstituted the Ministry 
of Trade leadership, made emergency salary payments and 
cataloged looted warehouses and silos. We also planned for 
local crop purchases, facility security and ministry building 
repairs, and we forged new relationships between Baghdad and 
the offices of the Ministry of Trade so that there would be 
communication and so that movement of food items among various 
warehouses throughout the country could be facilitated.
    In late May, U.N. Security Council Resolution 1483 gave the 
Secretary General the authority to prioritize OFF contracts, in 
coordination with the CPA and the interim Iraqi administration, 
according to the needs of the Iraqi people. This precipitated 
CPA involvement with the Oil-for-Food contracts. In Baghdad, we 
worked out a tripartite process with the U.N. Office of the 
Humanitarian Coordinator for Iraq, UNOHCI, visiting U.N. office 
of Iraqi program staff, and Iraqi ministry officials. In this 
process, we would jointly decide which of the contracts were of 
``relative utility'' as required by U.N. Security Council 
Resolution 1483.
    The key criterion was whether the particular goods were 
needed to meet the humanitarian and reconstruction needs of the 
Iraqi people. The suppliers' ability to deliver on a timely 
basis and the reasonableness of price were also considered. 
This work was managed by the OFF team in CPA. Eligible 
contracts numbered roughly 5,000 approved and funded contracts 
worth over $8 billion. The CPA decided early on that it would 
not agree to the prioritization of contracts from companies 
about which there were outstanding questions regarding their 
relationship to the former regime.
    Early in the process, we learned that several Iraqi 
ministries had detailed knowledge of the so-called kickback 
system, under which suppliers had agreed to inflated prices and 
agreed to pay a percentage of the inflated contract value into 
regime officials' foreign bank accounts. The CPA was determined 
to avoid perpetuating any corruption related to the prioritized 
contracts. At the same time, however, we believed that the 
Iraqis were best placed to know which of the Oil-for-Food goods 
were really needed for their reconstruction, including oil, 
electrical and public works infrastructure reconstruction.
    Since many key contracts included the extra fees, or 
kickbacks, it was agreed that each appropriate U.N. agency 
would negotiate the removal of these fees with the suppliers. 
Each ministry would identify the amount of any fee or kickback 
associated with the contract. The blanket instruction was that 
in the absence of specific information, the level of the fee 
was assumed to be 10 percent of the total contract value for 
all of the contract from June 2000 onward. That was the date 
from which we had been told that the former regime officials 
really pushed to get these kickback fees.
    Once this tripartite review process was complete, a 
schedule of contracts signed by the appropriate Iraqi ministry 
officials was submitted to the OFF team for final CPA review. 
The list of contracts was then signed off on by the appropriate 
CPA ministry senior advisor and the information was sent on to 
UNOHCI for signature, and forwarded to the Office of Iraqi 
Programs in New York.
    The Office of Iraqi Programs would notify suppliers and 
send the information to the appropriate U.N. agency with 
instructions to that agency to renegotiate delivery costs, 
delivery location and the removal of any extra fees. These 
renegotiations were presided over by the U.N. agency. They did 
not involve Iraqi or CPA officials. U.N. agency officials made 
no formal reference to allegations of corruption or kickbacks 
when they were actually talking to the suppliers. This was to 
avoid prejudicing any possible future legal action.
    The prioritizing and renegotiation of contracts turned out 
to be an enormous task, complicated by the tragic August 19 
bombing of U.N. headquarters in Baghdad. By late 2003, we began 
to worry about the food pipeline. As a result, this past 
January, the CPA, Iraqi Trade Ministry and the World Food 
Program agreed that the World Food Program would step in and 
procure and transport to warehouses inside Iraq more than $900 
million worth of food, to ensure that food pipeline gaps would 
be filled and a buffer stock in food commodities would begin to 
be built. The stocks are now rising, and the Ministry of Trade 
has taken over all of its own procurement.
    Mr. Chairman, in closing, I would like to thank you and all 
members of this committee for your continuing support for 
foreign service officers, especially in Iraq. Mr. Chairman, I 
know that you were recently in Iraq personally. You talked to 
some of my colleagues there. And I want you to know it makes a 
great deal of difference to people who are working 16 to 18 
hours a day in dangerous conditions to know that you all are 
interested in what they do and that you appreciate their 
service.
    Thank you very much.
    [The prepared statement of Ambassador Raphel follows:]

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    Mr. Shays. I thank you, Ambassador Raphel. We not only work 
16 to 18 hours a day, both our diplomatic corps and all those 
who are associated with this effort, but our military as well, 
7 days a week. It's astounding.
    At this time, we would recognize Mr. Thibault. Thank you 
for being here, sir.
    Mr. Thibault. Thank you, Mr. Chairman, members of the 
subcommittee.
    My statement focuses on the Defense Contract Audit Agency's 
[DCAA's], evaluation of contracts proposed by the Iraqi 
government that were approved and funded but not delivered at 
the outset of the Iraqi war last spring, under the United 
Nations Oil-for-Food program as well as the financial 
assistance DCAA is currently providing in the transition of the 
Oil-for-Food program to the Coalition Provisional Authority.
    In May 2003, the Under Secretary of Defense for policy 
identified a requirement for an evaluation of approved and 
funded Oil-for-Food contracts before the program was 
transitioned to CPA. The Under Secretary of Defense Comptroller 
asked DCAA to support the Under Secretary for Policy by forming 
a joint review team with the Defense Contract Management 
Agency. A team of DCAA auditors and Defense Contract Management 
Agency contract specialists worked on this evaluation from mid-
May until the end of August 2003. A final report was issued on 
September 12, 2003.
    A review team and representatives from State, USUN and the 
Department of Defense met with representatives from the United 
Nations Office of Iraq Programs [OIP], in order to gain an 
understanding of the review and approval process for Oil-for-
Food contracts. OIP's primary focus, as they informed us, was 
an administrative contractual review of the items being 
purchased from a legal or a U.N. resolution perspective, an 
example being looking for dual use technology. OIP staff 
further informed us that they performed very limited, if any, 
pricing reviews or cost audits on individual contracts. The 
review team was finally advised by U.N. officials that no 
contracts were disapproved solely based on pricing.
    The team reviewed 759 contracts, or 10 percent of the total 
of 7,591 approved and funded contracts at the outset of the 
Iraqi war. That information was obtained from the United 
Nations with the assistance of the State Department. The 759 
contracts that we did review were valued at $6.9 billion, or 
about 60 percent of the total approved and funded amount of 
$11.5 billion. Approximately 80 percent of those contracts were 
what was referred to as Phase 8 or later, or from June 2000 or 
later.
    The team noted potential overpricing totaling $656 million 
in 48 percent of the contracts that we reviewed. The team was 
unable to form a definitive conclusion on 44 additional 
contracts valued at $1.1 billion, because the contracts lacked 
sufficient detail to make price comparisons of similar goods, 
or the team was unable to obtain independent pricing data for 
comparable goods.
    While the team reviewed contracts from more than 400 
different suppliers, there were 34 of those suppliers or 
companies where overpricing amounted to more than $5 million 
per company. The overpricing for these 34 companies represents 
two-thirds of the potential overpricing of $656 million. 
Moreover, the potential overpricing for the top three companies 
accounts for 19 percent of that total. For your information, a 
company from Syria was the largest single company involved with 
potential overpricing, and of the top nine, five of them were 
from Russia.
    Food commodity contracts were the most consistently 
overpriced, with overpricing identified in 87 percent of the 
total contracts in this category and over $390 of potential 
contract overpricing. The team also attempted to identify 
contracts with illicit charges, or what's referred to as after-
sale service charges. The team found that identifying the 
existence of such surcharges well documented is generally not 
possible from an examination of the contract documents.
    And I might say, the contract documents in some cases, and 
we have all 759 contracts that we reviewed, range from two or 
three pages for some of the contracts to several hundred pages 
for some of the other contracts. The team found that it was 
very difficult to examine or to identify that; however, the 
team did find five examples of after-sales service charges 
ranging from 10 to 15 percent. Finally, the team also 
identified items of questionable utility for use by the Iraqi 
people. For example, among the contracts reviewed by the team 
were two contracts valued at more than $16 million for high-end 
Mercedes Benz touring sedans for a total of 300 cars.
    Key recommendations to the Coalition Provisional Authority 
by the team included require pricing adjustments, including 
deletion of service charges on all overpriced contracts; advise 
the U.N. not to proceed with overpriced contracts or suppliers 
who refuse to adjust their prices downward; assess the need for 
the large quantity of spares and training items that were 
identified within the contracts; for any future OFF contracting 
require competitive bidding where applicable; and for future 
OFF contract, require suppliers to provide detailed 
specifications for items being supplied and detailed cost data 
and estimates for unique items or sole source items.
    DCAA has also provided additional financial advisory 
services to support the transition of the Oil-for-Food program 
to the CPA in northern Iraq, and we continue to do that. While 
DCAA has not performed any audits of the Oil-for-Food program 
in northern Iraq, the agency has provided recommendations on 
strengthening the CPA's Office of Project Coordination Internal 
and Financial Controls. One example will suffice.
    DCAA auditors recently conducted physical perambulations 
and observations of Oil-for-Food warehouses in northern Iraq. I 
might note that there are presently 52 such warehouses in 
northern Iraq alone. The auditors found a range of issues 
including warehouses without electricity or running water; 
guards not being paid on time; inventory stored in the open air 
or not protected, no roof; furniture damaged by simply being 
piled into large heaps in an open environment; computers, 
printers, scanners, copiers and other office equipment, more 
high-tech equipment damaged by bird droppings to the point 
where it seeped into central processing units and the like.
    And this example, which I believe is a good example, we 
believe that these obvious inventory control issues are ongoing 
and need to be addressed before the planned transition to the 
Iraqi governing council on July 1, 2004. All DCAA 
recommendations of this nature have been provided in writing to 
the Director of CPA Office of Program Coordination.
    Last, we continue to work with the new CPA inspector 
general's office, which is performing a comprehensive 
evaluation of internal and financial controls in advance of the 
July 1 transition. We have provided support in writing the 
statement of work for their organization to hire or engage an 
external auditor and we're acting as the contracting officer's 
technical representative to assure that audit is done in 
accordance with the terms of the statement of work.
    In closing, I would like to underscore that DCAA is 
committed to supporting the CPA and the CPA inspector general 
in transitioning this important program to the Iraqi people. 
Thank you, Mr. Chairman, for the opportunity to present the 
results of our review.
    [The prepared statement of Mr. Thibault follows:]

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    Mr. Shays. Thank you, Mr. Thibault.
    At this time, the Chair would recognize Mr. Ross to finish 
up, then we'll have our questions.
    Mr. Ross. Thank you, Mr. Chairman.
    Mr. Chairman, distinguished members of the subcommittee, 
thank you for inviting me to testify today about the Hussein 
regime's corruption of the OFF program, and why Treasury's 
ongoing financial investigative efforts in Iraq and elsewhere 
to identify and return the same regime-controlled assets can 
assist in uncovering OFF abuses.
    On March 18, 2004, Treasury Deputy Assistant Secretary Juan 
Zarate testified before the House Financial Services 
Subcommittee on Oversight and Investigations about the 
interagency and international efforts to identify, freeze and 
recover Iraqi assets worldwide. That effort is discrete from 
and yet related to our inquiries. In the former, our mission is 
to identify and target companies and individuals ``fronting 
for,'' that is, owned, operated or acting on behalf of the 
former regime. The OFF inquiry casts a much wider net, 
potentially including all who traded with Iraq under OFF.
    The distinguished panelists here, who are far more versed 
in the creation, development and machinery of the OFF program 
and the U.S. efforts at the United Nations and elsewhere to do 
all possible to curb its abuses, have and will address these 
topics. My primary purpose today is to describe to this 
committee how the Treasury Department, regardless of the 
financial crimes being addressed, applies unified financial 
investigative methodologies and technologies.
    As Mr. Ruppersberger remarked earlier, we follow the 
financial evidence wherever it may lead, whether working with 
the DEA on the financing of drug trafficking, FBI on terrorist 
financing, Homeland Security on IEEPA related sanctions busting 
schemes, or the military in the case of insurgency financing, 
Treasury components bring the same financial crimes disciplines 
and expertise, as well as our unique international financial 
contacts, to the table. Further, attacking the use by criminals 
of a financial system, for example, hawalas or cash couriers, 
affects all criminal groups using that system. The hawaladar 
may move narcotics proceeds 1 day, terrorist related proceeds 
the next, and finally funds destined for Iraqi insurgents the 
day after. Removing that hawaladar or mandating a transparent 
hawala system disrupts each of these criminal groups 
simultaneously.
    Front companies OFF connections. This past week, the United 
States and the United Kingdom jointly nominated to the United 
Nations for listing under UNSCR 1483 eight ``front'' companies 
of the Hussein regime, as well as five individuals associated 
with those companies. Investigations of these companies as 
front companies led also to information concerning abuse of the 
OFF program by purchases of armaments and weapons for the 
regime. Such front company and individual designations, and 
more are to come, assist the international community identify 
and return Hussein related assets, and should prompt other 
countries to undertake independent investigations to identify 
other Iraqi-related assets, some of which may very well be OFF 
violation related.
    The OFF program was designed by the United Nations to 
balance the needs of the Iraqi people for humanitarian relief 
against the need of the world community to prevent the re-
arming of Iraq. OFF, however, presented the Hussein regime with 
opportunities exploitable at the point of sale and movements of 
oil as well as in the sale of goods to Iraq. Significantly, the 
movement of oil under the OFF program also provided a 
convenient cover for the regime's sale of illicit and 
unlicensed oil.
    Treasury's role pre-2003 war, Office of Foreign Assets 
Control. August 1990, responding to Iraq's invasion of Kuwait, 
the President issued Executive orders declaring a national 
emergency with respect to Iraq. These orders imposed economic 
sanctions against Iraq. The Iraqi sanction regulations 
implementing these Executive orders were administered by the 
Treasury Department's Office of Foreign Assets Control [OFAC]. 
After U.N. establishment of the OFF program in 1996, OFAC 
amended the regulations to permit the issuance of licenses for 
U.S. persons to engage in off-sanctioned transactions. The 
regulations allowed U.S. persons to enter into contracts with 
the Iraqi government for that purpose, but required further 
specific authorization from OFAC before executing those 
contracts.
    OFAC also authorized the operation of the escrow account 
established by UNSCR 986. Pursuant to paragraph 15 of that 
resolution, the escrow account was afforded the traditional 
privileges and immunities by the United Nations Security 
Council. OFAC is reviewing the licenses it issued in support of 
the OFF program to determine if any U.S. persons were involved 
in any inappropriate activity. And if so, we will take all 
appropriate investigative and enforcement steps as may be 
necessary.
    Treasury post-2003 war. The Department has undertaken an 
interagency and international effort to identify, trace and 
return looted Iraqi assets, and is working closely with the 
interagency community to identify, trace and choke off funding 
for the Iraqi insurgents. These undertakings harness all 
components of the Department, including IRSCI, which has had 
agents in Baghdad for a considerable period of time. These 
larger efforts, especially document exploitation and 
interviews, have revealed important information that 
potentially bear upon the OFF inquiries launched by both United 
Nations and the CPA. Treasury pledges to assist these 
investigations to the fullest extent appropriate.
    The Hussein regime could not have contemplated the vast 
windfall of documents and interview information that the IRS-CI 
agents, our military and others have unearthed in Iraq. These 
records and information provide crucial insights and leads 
concerning the Hussein regime's front companies, his oil 
smuggling schemes and OFF violations. Access to and vigorous 
exploitation of Iraqi financial information is essential.
    The efforts of this committee and those of the United 
Nations and in Iraq to identify and trace the violations 
occurring in the OFF program are important. Corrupt dictators 
will try to abuse future humanitarian efforts for their 
purposes. We must do all pos-
sible to ensure that future international humanitarian efforts 
are shielded from such abuse, and that intended relief arrives 
unencumbered by illicit baggage. The Treasury Department is 
pleased to contribute to these efforts and will continue to do 
so.
    Thank you again for the opportunity to appear, Mr. 
Chairman.
    [The prepared statement of Mr. Ross follows:]

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    Mr. Shays. Thank you very much.
    We're going to do 8 minute questioning, and we're going to 
start with the vice chairman of the committee, Mr. Turner, then 
I'm going to go to you, Mr. Waxman.
    Mr. Turner. Thank you, Mr. Chairman.
    One thing we've learned in this, obviously, is that the 
U.N. has treated as confidential many aspects of the Oil-for-
Food program, including the identity of contractors and buyers, 
prices, quantity, quality of goods and bank statements.
    One thing I'm interested in is the rationale for this 
confidentiality. When you look at the responsibility of the 
United Nations to maintain the integrity of the program and 
investigate allegations of corruptions, it would seem that such 
confidentiality would hamper the ability to do that. When you 
look at the issues of the U.N.'s financial integrity and its 
future role in Iraq, this is an important issue, as to how a 
program like this, which was undertaken as the largest 
humanitarian effort, could be structured in a confidential way, 
and as many people now are calling for future efforts to be 
transparent, the rationale for that which seemed to actually 
encourage or assist in efforts of fraud or deception.
    So I would like if you would, please, to comment on why the 
Oil-for-Food process was done outside of the public eye, and on 
the issue of transparency and the issue of confidentiality and 
the U.N.'s response.
    Ambassador Kennedy. Mr. Turner, the U.N. is not treating 
the documents as confidential. Rather they're treating them, I 
would say, as non-public. The documents are available to member 
states, or members of the Security Council if it's a 661 
document. So the United States has access to those documents, 
for example, and they have made documents available to the 
Coalition Provisional Authority, when the Coalition Provisional 
Authority in effect became the interim successor to Iraq.
    So the United States has made documents available to the 
United States and to the CPA, and to any other member of the 
Security Council 661 Committee who has asked to see them. If 
there are specific questions that you or your staff have about 
documents, we will be very, very pleased to get together with 
you or them and to make sure that they are fully satisfied as 
to the nature and the content of those documents.
    Mr. Thibault. Congressman Turner, might I add that data is, 
what's behind the data in terms of any evaluation by the United 
Nations when the contract was awarded, they told us there was 
no evaluation when we visited them. But for example, when I 
cited the 34 companies that represented two-thirds of the 
overpricing, we have a data base with 100 percent of the 
companies we've reviewed with the specific names and contract 
numbers and the like. So that is available, and it is in the 
possession of the evaluation team for those contracts that had 
not been delivered at the outset of the war.
    Mr. Turner. Perhaps you guys can help me then, because it 
seems that the understanding of many of the members as we're 
going through this process is that regardless of the issue of 
availability of documents now that the process itself, when it 
was being undertaken, is not one that was available to the 
public eye, was not transparent, was one that allowed for a 
process of deception, and was not as other processes would have 
been structured, available for the type of level of scrutiny, 
especially for the number of dollars that are involved, and the 
fact that this was focused on a humanitarian effort was not 
structured in a manner that would have allowed the natural 
monitoring of this, that would have uncovered some of the 
allegations that you all are discussing today.
    That certainly is an important process when we choose how 
we're going to do something in the future, or participate in 
something in the future. So if we're mistaken, that this was a 
process that, Mr. Ambassador, that was open and that would not 
have contributed to deception, please assist us in that.
    Ambassador Kennedy. If I could step back to the very 
beginning briefly, sir, the original decision, which was a 
collective decision, negotiated by the members of the Security 
Council. And if I might also say that one has to think of the 
United Nations as not an entity unto itself. The United Nations 
is an association of member states who can be very fractious, 
and who reach agreement among the collectivity of the member 
states, including in the Security Council.
    When the resolution was negotiated in the Security Council, 
we, the United States, clearly would have liked to have a 
different and a more aggressive resolution. But the resolution 
was arrived at as a process of negotiation. That resolution 
left sovereignty with the government of Iraq. The government of 
Iraq was authorized under that resolution to enter into its own 
contracts. So the contract was between the government of Iraq 
and the XYZ corporation. The U.N.'s responsibility was to 
ensure that when that contract was written that there were no 
dual use materials, or other weapons of, armaments, no 
materials that were banned under the sanctions.
    So the U.N.'s responsibility, a task given to the 
Secretariat by the member states, was to do that function. The 
result was that the contracts were written between Saddam 
Hussein and whichever company he chose to do it. That was the 
nature of it, and therefore, in effect, the proprietary nature 
of those contracts were between Saddam Hussein and the member 
state.
    Should something different have been done? We can talk 
about hindsight, but that is the way the resolution was written 
and that is what was enforced under the Oil-for-Food program.
    Mr. Thibault. I would support exactly what the Ambassador 
stated, Mr. Congressman. I would also say that until we went to 
the United Nations with the assistance of the State Department 
and said, we would like to see that data on the contracts, that 
you're absolutely accurate, it was not available publicly, or 
provided. I would reinforce the statement made by Ambassador 
Mann that the same evaluation that was done in 2003 could have 
been done in 2001 or 2000 and probably would have disclosed 
issues at that time.
    Mr. Shays. Thank you.
    Mr. Waxman, you have the floor for 8 minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Thibault, in September of last year, the DCAA issued a 
report regarding overpricing for Oil-for-Food contracts. We've 
heard a lot today about the problems surrounding the Oil-for-
Food program. However, the Oil-for-Food program ended in 
November, and $7.6 billion of unused program funds have been 
transferred to the Development Fund for Iraq, the successor of 
the Oil-for-Food program.
    Almost all of Iraq's revenues from the sale of crude oil 
are also placed in that fund. Currently there is $6.2 billion 
in the fund.
    As in the case of the Oil-for-Food program, there are 
concerns about overcharging and inflated prices involving the 
DFI. For example, there is considerable evidence that 
Halliburton significantly overcharged the DFI to import 
gasoline into Iraq.
    Mr. Thibault, given the problems we've seen with the Oil-
for-Food program, the evidence of overcharging involving the 
Development Fund for Iraq and the vast amount of money in the 
DFI, do you think that the DFI should be thoroughly and 
comprehensively audited?
    Mr. Thibault. Yes, sir. I would absolutely agree. My 
understanding is processes have begun to do just that. And 
while that's not a DCAA function, that has been explained to us 
that, for example, we've been informed that the CPA inspector 
general on that audit will act as the contracting officer's 
technical representative to be sure that the audit done by an 
outside audit firm is complete and of sufficient quality. So I 
absolutely agree that given the magnitude of the dollars a full 
audit should be done. It's my understanding that process is in 
play. I don't know exactly where it's at.
    Mr. Waxman. Well, Doug Feith, the Under Secretary of 
Defense for Policy, specifically requested the DCAA evaluate 
the Oil-for-Food contract prices. You mentioned that. That's 
correct, isn't it?
    Mr. Thibault. Yes, sir.
    Mr. Waxman. Did anyone from the Office of the Secretary of 
Defense request DCAA to perform a similar price evaluation of a 
sample of DFI contracts?
    Mr. Thibault. No, sir, not related to the application of 
DFI funds on that, or what we in the profession might call 
source and application of the DFI contract. We were not asked 
to perform that audit.
    Mr. Waxman. These priorities just don't make sense to me. 
To date, $16.7 billion has been deposited into the DFI, which 
is controlled by the U.S. Government. And we need proper 
oversight of this fund. Can you tell us which Federal agency is 
in charge of conducting thorough, detailed and rigorous audits 
over the expenditures of billions of dollars of the DFI fund?
    Mr. Thibault. Yes, sir, I believe it is the Department of 
Defense. And specifically the Coalition Provisional Authority 
has responsibility for the DFI funds. As I said before, I do 
know that they are in the process of arranging for that audit. 
One might ask the question, why not earlier. And again, I'm not 
in a position to answer that question.
    Mr. Waxman. Let me ask Ambassador Kennedy. You were Paul 
Bremer's chief of staff at the Coalition Provisional Authority. 
I would like to ask you a few questions about the auditing of 
the CPA controlled Development Fund for Iraq, the successor to 
the Oil-for-Food program. On June 10, 2003, Ambassador Bremer 
issued regulation No. 2, which states that the CPA shall hire 
an independent, public accounting firm to ensure that the fund 
is used in a transparent manner to benefit the Iraqi people. 
This firm would be separate from the auditors approved by the 
International Advisory and Monitoring Board, an international 
body that will oversee an audit of the DFI.
    CPA didn't hire a public accounting firm, but instead hired 
a consulting firm called North Star. Is that correct?
    Ambassador Kennedy. Mr. Chairman, CPA put out public 
tenders for the internal audit and received, the scope of work 
included audit work, did hire North Star, which has two 
components. They do both accounting, audit accounting, and they 
also--they had an additional purpose. In addition to serving as 
the internal accountant, they were to be the internal auditor, 
to make sure that the process that we, the CPA, had set up to 
control the flow of funds in and out of the DFI were robust and 
sufficient.
    So then when the external auditors were named by the 
International Accounting and Monitoring Board, we would have 
both good processes and an accurate numerical accounting. We 
wanted----
    Mr. Waxman. So this firm is not auditing DFI. You're 
relying on the International Advisory and Monitoring Board to 
oversee the audit.
    Ambassador Kennedy. No, this is an--no, they are doing both 
an internal audit and internal oversight of our processes. Then 
over and above that, there is the International Accounting and 
Monitoring Board's activity. They selected several weeks ago an 
external firm, again following international tender.
    Mr. Waxman. In May 2003, U.N. Security Council Resolution 
1483 charged the International Advisory and Monitoring Board 
with ensuring the transparency and accountability of the DFI. 
It's my understanding the members of the board, including the 
IMF, World Bank and U.N. agreed on rules under which the board 
would operate called the terms of reference. During the summer 
Board members pushed for the power to order special in-depth 
audits of specific expenditures. However, the terms of 
reference weren't finalized until October because the CPA 
opposed special audit board.
    Ambassador Kennedy, why did it take the CPA 5 months to 
agree that the board should have a special audit power, and did 
this delay mean that no one was auditing the DFI for 5 months 
while billions of dollars in DFI funds were being spent?
    Ambassador Kennedy. No, sir. The DFI funds during this 
entire period were being held by the Federal Reserve Board, and 
all receipts and disbursements from it were being run through 
Department of Defense, U.S. Department of the Army accounting 
procedures. So there were always records and accounts kept on 
all receipts and all disbursements from the Development Fund 
for Iraq.
    It did take, as you correctly note, several months to pull 
together the disparate elements from four different 
international organizations, the United Nations, the 
International Monetary Fund, I believe it was the Arab 
Development Bank as well, and to arrive at an agreement on the 
terms of reference. But there was no attempt to hide the 
process or----
    Mr. Waxman. I'm not asking about motives, I'm asking about 
the reality during that 5 month period. Was there an audit 
going on? I note the board only recently hired a private 
auditor, KPMG, which hasn't yet begun its work. Isn't it true 
that over $10 billion in DFI funds have been spent without 
anyone auditing those expenditures? I'm not asking about 
motives, I'm just asking whether that's the reality.
    Ambassador Kennedy. The reality, sir, is that audits take 
place on a periodic basis. I'm suggesting that there were 
financial controls in place that monitored all expenditures and 
all receipts and did that in a very, very controlled and 
rigorous process, so that when the auditors were named, they 
would then have solid records and solid books. Audits take 
place on a periodic basis, and we certainly wished and 
encouraged, which is why the CPA itself appointed its own 
internal audit capability, but again, an outside firm.
    Mr. Waxman. Thank you. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. At this time, the Chair 
would recognize Mrs. Maloney. Well, actually, if you don't 
mind, I'm going to give my time to Mr. Ose and I'll take his 
time. Mr. Ose, you have the floor.
    Mr. Ose. Thank you, Mr. Chairman.
    I want to make sure that I understand the precursor 
conditions under which information regarding the Oil-for-Food 
program came to the public domain. When the United Nations ran 
the program, who was responsible for implementing the program? 
Ambassador Kennedy, do you know?
    Ambassador Kennedy. The program was run by the United 
Nations Office of Iraqi Programs, sir.
    Mr. Ose. Who runs the United Nations Office for the Iraqi 
Progress?
    Ambassador Kennedy. The gentleman who was the officer in 
charge was Benan Sevan.
    Mr. Ose. OK. So Benan Sevan was supervising the Oil-for-
Food program under which we're concerned certain things may 
have happened that weren't particularly up to our standards. 
Prior to the United Nations creating the Oil-for-Food program 
pursuant to the resolution--let me phrase it the other way. Who 
was it that designed the Oil-for-Food program on behalf of the 
United Nations?
    Ambassador Kennedy. The Oil-for-Food program which came 
into effect in 1996 was designed by the member states of the 
Security Council under Resolution 986.
    Mr. Ose. Did the Secretary of the U.N. put forward a 
proposal?
    Ambassador Kennedy. Yes, sir, it was a joint effort.
    Mr. Ose. Who was it that the Secretary relied on to fashion 
the terms and conditions in 1996, that the Security Council 
ultimately approved? What I'm trying to get at is whether the 
person that designed it was also the person responsible for 
implementing it.
    Ambassador Kennedy. Mr. Chairman, I will have to submit 
that for the record. I do not have at my fingertips the names 
of the individuals in the Secretariat who worked on this. But 
the program was designed by the member states of the Security 
Council in consultation with the United Nations Secretariat. 
That's how resolutions come into being in the United Nations. 
You have in effect the Secretariat who serves as the staff arm 
of the United Nations, and then you have the member states. The 
member states call upon the Secretariat for assistance, but 
they are in no way bound to accept any recommendations that may 
be put forward by the staff.
    Then of course to fully implement the program, once the 
resolution was designed, the following step, which was because 
of the nature, the political nature of reaching agreement among 
the 15 member states of the Security Council, the second step 
was to negotiate a memorandum of understanding with the 
government of Iraq in order to fully put it into place, which 
is why the process started in 1995 with the Oil-for-Food 
program----
    Mr. Ose. On that point, who negotiated with Iraq on behalf 
of the Security Council for the Oil-for-Food program?
    Ambassador Kennedy. That was done by the United Nations 
staff, the United Nations Secretariat against----
    Mr. Ose. Who was responsible for it?
    Ambassador Kennedy. I'll have to get you a particular name. 
It was the United Nations staff. So they negotiated the program 
against the terms and conditions set forward by the member 
states of the Security Council, sir.
    Mr. Ose. Somebody did it. Somebody with a name, like Joe 
Smith or Bob Jones.
    Ambassador Kennedy. I'll get you a name, sir.
    Mr. Ose. All right. Now, Mr. Thibault, you talked about an 
issue having to do with spares and extras in the contracts.
    Mr. Thibault. Yes, sir.
    Mr. Ose. Could you elaborate on that a little bit? 
Obviously you have a contract, one of the concerns is whether 
or not it meets the terms and conditions, whether there's items 
in the contract that doesn't belong there, whether there's too 
many spares and extras or too few to complete the contract. 
What is it you're exactly concerned about relative to spares 
and extras and when you're done, before my time expires, Mr. 
Ross, I want you to expand on the concept or the phrase 
``traditional privileges and immunities'' that you used 
relative to the escrow account.
    Mr. Thibault. Congressman, what we found when we evaluated 
the 759 contracts we looked at was there was an unusually 
apparent large amount of spares, and we had a number of 
technical advisors and data sources for our analysis. As an 
example, I'll use one in vehicles, there were over--for the 
snapshot, and it was a big snapshot, but it was only a snapshot 
in time, those that hadn't been delivered--there were over 
37,000 vehicles, the 300 Mercedes Benz I talked about--the 
decision was made that there would be an application for all 
the vehicles in the country properly controlled. And to date I 
have not been told that any of those vehicles were not 
delivered. Maybe somebody here----
    Mr. Ose. Nobody's gone out lined them up and said, let me 
count them, though?
    Mr. Thibault. What we recommended, well, the allegation 
that was shared with us by the United Nations was that these 
vehicles were either used as rewards or favors for Saddam's 
allies and friends, or they were used for resale basically to 
establish the equivalent of Iraq car lots to raise cash.
    Mr. Ose. And the 661 committee signed off on purchasing $21 
million worth?
    Mr. Thibault. Yes, sir, something like that. I can look it 
up.
    Mr. Ose. OK. Again, I'm just trying to get to the spares 
and extras, and I would be happy to give you the question in 
writing so you can respond accordingly.
    Mr. Thibault. I would be glad to.
    Mr. Ose. I want to get to this concept of traditional 
privileges and immunities that Mr. Ross testified to. What does 
that mean? We're talking about Bank Parida, right?
    Mr. Ross. We're talking about the BNP escrow account that 
was established pursuant to UNSCR 986. Section 15 of 986 
affirms that the escrow account established for the purposes of 
this resolution enjoy the privileges and immunities of the 
United Nations, which effectively makes that account, although 
residing here, a diplomatic account. Section 15 of 986 itself, 
U.N. Resolution states that the escrow account which would be 
established pursuant to 986, which is the BNP account, it's 
turned out to be the BNP account, would enjoy the full 
privileges and immunities of the United Nations, which 
prospectively makes that account, regardless of its residence, 
a U.N. diplomatic account.
    So for instance, for purposes of OFAC, there is no ability 
to attach or go after that account with those privileges and 
immunities.
    Mr. Ose. So, Mr. Chairman, if I may, if the fiduciary did 
something outside the terms and conditions, they're immune from 
prosecution?
    Mr. Ross. They would probably be immune--I would have to 
defer on that question. What I will answer----
    Ambassador Kennedy. Sir, could I take a crack at answering 
that?
    Mr. Ose. If you would, please.
    Ambassador Kennedy. I am intimately aware of this from my 
time in Baghdad. The resolution set up in effect, set up an 
account, but it was actually two accounts, one at Chase 
Manhattan Bank and one at Banc BNP. Those funds, those accounts 
received the oil sales proceeds, so all the money came in----
    Mr. Ose. Money was wired in.
    Ambassador Kennedy [continuing]. Wired in, letters of 
credit were issued in the beginning for the oil sales. The 
money was received and then divided up between the BNP account 
and the Chase Manhattan account depending on the various 
functions that were being pursued.
    Mr. Ose. Seventy percent, 3 percent, all that stuff. Right.
    Ambassador Kennedy. Right. The north, the south, yes, sir.
    The U.N. then would instruct in writing Chase Manhattan or 
BNP what to do with those funds. BNP or Chase Manhattan did not 
have any independent, discretionary control over the funds. 
They were simply serving as the holder of the funds on behalf 
of the United Nations. The reason why privileges and immunities 
were extended to those funds is there were large numbers of 
court suits around the world pursuing government of Iraq funds. 
The purpose of these funds, though, were to assist the people 
of Iraq with medical and humanitarian goods. So the immunity 
was given to those funds to prevent them from being seized and 
attached for court suits.
    To answer the second part of your question about, if Chase 
Manhattan or BNP engaged in----
    Mr. Ose. I'm sorry, the chairman has been very gracious 
giving me time, I have to respect that.
    Mr. Shays. Just finish up.
    Ambassador Kennedy. Yes, sir. If BNP or Chase Manhattan 
engaged in illegal activities, the United Nations would have 
turned, as the United Nations has turned in the past, to the 
U.S. Attorneys Office for the Southern District of New York to 
bring criminal complaint against someone who committed a crime 
within that jurisdiction, sir.
    Mr. Ose. Thank you.
    Mr. Shays. I thank the gentleman. The Chair will recognize 
Mrs. Maloney.
    Mrs. Maloney. Thank you. Ambassador Kennedy, you testified 
that under the United Nations parameters, the Resolution 986 
allowed the setting up of the operations and monitoring of the 
U.N. Oil-for-Food program. And the United States was a member 
of the U.N. committee called 661 that had the power to veto 
contracts, is that correct?
    Ambassador Kennedy. Yes, ma'am. We could put holds and the 
holds could become perpetual.
    Mrs. Maloney. We could block?
    Ambassador Kennedy. We could block contracts.
    Mrs. Maloney. Earlier you testified that the United States 
used this power many, many times, possibly 100 times to block 
contracts that we questioned might be associated with weapons 
of mass destruction, correct?
    Ambassador Kennedy. Yes, ma'am.
    Mrs. Maloney. Did the United States ever use its power to 
block contracts, because we questioned whether they were 
overpriced or illegal kickbacks or inflated prices? Did we ever 
use our power to question the price and overpricing of 
contracts?
    Ambassador Kennedy. Yes. We held, I believe, on over 2,000 
contracts with a book value of somewhere around $5.1 billion. 
We held contracts for a variety of reasons.
    Mrs. Maloney. I know, but you held them for weapons of mass 
destruction.
    Ambassador Kennedy. Right. We held----
    Mrs. Maloney. But I'm saying, did we, now, that's a 
separate category. Did we block contracts because we thought 
they were overpriced? For example, Mr. Thibault talked about 
300 Mercedes that with their $1,200 extra parts, did we block 
that contract? Obviously these 300 Mercedes were not for 
humanitarian purposes. Our Government could have blocked that 
contract. Did we use our power to block that contract?
    Ambassador Kennedy. If I could----
    Mrs. Maloney. And if we didn't, why didn't we?
    Ambassador Kennedy. Let me answer it in two portions, the 
second first. Under Security Council 986, there was no 
restriction on what Saddam Hussein could purchase, provided it 
wasn't armaments. So the Oil-for-Food actually is a----
    Mrs. Maloney. But Ambassador Kennedy, it may not have had 
restrictions on it, but as a member of the 661 Committee, we 
had the power, so you testified, to block any contract for any 
purpose that we wanted to block it. And my question, and I'll 
ask for it in writing, I would like a list of all the contracts 
we blocked because we thought they were weapons of mass 
destruction and all the contracts we blocked because it was 
overpricing. And I would like to know why we didn't block a 
contract for 300 luxury Mercedes cars that obviously were not 
going to help the people of Iraq. That's one question.
    Now, I want to get to the United Nations, and I understand 
there's not a--but actually, I would like to ask the defense 
auditor to followup on what your very good testimony, your 
excellent diagrams that you put forward before us. And your 
analysis of the Oil-for-Food program contracts includes very 
specific data and information on the percentage by which 
certain contracts overcharged the Iraqi government for 
humanitarian and other goods. I would like to ask you, Mr. 
Thibault, did your scientific analysis of these contracts 
require any knowledge from former Iraqi officials about how the 
pricing and kickback schemes worked?
    Mr. Thibault. Congresswoman Maloney, thank you for the 
compliment. The only clarification that I would make is, rather 
than use the word scientific, I might use audit analysis or 
financial analysis.
    Mrs. Maloney. Your audit analysis.
    Mr. Thibault. Yes, ma'am. But given that note, the answer, 
the short answer is no, it required no additional confirmation 
from the companies or within any other outside sources. And to 
use an example in the food, we had a very close relationship 
with the Department of Agriculture. And they used spot market 
prices, FOB, delivered to wherever in Baghdad they were 
supposed to go. They also provided us technical counseling.
    So the analysis that we did was a stand alone analysis 
simply using the contracts and the value and the quantities and 
the types of goods and the quality outlined in the contract. We 
did not have outside corroboration if it would be from Iraq.
    Mrs. Maloney. You did an excellent job. So therefore, would 
it have been possible for you to have provided the 
administration with a similar analysis that would have 
identified all overpriced contracts before they were approved 
by the U.S. Government?
    Mr. Thibault. Any entity such as the Defense Contract Audit 
Agency that would have been asked to perform the kind of 
analysis that we performed could have performed that analysis 
as long as they had the contracts provided to them, which in 
our case they were provided with State assistance by the United 
Nations officials. So again, the short answer is yes, that 
could have been done whether a year or 2 previous or 4 or 5 
years previous.
    Mrs. Maloney. So obviously an important question for this 
committee is why our auditors, such as yourself, were not asked 
to review these contracts so we could have prevented this 
overpricing and abuse of the program. And obviously, going 
forward, Mr. Chairman, we should require that the United States 
is a member of the Security Council and has the authority to 
approve and disapprove and block contracts, that we should use 
the tools in our Government to analyze beforehand what is 
happening, so that we can make better decisions. He just 
testified that he could have given the same information without 
working with any Iraqis or anyone else from his office that 
would have prevented this abuse.
    Did the United Nations have in place a program, I guess 
they called it the Office of the Iraqi Program, and this entity 
was responsible for administering the Oil-for-Food program. Did 
they have an internal audit process to review? Did they have an 
internal audit process?
    Ambassador Kennedy. There is both an internal and an 
external audit process at the United Nations, Mrs. Maloney. 
There is the Office of Oversight Services. It's in effect--the 
Inspector General of the United Nations audited the Oil-for-
Food program on at least 50 occasions. Additionally, there is a 
board of audit, which is, if I'm making gross distinctions, the 
equivalent of the General Accounting Office, composed of the 
GAO equivalents from three member states. The Board of Audit of 
the United Nations also audited the program every 6 months.
    Mrs. Maloney. I would like Ambassador Kennedy, and you may 
not have this information now, but I would like to know if the 
internal audit operation of the United Nations ever suggested 
or recommended to the 661 Committee, the monitoring committee, 
which the United States was a member of, that contracts were 
overpriced and therefore should not go forward. Do you know, 
did the internal audit operation of the U.N. ever say, this is 
overpriced, this is wrong, we shouldn't be sending 300 
Mercedes, we should be sending in food instead? Did they ever 
do such an audit, and can you give us that information?
    Ambassador Kennedy. They did not, because the mandate to 
the United Nations Secretariat from the Security Council 
resolution did not give them the authority to make such 
analysis and determinations. They did audits to in effect 
follow the funds, and to track the funding.
    Mrs. Maloney. Did the OIP itself, the Office of Iraqi 
Programs, the internal audit committee, did they put notes on 
contracts, questions on contracts? I would like to see the 
internal documents from the Office of Iraqi Programs.
    Ambassador Kennedy. Yes, the customs experts at the Office 
of Iraqi Programs did review the value of each OFF contract to 
ensure that the price was in the credible range. But if I could 
expand on that just for one brief moment. Saddam Hussein, in 
spite of his excessive villainy, was also rather clever. When 
you are purchasing food, infant formula, clothing, whatever for 
a nation of 24 million people, because the entire country is 
under sanctions, if you add only a small amount of money, 5 
cents, 10 cents on a pound or a bushel of wheat and then make 
it up over incredibly large volumes to feed and clothe 24 
million people, you stay within the credible range.
    Because as my colleagues, who did an excellent job from the 
Defense Contract Audit Agency said, when you look at these 
contracts, they stayed within the credible range on many cases. 
So 3 or 5 cents more per pound or per bushel did not strike one 
as outside the credible range, given transportation and market 
forces.
    Mrs. Maloney. But the question was, did the customs 
inspectors, the internal auditors of the United Nations ever 
write memos or, we question this, we think it's overpriced, we 
don't think you should approve it, it's overpriced, they 
didn't----
    Ambassador Kennedy. The customs experts at the Office of 
Iraqi Programs did on occasion identify overpriced contracts 
and informed the 661 Committee, yes.
    Mrs. Maloney. And what happened when it got to the 661 
Committee? Did they block it because it was overpriced? Or did 
they approve it?
    Ambassador Kennedy. We held on some and did not hold on 
others.
    Mrs. Maloney. I think we need to look at that to see----
    Ambassador Kennedy. Let me provide a more detailed 
explanation for the record, because it would take me a number 
of minutes to try to go through that entire process.
    Mr. Shays. We've gone over time, but the Chair did want 
some continuity of the question and a conclusion. I think we've 
reached a certain point where I would now like to recognize 
Mr.----
    Ambassador Kennedy. And I will be glad to provide that for 
the record.
    Mrs. Maloney. Absolutely. Because if the internal audit 
committee was saying it's overpriced, and the 661 Committee, 
including the United Nations, approved it, then that's a 
process we've got to stop in the future. Maybe the U.N. Audit 
Committee should have the authority to stop overpriced 
contracts, if they so believe.
    Mr. Shays. Let me gain control of this subcommittee again 
and call on Mr. Murphy.
    Mr. Murphy. Thank you, Mr. Chairman.
    I would like to continue to followup here on some of these 
questions with regard to some of the corruption apparently 
taking place here. The U.N. was auditing these along the way, 
Mr. Kennedy?
    Ambassador Kennedy. The United Nations, both the internal, 
Office of Internal Oversight Services and the Board of 
Auditors, were auditing the activities of the United Nations 
staff.
    Mr. Murphy. OK.
    Ambassador Kennedy. They were not empowered by the 
resolution to audit the contracts themselves.
    Mr. Murphy. Was anybody auditing them?
    Ambassador Kennedy. The contracts themselves?
    Mr. Murphy. Yes.
    Ambassador Kennedy. The contracts would be received, as I 
said----
    Mr. Murphy. Just was anybody auditing them?
    Ambassador Kennedy. They were reviewing, they were 
reviewing them. If the contract jumped up as outside credible 
range, that was called to attention. We also sent, all the 
contracts were sent----
    Mr. Murphy. But as you're saying, what Saddam Hussein was 
clever with is, he was able to slip in things to stay under the 
radar screen essentially with that?
    Ambassador Kennedy. The margins were so small and making it 
up on volume, sir.
    Mr. Murphy. So that could perhaps be the reason why these 
audits were not, whatever was being reviewed, audits for the 
U.N. or in other essence, no one really knew what was going on 
with this corruption.
    Ambassador Kennedy. We had no, this was like a chess game, 
if I might. We knew Saddam Hussein was up to no good. He would 
take a step and then we would move to block him. He would take 
another step and we would move to block him. But since this was 
an episode or activity carried out by 15 member states, 15 
independent countries on the 661 Committee, one example, sir, 
if I might. We discovered because U.N. personnel brought it to 
our attention that he was manipulating oil prices. So we moved 
to block him on that. Several other countries in the 661 
Committee resisted our efforts, so rather than blocking at the 
beginning, we blocked at the end and achieved the same results.
    So this was a constant, he moved, we moved----
    Mr. Murphy. OK, but whenever things showed up during this 
chess game, that corruption began to emerge, why didn't we look 
more closely? Why didn't the U.N. step in and try to hit this 
harder?
    Ambassador Kennedy. Because the United Nations, in this 
case, is not the U.N. Secretariat. The U.N. is the 15 members 
of the Security Council----
    Mr. Murphy. Then let's look at the Security Council, 
because I want to find out, because oftentimes I think the 
American people have a misunderstanding about the purity of the 
Security Council's motives. And I want to understand here very 
clearly. When we look at who was involved with purchasing oil 
that the Iraqis were also using to gather cash from and there 
were some things going on, according to some of the records, a 
quarter of the companies who purchased oil, they were mostly 
Russian and they paid cash. I also understand small oil traders 
were often required to buy illicit vouchers through middlemen 
in the United Arab Emirates in order to get the opportunity to 
buy Iraqi oil. Sometimes the vouchers were also received as 
payment for importing illicit goods into Iraq.
    Among those listed were individuals, political parties and 
groups from over 50 countries, the bulk of whom were Russian, 
French, Malaysian, Chinese, Syrian, Egyptian, Swiss, 
Jordanians, Turkestanis and Yugoslavians were also on the list. 
These are members of the Security Council. Clearly I'm 
questioning the purity of their motives too. And with that, 
perhaps a reason why the Security Council had their feet in 
concrete is because someone's making a lot of money on this 
from the Security Council.
    Ambassador Kennedy. I'm not sure that I can ascribe all the 
motives that an individual country might have had, sir. I think 
in one instance, to some extent, it must have been driven by 
commercial considerations of various companies that were 
nationals of the country involved.
    I think another aspect could be that a number of these 
countries, Russia, for example, never did like the sanctions on 
the regime in the first place, and they were strong advocates 
of removing sanctions in toto, rather----
    Mr. Murphy. They resisted many efforts of sanctions or 
other actions against Iraq, but the French, the Russians, the 
Chinese, are among those groups that were certainly making a 
great deal of oil purchases. And part of this network, explicit 
or implicit in their actions, that allowed the Saddam Hussein 
repressive regime to continue to have cash that he could use 
for his other purposes, other than the more magnanimous issue 
of Oil-for-Food.
    Ambassador Kennedy. You're correct, sir. Resolution 1284, 
which was the last major Oil-for-Food resolution, which was 
adopted in 1999, on that resolution France, China and Russia 
abstained, because they objected to the whole sanction regime.
    Mr. Murphy. Did they disclose their financial advantages 
that they had in terms of their purchasing oil? Did they 
abstain just because they were good guys, or did they say, you 
know, we need to abstain because we're actually buying oil 
illicitly here?
    Ambassador Kennedy. There were no admissions by state of 
illicit activities.
    Mr. Murphy. Where my questions are going to, as you can 
see, is with the U.N. not really clearly auditing this, that as 
corruption was disclosed, questions why weren't they looked at 
more closely, this is not even to the level of fox watching the 
henhouse. This is much more serious than that, when we had 
other nations who were in collusion, perhaps, of purchasing oil 
and adding money to Saddam Hussein which he then could use to 
continue his oppressive, tortuous and murderous regime within 
his own country. Am I correct in that?
    Ambassador Kennedy. The oil contracts themselves were 
regulated to the extent that we could. But I cannot tell you 
that efforts were not made by individuals or companies to bust 
the sanctions. That is a fact, sir, you are correct. There are 
individuals and companies that busted the sanctions.
    Mr. Murphy. So within these countries, there is active 
behavior, within these other countries they are actually 
undermining the purposes of the sanctions. The purposes of the 
sanctions would be humanitarian and help feed the people within 
Iraq. But you're saying their behavior actually undermined 
that?
    Ambassador Kennedy. What I'm saying is that I can't 
myself----
    Mr. Murphy. Would anyone else like to comment?
    Ambassador Kennedy [continuing]. Because I have no direct 
knowledge, ascribe the cause of an action by any one country. 
But I can just say that there were situations where we 
discovered efforts to go around the Oil-for-Food program, and 
the purpose of the United States and the United Kingdom was to 
do everything possible to block that activity.
    Mr. Murphy. I only have a minute left. When I was in Iraq 
and I had talked with some of the citizens, some of the things 
that came up had to do with how they were so totally dependent 
upon the Hussein regime, the oppressive Hussein regime, for 
their food, delivering groceries. It's not something, you can't 
go to the grocery store like we do in America. It's that, if 
you behaved yourself, you got your groceries. It was one more 
way that he maintained his total dominance upon their lives.
    And I find that any time we here in Washington, DC, talk 
about somehow the magnanimous motives or somehow the objective 
motives of the Security Council of the United Nations, I think 
this really calls into serious question the behavior of 
characters within those countries who are on that Security 
Council and the outcome in terms of the poor auditing and the 
poor investigations into this. I think it's a really serious 
matter, and I think some of the things that speak to are my 
ongoing concerns about the trustworthiness of the U.N. to run a 
program like this.
    Ambassador Kennedy. If you remember, sir, the U.N. is the 
member states in this case, not the U.N. Secretariat. There's a 
distinction.
    Mr. Murphy. I understand.
    Ambassador Kennedy. The second is, we have to keep going 
back and recalling the purpose of the sanctions regime. It was 
to prevent Saddam Hussein from receiving banned materials.
    Mr. Murphy. But the member states, or people within those 
member states, were undermining that.
    Ambassador Kennedy. There were efforts in the 661 Committee 
to thwart the United States and the United Kingdom from 
imposing more rigorous sanctions, yes.
    Mr. Murphy. To me that smacks of directly undermining the 
intent of the Secretary General and also the U.N. intentions. 
Thank you very much. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. At this time, the Chair 
would recognize Mr. Ruppersberger.
    Mr. Ruppersberger. Thank you, Mr. Chairman.
    Ambassador Kennedy, you stated on page 4 of your testimony 
that, ``We know there was abuse,'' and you point to documented 
proof since the Saddam regime fell. Now, I think this is a very 
important issue now, that we focus on the evidence and 
authenticate the evidence on whether or not these allegations 
are true. Let's get to the bottom line.
    Let me start with these questions. Can you tell us who 
found these documents that you're referring to? And I'm looking 
forward to the fact that you will produce these documents. I 
assume not in their original form, but these documents to us 
that we can evaluate. Can you tell us who found these 
documents, where did they come from?
    Ambassador Kennedy. I think documents are coming forward 
from multiple sources. But basically, sir, they are surfacing 
in Baghdad. As Ambassador Raphel testified earlier, and she was 
out working with the Ministry of Trade as the CPA was stood up 
in May of last year, and began working with Iraqi ministry 
officials, the third or fourth tier down, the Baath party 
leadership having fled, we began to receive intimation and 
indications from working level Iraqis in the various ministries 
that said there were abuses. And they identified for us how 
Saddam Hussein was using the kickback scheme, how Saddam 
Hussein----
    Mr. Ruppersberger. I want to be more specific. I understand 
where you're going. Who is making the allegations of bribes, 
kickbacks, surcharges and the like? Is it coming from the Iraqi 
Governing Council? Is that where most of this is coming from? 
You're saying it's in Iraq, there in that leadership mode. 
Where is this coming from, that we can evaluate the evidence?
    Ambassador Kennedy. The allegations against U.N. personnel 
are two-fold. One was an article published in a newspaper in 
January called Al-Mada, which listed a number of individuals 
who are accused of having received vouchers to permit them to 
buy oil. And there was the name of one U.N. individual on that 
list. And there was a piece in the New York Times just this 
morning without a name or any more details, just saying there 
are rumors running around that two more were involved.
    So these accusations are coming out of Baghdad, out of one 
particular newspaper----
    Mr. Ruppersberger. Yes, and in all fairness to newspapers, 
I mean, we have some very good newspapers and very credible 
reporters. But I'm not sure of the credibility of an Iraqi 
newspaper. I want to get down to the basics as much as we can. 
In what form are these allegations coming?
    Ambassador Kennedy. They are unsubstantiated allegations 
provided without any evidence----
    Mr. Ruppersberger. Well, I'm glad you said that, because 
now I'm concerned that we're getting unsubstantiated 
allegations from an Iraqi newspaper. We have to do whatever we 
can to authenticate the data and information and the evidence. 
Because these have implications throughout the entire world, 
the credibility of the entire world, especially at a time that 
we need the world to come together to fight terrorism.
    Ambassador Kennedy. I agree, sir, and we are pursuing that, 
I believe. This is being pursued on two tracks. The first is, 
Ambassador Bremer has authorized the Board of Supreme Audit of 
Iraq, he has provided funds available for them to hire an 
international firm that is experienced in investigations and 
audits to look into these accusations on the ground in Iraq. He 
has also ordered all the records to be sequestered and made 
safe. Second, there is the examination that the Secretary 
General of the United Nations has commissioned under Mr. 
Volcker. So this, the United States, the CPA, the U.N. Security 
Council, the Secretary General himself, are all committed to 
pursuing exactly what you said, sir, which is follow the trail 
to prosecution.
    Mr. Ruppersberger. Right, follow the trail, and that's 
where I'm focusing my question. Have these documents, to your 
knowledge, been authenticated?
    Ambassador Kennedy. To my knowledge, no, sir.
    Mr. Ruppersberger. OK. How about, have they been 
corroborated at all?
    Ambassador Kennedy. Sir, I am not a lawyer. I know what 
Ambassador Bremer is doing. He is bringing all the documents 
together so they can be investigated.
    Mr. Ruppersberger. Right. OK. I have respect for Ambassador 
Bremer, he's leaving, I know that, in the transition. I would 
hope that the documents that were referred to in the newspaper 
would be looked at. Because I know, through my investigation on 
another committee that I'm on, that we do have black market 
documents. I just think we have to find out where the 
allegations came from, who is putting it out. It appeared in a 
newspaper, and so far it seems that the whole United States and 
the world is going to be a very large issue about the 
credibility of the U.N.
    And by the way, we need to look at all these allegations, 
but we have to follow the evidence. And right now, it seems to 
me from what you're saying today, the evidence is coming from a 
newspaper. We haven't corroborated anything, we don't know if 
they're black market documents. I think we have a long way to 
go.
    And I don't know about a private firm that Bremer has 
hired. I think the United States of America needs to get some 
of our investigators, which we have, the FBI and other 
government agencies, to get hold of this to make sure we secure 
this documentation and then find out who started it, where did 
it come from. I don't think you can answer that question now, 
is that correct?
    Ambassador Kennedy. Sir, we must do a fair and exhaustive 
effort to track it down. And that is why the process is now 
started. That's why Ambassador Bremer I believe is particularly 
focused on using the Board of Supreme Audit of Iraq, which is a 
continuing function, a function that will continue to exist 
after July 1, supplemented by assistance from the CPA and 
supplemented by an internationally known independent firm.
    Mr. Ruppersberger. Are you familiar with the black market 
documents that we know, we've established that exist following 
the fall of Saddam's regime? Are you aware of those, some black 
market documents that have been used in Iraq? I mean, answer 
the question. If you don't, that's fine.
    Ambassador Kennedy. I can't answer that specific question, 
sir.
    Mr. Ruppersberger. OK, well, if you just heard, that's 
fine.
    Anyone else on the panel? Ambassador Raphel, you haven't 
been able to talk so far. Would you like to comment on some of 
the issues I have raised so that we can try to get, follow the 
evidence and get to the facts? Because the more I'm hearing, 
we're in the very preliminary stages of these allegations that 
are going to make worldwide news. And right now, our focus has 
got to be on this terrorism and bringing the world together to 
fight terrorism, and not allegations and credibilities of Iraq 
or United Nations or whatever.
    But if the evidence shows that there were problems, and 
whenever this kind of money, I'm sure there were problems, 
we've got to get to that. And let's get the facts. Any 
response?
    Ambassador Raphel. If I just might clarify on a couple of 
points, the concrete allegations of kickbacks in the contracts 
on the ground in Baghdad came from Iraqi civil servants coming 
forward and saying, this contract, that contract has a kickback 
in it. And they explained the system to us and so on.
    But we did not at that point have documentation. We did not 
see these particular documents. We made a decision, which 
underscores how, the conditions under which we were operating. 
We couldn't verify each of these kickbacks, percentages of 
whatever. But we made a decision to take these Iraqi civil 
servants' word for it, basically. And when the U.N. agencies 
called the supplier and said, hello, supplier, we would like to 
negotiate the overall price of the contract down by 15 percent, 
is that OK, rumble, rumble, rumble, yes, I guess so, end of 
story.
    We were not working from precise documentation at that 
point. I want to put that on the record. But these people came 
forward and this fit, I was pleased to say later, we get the 
DCMA, DCAA pricing study which was consistent with what we were 
hearing from the Iraqi civil servants. So that gave extra 
comfort that we were on the right track. But we were under 
enormous time pressure to deal with these contracts. There were 
6 months from the passage of 1483 to when the Oil-for-Food 
program would end. So we were making practical decisions as 
best we could.
    Ambassador Kennedy. But I want to say, Robin and I have 
discussed this extensively, however, when you get to specific 
allegations that a specific individual is guilty of something, 
we need to follow the trail----
    Mr. Ruppersberger. My time is up. What my bottom line is 
that right now we seem to be in a very preliminary stage. 
There's a lot of allegations and outright just indignation, as 
there should be, if these allegations are out there. But before 
we go too far down the road, let's find out who made these 
allegations, where it came from, are these documents for real, 
have they been forged. I mean, this is just evidence 101. And 
we haven't gotten to that level yet. I'm concerned that this is 
going to have an impact on credibility of those countries 
involved in hopefully the war against terrorism. And that's the 
issue here in the end, that's what we're all here about as far 
as our testimony here today and what's going on in Iraq.
    Anyone else on the panel have any comments about that? 
Otherwise, my time is up. Thank you.
    Mr. Shays. I thank the gentleman. I would like to ask some 
questions.
    Mr. Ose talked about smoke, where there's smoke there's 
fire question. Do you know enough to conclude, Ambassador 
Kennedy, that something went wrong?
    Ambassador Kennedy. We know enough to conclude that Saddam 
Hussein manipulated and abused and broke sanctions, yes, sir.
    Mr. Shays. Ambassador Raphel, I would ask you the same 
question.
    Ambassador Raphel. I would agree with what Ambassador 
Kennedy said, and also say, I think we know enough to conclude 
that there were some kinds of kickbacks involved in these 
contracts. The precise nature, the precise company, the amounts 
and so on, we don't know, and we need to followup and 
rigorously investigate that. But I myself am personally 
persuaded that this kickback regime existed.
    Mr. Shays. Mr. Thibault.
    Mr. Thibault. Mr. Chairman, what we know from our snapshot 
is that there was not a procurement process in place that was 
typical at all of a normal business process, such as someone 
clearly defining requirements--now, I'm talking about the 
snapshot we looked at, commodities purchased with the funds, 
someone that defined requirements, someone that asked for some 
kind of documentation to support that, an audit process of 
those goods and then some form of documented negotiation. When 
we visited the Office of Iraq Programs, they essentially 
documented that the normal procurement process that you might 
want to see, that we certainly were looking for, and that's why 
we went up there to ask them, did not exist.
    Mr. Shays. Mr. Ross.
    Mr. Ross. Yes, Mr. Chairman. I think what we have found in 
the larger effort to try to identify these front companies are 
crossovers. There's no question of that. Last week, we, the 
United States and the U.K. jointly designated eight front 
companies, sent those to the U.N. for adoption. They're still 
there, I might add. And two of those specifically were tied to 
OFF violations with respect to arms and the attempt to 
illicitly import arms.
    So there clearly is a crossover. We clearly have identified 
some instances of that.
    Mr. Shays. My response to Mr. Ruppersberger's questions are 
that he is dead right in assigning specific blame, but there is 
no question at all that there was a huge ripoff amounting to 
billions of dollars. Not a scintilla of doubt that is the fact. 
The question is, who is responsible.
    Now, that ultimately is going to be a question we know 
needs to be answered. And then we ultimately know that we need 
to know that it won't happen in the future.
    Now, we have a witness that will be coming in our second 
panel, Mr. Claude Hankes-Drielsma, and his testimony to me is 
incredible. I want to know, he represents as an advisor to the 
Iraqi Governing Council. Now, whatever we would like to say in 
the United States, this ultimately has to be an Iraqi 
revolution, not an American revolution in Iraq. And the lack of 
respect that I am sensing we are giving this council is 
concerning me. The council asked months ago for information, 
and we are not at all comfortable that they are getting this 
kind of cooperation.
    Now, what I would like to ask each of you is, as panel 
members, can you assure us that there will be no procedural 
delays in the report commissioned by the Iraqi governing 
council? That there will be no delays? And Mr. Kennedy, I'll 
start with you.
    Ambassador Kennedy. Mr. Chairman, Ambassador Bremer has 
laid the duty of investigating this activity, the accusations, 
on the Board of Supreme Audit and has charged them----
    Mr. Shays. And that is?
    Ambassador Kennedy. The Board of Supreme Audit of Iraq. He 
has said that the Board of Supreme Audit will be the entity to 
investigate this activity because they are a group of 
professional auditors. It is an entity of the Iraqi government, 
just as you suggest, we need to make this Iraqi involvement 
very, very clear. And this entity will exist long into the 
future after the CPA ends its tenure on June 30th. So this is 
an independent, apolitical continuing body. So he has charged 
the Board of Supreme Audit to do it and is making personnel and 
financial resources available to them to do it, sir.
    Mr. Shays. And you're convinced there will be no procedural 
delays in the report commissioned by the Iraqi Governing 
Council?
    Ambassador Kennedy. Sir, Ambassador Bremer has charged the 
Board of Supreme Audit with doing this. He has not charged the 
Finance Committee of the Iraqi Governing Council to do it. So 
I'm answering the question of who is responsible per Ambassador 
Bremer's instructions for investigating all these accusations. 
And he has charged the Board of Supreme Audit with doing it.
    Mr. Shays. Does that mean that they will not be cooperating 
with KPMG?
    Ambassador Kennedy. I am not aware that KPMG has been hired 
by anyone, sir.
    Mr. Shays. OK. Let me ask you, Ambassador Raphel, about 
cooperation with the Iraqi Council.
    Ambassador Raphel. What I would say in response to your 
original question and your concern about procedural delays, I 
don't think we see any reason right now to expect procedural 
delays in the investigation that Ambassador Bremer has given to 
the Board of Supreme Audit. But I would again, from the on the 
ground perspective, say that there are many, many issues about 
evidence files and so on. As you know, many of the ministry 
buildings were looted, files are not complete. It takes a lot 
of time right now to move around Baghdad.
    So I would just caution everyone to recognize that this is 
going to take some time. But there is no reason that I see to 
expect procedural delays. My former colleagues there have been 
working with the Board of Supreme Audit. They have visited 
every ministry, they are sequestering files in a single place 
in the Ministry of Oil. Work is going on.
    Mr. Shays. What concerns me is, in the desire to make sure 
we not offend the U.N., or not offend our partners who we want 
involved, we have an incredible temptation to not allow the 
Iraqi people to get to the bottom line of the story. That is my 
biggest concern, to know how eager our Government is going to 
be to encourage cooperation with the Iraqi Governing Council or 
whatever other government takes its place.
    Mr. Thibault and Mr. Ross, can you speak to this issue at 
all?
    Mr. Thibault. I can tell you that no one has asked DCAA to 
share or present our audit results with the Iraqi Governing 
Council. If DOD asks or approves us to do that, we would have 
no issue in sharing that.
    Mr. Ross. I would echo that. We have interviewed over 100 
people from top to bottom in Iraq involved in financing of the 
Hussein regime. We've identified thousands of accounts 
worldwide. That information will be available as appropriate, 
to the extent we can share it.
    Mr. Shays. Thank you.
    I'm going to ask unanimous consent to insert into the 
record a letter to the subcommittee from His Excellency Jean-
David Levitte, Ambassador of France to the United States, dated 
April 19, 2004, regarding the Oil-for-Food program. He wrote us 
the letter, asked us to submit his letter and an article he had 
written, in this case to the Los Angeles Times. I don't have 
time to make reference to it, but there are parts of it I would 
like to.
    [The information referred to follows:]

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    Mr. Shays. Did you have one or two quick questions? How 
much time before we have a vote?
    Mr. Waxman. Well, there's a vote on, but that was just the 
first bell.
    Mr. Shays. OK.
    Mr. Waxman. Thank you, Mr. Chairman.
    Ambassador Kennedy, I would like to clarify one point we 
discussed. My staff contacted the CPA to ask about plans to 
hire a certified public accounting firm to audit the DFI. 
Here's how CPA responded, at least to us: ``CPA did not obtain 
the services of a certified public accounting firm, as it was 
determined that these services were not those required.'' CPA 
does mention that they hired a consulting firm, but they say 
they decided at some point not to hire an independent certified 
public accounting firm.
    Do you know why CPA decided not to hire an independent 
certified public accounting firm, even though regulation No. 2 
required this?
    Ambassador Kennedy. No, sir, I left Baghdad on the last day 
of November. I will have to get that for you from the record.
    We did hire a company, as you mentioned, sir, to set up and 
to help CPA set up the books and maintain the records and make 
sure that we were following all the proper procedures, so when 
the audit was undertaken by the International Accounting and 
Monitoring Board we would have all the material and all the 
proper documentation that was required. I believe that has been 
done.
    Mr. Waxman. CPA says, ``It was determined these services 
were not those required.'' What specific services are now not 
being done?
    Ambassador Kennedy. I will have to get that for the record, 
sir.
    Mr. Waxman. And under the contract with the consulting firm 
North Star, will there be a final product, a deliverable that 
shows whether there has been overcharging? Are they going to 
issue a report?
    Ambassador Kennedy. I will have to get that for the record 
for you, sir.
    Mr. Waxman. OK. And would you also, if such a report is 
going to be issued, I would like to see a copy of that work 
product, whether it's a report or any other work product.
    And finally, Mr. Thibault, you mentioned one kind of audit. 
Can you tell us, what would CPA need to do to conduct a full 
scale, full blown audit of the DFI?
    Mr. Thibault. I think they would have to write a statement 
of work, define what they want to do and probably engage an 
external auditor. But they would probably have to do both a 
source and application of funds, meaning where were the sources 
of the funds, and where was the application. That would 
probably have to include an evaluation of those companies that 
received the funds and whether they were properly applied.
    So in order to do that kind of an audit, that's an 
extensive audit, but that would be a complete audit, in my 
view.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Ruppersberger. Quick question. Does anyone on the panel 
have knowledge of who owns the Al-Mada newspaper? That's the 
newspaper that this investigation started, or the allegations 
were made, correct? That's the beginning of the allegations.
    Mr. Thibault. No knowledge, sir.
    Mr. Shays. OK. Any knowledge?
    Ambassador Kennedy. No knowledge, sir. We'll attempt--there 
were I believe some 300 new newspapers----
    Mr. Ruppersberger. Well, if I tell you that I have 
information that Chalabi owned the newspaper, would that 
refresh your recollection at all?
    Ambassador Kennedy. No, sir. I would be glad to get--I 
would be glad to query----
    Mr. Ruppersberger. Well, I would ask you if you could to 
find out who owns that newspaper, and whether or not the 
information that I have that Chalabi does own the newspaper, 
who is one of the leaders on the Iraqi Governing Council, I 
think that's very relevant.
    Mr. Shays. I thank the gentleman.
    I'm just smiling because I took great joy in the fact that 
in Iraq, there was a newspaper that was making allegations. 
It's putting the ball in play. But you know, darn it, it's 
happened in Iraq. Welcome to the Iraqi revolution.
    With that, I want to thank each of you. You've been a 
wonderful panel, you've been very patient. We have two panels 
to follow. Stay tuned. The other panelists, I think, will be 
very interesting and very informative.
    So we will recess for a period of five votes. I have a 
feeling we won't be back here until at least 15 after. So if 
someone wants to get something to eat, I think you're pretty 
safe on that.
    So we stand in recess.
    [Recess.]
    Mr. Shays. This hearing is called to order.
    We recognize our second panel, Mr. Claude Hankes-Drielsma, 
and welcome him here. He is advisor to the Iraqi Governing 
Council, he's chairman of Roland Berger, Strategy Consultants, 
I believed based in Great Britain. He has come to this hearing 
from Great Britain, so I guess waiting a little bit in the 
morning is not as big an effort as having gotten here in the 
first place. So we are going to swear you in, if you don't 
mind, and we are going to give you 5 minutes and then another 5 
minutes. So the light will get red in 5 minutes, but we'll roll 
it to green again. That's how it works.
    So if you would stand. Raise your right hands.
    [Witness sworn.]
    Mr. Shays. Thank you so much, and note for the record that 
our witness has responded in the affirmative. Again, welcome, 
and we look forward to your testimony. I've read your written 
testimony and I found it very helpful.

 STATEMENT OF CLAUDE HANKES-DRIELSMA, ADVISOR, IRAQ GOVERNING 
   COUNCIL AND CHAIRMAN, ROLAND BERGER, STRATEGY CONSULTANTS

    Mr. Hankes-Drielsma. Mr. Chairman and distinguished members 
of the committee, my written testimony attempts to set out in 
chronological order the background to and the reasons why the 
independent investigations into the Oil-for-Food program were 
initiated by the Iraq Governing Council and subsequently by the 
United Nations.
    While the remarkable achievements of the United States and 
its commitments in assisting Iraq to become a vibrant economy 
are well recognized by the Iraqis, the good intentions of the 
United States are sometimes misunderstood or misrepresented. A 
touch of humility and a more democratic consultation with the 
Iraqis by those administering the U.S. efforts in Iraq would 
achieve a great deal.
    I would like to commend the courage and determination of 
the IGC, the Iraq Governing Council, as a whole in forging 
ahead amidst great challenges to build a democratic and stable 
Iraq. Iraq Governing Council has been much undermined and 
criticized. It should be noted that it is the most politically 
broad and demographically representative body in Iraq's 
history.
    From the information available to date, it is clear 
certainly to me that the U.N. failed in its responsibility to 
the Iraqi people in administering the Oil-for-Food program 
during the period 1995 and 2003. You will see that I wrote my 
first letter to the Secretary General in December, well before 
the Al-Mada list, which then made it known to the public at 
large.
    The U.N.'s credibility with Iraqis, particularly the Shiite 
community, is understandably one of unease. And I will try to 
explain why. The U.N. Oil-for-Food program provided Saddam 
Hussein and his corrupt and evil regime with a convenient 
vehicle through which he bought support internationally by 
bribing political parties, companies, journalists and other 
individuals of influence. This secured the cooperation and 
support of countries that included members of the security 
council of the United Nations, the very body that received over 
$1 billion U.S. dollars to administer the program.
    This dynamic and conflict of interest is the cancer that 
lies at the heart of the problem. For as long as members of the 
security council are party to corrupting the system, the U.N. 
will remain but a convenient tool for those countries who wish 
to operate without responsibility and accountability.
    The very fact that Saddam Hussein, the U.N. and certain 
members of the Security Council could conceal such a scam from 
the world should send shivers down every spine in this room. I 
recommend to the United States and to Britain that it should 
institute a complete review of the United Nations, its function 
and how it might in the future operate with integrity.
    The KPMG investigation report, commissioned by the Iraq 
Governing Council, is expected to demonstrate the clear link 
between those countries which were quiet ready to support 
Saddam Hussein's regime for their own financial benefit at the 
expense of the Iraqi people and those that opposed the strict 
application of sanctions and the overthrow of Saddam Hussein. 
The decision by the Iraq Governing Council to commission the 
KPMG report in current circumstances in Iraq should be seen for 
what it is, a focused and praise-worthy step to fleck out the 
truth in the interest of a peaceful and stable Iraq into the 
future. Only truth and transparency can secure progress.
    The KPMG investigation, however, was on hold, due to 
Ambassador Bremer's intervention, until the Finance Committee 
completed its due process on Sunday April 18th. On April 18th, 
the Finance Committee of the Governing Council met and reviewed 
the submitted tender proposals. They came to the conclusion 
that the KPMG's proposal was the most competent and suitable 
for the task. Representatives of the CPA were present at this 
meeting. And I received communication from the Governing 
Council this morning that the Governing Council unanimously 
endorsed the Finance Committee's decision to appoint KPMG and 
Freshfields.
    It is hoped that this report can now proceed without any 
further delay. But there still is not a firm undertaking that 
Ambassador Bremer, contrary to the assurance given at earlier 
discussions, will grant the necessary funding from the Iraq 
development fund. Any further delay in the preparation of this 
report instigated by the Iraq Governing Council will have 
serious consequences. I already believe that the almost 2 month 
delay may well have contributed to losing evidence necessary.
    Governments may also wish to consider how to prevent the 
abuse of diplomatic immunity to circumvent money-laundering 
laws that permitted Saddam Hussein to move money around the 
world. Some may suggest that the above issues only came to 
light in recent months. That is simply not true. The U.N. 
Office of Internal Oversight, in two consecutive annual 
reports, October 2000 and October 2002, to the General 
Assembly, drew attention to the non-compliance of the Iraq Oil-
for-Food program with U.N. best practice in financial and 
contracting matters.
    And on page 4 and 5, I've given two quotes, which I won't 
read out at this moment. One was by one of the American 
representatives, Mr. Cunningham of the United States, and the 
other was from Sir Jeremy Greenstock. Both were in March 2000.
    I hope that this demonstrates that the significance of the 
illegal smuggling and money-laundering was being made known to 
the Security Council years before Saddam Hussein's regime fell. 
I hope that the investigations, KPMG's and the United Nations', 
will uncover why the sanctions committee were unable to reach 
consensus on how to deal with the smuggling and in practice, 
what actually happened when the committee decided to keep the 
issue of oil smuggling under review. The IGC investigation 
will, I hope, reveal if oil smuggling increased despite the 
committee's interest after March 2000.
    Attached to this written testimony is a diagram which 
summarizes the different ways that Saddam Hussein's regime 
raised funds outside the Oil-for-Food program. This is based on 
limited investigation performed to date and hence may change. 
However, it demonstrates several issues. First, that there were 
a variety of different and innovative ways of raising these 
funds. Second, that at this stage we do not know what these 
funds were utilized for or who received the benefit of them.
    Third, that the funds raised involved the knowing collusion 
of many entities. These included those which either purchased 
oil through the official U.N. Oil-for-Food program and paid oil 
surcharges, either in cash to Iraqi embassies abroad, or 
transfers to sanction breaking bank accounts controlled by the 
regime. These included the those countries which accepted 
smuggled oil. These include those who supplied medicine, health 
supplies, food and other materials through the Oil-for-Food 
program at inflated prices and paid a 10 percent or higher 
premium in cash, all to sanction breaking bank accounts 
controlled by the regime.
    These included those which supplied inferior goods or good 
past or near their sell by date, or those which conspired to 
repurchase the goods back from the regime and pay the regime to 
sanction breaking accounts. In summary, Saddam Hussein's regime 
did not raise these funds alone. It did it with the active and 
knowing participation of a number of countries, which included 
members of the Security Council, companies and individuals.
    Mr. Chairman, members of the committee, I hope this gives 
you a sense of the magnitude of the problem.
    [The prepared statement of Mr. Hankes-Drielsma follows:]

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    Mr. Shays. Thank you very much.
    What we're going to do is we're going to have 10 minute 
questioning, given the number of Members here, and we'll have a 
second round, maybe even a third round. We'll start with Mr. 
Ruppersberger.
    Mr. Ruppersberger. First, could you tell us your role as it 
relates to the Iraqi Governing Council? What is your role? Are 
you their attorney? Are you an advisor?
    Mr. Hankes-Drielsma. I am an advisor to the Iraq Governing 
Council.
    Mr. Ruppersberger. And are you here speaking on their--
testifying on their behalf today?
    Mr. Hankes-Drielsma. No, I am simply testifying as an----
    Mr. Ruppersberger. OK, how long have you been in that role?
    Mr. Hankes-Drielsma. Since December last year.
    Mr. Ruppersberger. OK, now, do you have a relationship with 
Chalabi?
    Mr. Hankes-Drielsma. I know him well----
    Mr. Ruppersberger. Well, do you work----
    Mr. Hankes-Drielsma [continuing]. As I know many other----
    Mr. Ruppersberger. OK, do you work with him closely on the 
issues involving the Council, the Governing Council?
    Mr. Hankes-Drielsma. Issues which I might contribute to, I 
work with him, as I work with other----
    Mr. Ruppersberger. OK, he is one of your clients, is that 
correct?
    Mr. Hankes-Drielsma. Not he. The Governing Council.
    Mr. Ruppersberger. The Governing Council, and he is a 
member of that Council?
    Mr. Hankes-Drielsma. He chairs the Finance Committee.
    Mr. Ruppersberger. OK. Now, your testimony right now, what 
I'm trying to get to, you heard the questions in the first 
panel, is basically where--we need to follow the evidence. If 
these allegations are true, the United States of America, Great 
Britain, all the countries involved in the United Nations, 
which is really what the U.N. is made up, should do everything 
in their power to get to the bottom. But they need to follow 
the evidence.
    Now, you've made some pretty strong allegations in your 
testimony against the U.N. And so far, I have not heard any 
testimony that tells me that any of the evidence that has come 
forth so far has been corroborated, has been vetted, it's been 
held accountable for true evidence. And I'm asking you if you 
have any more information, other than what the first panel had. 
Because if this is becoming a worldwide issue, the United 
Nations right now is clearly being criticized by you and other 
people, and if they did something wrong, then they need to be 
criticized, and they need to be held accountable.
    But I'm looking at the issue of authenticated evidence. 
Now, it came out in the testimony that the newspaper, what is 
it, Al-Mada, was where the first articles came out about this 
corruption. Now, do you have any idea or know of any evidence 
that has been authenticated or corroborated as it relates to 
the allegations that you're making in your criticism of the 
United Nations?
    Mr. Hankes-Drielsma. Congressman, I totally agree with you 
that all this needs to be looked into and confirmed. All I can 
tell you is that I saw the list that Al-Mada, was subsequently 
leaked to Al-Mada well before in December. I believe, from the 
information available to me, that this list was made up from 
existing records by competent civil servants who would been 
there for a long time.
    Because of the implications of it, and this was well before 
the article in Al-Mada, I wrote to the Secretary General 
immediately, suggesting that he should appoint an independent 
investigation, so that they could establish exactly what the 
facts were. The Secretary General did not immediately do that. 
Subsequent, and we don't know who, but there is suspicion that 
it might be a junior official in one of the ministries, and 
contrary to what we had decided should happen, this list was 
leaked to the press. That prompted my second letter to the 
Secretary General.
    Mr. Ruppersberger. OK, well, you did make the comment in 
your answer to my question that you believe. And I would say 
based, at first blush, what I see disturbs me greatly. It also 
disturbs me that my country, the United States of America, sits 
on the Security Council also, and if that Security Council had 
knowledge of any of this and didn't pursue it, I have a concern 
with all countries on that Security Council in that they did 
not move forward with these types of allegations.
    What I want to get to, though, I'm just wondering right 
now, with all the political issues that are out there, why is 
this becoming to the forefront right now, and if there, and 
show me the evidence, show me what needs to be done. And then I 
hear that we're, and I think that it is important that we move 
forward to investigation, but that certain countries now aren't 
cooperating. When Volcker is trying to get evidence, that 
certain countries like Russia are saying, well, we think this 
is not right and we should move forward. What is your opinion 
on that?
    Mr. Hankes-Drielsma. If I can just refer back to the 
evidence, it was precisely because of the accusation that some 
of these articles might have been politically motivated that I 
advised the Governing Council that the only way to deal with 
this was to appoint a firm of international standing to do a 
detailed report. And that is why in due course they appointed 
KPMG.
    I can also tell you that at the request and following 
meetings with the U.N.'s internal oversight in New York, at 
their request, data was handed over which KPMG and I believe to 
be genuine. I had a request this morning from the internal 
oversight whether that information could be released to Mr. 
Volcker. And I of course said immediately. And in fact I will 
be meeting with Mr. Volcker tomorrow morning.
    Mr. Ruppersberger. Well, I would hope you pursue that. Let 
me ask you this. You talked about a list, a list of, what was 
it, 275 people who had received money, including countries. 
Now, where is this list right now?
    Mr. Hankes-Drielsma. This list, first of all, the U.N. 
internal oversight has a copy of that list.
    Mr. Ruppersberger. OK. Where's the original of the list?
    Mr. Hankes-Drielsma. The original list, to the best of my 
knowledge, is in Iraq.
    Mr. Ruppersberger. Who put the list together?
    Mr. Hankes-Drielsma. The list was put together by officials 
in the Oil Ministry.
    Mr. Ruppersberger. OK. And are those officials available 
for testimony and depositions and things of that nature?
    Mr. Hankes-Drielsma. I can't answer for those officials, 
but----
    Mr. Ruppersberger. Were you----
    Mr. Hankes-Drielsma [continuing]. But KPMG, if I can just--
--
    Mr. Ruppersberger. Yes.
    Mr. Hankes-Drielsma. KPMG is looking at all documentation. 
We didn't want that. That list should not be looked at in 
isolation.
    Mr. Ruppersberger. No doubt.
    Mr. Hankes-Drielsma. That's why the urgency of the report 
is so important.
    Mr. Ruppersberger. OK, good. Thanks.
    Well, let me ask you this, then. We're talking about a 
list, but whether or not there's a list or whatever documents, 
and we need to authenticate those lists, can we really come to 
conclusions, some of your conclusions in your testimony, when 
you have criticized the United Nations, before, and come to 
conclusions before we authenticate any of the documents or 
evidence, including this list, what is your opinion on that? 
And you've got to be a pretty smart person to be in the role 
that you're in right now, or you wouldn't be there.
    Mr. Hankes-Drielsma. Mr. Congressman, I used to chair the 
management committee of Price Waterhouse and Partners, and I do 
not make statements lightly. Furthermore----
    Mr. Ruppersberger. Well, that's good, I'm glad you're----
    Mr. Hankes-Drielsma. Furthermore, I have seen a great deal 
of evidence, and some of the evidence is still privileged and 
prepared for the purpose of litigation.
    On the evidence that is available to me at the present 
time, I have made the statements that I have. And I believe 
that evidence to be genuine. Having said that, it is for KPMG 
and Freshfields and also for the U.N. to do the thorough report 
to confirm exactly what----
    Mr. Ruppersberger. You say there's evidence that's 
privileged? I mean, what privilege is there for litigation, 
civil litigation? What type of litigation are you talking 
about?
    Mr. Hankes-Drielsma. Well, this will be for the lawyers to 
decide what----
    Mr. Ruppersberger. We're talking about United Nations, 
funding the war against terrorism. It seems to me any evidence 
of corruption or kickbacks or anything is very important. In 
our country at least, a U.S. attorney or someone could subpoena 
those records. Are these records, from your knowledge and from 
your legal background, could we be in a position to subpoena 
these records that you're saying are privileged right now?
    Mr. Hankes-Drielsma. Well, some of the records are already 
with the United Nations internal oversight at this very moment. 
You would be in a better position----
    Mr. Ruppersberger. Are they invoking privilege, the United 
Nations?
    Mr. Hankes-Drielsma. I----
    Mr. Ruppersberger. OK. Well, it seems to me again, just 
follow the evidence. We have a tendency throughout the world to 
put blame on everything until we get the evidence. This is such 
an important issue. We can't take our eye off the ball of 
terrorism. That is our ultimate goal, and also reconstructing 
Iraq and doing what we need to do to bring that country 
hopefully where it will be years to come.
    Ambassador Kennedy testified earlier, you heard his 
testimony, that none of the evidence has been substantiated. He 
said none of the evidence that he knew of has been 
substantiated. Beyond the issues of non-compliance issues and 
inappropriate decisions, I'm curious how you confidently, and 
I'm kind of repeating myself, that you have made these strong--
really statements about the United Nations, coming to 
resounding conclusions based on evidence that is yet to be 
authenticated. And don't you think it's dangerous and an 
adversarial position to take, when we should all be working as 
the world to fight terrorism? And if you do, if you have this 
evidence, let's put it on the table and not invoke privilege.
    I know you're a lawyer, but it seems to me that you, based 
on your expertise, might be able to take that evidence and get 
it to the right forum so we can move forward.
    Mr. Hankes-Drielsma. Well, that is absolutely the intent--
just for the record, I'm not a lawyer. But you're absolutely 
right.
    But it's not why I've made my statement, it is a 
combination of the evidence I've seen in Iraq, the evidence 
which has been produced by your very own audit office. You have 
testimonies by Mr. Charles Dilford, Director of the Central 
Intelligence, Special Advisor for Strategy on Governing Iraq, 
which said that the budget for MIC, the Military Industrial 
Company, increased nearly a 100-fold with the budget, totaling 
$500 million in 2003. Most of this money came from illicit oil 
contracts.
    There is significant evidence already that this program was 
misused, and for that reason, I have made the statements I 
have.
    Mr. Ruppersberger. Any more specific evidence? That's not 
real strong at this point, that could be used in a court of law 
or in a criminal prosecution. What evidence do you have that 
you could share with us?
    Mr. Hankes-Drielsma. Congressman, first of all, the report, 
the work that was started by KPMG was delayed by almost 2 
months. They've only just restarted. They were in Baghdad 
securing important documents. Until such time that report has 
been completed, I think we should all wait for that report and 
wait for the U.N.'s report.
    Mr. Ruppersberger. OK. Real quick, do you know about who 
the, it's been told to us, again from media I got this 
information, Ashar Al Wassad is the owner and editor of Al-Mada 
newspaper. Do you know what his relationship is to the Iraqi 
Governing Council or Mr. Chalabi? Do you have any knowledge of 
that?
    Mr. Hankes-Drielsma. To the best of my knowledge, there is 
no link whatsoever. On the contrary, there's animosity.
    Mr. Ruppersberger. Do you have any idea what Al-Mada's 
motives were at this time to make this public and to go 
forward? The timing issue is what I'm looking for.
    Mr. Hankes-Drielsma. It's not for me to speculate.
    Mr. Ruppersberger. Not for you to speculate. I assumed you 
would say that answer. That's about how I would answer it, too.
    Anything else that you would like to say based on the 
questions that I've asked you?
    Mr. Hankes-Drielsma. Well, Congressman, only to say that 
precisely because of the points you've raised, it is terribly 
important that this report, particularly from the Iraqis' point 
of view as well, can be completed without further delay.
    Mr. Ruppersberger. Would you agree with a conclusion that 
I've come to, that until we move forward that it's unfair 
really to the world for us to move forward and make strong 
statements against the United Nations, which comprises the 
countries throughout the world, until we have the evidence that 
has been authenticated and corroborated? Would you think that 
it would, that it is important to get that first before we move 
forward and convict that group? Because I have not yet seen the 
hard evidence, other than the allegations. And if the hard 
evidence is there, let's go at it with everything we have.
    Mr. Hankes-Drielsma. Congressman, I can't comment on the 
evidence that the U.S. Government has already produced, and 
much of which has been testified, I believe, in Washington. I'm 
certainly aware that in the past, these matters, as you 
hopefully will see from my testimony, has been swept under the 
carpet. That cannot continue to happen. And for that reason, I 
made my letters to the Secretary General publicly available. 
And it's only because of that, I believe, that the U.N. has now 
actually appointed an independent commission.
    Mr. Ruppersberger. OK, one other thing and I'll stop. I was 
told by the chairman I could move down----
    Mr. Shays. There are only four of us.
    Mr. Ruppersberger. There are only four of us. Do you know 
of any relationship since Saddam was taken out between your 
client, the Governing Council, and the United Nations? Any 
relationship working together on any issues?
    Mr. Hankes-Drielsma. Yes, absolutely.
    Mr. Ruppersberger. Will you please discuss that?
    Mr. Hankes-Drielsma. Well, in my written testimony, you 
will see that the Governing Council wrote to the Secretary 
General, first of all pledging their support in cooperating 
with information, and hoping that the U.N. would do the same. 
And for that very reason, I'll be meeting with Mr. Volcker 
tomorrow morning.
    Mr. Ruppersberger. Is it still the position of the 
Governing Council to work closely with the U.N.?
    Mr. Hankes-Drielsma. Absolutely.
    Mr. Ruppersberger. OK. Thank you.
    Mr. Shays. Before recognizing Mr. Ose with my time, I just 
want to say that as early as 2000, the U.N. was told about oil 
surcharges and issued a 2001 report saying surcharges had to 
stop. I believe that we would not see action being taken unless 
this had become public. I view this more not that we're sending 
someone to jail right now, but we have determined there clearly 
is probable cause, and we need to get onto this investigation.
    Mr. Ose, you have my time.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Hankes-Drielsma, on pages 8 and 9 of your testimony, 
you provide a list of questions that you posed to the U.N. 
Under Secretary for Legal Affairs, Mr. Hans Corell, on February 
2nd. If I'm correct, the U.N.'s response to your question was 
that they would produce the evidence embedded in those 
questions.
    I'm curious, again referring to pages 8 and 9, your letter 
of February 2, 2004, have you received or learned the answers 
to any of your questions?
    Mr. Hankes-Drielsma. Congressman, I perhaps wasn't very 
clear. Their response to me was for me to produce the evidence. 
And they have not attempted to answer any of those questions.
    Mr. Ose. OK, so let's just go through a couple of those. 
You, on behalf of the Governing Council, pointed out some 
problems to their Under Secretary for Legal Affairs/Legal 
Counsel. And the question, I just want to step through this if 
I may. You have a number of sections here, but I'm just going 
to start on that.
    Under the Oil-for-Food program, you make the statement that 
indications are that not less than 10 percent was added to the 
value of all invoices to provide cash to Saddam Hussein, 
parentheses, as much as $4 billion. If so, why was this not 
identified and prevented? I presume these would have been 
contracts with the 661 Committee?
    Mr. Hankes-Drielsma. Correct.
    Mr. Ose. And your question of the U.N. was whether or not 
they had identified such 10 percent surcharges and what steps 
they had taken to prevent them. And their response to you was 
that, produce the evidence.
    Mr. Hankes-Drielsma. Right.
    Mr. Ose. You also asked whether or not the, I presume the 
Oil-for-Food program had alerted the Under Secretary for Legal 
Affairs/Legal Counsel or the U.N. in general of this problem. 
And their response to you was, produce the evidence.
    Mr. Hankes-Drielsma. Right.
    Mr. Ose. And then you asked what action had the U.N. taken 
to put a stop to such surcharges as well as who was made aware 
of the allegation of the surcharges, and their response to you 
was, produce the evidence.
    Mr. Hankes-Drielsma. Right.
    Mr. Ose. Now, the next question you asked, you made the 
point that the U.N. received a fee of 2 percent of the value of 
all transactions to administer the program. But that equated to 
a little bit over $1 billion. Then you asked what method was 
put in place by the United Nations, interestingly enough, to 
assure the quality of the food. So in effect what the U.N. was 
buying were tenders for delivery of food to Iraq to these 56 or 
52 warehouses spread around the country, for instance, in the 
Kurdish territories.
    But your concern, or the concern of the Governing Council 
might have been whether or not the food in fact was edible?
    Mr. Hankes-Drielsma. Right.
    Mr. Ose. So you're asking the United Nations, what steps 
did you take to ensure that the food in fact was edible for 
humans?
    Mr. Hankes-Drielsma. Indeed.
    Mr. Ose. And the U.N. told you, produce the evidence that 
it wasn't?
    Mr. Hankes-Drielsma. Yes.
    Mr. Ose. Do you have any evidence that it wasn't?
    Mr. Hankes-Drielsma. Yes, we do. And this will need to be 
again looked into in detail, to try to get quantities----
    Mr. Ose. Just a minute. You have evidence that the food 
purchased under the tenders submitted in the Oil-for-Food 
program, administered by the United Nations for the benefit of 
the Iraqi people, you have evidence that the food purchased 
under those programs was not suitable for human consumption?
    Mr. Hankes-Drielsma. Too, first of all, I believe that the 
U.N. was actually aware that on certain inspections, the food 
wasn't fit for humans.
    Mr. Ose. Why do you say that?
    Mr. Hankes-Drielsma. Because it's referred to, and I would 
have to come back to you in writing which report it was. 
Second, in discussing and questioning NGO's, they have told me 
the same.
    Mr. Ose. Was there a pattern such that the providers of 
food that proved to be unfit for human consumption,m in the 
sense that it came from a company, the same company over and 
over or the same country over and over, or----
    Mr. Hankes-Drielsma. I don't know the answer to that, but 
that is precisely one of the things that KPMG will also be 
looking into, who were the main suppliers and what detailed and 
further evidence can be provided to demonstrate this flaw in 
the system.
    Mr. Ose. Let me go to my next question, here. As I 
understand the process, the government would receive tenders 
for the purchase of oil, the money would be, on successful 
tenders, would be wired into BNP's account, the fiduciary 
account that they had, and then the oil would be released to 
the purchaser.
    You've made the point that anybody who would take the 
trouble to ask why non-end users were buying fuel, and that's a 
different subject, it's not the subject I want to examine right 
here, what I'm curious about is whether the Governing Council 
has looked into the controls that BNP in one case, or I think 
CitiBank in the other, placed to ensure that the disbursements 
from their accounts were proper. Apparently the U.N. told you 
to show them, in effect, if you have evidence that it's not 
adequate, give it to us.
    Mr. Hankes-Drielsma. Congressman, the relationship between 
BNP in particular, and I think it was Chase that was referred 
to this morning rather than CitiBank, but the bulk of the LC 
business, to the best of my knowledge, was handled by BNP.
    Mr. Ose. LC is letter of credit, correct?
    Mr. Hankes-Drielsma. Yes, letters of credit. When KPMG and 
I interviewed, and I was present, interviewed officials in the 
ministries in Baghdad, they had raised, under the Saddam 
Hussein regime, concerns in writing to the U.N. about the 
relationship and discrepancies on things that BNP was doing. 
They had received four internal audit reports from the U.N. for 
the first four phases, which had actually referred to some of 
these discrepancies. They had received an absolute negative 
response. It was none of their business for them to raise it. 
And from then on, the Iraqi government, Saddam Hussein's 
government, never received another audit report from the U.N.
    So one of the things we'll be asking for is to have sight 
of these audit reports that they did.
    Mr. Ose. The four of them.
    Mr. Hankes-Drielsma. No, all of them. We would like to see 
all of them. It's very strange that once questions have been 
raised as a result of the reports that the U.N. refused to 
issue any further audit reports to the Iraqi government 
officials.
    Furthermore, the Iraqi officials, and I would like to 
reemphasize again, both KPMG and I were impressed by their 
competence and their recall, and the information they could 
supply us with, they informed us that they had tried to 
increase the number of banks that handled letters of credit, 
and that the U.N. had prevented this, although they had done a 
token, very small percentage.
    Quite independently from that, and I did not refer to my 
discussion or even question this issue, I had meetings with 
board members of the Deutschesbank, who confirmed to me that 
they would have been requested by Iraq, still under the Saddam 
Hussein regime, to handle some of the LC business. They had 
visited Iraq, they had decided after careful consideration that 
they did wish to do this business. They then set it in 
operation, the trickle came through, it was stopped. The 
Deutschesbank board of directors, with their representative, 
the German representative to the United Nations, visited the 
U.N. to ask why this was. Their first response was, we cannot 
do it under the U.N. resolution. Deutschesbank's response was, 
we've looked at the resolutions and that is not true.
    Mr. Ose. The resolution, as I recall, merely said you shall 
have a fiduciary, it didn't say who the fiduciary shall be.
    Mr. Hankes-Drielsma. Quite. Subsequent, Deutschesbank said, 
we've looked into these resolutions and there's nothing to 
prevent you from taking on some of the LC business. The 
response from the U.N. to Deutschesbank was, it's our decision 
and there's nothing you can do about it. And the relationship 
between BNP and the U.N. continued as before. And there was no 
competitive element incorporated.
    Mr. Ose. One of the reasons I asked about this is that it's 
my understanding that the oil markets do their transactions in 
dollars. It's the international standard. I'm curious why 
payments for oil under the Oil-for-Food program would be 
converted into Euros and then converted back to dollars.
    Mr. Hankes-Drielsma. I do not have the answer to that. It 
is a mystery to me as well.
    Mr. Ose. Do you have any information about the exchange 
rates on those conversions, whether they were truly reflective 
of the market or tweaked?
    Mr. Hankes-Drielsma. This is precisely one of the questions 
that needs to be looked into, and we hope, we hope, that it 
will be possible for all the documents and all the records of 
BNP to be subpoenaed.
    Mr. Ose. Mr. Chairman, I note my time is up, I just want to 
make a point. Is it your testimony that the U.N. would not 
disclose the operating standards that they expected under the 
Oil-for-Food program, and when you asked them what they were, 
they told you, prove to us that we're doing something wrong?
    Mr. Hankes-Drielsma. Correct.
    Mr. Ose. How can you prove something's not being handled 
adequately if you don't know what the standards are? I think 
that's your point.
    Mr. Hankes-Drielsma. That's my point.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. At this time the Chair 
recognizes Mrs. Maloney.
    Mrs. Maloney. Thank you very much. Following up on Mr. 
Ose's questioning about the financial relationships, one of the 
things the committee's concerned about, or one of the policies 
or recommendations for policy changes that we put in place, so 
that abuse of programs or alleged abuse doesn't take place in 
the future, do you think it would be advisable that possibly we 
could recommend that the World Bank be used in escrow accounts 
and humanitarian food accounts for the U.N. in the future, 
since their books are supposed to be transparent and open to 
the public? And then it would remove the competitive bidding 
disclosure, secrecy aspect that has been alleged by some 
people.
    Mr. Hankes-Drielsma. Clearly, something needs to happen in 
order to avoid something like this in the future. I think a 
sense of public accountability would really help enormously. 
I'm not in a position to comment whether the World Bank, which 
is also an enormous bureaucracy, would be the most appropriate.
    Mrs. Maloney. What would you recommend, based on your 
experience?
    Mr. Hankes-Drielsma. I would recommend certainly than an 
organization like the U.N. needs to be forced to be publicly 
accountable and have in place independent and professional 
review boards.
    Mrs. Maloney. And in your opinion, the U.N. did not have 
these review boards?
    Mr. Hankes-Drielsma. Well----
    Mrs. Maloney. Because it was testified earlier by Mr. 
Kennedy that the U.N. could not stop a contract. They could 
recommend changes and that certain customs officials or a 
customs review board recommended changes, but the ability to 
hold a contract was in the hands of the member states or the 
United States and other countries in the Security Council.
    Mr. Hankes-Drielsma. The problem is, we don't really know 
what--I referred to the audit reports before. So many people 
have tried to seek, the U.N. refers to that as internal audits. 
Has anybody seen those internal audits? The evidence we've had 
from Iraqi officials that even they weren't given them any 
longer because they raised some questions. And all those 
letters are being secured by KPMG, all the letters written by 
the Iraqi officials, and they should become part of the 
evidence.
    Mrs. Maloney. In an earlier panel, Mr. Michael Thibault, 
the Deputy Director of the Defense Contract Audit Agency, 
testified that no cooperation, and he gave a very good analysis 
of what he saw as featherbedding and overpricing for 
inappropriate contracts, he said that, in coming forward with 
this analysis, he did not need any information from the Iraqi 
government, that he could have done it by himself earlier for 
the United States. And he then testified that he's not doing it 
now for the Defense Council that is now letting the contracts.
    It appears to me if you have this tool of accountability, 
we should certainly have used it in the past. Yet he testified 
we're not even using it going forward. As I said, he testified 
he didn't need any facts supplied by the Iraqi people or 
government. Could you comment on that?
    Mr. Hankes-Drielsma. Your point is an extremely valid one. 
And the same could have taken place for the verification and 
qualification of goods. There are some extremely professional 
firms who do nothing else but confirm the quality of goods. And 
it is a concern that much that happened, the lack of 
transparency, accountability, is happening right now with the 
Iraq Development Fund. The Iraq ministry of finance cannot 
obtain any information when they ask for it.
    Mrs. Maloney. Well, I join my colleagues on both sides of 
the aisle in support of having accountability for the Iraqi 
Defense Fund now.
    Mr. Hankes-Drielsma. Development Fund.
    Mrs. Maloney. Development Fund now. And also, it should 
have been used in the past.
    Could you really comment on what were the fundamental flaws 
in the design of this particular program that allowed these 
abuses to take place, and what should we as a Government 
propose in the future so that this doesn't happen?
    Mr. Hankes-Drielsma. Well, I think each member of the 
Security Council should ensure that first of all, there is a 
mechanism whereby these problems can be brought to the 
attention of the members of the Security Council, but more 
importantly, because as I've already said in my testimony, 
there were times that these issues were raised at the Security 
Council. But there appears to have been almost once it had been 
raised, that was it, nothing more needed to be done, there 
wasn't a proper follow-out. People weren't brought back to 
report on what had been done. And this of course is both a 
problem with members of the Security Council and responsibility 
of the Secretary General or 611 Committee.
    Mrs. Maloney. And we were given the example of buying 300 
luxury cars. This was approved by the Security Council members. 
You don't need an audit to know that this was a misuse of a 
humanitarian aid program to help the people. So what is your 
recommendation to stop that type of thing?
    Mr. Hankes-Drielsma. In my opening statement, I think there 
is a real problem when you have members of the Security Council 
who are part of corrupting the system. And until there is a 
real review of how the U.N. can operate with integrity and not 
have such conflicts, its credibility will be questioned. It is 
terribly important that the U.N. can be seen as it was in the 
past, it's a great deal of very important things, that it can 
operate with integrity.
    Mrs. Maloney. What is your suggestion if member states of 
governments who are in a position to stop corruption, they see 
the corruption and they don't take an action? What is your 
recommendation there?
    Mr. Hankes-Drielsma. They should be excluded from being 
members of the Security Council.
    Mrs. Maloney. OK. But who has the authority to exclude 
them?
    Mr. Hankes-Drielsma. That is one of the big challenges, and 
that is why I suggest that there needs to be a proper review. 
Because there were a number of countries.
    Mrs. Maloney. But what we're hearing is that there was a 
review, there were suggestions, there were audits placed before 
them, and people did not hold up the contracts.
    Mr. Hankes-Drielsma. International politics overtook common 
sense.
    Mrs. Maloney. I yield some time to my colleague, Mr. Ose, 
and Mr. Ruppersberger.
    Mr. Ose. I have but one question, and I thank the lady for 
yielding. Is there an overlap in the membership between the 661 
Committee and the Security Council?
    Mr. Hankes-Drielsma. Yes, there is.
    Mr. Ose. For the record, would you be able to provide to us 
a list of the members on the Security Council, compared with a 
list of the members on the 661 Committee?
    Mr. Hankes-Drielsma. Could I do that in writing, please, 
Congressman?
    Mr. Ose. Yes. I thank the gentlelady.
    Mrs. Maloney. And reclaiming my time, the information that 
you have uncovered, the allegations that you have uncovered, 
you'll be able to track exactly where the money went and how 
much abuse took place, correct?
    Mr. Hankes-Drielsma. Yes. So far, KPMG and I have been 
impressed with the detail, the meticulous records that have 
been kept in the ministries, the professionalism of the civil 
servants in those ministries, the instructions which were 
initially signed. And we're hoping that the report can be very 
detailed and very extensive. It will take time, particularly to 
trace and recover funds. And for that reason, it may well be 
that there will be three phases of the report, first the 
evidence that was secured, and then following on from there, 
the action that can be taken.
    But time is of the essence. Certainly when I was in Baghdad 
last time with KPMG, we obtained some very important 
information which may have been lost forever. That this report 
is being delayed for almost up to 2 months----
    Mrs. Maloney. Why is this report being delayed?
    Mr. Hankes-Drielsma. The report was delayed when Ambassador 
Bremer decided that whoever was going to do the report needed 
to go through a tender process. And the choice of KPMG had been 
very straightforward. I had never even met Mr. Adam Bates 
before, who was heading the investigation. But I was informed 
that he was one of the most competent and highly regarded 
people in the world. He had worked with Mr. Volcker on the 
holocaust investigation. He had set up the anti-fraud 
department in the Bank of England. He had done the Bearing 
investigation.
    So after meeting with him and after KPMG agreed that he 
personally would undertake this report and spend the time on 
it, I recommended to the IGC. However, Mr. Bremer said that the 
funds from the Iraq development fund would not be made 
available to the Iraq Governing Council unless they had gone 
through a tender process.
    So the KPMG report team had already been in Baghdad twice, 
left Baghdad, stopped its work to go back to London and prepare 
a report. Within 24 hours of this decision by Ambassador Bremer 
that he would not release Iraqi funds from Iraq Development 
Fund for the Iraq Governing Council to do this report unless 
this happened, the Iraq Governing Council put out a tender to 
the four leading audit firms: Price Waterhouse Coopers, Ernst 
and Young, Deloitte, and KPMG. And on Sunday, this last Sunday 
the 18th, they reviewed with the CPA present those documents 
and the proposals and appointed KPMG, which was subsequently 
endorsed by unanimous decision by the Governing Council.
    Mrs. Maloney. But you mentioned you were afraid that the 
information may be lost. Can't KMPG come back in and find that 
information they were reviewing?
    Mr. Hankes-Drielsma. No, what I said was that time is of 
the essence. Evidence can and may be lost. And it's being lost 
all the time. In one case, it was some very important documents 
concerning the BNP issue. They had actually been saved from 
water damage and fire damage by an official. That official, we 
were very concerned that information wouldn't actually get to 
us. Because if any, it's quite likely that person would have 
lost their lives if it got out that they had that information.
    And so I do believe that it's terribly important, and 
tracing, too. I expect shredders are working around the clock 
at this very moment. And the sooner legal action can be taken 
to recover hundreds of millions of dollars which are still in 
accounts which belong to the Iraqi people, hundreds of 
millions, and action needs to be taken, and it needs to be 
taken now.
    Mrs. Maloney. My time is up. Thank you for your testimony.
    Mr. Shays. Thank you. I just want to almost pause a second 
and have people hear your last comment in this subcommittee. 
This is not something that you voiced yesterday. This is a 
concern that has existed for a long time.
    As I stated, we received a letter from the Ambassador of 
France, from France to the United States. We appreciate his 
letter and we appreciate the article that he enclosed. I think 
there's lots for this committee to think about. But I want to 
read a paragraph or two and have you react to it. He submitted 
this letter along with an article. And he said first, the 
``Oil-for-Food program was closely monitored by the members of 
the U.N. Security Council. Every single contract for every 
humanitarian purchase was formally approved by the 15 members 
of the Security Council, including France, the United States 
and Great Britain. Only the United States and Great Britain had 
expressly asked to see each complete contract. As a result, 
they were in the best position to know of any abuse or abuses 
or malfeasance. In fact, the American and British delegations 
never put a contract on hold on the grounds of a commercial 
malpractice, such as an illegal kickback.''
    I want to know how you react when you read that. What 
should I infer from what I just read?
    Mr. Hankes-Drielsma. First of all, I can't comment on why, 
whether that information is accurate. Second, what I certainly 
perceive, and I refer to it in my testimony, is that there were 
certain members of the Security Council who were significant 
financial beneficiaries from the Saddam Hussein regime. But if 
information was available to Britain and America, as it's clear 
some information was, because they raised it in the Security 
Council in 2000, but whether the appropriate action was taken 
certainly on the evidence so far is that it didn't.
    Mr. Shays. Let me read another paragraph, and you kind of 
answered it with your comment. But again, respond to this 
paragraph. ``Let me add that I am concerned that these 
allegations discrediting the United Nations are voiced at a 
time when a return of the United Nations to Iraq is being 
considered and when we are trying to work together to improve 
the situation in Iraq, and help the emergence of a sovereign 
and stable Iraq. I frankly don't understand why such finger 
pointing is taking place now, but I am confident that the 
independent U.N. inquiry will establish the truth.''
    Do you think it's fair to say that this finger pointing is 
taking place now, or do you think it actually began a lot 
sooner?
    Mr. Hankes-Drielsma. It certainly began a lot sooner. there 
was extensive, at times, quite detailed press coverage, but 
people ignored it. And the Iraqi people deserve that this is 
looked into properly, and those that misuse the system are 
brought to account.
    Mr. Shays. In his article that he wrote, in the second to 
last paragraph, he said, ``France was never a major destination 
for Iraqi oil during the program. In 2001, 8 percent of Iraqi 
oil was imported by France, compared with 44.5 percent imported 
by the United States, which was the No. 1 importer all along.''
    I want to know the significance of the destination. I would 
like to know, is the 8 percent significant, is the 44.5 
percent--I'm making an assumption, I'll just tell you, that 
somehow the U.S. fingers may be dirty in this process as well. 
I don't exclude us from that. Is it the destination issue or 
the people that did the transactions or both?
    Mr. Hankes-Drielsma. Well, it's why in one of the questions 
I put to the Secretary General, why did the U.N. approve non-
end users.
    Mr. Shays. What does that mean?
    Mr. Hankes-Drielsma. Which means it is not a company, like 
an oil company who has refineries, a BP or Shell or an Exxon. 
It is an oil trader who can then basically disguise----
    Mr. Shays. It's a middleman.
    Mr. Hankes-Drielsma. A middleman. And I went on to say in 
my letter if you did approve, what did you have in place to 
understand who the ultimate beneficiaries were. And part of the 
process, of the KPMG report, but also hopefully be able to 
trace those oil deliveries and identify who were the ultimate 
beneficiaries of the oil, but equally importantly, of the cash.
    Mr. Shays. What would be the logic if it wasn't anything 
but corruption for someone to voluntarily sell their oil for 
less, than the market price? What would be the logic? I can't 
think of any logical reason why someone would want to get less 
than the market price.
    Mr. Hankes-Drielsma. There are all sorts of, I think that, 
I agree with that. And even the fixing of the oil price at the 
U.N. was a major, of the 611 Committee, was a major problem.
    Mr. Shays. You mean they would set the oil price?
    Mr. Hankes-Drielsma. They would set the oil price.
    Mr. Shays. But that didn't guarantee that the end user got 
that below the market price. It just meant that a middleman got 
it below the market price, correct?
    Mr. Hankes-Drielsma. Middleman got it below the market 
price, and at times, one state, there were meant to be three 
members of the committee, there was only one Russian on that 
committee who set the price, and to the best of my knowledge, 
he had no oil experience at all. Whenever new members were 
submitted, the Russians vetoed those members. But this is 
something that will come out in more detail.
    Mr. Shays. You know, I feel like you're a wealth of 
information and we're just not asking the right questions. If 
you left this subcommittee and didn't share that with us, it 
would be a dereliction of duty. So the next question I'm going 
to ask you is, is there anything I need to ask you, and my 
failure to ask you means that you will leave not fully living 
up to your obligations coming before this subcommittee?
    Mr. Hankes-Drielsma. Congressman, we might be here all 
evening.
    Mr. Shays. And you're under oath. I mean, I don't want to 
play a game here. I don't want to find out from my staff we 
should have asked you this question or that question. Let me 
ask you this question. But I'm also going to ask that you 
voluntarily disclose anything that you think is important, even 
if we fail to ask.
    But one question is, did you get the support of Mr. Bremer, 
and did the Iraqi Governing Council get the support from Mr. 
Bremer to do its job of determining what was happening with the 
Oil-for-Food program?
    Mr. Hankes-Drielsma. Well, I tried to see, when I became 
aware of some of the information from the ministries, I 
immediately tried to see Ambassador Bremer. In fact, I called 
his office four times to set up meetings over a 10-day period. 
Unfortunately, his schedule didn't allow. That's when I wrote 
to the Secretary General.
    Subsequent to that, when KPMG had been appointed, first 
appointment, when they were first appointed, I went to see Owen 
Withington, who is a representative, I believe he reports to 
No. 3 in the Treasury, the U.S. Treasury. Very competent, 
capable man who was totally supportive of what we were trying 
to do, and offered to assist and make sure that they cooperated 
in whatever way they could. That was very encouraging.
    It was only subsequent to that Ambassador Bremer then 
decided that this shouldn't really be handled by the Iraq 
Governing Council, who by the way had involved the Iraq audit 
bureau as well in this, in the discussions. And my perception 
was that he was almost trying to usurp the role of the Iraq 
Governing Council, which was most unfortunate. Because they had 
acted professionally, with full transparency, in dealing with 
this.
    Mr. Shays. This is a bias that I have. I've been to Iraq 
five times, and four times outside the umbrella of the 
military. I've spoken to close to hundreds of Iraqis. And they 
have a plea to us. They say they want this to be an Iraqi 
revolution, not an American revolution. Just as with all due 
respect, when we took off the yoke of bondage from Great 
Britain, we had the help of the French in not allowing the 
Brits to come into port or leave port. But it was never a 
French revolution, it was our revolution.
    It would just strike me, in those feeble moments, when the 
Iraqi Council is saying, give us the chance, my God, go out of 
your way to give them the chance to do things, even frankly if 
they screw up a little bit. Or at least don't do it the way we 
want. So I find that very unsettling. Let me just get to one 
other area, maybe two.
    I am interested to know if you have seen any documents that 
deal with any interaction between the U.N. program head, Benan 
Sevan, and the Hussein regime. I am interested to know if these 
documents discuss the transfer of oil from Iraq to Sevan, and 
if these were in fact maybe illegal. Did you see any documents 
like that, or did you hear about any documents like that?
    Mr. Hankes-Drielsma. I have seen very specific documents, 
and I will describe them to you. But I cannot draw any 
conclusions from having seen those documents.
    Mr. Shays. OK.
    Mr. Hankes-Drielsma. First of all on the list, which was 
prepared by Iraqi government officials, which I first saw in 
December, the name Mr. Sevan appeared. Not Mr. Benan Sevan, Mr. 
Sevan. And an oil allocation of just over 7 million barrels of 
oil.
    Subsequent to that, I was shown documents, one document 
which is a memorandum approved by a very senior government 
official----
    Mr. Shays. In Iraq?
    Mr. Hankes-Drielsma. In Iraq, under Saddam Hussein's 
regime, which states that Mr. Benan Sevan had called the Iraq 
representative in New York to inform him that the company he 
had mentioned when he last visited Baghdad was a specific 
Panamanian company. This memorandum was approved and 
countersigned by several people, and we believe it to be a 
genuine document. But we need to await the ultimate report from 
KPMG on this.
    Third, there was a document which very specifically states, 
allocations to Mr. Benan Sevan. And again, this adds up to 
roughly the same amount, the allocations, the approved 
allocations were larger, but the actual amount of the 
allocation amounted to just over 7 million. And these amounts 
on that list coincide, are exactly the same amounts that were 
made to the Panamanian company that he referred to in his 
letter, or was referred to, rather, in the memorandum of his 
discussion with the Iraqi representative in New York.
    KPMG, these documents by the way, I have given those to the 
internal oversight fund of the U.N. And it is for the U.N. 
report of investigation and also for KPMG to do the necessary 
forensics to trace these funds and to try and establish who the 
ultimate beneficiaries are. But the one thing I can say, that 
in that case, and in the case of others whether there's a 
former French Ambassador to the United Nations, whether there's 
the president of Indonesia, or whether it's the son of a former 
Russian ambassador, it raises the question why are these people 
on the record as having received oil coupons when they're not 
natural oil traders.
    Mr. Shays. Thank you. Would you identify Mr. Sevan as----
    Mr. Hankes-Drielsma. Mr. Benan Sevan is the man who had 
overall responsibility for administering the Oil-for-Food 
program at the United Nations.
    Mr. Shays. I don't have any other questions. Does any other 
member? Then we need to get to our next panel. I just wanted to 
say to the Members, I told one of the panelists, or my 
subcommittee did, that we would be done by 3:15, so he has a 
flight ready to go at 3:15. And so I just wanted the Members to 
know that.
    Mr. Ruppersberger. Since you're here and you seem to have a 
lot of knowledge, if these allegations are true, we've got to 
move quickly. You're right, an investigation, you lose 
evidence, and that was my issue today, following the hard 
evidence.
    I just want to ask you a couple of questions. First thing, 
you talk about the list that was released for the different 
companies, companies in different countries. I want to ask you 
specifically, on that list that you referred to as where the 
corruption has occurred, who on that list, do you have 
knowledge of anyone on that list, any company or individual 
that is from the United States of America?
    Mr. Hankes-Drielsma. There are names on that list who live 
in America. I do not know whether they are U.S. citizens or 
not. And that list is only one part of the whole issue that 
needs to be looked at as those who benefited, possibly 
benefited under the delivery of oil, sale of oil coupons.
    Mr. Ruppersberger. One of my concerns is that anyone on 
that list, if the allegations are proved to be true, then they 
would have had a reason to keep Saddam Hussein in power because 
they were benefiting financially. Now, you said that about the 
United States and you didn't give any detail. Do you have any 
detail about any other countries or individuals or companies 
that would have been on that list that are blatant and out 
front that there might be some hard evidence we can deal with.
    Mr. Hankes-Drielsma. Well, in the same way that the ones I 
referred to, but I don't believe any action can be taken until 
the report, the KPMG report and the Freshfields legal advice--
--
    Mr. Ruppersberger. By the way, you're talking about that 
report. Do they have the expertise to authenticate----
    Mr. Hankes-Drielsma. Yes, they do. They are forensic 
accountants. That is precisely their expertise. But you know, 
as of today, there is still no proper commitment from the Iraq 
Development Fund to provide the funds to do this report.
    Mr. Ruppersberger. I just want to make it clear for the 
record, you represent the Iraqi Governing Council, but you're 
not representing them here today. You're here----
    Mr. Hankes-Drielsma. I'm an advisor to the Iraq Governing 
Council and I was asked to testify.
    Mr. Ruppersberger. But you're saying you're working with 
the U.N. and you're representing the Iraqi Governing Council 
tomorrow morning to present them allegations and evidence, is 
that----
    Mr. Hankes-Drielsma. No, I said that I would be meeting 
with Mr. Volcker tomorrow morning----
    Mr. Ruppersberger. OK.
    Mr. Hankes-Drielsma [continuing]. To make sure that, and 
with Mr. Adam Bates, who is heading the investigation for KPMG, 
to discuss how we might be able to cooperate. I've had previous 
meetings with the internal oversight department of the U.N. and 
provided them the information that they requested at that time.
    Mr. Ruppersberger. Is anyone from the U.N. discouraging you 
meeting with Volcker?
    Mr. Hankes-Drielsma. Nobody has, but I'm not sure they are 
aware of it.
    Mr. Ruppersberger. Well, he basically--he was appointed and 
he's a good man, and I think from what I understand, the 
committee that was appointed by the U.N. has a lot of 
credibility. What happens to you when the Iraqi Governing 
Council is dissolved?
    Mr. Hankes-Drielsma. I have no idea.
    Mr. Ruppersberger. You haven't had any discussions?
    Mr. Hankes-Drielsma. I've had no discussions, I will 
continue to be available to help Iraq in the best possible way 
I can.
    Mr. Ruppersberger. You were hired by the finance committee 
of the Iraqi Governing Council.
    Mr. Hankes-Drielsma. Endorsed by the Governing Council.
    Mr. Ruppersberger. Right. And who chairs that committee?
    Mr. Hankes-Drielsma. Dr. Chalabi.
    Mr. Ruppersberger. OK. Now, just a little on motives, you 
probably won't be able to answer it, but I want to get it out 
again. Does the Iraqi Governing Council in any way profit 
through selling documents? A lot of people sell documents, sell 
newspapers and whatever. I'm trying to find out if there's any 
profit motive for the Iraqi Governing Council other than what 
would be in the best interest of Iraq, to move forward to push 
this investigation forward at this time. Or do you have any 
knowledge, not the Iraqi Governing Council but there are people 
out there attempting to sell documents to perpetuate this broad 
scheme of corruption?
    Mr. Hankes-Drielsma. No, almost, my impression is the 
opposite. We've had full cooperation. They've welcomed it, 
officials, government officials, civil servants have come 
forward and including the Kurds, I'll be meeting with the 
Kurdish representative in New York again tomorrow afternoon. 
They've already done the detailed report for the KPMG people to 
produce the evidence from their side, their story. KPMG will 
again look into all their allegations.
    So the opposite is true. So far, there's been full 
cooperation in every possible quarter in Iraq.
    Mr. Ruppersberger. You know, you've made some pretty harsh, 
almost indictments of corruption and people involved in the 
United Nations and other countries. And if they're true, we 
need to move forward. I hope you are the real thing. Because if 
you are, you could be extremely helpful. But I just hope that 
you have hard evidence and facts and data, and that we have 
investigators that are competent and qualified. And if you 
don't, and if you're very worried after your cooperating and 
you feel there's something, I know Chairman Shays would love to 
hear from you, as I know members of this committee, if there's 
any way that we could deal with the issues or if you feel that 
something is being blunted.
    I have one or two questions from the ranking member.
    Mr. Shays. We really need to move on here. Let's ask the 
question, it's from the ranking member.
    Mr. Ruppersberger. Yes, it's the ranking member, and I'm 
not the ranking member, so I don't want to get in trouble.
    Mr. Shays. Of the full committee?
    Mr. Ruppersberger. Yes, of the full committee, Mr. Waxman. 
You've expressed some serious concerns about the operations of 
the Oil-for-Food program. Do you think the Development Fund for 
Iraq, the DFI, has been used in a transparent and accountable 
manner, and are you aware of any specific problems with the 
Development Fund for Iraq?
    Mr. Hankes-Drielsma. I'm not aware of any problems. I am 
aware that there's been lack of transparency and 
accountability.
    Mr. Ruppersberger. OK, thank you on behalf of Mr. Waxman.
    Mr. Shays. Mrs. Maloney, and then we're going to go to Mr. 
Ose, then we're going to go to our next panel. It's got to be 
quick, though.
    Mrs. Maloney. Just very, very briefly. Do you support the 
Bush administration's endorsement of a more central role for 
the United Nations in the political transition toward Iraqi 
sovereignty?
    Mr. Hankes-Drielsma. I don't want to be politicized, I'm 
just, as I said in my testimony, I'm greatly concerned about 
the credibility of the U.N. at this time. For that reason, I 
wrote to Kofi Annan before I wrote to anybody else, so that he 
could take the moral high ground and lead this. And as I said 
in my statement, I think at the moment, given what's happened, 
and I actually believe that the eventual report will produce 
something of the magnitude that most of us haven't even begun 
to understand. And it will be very serious.
    Mrs. Maloney. Thank you.
    Mr. Shays. Thank you. Mr. Ose. You've got one, this is your 
last question.
    Mr. Ose. Well, Mr. Chairman, I'm afraid I don't have just 
one question. I'm wondering if Mr. Hankes-Drielsma would be 
willing to stick around so we get past the witness who's has 
the 3:15 plane.
    Mr. Shays. Were you planning to stay through the rest of 
this hearing?
    Mr. Hankes-Drielsma. I'm certainly available to stay.
    Mr. Shays. If you don't mind, I think that's a solution.
    Mr. Hankes-Drielsma. Not at all.
    Mr. Shays. I think it would be good if you would be willing 
to maybe come back right after we hear from the next panel. 
It's rather a good suggestion, actually.
    Mr. Hankes-Drielsma. Certainly.
    Mr. Shays. Thank you very much.
    So we're going to go to our third panel. Our third panel is 
Dr. Nimrod Raphaeli, senior analyst, Middle East Media Research 
Institute; Dr. Nile Gardiner, fellow in Anglo-American Security 
Policy at the Heritage Foundation; Ms. Claudia Rosett, senior 
fellow, Foundation for the Defense of Democracies and Adjunct 
Fellow, Hudson Institution; and Dr. Edward C. Luck, director, 
Center on International Organization, School of International 
and Public Affairs, Columbia University.
    I don't know the personal challenges of the other three, 
but my staff told Dr. Luck that we would be done by about 3 
p.m. I think the fact my staff thought that was, they didn't 
realize we would have so many show up to give opening 
statements, or we would be an hour ahead of ourselves right 
now.
    Without objection, I'm going to have Dr. Luck speak. We may 
ask you a question or two or we may not. One way to solve this 
issue would be to not speak more than 5 minutes each, and then 
we can get into a nice dialog. But Dr. Luck, you're on. I do 
need to swear you in.
    If you would all stand, please. Raise your right hands.
    [Witnesses sworn.]
    Mr. Shays. Note for the record all four of our witnesses 
have responded in the affirmative. I want to say that this 
panel is as important as the other panels. You happen to be No. 
3. But you have one advantage, and that is, you've heard the 
questions that have been asked. There may be things you want to 
simply say that aren't in your statement and just put your 
statement in the record. Feel free to answer any question that 
was asked, make any point that you want to make. You're here 
because we have tremendous respect for your knowledge about 
this issue and so many other issues.
    Dr. Luck.

    STATEMENTS OF EDWARD C. LUCK, PROFESSOR OF PRACTICE IN 
   INTERNATIONAL AND PUBLIC AFFAIRS AND DIRECTOR, CENTER ON 
INTERNATIONAL ORGANIZATION, SCHOOL OF INTERNATIONAL AND PUBLIC 
   AFFAIRS, COLUMBIA UNIVERSITY; CLAUDIA ROSETT, JOURNALIST, 
 SENIOR FELLOW, THE FOUNDATION FOR THE DEFENSE OF DEMOCRACIES, 
 ADJUNCT FELLOW, THE HUDSON INSTITUTE; NILE GARDINER, FELLOW, 
 ANGLO-AMERICAN SECURITY POLICY, THE HERITAGE FOUNDATION; AND 
  NIMROD RAPHAELI, SENIOR ANALYST, MIDDLE EAST MEDIA RESEARCH 
                           INSTITUTE

    Dr. Luck. Thank you. I should say that if it's helpful for 
me to stay a bit longer, I am supposed to give a speech in New 
York, but if I'm a little bit late, they'll survive. I think 
this is important.
    Mr. Shays. Thank you.
    Dr. Luck. Thank you, Mr. Chairman, for the opportunity to 
testify before this distinguished subcommittee on a matter of 
urgency both to our national security and to the integrity of 
the United Nations system. Today I will address three core 
issues: one, how did we get into this mess? Two, what 
conditions permitted alleged corruption and malfeasance of this 
magnitude? And three, what steps might reduce the likelihood of 
such abuses in the future?
    First, permit me to make four preliminary points. One, 
whatever diversions or distortions took place along the way, 
the Oil-for-Food program still accomplished its primary 
humanitarian and political mission. More than $30 billion in 
humanitarian assistance was delivered to the Iraqi people, 
cutting chronic malnutrition, including for children, in half. 
The program also funded some $16 billion in war reparations 
and, importantly, paid for the UNSCOM and UNMOVIC operations 
that uncovered and destroyed so much of Saddam Hussein's 
capacities to produce weapons of mass destruction. By easing 
the acute humanitarian crisis that had seriously undermined 
political support for the sanctions regime, the program 
permitted the extension of the international efforts to deny 
Baghdad further arms and strategic items.
    Two, it was entirely predictable that Saddam Hussein would 
seek to make money off the Oil-for-Food program, and ironically 
to use some of his ill-gotten gains to try to circumvent the 
very arms sanctions that the program was intended to reinforce. 
He had spent much of his reign trying to prove Lord Acton's 
rule that power corrupts and absolute power corrupts 
absolutely. Besides, it had long been known that a frequent by-
product of sanctions, whenever and wherever they are imposed, 
is a flourishing of black markets and elite corruption. 
Clearly, the controls put in place given these factors were 
entirely inadequate to the task.
    Three, it is a healthy sign that Secretary General Annan 
has established a high level independent panel, to be headed by 
Paul Volcker, to investigate possible malfeasance within the 
world body; and that the Security Council has unanimously, if 
hesitantly, endorsed it; and that both Houses of Congress, the 
GAO and the Iraqi authorities are undertaking serious reviews 
of the matter. On the other hand, it is less clear whether 
other member states, especially those whose firms or officials 
may be implicated, will undertake similar public 
investigations.
    Four, for the credibility of these exercises, it is 
essential to avoid premature or simplistic scapegoating and 
finger pointing, especially in an election year. In Washington, 
the shortcomings were bipartisan as neither the Clinton nor 
Bush administrations gave sufficient priority to early signs of 
trouble. At the United Nations, key member states, beginning 
with the members of the Security Council, but including several 
of Iraq's neighbors, were no doubt complicit in the evident 
failings of the Secretariat.
    In terms of historical context, the indecisive way in which 
the first Gulf war ended weakened the political foundations of 
the subsequent sanctions regime. The U.S. decision not to 
occupy Iraq, and thus to leave an embittered, devious, and 
thoroughly corrupt Saddam Hussein in power, set the stage for a 
dozen frustrating years of trying to contain his ambitions and 
excesses. Even in 1991, there was little international support 
for the occupation of Iraq by the United States or by the U.S.-
led coalition. Instead, in its omnibus Resolution 687 of April 
1991, the Security Council tried to have it both ways, 
asserting Iraqi sovereignty yet imposing the kinds of intrusive 
post-war conditions that have historically been reserved for a 
state that had been conquered, not just defeated on the 
battlefield.
    Iraqi sovereignty, in essence, was left in limbo, asserted 
in principle but highly circumscribed in practice. This 
ambiguity allowed Saddam, on the one hand, to blame the United 
States, the U.N. and the sanctions imposed in 1990 for the 
plight of his people before the Oil-for-Food program was 
launched; and then, on the other hand, to loot and exploit the 
program whenever possible once the oil and humanitarian 
assistance began to flow.
    In retrospect, the most glaring error was to put the fox in 
charge of the chicken coop, by allowing the Iraqi regime to 
decide with whom and on what terms to do business, whether 
concerning oil sales or the provision of humanitarian 
assistance. According to Ambassador Negroponte, this 
arrangement was adopted ``at the insistence of many other 
Security Council members.'' It appears that there were fewer 
problems in the northern Kurdish areas where the U.N. handled 
humanitarian assistance directly.
    Now, in terms of conditions for abuse, it should be 
remembered that sanctions always offer tempting avenues for 
corruption and that Saddam Hussein was given a voice in 
deciding how the program was implemented. Thus, it would have 
been a minor miracle if substantial abuses had not occurred. 
Five additional, interrelated factors worked to make a bad 
situation worse.
    One, over much of the dozen years preceding the 2003 war, 
the five permanent members of the U.N. Security Council had 
been deeply divided over how to handle Iraq. Again and again, 
whether on sanctions, weapons inspections or the use of force, 
the United States and the United Kingdom took a harder line and 
France, Russia and China a softer line. The latter three, 
supported by many other member states, were more concerned with 
preserving Iraqi sovereignty, whether for reasons of principle, 
economics, or geopolitics. As such, they were more willing to 
tolerate Iraqi abuses of the Oil-for-Food program and of oil 
export controls than were Washington or London. The many 
spoilers in Baghdad no doubt saw ample opportunities to employ 
splitting tactics, including through the awarding of lucrative 
contracts.
    Two, on policy issues, the U.N. Secretariat is schooled to 
follow the lead of the member states, particularly when 
implementing Security Council mandates. When the most 
influential member states are split and emitting mixed signals, 
the Secretariat tends to adopt a low profile, performing their 
jobs but avoiding controversy and headlines. In such 
circumstances, potential whistle blowers may well be reluctant 
to step forward. And when the Secretariat did bring Oil-for-
Food discrepancies to the Council's attention in November 2000, 
most members claimed they could not respond without the kind of 
documentation that is only beginning to become available with 
the fall of Saddam Hussein.
    Three, the humanitarian community and the media, which had 
pressed so hard to have a mechanism put in place to ease the 
suffering of the Iraqi people, seemed far less interested in 
the operational integrity of the Oil-for-Food program once it 
got underway. As long as visible progress was being achieved on 
the humanitarian front, they found little reason to be 
exercised about the pattern of financial abuse that accompanied 
it.
    Four, even for the United States and U.K., as Ambassador 
Negroponte confirmed, the bottom line was that security and 
geopolitical interests, particularly worries about Baghdad's 
efforts to acquire weapons of mass destruction, trumped their 
parallel concerns about the management and integrity of the 
program.
    Five, as is general practice, the 611 Committee formed to 
oversee the sanctions on Iraq included all 15 members of the 
Security Council and made decisions on the basis of consensus. 
This put a premium on maintaining at least a semblance of 
cooperation among the Council members. So the United States and 
U.K. raised corruption worries at several points in the 
committee, but could not or would not press them to the 
political breaking point.
    In terms of future steps, one of the simplest fixes would 
be to waive the unanimity rule in Security Council sanctions 
committees when it comes to initiating an independent review of 
abuse or malfeasance charges related to the implementation of a 
Council-authorized sanctions regime. For example, such a 
request to the President of the Council by the Secretary 
General or any 3 of its 15 members might automatically trigger 
such a probe.
    Second, the Security Council could consider establishing a 
standing panel of independent experts, a, to monitor the 
implementation of Council-mandated sanctions regimes, b, to 
evaluate abuse complaints from the Secretariat or independent 
sources, c, to report to the Council worrisome developments, 
and/or d, to carry out more in-depth investigations as 
requested by the Council under the modified rules outlined 
above. It would probably make sense to set up such a core group 
on a generic and as-needed basis, with specialists with 
regional or sectoral expertise added as required to cover 
specific sanctions regimes.
    Third, as standard procedure, Security Council resolutions 
establishing sanctions regimes should specify that the state or 
party being sanctioned should have no say over any aspect of 
the sanctions regime, including related humanitarian programs.
    Fourth, the Security Council should consider ways in which 
to bring greater transparency and accountability to the 
proceedings of its sanctions committee. The ultimate 
responsibility for the implementation of the Iraqi sanctions 
lay with the 661 Committee, whatever mistakes or malfeasance on 
the part of the Secretariat are uncovered by the ongoing 
probes.
    Both sides of this sorry equation need to be pursued with 
equal vigor. A half fix will not do when the world is sorely in 
need of integrity as well as leadership, and when the 
resolution of pressing issues requires higher standards of 
cooperation between governments and international bodies. The 
efforts of your subcommittee, Mr. Chairman, will hopefully 
represent an important step in that direction. Thank you.
    [The prepared statement of Dr. Luck follows:]

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    Mr. Shays. Thank you very much.
    Ms. Rosett.
    Ms. Rosett. Thank you, Mr. Chairman and distinguished 
members of the subcommittee, for this chance to testify before 
you.
    I would like to enter my written testimony into the record 
with one correction on page 3, which is that we all keep 
referring to this program as the more than $100 billion 
program. I actually looked at Kofi Annan's numbers, and it 
should be the $111 billion. I have a typo there, which says 
$101; $111 makes all of what I'm about to say I think even more 
alarming.
    I've been trying to think of how to explain the shape of 
this thing. This is such a large and complicated program that 
you can get lost in sort of a chamber of it and wander for a 
while. The best analogy I keep coming back to is this was DCCI, 
if that rings any bells here, the enormous worldwide criminal 
bank, but with several important differences. One is that this 
was a regime, not a bank, which had many links to extremely 
violent activities.
    We were all worried about weapons of mass destruction, and 
I want to just lay out something for you where the more I have 
looked at this program, the more I am worried that you should 
be looking at the Oil-for-Food contracts with an eye not 
necessarily to weapons of mass destruction, but where exactly 
was all that money going. And if we're not finding weapons of 
mass destruction, had Saddam possibly found other conduits for 
his hostile impulses and this program would have served very 
naturally for those. I think there are actually security issues 
here.
    I do not have proof, but the problem there is on many 
questions you will have, it's hard to get proof, because the 
United Nations has the documents. We don't have them. They're 
deliberately kept secret. And the recommendations that I made 
in my written testimony have to do with the two features that 
shaped this program as the fiasco I believe it has been. One 
was privilege and the other is secrecy.
    Privilege, this whole thing was set up in such a way that 
it was a deal with the United Nations and Saddam Hussein in 
which the people of Iraq were wards of these two parties who 
had no say in anything whatsoever. At the very end, the 
Secretary General of the U.N. boasted that 60 percent of the 
people depended entirely on the Oil-for-Food rations.
    In other words, more than half the population of a country 
of 26 million people depended entirely on the dole, as designed 
by the totalitarian ruler of a totalitarian state, with the 
assistance of the United Nations, which was doing this on 
commission from the tyrant. That's a design that's not going to 
work out well for the things the United Nations is supposed to 
defend, which I think are things like world peace and the 
interests of free people.
    And with that design, the privilege here was just a mess. 
The Iraq people had no access to the numbers, they had no say 
in the distribution lists were drawn up, they had no say in 
anything. They showed up, presented their cards and were given 
whatever came in. Saddam, all of this was kept highly secret. I 
see I'm running out of time real fast.
    I just want to say, Saddam got to draw up his own lists. 
You must see those lists. They are astounding, that the United 
Nations could have sat there checking off, fine, sell oil to 
Liechtenstein, Panama, Cyprus, 12 companies in Switzerland 
among the first 50 buyers designated on the list. Anybody could 
tell, looking at that, that what was being set up was basically 
a global financial network in which Saddam was going to be able 
to do anything he chose and I do believe he did. He had every 
opportunity.
    The kickbacks that you are looking at, it's not merely a 
matter of larceny, which is enormous and should be a huge 
concern. Remember that when somebody accepts a bribe, if each 
of you had been paid $10 million by Saddam Hussein over the 
past few years, not only might you be inclined to do things his 
way, he would be able to blackmail you. Anybody that took a 
bribe from him, he has the goods on. Usually the protection 
there is, why would the guy who has the goods on you want to do 
anything.
    Well, Saddam had a lot less to lose. He had already gamed 
this thing. He could get away with anything. He could put 
surcharges on the oil and the Security Council wouldn't stop 
him, because they were afraid that the whole thing would fall 
apart. And at that point, if indeed the bribes that we are 
worried about took place, Saddam was in a position to make 
these people do anything he wanted them to. They could expose 
him at far less risk to him than he would run in doing things 
to expose them.
    So the entire structure of this thing was a situation in 
which basically I believe it is important for an investigation 
to be made that not only looks at what happened to the money, 
but gets into what worthy corridors that were set up. Those 
contract lists, kept secret by the United Nations, I believe at 
some risk to both security, integrity, etc., were Saddam's 
little black book. There is at this point, the United Nations' 
insistence on secrecy is absurd.
    One other note. The questions of whether the DCMA, the 
Defense Contract Management Agency, could have better priced 
the contracts, there's another way that can also be done, which 
is have the U.N. simply disclose this information. And there 
was no excuse. The idea that it's the way the U.N. has always 
done everything, that Saddam was a sovereign ruler, he was a 
sovereign ruler under sanctions, infamous at that point for 
atrocities, wars, terrible things. There was no reason.
    And may I just suggest to you that when someone makes an 
error, if this was a program in which the errors were, you 
know, what, the United Nations collected almost $2 billion on 
commission, the weapons inspections, there were no weapons 
inspections for 4 years. They collected half a billion dollars, 
there is no public accounting for that money. There is no 
public accounting for any of it.
    And when someone does that and makes errors of billions, B, 
the scale of this program has not yet begun to sink in, 
recall--I forget the exact figure, I should have looked it up, 
when people were worried about the amount of money that Osama 
bin Ladin inherited and had at his beck and call for whatever 
he does, it is dwarfed, absolutely dwarfed by the sums that 
were spare change, rounding errors, nothing, in this program. 
This is a man who wished us ill, we've all been very concerned 
about that.
    And I believe if you start following the connections here 
you will see things that again, I cannot stress enough, both 
speed I think is important and serious attention to the fact 
that I don't think it was negligence, I think there was a 
design here. And I say at the beginning of my written testimony 
that when I first began asking about this, I simply, I did not 
expect to see a scam, I just wanted to understand this 
complicated program. Each question led me further toward the 
conclusion that if it had been deliberately designed to be 
manipulated by Saddam, it could not have been improved, what 
was in place could not have been improved upon.
    I think there is one final question I would add to that, 
which is we have the possibility of corruption during the 
program. It should be considered that this program be, the idea 
of setting it up goes back actually to just after the Gulf war 
in 1991. The U.N. was considering it for a while. Some of the 
links that are now in place were set up at that point, have 
been there for a while.
    It is not impossible, given what we know, that it was 
corrupt before the very start. In other words, in the shaping, 
if you will look back and see that the Secretariat took the 
lead. Again, I understand you want proof, that's important. 
When Kofi Annan and Benan Sevan challenged us to produce the 
proof, the thing, the hypocritical, sleazy thing about that 
spectacle was that they themselves had designated the proof 
confidential. And saying, I'll now wrap this up, in saying that 
this was the responsibility of the Security Council.
    Part of the problem with the U.N. is the buck stops 
nowhere. But it was the Secretariat that collected the money. 
The money here matters, the money was so big it matters at 
every step. They collected almost $2 billion in commissions. 
Again, imagine if that were coming into your party, your 
office, what kind of a difference that would make in your 
attitude toward retaining a program and expanding it. It was 
the Secretariat that was the chief interlocutor with Saddam 
Hussein, that had the people on the ground, the Security 
Council by and large did not. The U.S. certainly did not.
    And at some point, you must ask, when does somebody stand 
up and say, we are seeing incredible corruption. I guess I need 
to add one last thing, and that is, Kofi Annan helped negotiate 
this program before it began, the terms that kept things secret 
and let Saddam pick his own clientele. There is a serious 
appearance of conflict of interest with his son, and you're 
welcome to ask more about that. He appointed Benan Sevan, he 
kept him there through all that time. He visited Baghdad in 
1998, he's been there, he knows the scene. And the notion that 
he really wasn't sure there had been any wrongdoing until 
finally these stories made it impossible to--when these 
hearings were announced--is ludicrous.
    [The prepared statement of Ms. Rosett follows:]

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    Mr. Shays. I thank you very much.
    Dr. Gardiner.
    Dr. Gardiner. Mr. Chairman, distinguished members, I'm 
honored to testify before the committee today.
    I would like to outline a series of measures that should be 
implemented to ensure that the Oil-for-Food fraud is properly 
investigated and that those responsible for criminal activity 
in relation to the program be brought to justice.
    The Oil-for-Food program was a result of a staggering 
management failure on the part of the United Nations, and has 
raised troubling questions about the credibility and competence 
of the world organization. The Oil-for-Food scandal reinforces 
the need for sweeping reform of the United Nations bureaucracy. 
Congressional hearings, combined with an extensive probe 
launched by the Iraqi Governing Council in Baghdad, have probed 
U.N. Secretary General Kofi Annan to call for an independent 
commission of inquiry appointed personally by Annan himself.
    While this is a step in the right direction, we need 
guarantees that this inquiry will be fully independent and 
impartial, and that it will posses the power to force the 
cooperation of U.N. member states. As it currently stands, it 
bears all the hallmarks of an elaborate paper tiger with no 
real teeth. What is required is a Security Council appointed 
investigation mandated by a U.N. resolution. I welcomed Mr. 
Annan's message to the subcommittee this morning that he 
supports such as U.N. resolution.
    In addition, the Bush administration should launch its own 
investigation into the Oil-for-Food program, and link it to a 
sustained U.S.-led campaign to reform the United Nations. The 
Security Council should appoint an international team of 
criminal investigators to join the inquiry. Investigators 
should be drawn from the FBI, Interpol, Scotland Yard and other 
leading criminal investigative agencies. They should work 
alongside a specialist team of auditors, drawn from a leading 
accounting firm without ties to the United Nations.
    Senior U.N. bureaucrats with responsibility for running the 
Oil-for-Food program should be investigated and held 
accountable for their actions. All U.N. officials found to be 
involved in criminal activity by special investigators should 
be suspended from employment, stripped of diplomatic immunity, 
be subject to extradition and if convicted, have their 
employment terminated without pension rights. Individuals 
alleged by the investigation to have participated in criminal 
activity in relation to Oil-for-Food should be extradited to 
face trial in Iraq. As the Iraqi people were the victims of the 
ruthless exploitation of the Oil-for-Food program, it is 
appropriate that the Iraqi legal system try and sentence those 
responsible.
    The U.N.'s inability to successfully manage the Oil-for-
Food program represents at the very least a spectacular failure 
of leadership on the part of Secretary General Kofi Annan. Mr. 
Annan must bear ultimate responsibility for the program's 
massive failings. The United States should call for Annan to 
step down from his post if he is found to have deliberately 
turned a blind eye to corruption and criminal activity.
    The congressional and Security Council investigations into 
Oil-for-Food should act as a catalyst for long overdue reform 
of the U.N. system. The United States should call for 
fundamental reform of the United Nations, including an annual 
external audit and a Security Council imposed code of conduct 
for all U.N. employees.
    Long term U.S. funding of the United Nations should be made 
dependent upon widespread and satisfactory reform within the 
U.N. The anything goes approach which is pervasive across the 
U.N. system is unacceptable and should no longer be tolerated.
    The following conclusions can be drawn from the Oil-for-
Food scandal. The Oil-for-Food fraud reinforces the point made 
by President Bush that the U.N. is in danger of becoming an 
irrelevance on the world stage. The United Nations continues to 
slowly decline as a credible international force, and will go 
the same way as the League of Nations unless it is radically 
reformed and restructured. The U.N.'s reputation has been 
heavily scarred by its handling of Oil-for-Food and by its 
failure to support Saddam Hussein's removal from power.
    The United Nations as an organization will have to work 
extremely hard in the coming years to mend its battered image 
and restore the faith of both the Iraqi and the American 
peoples, as well as that of the wider international community. 
The mismanagement of the Oil-for-Food program raises serious 
doubts about the U.N.'s ability to manage future programs of a 
similar scale. The United Nations should not be placed in 
charge of the administration of an international sanctions 
regime unless substantial safeguards are introduced.
    Finally, the United Nations cannot be entrusted with a 
major management role in Iraq. The United States is right to 
exclude the U.N. from a key role in administering post-war 
Iraq. The U.N. is clearly incapable of performing such a 
function. The hand-over of political and military power to the 
United Nations after the June 30 deadline would be 
strategically disastrous for the future of Iraq.
    I thank the committee for the opportunity to testify on 
this vital subject, and I look forward to your comments and 
questions.
    [The prepared statement of Dr. Gardiner follows:]

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    Mr. Shays. Thank you very much, Dr. Gardiner.
    Dr. Raphaeli.
    Dr. Raphaeli. Mr. Chairman, thank you for inviting me to 
testify before your distinguished subcommittee.
    On January 25, 2004, the Iraqi daily Al-Mada published a 
list of 270 individuals and entities who were beneficiaries of 
Saddam Hussein's oil vouchers. The Middle East Media Research 
Institute [MEMRI], translated the list from the Arabic and made 
it available to the non-Arabic readers on January 29th.
    I should answer a question asked before lunch, Mr. 
Chairman, the owner of the newspaper is Mr. Fakhri Kareem. He 
has a long history in Iraqi politics, a former communist, age 
64, we can talk about it later on.
    In my presentation will address five questions: what are 
these oil vouchers and how were they used; who were the voucher 
recipients; is the list authentic; what other means did Saddam 
Hussein use to subvert the Oil-for-Food program; and finally, 
could the administrators of the program have been unaware of 
the regime's subversion by the program?
    Now for the first question. The nature and use of the oil 
vouchers. In May 2002, or 2 years before the oil vouchers 
achieved their present notoriety, and I'm sorry, I'll have to 
take credit for that, MEMRI issued a special dispatch entitled, 
``Iraq Buys and Smuggles its Way Out of U.N. Sanctions.'' That 
dispatch cataloged techniques that were being used to subvert 
the program, including the use of vouchers to buy friends.
    In brief, Saddam Hussein granted oil vouchers to various 
beneficiaries who could then sell them to oil dealers or agents 
operating from the Rashid Hotel in Baghdad. The agents would 
then sell the vouchers to oil companies which, in turn, would 
submit them to the State Oil Marketing Co., [SOMO], to collect 
the oil. Both the recipient of the voucher and the agent 
collected quick and handsome profits. A 1 million barrel 
voucher surrendered against 25 cents per barrel earns $250,000.
    The second question is, who were the voucher recipients. 
The beneficiaries were from 52 countries and included 19 
political parties and numerous politicians and journalists. 
Russia led the way among countries, with 46 recipients for a 
total of about 2.5 billion barrels. In an annex to my 
background paper, there will be a list of the recipients of the 
vouchers and comments by them explaining the reason they 
received the vouchers.
    The third issue is the authenticity of the list. There is a 
propensity among totalitarian regimes to keep accurate records 
of their misdeeds. The first half of the last century provides 
several examples. Saddam's regime provides another.
    What gives credence to the authenticity of the list are the 
statements by many of those implicated that they had received 
the vouchers for goods which they provided under the Oil-for-
Food program. These statements are, at best, disingenuous. 
Under the program, contracts had to be approved by the U.N. and 
upon the delivery of the goods, the U.N. would reimburse 
suppliers from an escrow account held at a French bank. Hence, 
if vouchers were granted, they were given either as bribes or 
as payment for illicit goods which could not be purchased under 
the program itself.
    Again if I may answer another question unanswered before, 
the reason the program was managed in Euros and not in dollars 
is that at the insistence of Saddam Hussein, as a form of 
punishing the United States, he said, we're going to deal with 
Euros rather than dollars. Upon his insistence, the account was 
opened in Banque Nationale de Paris. So it was Saddam's order 
on both instances, French bank and the Euro instead of dollar.
    The fourth question, the subversion of the program by the 
Saddam regime. Despite the sanctions, the regime of Saddam 
Hussein perfected a number of methods to sell oil for personal 
gain. A, Iraq exported to Syria approximately 200,000 to 
250,000 barrels a day through the Kirkuk Banias pipeline. Syria 
never denied it.
    B, trucks carried diesel oil from Kirkuk to southern 
Turkey. C, small Iraqi ships carried crude oil across the 
Persian Gulf mainly to Qatar for trans-shipment elsewhere. D, 
grains and other food supplies imported under the program were 
re-exported. E, legal shipments of oil were topped up by 
varying quantities with the excess sold for the benefit of the 
regime. And finally, F, invoices were inflated, a practice 
commonly referred to as pricing transfer, or as was said here, 
kickbacks.
    And the fifth and final question, the knowledge, if not the 
complicity, of the U.N. managers of the program. On February 
18, a month after the list was first published by the Al-Mada, 
Mr. Shashi Tharoor, United Nations Under Secretary General for 
Communications and Public Information, wrote a letter to the 
editor of the Wall Street Journal professing ignorance of 
wrongdoing.
    The letter makes two curious assertions. First, it 
protests, ``No one at the United Nations has yet seen the 
original list.'' Note please that Al-Mada had published the 
list 1 month earlier. Second, the letter offers an elaborate 
explanation of the procedure for administering the program. But 
Mr. Tharoor then introduces a caveat: ``The United Nations had 
no way of knowing what other transactions might be going on 
directly between the Iraqi government and the buyers and 
sellers.''
    Now comes the shocker. Mr. Tharoor says, ``The program 
itself was managed strictly within the mandate given to it by 
the Security Council and was subject to nearly 100 different 
audits, external and internal.'' I repeat, Mr. Tharoor says 100 
different audits, between 1998 and 2003, and as the Secretary 
has said, ``this produced no evidence of any wrongdoing by the 
U.N. official.''
    It is odd indeed that all these audits, paid from the more 
than $1 billion collected by the U.N. to administer the program 
could not find one of the several infringements of the program 
that had been noted 2 years earlier by MEMRI, which has no 
access to official records.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Raphaeli follows:]

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    Mr. Shays. Thank you all very much.
    Would you like to say anything?
    Mr. Ruppersberger. Just a comment that I think you all had 
excellent testimony and you all raised very good points and 
issues.
    Mr. Shays. Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Dr. Raphaeli, I'm looking at your testimony, and appended 
to that is a list I believe to be of the 200 odd, 270 
individuals and entities who are beneficiaries of Hussein's oil 
vouchers, is that correct?
    Dr. Raphaeli. 269, to be precise.
    Mr. Ose. OK.
    Dr. Raphaeli. It's attachment two.
    Mr. Ose. Now, if I understand this, part one, The Saddam 
Oil Vouchers Affair, Part I, on page 2 of 17, like that. If I 
understand this, individuals or entities on this list would go 
to the Al Rashid Hotel and receive a voucher from persons 
unknown, and turn around and go to SOMO and get a contract?
    Dr. Raphaeli. Congressman, it was Saddam who would give the 
authorization for the voucher. There was a story from people 
who worked in his inner office that they could just tell by the 
expression on the face of the individual coming out of Saddam's 
office whether they got a voucher or not. When a person 
received a voucher, they would go to the Rashid Hotel and there 
would be dealers and commission agents, many from Qatar, who 
would buy the voucher and sell it to an oil company and the oil 
company would present it to SOMO to collect the oil.
    Mr. Ose. Were the vouchers like bearer bonds?
    Dr. Raphaeli. It's a letter, basically I have seen at least 
two letters authorizing the supply of a certain number of oil 
to an individual signed by the heads of the office of Saddam 
Hussein.
    Mr. Ose. Is an individual or entity that's to be allocated 
these barrels of oil, is it named in the letter?
    Dr. Raphaeli. There will be a name, to allocate 1 million 
or 5 million barrels to Mr. So and So. And that individual will 
take it to Rashid Hotel and collect his commission.
    Mr. Ose. So he walks over to the Al Rashid, and let's say--
--
    Dr. Raphaeli. There will be people who specialize----
    Mr. Ose. He walks up to Doug Ose and he says, Mr. Ose, I 
have a voucher here for 7 million barrels, what will you give 
me for it?
    Dr. Raphaeli. I mean, there are people who have knowledge 
of the recipients of the vouchers. I'm sure there was some 
network with Saddam Hussein's office and the dealers.
    Mr. Ose. So the person buys the voucher from this person 
who came out of Saddam's office and walked across the street to 
the Al Rashid.
    Dr. Raphaeli. Yes.
    Mr. Ose. Let's say I buy it from that person. I take that 
voucher, where do I go?
    Dr. Raphaeli. You go to, you usually sell it to an oil 
company, because the agent doesn't have the facility to carry 
the oil. It's the buyer, the ultimate buyer who has the 
responsibility----
    Mr. Ose. The end user.
    Dr. Raphaeli [continuing]. To ship the oil from the oil 
terminal in Um Qasr to someone else. So the person would sell 
it to an oil company. A lot of these vouchers were sold to 
companies like Volero and----
    Mr. Ose. Let me just walk through this. Somebody walks into 
Hussein's office, walks back out with a voucher. Walks over to 
the Al Rashid and sells the voucher to me. I'm a middleman. I'm 
going to turn around and sell the voucher to an oil company.
    Dr. Raphaeli. That's right.
    Mr. Ose. Now, the voucher has somebody's name on it. That 
was your testimony a couple of minutes ago. The voucher that 
accompanied the person out of Saddam's office, it has a name of 
an individual or an entity on it, is that correct?
    Dr. Raphaeli. That's correct.
    Mr. Ose. So then I end up buying it. I'm a middleman and 
I'm going to turn around and sell it. I buy a voucher that has 
somebody else's name on it, is that correct?
    Dr. Raphaeli. That's correct.
    Mr. Ose. Then I turn around and transfer it to an oil 
company. Now, the oil company might be British Petroleum [BP]. 
How do they redeem a voucher in the name of some Iraqi?
    Dr. Raphaeli. Sir, you are using the thinking of a well 
organized legal system, as in the United States or a country 
where somebody would look at the name and see whether you are 
eligible to get the oil. In the case of Iraq, if the oil is 
given by Saddam, everybody is on the know. So the oil company 
takes it to SOMO, SOMO is part of the deal, SOMO delivers the 
oil without asking questions. They don't really see the name, 
if it's legally provided. This is all illegal.
    Mr. Ose. So SOMO takes the voucher, I'm the middleman, I've 
sold it to BP, as an example, I'm not suggesting, I'm just 
saying it as an example, BP goes to SOMO and says here's my 
voucher, SOMO makes an allocation of oil, BP pulls its tanker 
up to the pier, they load the oil and BP wires the money to the 
U.N. account at BNP. Is that correct?
    Dr. Raphaeli. That's correct.
    Mr. Ose. Why ever would companies, international in nature, 
subject to sanctions placed in effect by the United Nations, 
exercise vouchers in the name of, say, Abu Abbas? Why would 
they exercise vouchers in the name of the Popular Front for the 
Liberation of Palestine, an organization identified by our 
State Department as a terrorist organization? How could that 
happen?
    Dr. Raphaeli. Congressman, it happens because not all the 
buyers of the vouchers are international oil companies. Many of 
them are small traders who buy 1 million barrels and carry it 
to Rotterdam, sell it on the international market.
    Mr. Ose. It's my understanding that the contracts for Oil-
for-Food, for purchase of oil, had to be approved through the 
process by either the 661 Committee or the Security Council, is 
that correct?
    Dr. Raphaeli. It is correct that in, I believe 2001, the 
United Nations has authorized Iraq to determine the buyers of 
the oil. They didn't have to go through the United Nations. 
Iraq had the authority to establish the buyers.
    Mr. Ose. It's your testimony that Abu Abbas in one case, or 
the Popular Front for the Liberation of Palestine in another, 
according to this document you have here, received financial 
compensation under the Oil-for-Food program?
    Dr. Raphaeli. That's right.
    Mr. Ose. My time has expired, Mr. Chairman, but I hope we 
have another round.
    Mr. Shays. You know, maybe I'll just give you a second 
here. I would like to ask a question of Dr. Luck, if I could, 
and do it that way. I am fascinated by the whole concept of 
unanimity rule in the Security Council. And would you explain 
to me, I mean, I knew that the Security Council, when it 
decides to go into Korea or go into Iraq, it takes everyone 
there. But is that a standard rule for every action within the 
Security Council?
    Dr. Luck. No, it isn't for the Council itself. But many of 
its subsidiary bodies, including all of the sanctions 
committees, operate by consensus. In other words, in something 
like the 661 Committee, in theory, each of the 15 members has a 
veto, while normally in the Security Council, obviously only 
the permanent 5 have vetoes. So this is one of the reasons why 
sanctions committees generally have rather mixed, at best, 
reputations. It depends a lot on who the chairperson of that 
individual committee is.
    For example, with this 661 Committee, I would recommend to 
you an account by Peter Van Walsum, who was the Netherlands 
permanent representative to the U.N. and chairman of the 661 
Committee in 1999 and 2000. He goes on at some length, with 
considerable concern, about how some of the member states were 
treating the Oil-for-Food program and the sanctions regime, and 
particularly he was frustrated obviously by the French and the 
Russians and the Chinese and their lack of enthusiasm for 
pursuing these various things.
    But generally, the chairperson will have that for a 2-year 
term, because non-permanent members, of the Security Council 
are there for 2 year terms.
    Mr. Shays. When I was in Jordan one time when King Hussein 
was still living, one of his nephews who was in charge of 
security told--he was describing the dialog that took place 
with Saddam's son-in-laws who were in Jordan. It was pretty 
brutal dialog. They were basically both boasting who had killed 
more people.
    In that same discussion, he said, you Americans don't 
understand, in your society when times are bad, you turn 
against your leaders. In our society, when times are bad, we 
turn to our leaders. He was basically speaking of how we had in 
a sense empowered Saddam in the course of trying to isolate 
him. And I say that because I was thinking that, during the 
first few years after we had gotten him out of Kuwait, I had 
constituents who would come to me and were just horrified at 
the death and destruction that was taking place with the 
civilian population. Saddam was very willing to have that 
happen.
    So what then happened was, we put in place this 
humanitarian program, and frankly, the opposition to the 
sanctions disappeared. And in a sense, we're all kind of a part 
of this, because he really had us over a barrel. I mean, given 
that he was willing to just have his people die and clearly not 
have any conscience about it.
    So I'm saying that I have a little bit of sympathy for this 
mess. I would like Dr. Gardiner, I was thinking, each of you 
have come with different strengths to this meeting and that is 
why we invited you. I think, Dr. Gardiner, you were one of the 
first to ask for hearings. So we thank you for that. Ms. 
Rosett, you had been writing periodically as you got into this 
issue. Dr. Luck, we were looking at you in some cases because 
we couldn't find anyone who quite frankly wanted to defend the 
U.N.
    Dr. Luck. Did you find one? [Laughter.]
    Mr. Shays. No. Even you weren't it. But what you did do, 
which I really commend you for, you came in with some very real 
suggestions of things that could happen differently. One of the 
things I think our committee is going to do is try to really 
move forward with suggestions of what needs to happen. It does 
strike me though, it is, we have this incredible challenge. Dr. 
Raphaeli, we just uppercut you going through these different 
ways that the abuses occurred. So I thank all of you for your 
participation and would welcome any comment you would like to 
make based on what your colleagues in this panel have said.
    Dr. Luck. If I may make one comment, I think a lot more 
research and study has to be done about the motivations of 
various Security Council members. Yes, there seems to be a 
financial interest that some of them had. But were those 
financial interests so controlling that China or Russia or 
France took the positions they have in the Security Council 
vis-a-vis Iraq? It may be part of an explanation, but I have a 
feeling it's not the whole explanation.
    Most member states, not just those three, and those that 
had nothing to do with financial advantages from Iraq, were 
very negative on the sanctions regime, very eager to get 
something in place that looked like it would be doing something 
about the humanitarian issues. And I think we have to remember, 
there are a lot of geopolitical issues here, a lot of strategic 
issues, a lot of questions about the United States itself and 
its policies in the area that help to explain why other 
countries took the positions that they did.
    And I think if we try to say, gee, it's simply these 
contracts, these individuals, that explain everything, I think 
we really won't get to the final answer. Because I think the 
French, the Russians, the Chinese all had an interest in trying 
to counterbalance United States and U.K. influence in the 
region. And they all had interests in Saddam Hussein, some of 
which may have been lucrative contracts, but some may have been 
geopolitical in nature as well, in terms of their keeping a 
foothold in a region in which they felt the United States was 
becoming dominant.
    So I don't think we should be too simplistic about this, 
and we should recognize that the Security Council is the most 
political body that I can think of. We keep asking: why don't 
they act in what we would call more rational ways, etc? We have 
to realize that a lot of political calculation is going on, a 
lot of tradeoffs, a lot of compromises, and very often the 
result is very ugly. And this is one of the ugliest that I've 
seen.
    Mr. Shays. I would love an explanation of why the United 
States would be the largest consumer of Iraqi oil. I don't 
understand quite, oil is oil. Why did we need to get 44 percent 
of the oil that Iraq exported? Why did it need to come to the 
United States?
    Dr. Raphaeli. Mr. Chairman, Iraqi oil from Basra, southern 
Iraq, is considered one of the best oils in terms of, it's a 
light crude.
    Mr. Shays. You're speaking as a former Iraqi?
    Dr. Raphaeli. Yes.
    Mr. Shays. As an Iraqi-American?
    Dr. Raphaeli. Yes, I grew up by the oil wells. The Iraqi 
oil, indeed, and my son-in-law is an oil engineer and I talk to 
him, about the various oil questions, the refineries in this 
country are built around certain viscosities of oil.
    Mr. Shays. Yes.
    Dr. Raphaeli. The refineries in California are suitable for 
the Iraqi oil, or the Iraqi oil is suitable for California 
refineries. Therefore there was a big demand for Iraqi oil, 
because of its quality. That's why the United States was 
impelled to buy it. And in any case, once the oil leaves the 
port, it is--anybody can buy it.
    Mr. Shays. I know, but it's just curious to me that there's 
a part of me that thinks, why would we--I mean, I understand 
the quality and all that. But you get a sense of what I mean. 
Just politically, it strikes me as kind of a curious thing, 
that we would want to be the largest consumer of Iraqi oil.
    Dr. Raphaeli. Well, for most oil companies, oil has no 
color.
    Mr. Shays. Yes. And yet we wanted that oil. If that were 
the case, why weren't we just consuming----
    Dr. Raphaeli. Well, it's a moral question. I can't really 
answer it.
    Mr. Shays. And it probably is a meaningless question to 
answer. But it's still curious to me.
    Yes, Dr. Gardiner.
    Dr. Gardiner. I have a couple of points to make on the 
record. I think first, it's imperative for Congress and also 
the Bush administration to maintain the pressure on Kofi Annan 
and upon the U.N. Secretaries and the Security Council to 
ensure that the commission of inquiry which has just been 
launched is effective and has real----
    Mr. Shays. Let me just say, it was launched today with a 
resolution.
    Dr. Gardiner. Yes. I haven't actually seen the wording of 
the resolution, but I think it's imperative that the United 
States and key allies like Great Britain, for example, maintain 
a close watch over this inquiry to ensure that it gets the job 
done. There are many on the Security Council who will certainly 
try their best to weaken this inquiry. And so we're facing a 
major battle ahead in the coming months. But it's imperative 
for the Bush administration, also for Congress as well, to keep 
the pressure there.
    Second, I believe that the United States should be thinking 
very carefully about the Brahemi proposal for the hand-over of 
power in Iraq on June 30th, the suggestion that the United 
Nations should in effect hand pick the Iraqi interim government 
post-June 30th. I think that not enough attention has really 
been paid to the detail here. The United States is in effect 
ceding political power to the United Nations. It's a dramatic 
reversal of policy for the Bush administration.
    And in light of the U.N.'s handling of the Oil-for-Food 
issue and the fact that the U.N. Security Council refused to 
back the move to remove Saddam Hussein from power, the United 
States needs to think very, very carefully before agreeing to 
the proposals of the U.N. envoy to Iraq, and just take a step 
back, think long and hard before agreeing to what is a very, 
very controversial proposal with huge implications for the 
future of the Iraqi people.
    Mr. Shays. Thank you. Go ahead, Ms. Rosett.
    Ms. Rosett. Thank you. I think Mr. Gardiner has it exactly 
right, and to have the U.N. go in there, as compromised as it 
may well be, would be disastrous, especially if--one of the 
huge flaws here has not been remedied, and that is the secrecy. 
The U.N. is entirely un-transparent. I wondered if I should 
bring along my notes from over almost 2 years to find out the 
simplest things from them, things that any democratic 
government would routinely disclose and they do not. Again, 
there is no justification.
    If I could just suggest to you two things, two large chunks 
of information that would be useful to have in the public 
domain from an official source. People had to piece things 
together.
    But again, the U.N. defends itself by making it impossible 
to get to material that should be publicly available. One is 
simply the amounts that went to individual businesses, 
basically the contracts, the amounts that went to the 
businesses in the countries that we're discussing. Everybody 
talks about, what did France do, Russia, this do, that do. At 
this point, there is every reason for the Iraqis to be able to 
see what it was, for people to be able to make informed 
judgments about who did business with Saddam Hussein, 
especially in light of the kickbacks.
    It's just vital. And I think every effort should be made to 
have that brought out. If it has to come from the U.S. mission, 
it should. This administration would be remiss in not doing 
everything it could to get that out. Not only that, you should 
go to other governments. The British Government should release 
this. The French Government, which has called for transparency 
in this investigation, should release this.
    P.S., I notice in the French Ambassador's letter included 
here he mentions that it was only the United States and the 
U.K. who were overseeing things. Well, France chaired the board 
of auditors in 2003 and was on the board of auditors in 2002. 
That's the trio of revolving countries that was supposed to be 
auditing this program.
    So the French Ambassador may believe it was only the 
responsibility of the United States and U.K. That calls into 
interesting question the board of auditors. The further you go 
into this, the more you will find. But the contracts should be 
released. And the total amounts that went to each country 
should be added up from an official source. We should be able 
to discuss how much, who got what. And while it may be right 
that there were also other ideas and philosophies, and other 
politics involved, I don't think a debate is useful without--I 
mean, you do the numbers. The amounts were so large that it 
matters.
    Mr. Shays. Thank you very much. Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. I was listening to Ms. 
Rosett and trying to recall where have I seen this woman's 
name, and I got it, being a regular reader of the Wall Street 
Journal.
    Ms. Rosett. I was with them for 17 years. At this point I'm 
not.
    Mr. Ose. I understand that, but I just had to file it away 
here. I want to go back to something you were testifying about 
earlier, and that was, the money that was in the program, 72 
percent went to fund food for the Iraqi people, 25 percent went 
for reparations to Kuwait, and there was 3 percent left over 
for the administration of the program. And your comments 
earlier were focused on $2 billion.
    And you said something very interesting, I thought, was 
that for 4 years, there were no inspections for weapons of mass 
destruction. And yet within that $2 billion piece of the 
overall total, $500 million of that was supposed to be used, or 
a quarter of it was supposed to be used to fund the inspections 
for weapons of mass destruction. What happened to that $500 
million since then? And I took that to mean that there has been 
no accounting by the U.N. for the $2 billion or $3 billion or 
$3.3 billion or whatever the number is.
    Ms. Rosett. One point nine by my arithmetic.
    Mr. Ose. Well, it's 3 percent of $111 billion.
    Ms. Rosett. No, $111 billion is the total oil sales plus 
the total humanitarian contracts. Drop out of that the 
compensation commission. So it's using Annan's figures, because 
they vary.
    Mr. Ose. $63 billion.
    Ms. Rosett. $65 plus $46 and then 2.2 percent and you get--
it's about $1.9 billion.
    Mr. Ose. Your point is that separate and apart from this 
larger issue, why don't we figure out what happened to this 
money. Now, the previous witness submitted questions to the 
U.N. and he responded that they told him, provide us the 
evidence, which I took to mean, at least in my part of the 
country, is basically being told to pound sand.
    Ms. Rosett. They had the evidence. He wasn't allowed access 
to it. That was the terrible hypocrisy of that.
    Mr. Ose. How do we get access to it?
    Ms. Rosett. I think you have to--well, I'll tell you how. I 
only see one way. Shame in this thing does not seem to work 
greatly. Congress appropriates U.N. funding. That's about the 
only way I can see.
    Mr. Ose. Could you elaborate on that? Sometimes I like to 
play stupid.
    Ms. Rosett. You supply their budget. As long as the Oil-
for-Food, in fact, that was an enormous, you would have to look 
at the total amount of money that flowed to them, I mean, if 
they collected $1.9 billion in commissions for running this, 
that was over 7 years. But that would have made, the core 
budget of the United Nations, figures vary, depends what you 
count in there.
    But this was easily the biggest item on Mr. Annan's budget. 
It was easily the biggest thing in any one of the nine agencies 
of the U.N. that were involved in this program. It was a major 
addition to everything that the U.N. was doing. They had 
something, an average of $15 billion worth of business flowing 
through that program, on which they were collecting money on 
the oil commissions, they had enormous clout, basically. They 
were involved in commercial oil business.
    Mr. Ose. They did not collect commissions on the food side 
of the equation?
    Ms. Rosett. No, they did not. But the oil commissions 
alone, and when you ask, well, I have been asking what happened 
to, say, the money for UNSCOM and UNMOVIC. I called the 
controller, Jean-Pierre Holvat, again last week. I periodically 
asked for this. I was told he would send me an accounting. What 
came through by fax, and it was more than one usually gets, was 
a one page sheet through the year 2001, which would leave you 
shy about $300 million.
    Mr. Ose. Would you care to submit that fax for the record?
    Ms. Rosett. Yes, I would be happy to. It's all I've been 
able to get. If you can get more, you should.
    Mr. Ose. Mr. Chairman, $100 billion is a large number. It 
would seem to me that we can't even get this little kernel of 
the whole, which speaks directly to the ability of the U.N. to 
control its own finances. We're not talking about money 
transactions between third parties. We're talking about 
basically their surcharge that the UN collected for 
administering the program. If they cannot produce an accurate 
record of what they did with that money, as many of our 
witnesses have testified, we have a significant problem.
    Mr. Shays. Do you mean what they did with the money or what 
they did for the money?
    Mr. Ose. What they did with the money. For instance, did 
they have 15 employees in this department for this period of 
time? Well, 15 employees for $1.9 billion over 7 years, that's 
pretty good pay, if you get my point.
    The reason this is important is that we have any number of 
countries, Cuba comes to mind, where we're willing to trade 
medicine and food, but not many other things. Are we replaying 
this over and over and over in these other instances, under the 
auspices of the U.N.? We're scratching the surface here, and 
there are big numbers.
    But it's not just Iraq for which we should be concerned.
    Mr. Shays. My reaction is that, and Dr. Luck, I see you 
want recognition, that you all have pointed out the problems at 
the U.N. Dr. Luck, you have illustrated to me by your 
recommendations what some of the problems are in a very 
specific way, which is very helpful.
    Dr. Luck. If I could comment just very briefly on this 
exchange, one should remember in terms of financial 
withholdings as a way to get leverage over the United Nations, 
that the United States in this period had arrears to the United 
Nations, depending on one's accounting, somewhere between $1 
billion and $2 billion that we had not paid, both for 
peacekeeping and for regular assessments. So this was a period 
when the U.S. presumably had a great deal of financial 
leverage, and yet it obviously didn't work out that way.
    Second of all, I think her points are well taken, that one 
needs to followup about the accounting of how these various 
pieces of money were used. But I wouldn't denigrate the 
accomplishments of UNSCOM, which existed until the end of 1998, 
so for the first 2 years of this program. UNSCOM destroyed more 
Iraqi weapons of mass destruction than we did in all of Desert 
Storm. It was very significant. That's one of the reasons why 
Saddam doesn't seem to have the weapons any more, because 
UNSCOM did effectively destroy them.
    Then there was a period, as she points out, where UNSCOM 
was in abeyance, and before they put UNMOVIC in, which is part 
of that Resolution 1284 that the Russians, the Chinese and the 
French all abstained on, creation of the new inspections 
regime. So one has to look at the finances. But I must say, 
whatever money was put into UNSCOM was very well invested. It 
seems to me that was very important.
    Mr. Ose. If that's the case, they should be happy to 
provide us the information.
    Dr. Luck. Yes, they should. Obviously I completely agree 
with that. I would argue, as everyone else has, for 
transparency. But I'm not sure, when one talks about all this 
money coming into the U.N. system, presumably the money was for 
the OIP, the Office of Iraq Programmes. Now, if that flowed 
into other things in New York, that's quite a different matter. 
And one has to look at that very seriously.
    So obviously the Office for Iraq Programmes had a reason to 
lobby for its extension and was benefiting from this 
arrangement. But one of the reasons why they had to pay for 
this out of Iraqi oil revenues is because member states didn't 
want to pay for this sort of thing, including very prominently 
the United States. So these kinds of odd mechanisms are created 
in a lot of areas in the U.N. to fund things. And then we sit 
back and say, now, wait a minute, why didn't they do it under 
regularly assessed contributions? But we did not want to pay 
those contributions, and were $1 billion or $2 billion in 
arrears at that point.
    So I think there's a little bit of a circular----
    Mr. Ose. Ms. Rosett suggests using the appropriations 
process as a lever to get the information out of the U.N. I did 
not see any suggestions in your recommendations, which I did 
read and I thought were appropriate, for how to get that 
information. Do you have any suggestions for how we might 
obtain that information?
    Dr. Luck. No, I mean, it seems to me that we should insist 
that the new panel, the Volcker panel, go after that kind of 
information. And it's interesting, this morning the Security 
Council did unanimously support this with this resolution. As 
of Friday, the Russians were saying no way. And supposedly, 
according to newspaper accounts, the Secretary General called 
Sarge Lauvou, the new Russian foreign minister, who used to be 
a Russian Permanent Representative to the United Nations, over 
the weekend and pushed them.
    Mr. Shays. That's an accurate statement, because he 
basically made that point to me, that he had been able to 
convince the Russians this was important to do.
    Dr. Luck. The fact that the Russians and some of the others 
last week, the Chinese and French weren't eager either, were 
reluctant to see this resolution go forward, suggests to me 
that they felt this actually was going to be a serious 
investigation. Therefore, they were not so keen on it. I just 
hope that now they've all signed on to it, and we really do 
keep up the pressure and try to keep these answers coming.
    Mr. Shays. Let me do this, if I could. We're going to try 
to allow all of you to get on your way, and our friend from 
Great Britain to be able to go back home. So I just would ask, 
is there any closing comment that any of you would like to make 
before we adjourn this panel?
    Dr. Raphaeli. Mr. Chairman, I think the question of U.N. 
overheads, which they collected for managing the Oil-for-Food 
program, should be looked at also from the point of view of the 
money channeled through the U.N. specialized agencies. It's my 
understanding, as we read now in Iraqi papers, that many of 
these agencies, particularly United Nations food programs and 
FAO have purchased food for Iraq of poor quality and they 
collected a large amount of overhead.
    So how much money of the U.N. went to the specialized 
agencies, it's a separate issue which may be looked upon as 
part of the process.
    Mr. Shays. Thank you. Dr. Gardiner, are we all set?
    Dr. Gardiner. Just one final point. I would just like to 
reiterate the point that we need to bring to justice those who 
cooperated to help keep Saddam Hussein in power. I think this 
would also send a very clear message to U.N. officials that 
there are penalties to be paid for corruption. I think the idea 
of having a trial in Iraq, for example, would probably cut the 
level of U.N. corruption down by 90 percent. And I think it has 
an important long term message for helping to clean up an 
institution which does a lot of good, but which is tarnished by 
the actions of a small minority.
    Mr. Shays. Thank you. Ms. Rosett, all set?
    Ms. Rosett. Just one comment. There's been a great deal of 
focus on the Al-Mada list. It was a small part. True or not, 
it's interesting, it was certainly important if the head of the 
program was on the take.
    But it is dwarfed by the size of the program. And again----
    Mr. Shays. The list is much, much, much bigger.
    Ms. Rosett. No, no, I mean that the size of this program 
over the 6 years and whatever, 11 months, was enormous.
    Mr. Shays. That's what I'm saying, the list would be a lot 
bigger.
    Ms. Rosett. Yes, exactly. And my suggestion is, the more 
than can be made public about the contracts, the amounts, the 
individuals, the names, who got what where, the more you would 
also enlist the help of the world community, the one the United 
Nations is supposed to be serving, in actually figuring out 
what happened. Because this was a network, just immense.
    Mr. Shays. Thank you. You got the closing word.
    Dr. Luck. Two very quick points. One, we should remember 
that the OIP, the U.N. did bring to the 661 Committee concerns 
about this in November 2000, and if they were simply in the 
business of trying to get their own side payments, why would 
they have brought it to the member states? At that point, it 
was a failure of the member states. And I think we have to 
recognize that first and foremost.
    Second of all, on some of the questions about why don't we 
have this, why don't we have that: if the United States itself 
was not so ambivalent about this, I think we might have a lot 
of this. But the United States obviously, and the U.K. put 
their first priority, and it's hard to argue against it, on the 
question of weapons of mass destruction, and saw this primarily 
as a vehicle to try to prevent strategic items from getting 
into Iraq. That was the U.S. emphasis throughout.
    So now instead of trying to reinvent the politics, I think 
we should first look at home, at why we did make this the 
overriding priority and looked aside at many of these other 
kinds of issues. Because if we had pushed hard enough with the 
U.K., then we could have moved this quite a ways. But we 
understandably had other national interests. And I think we 
need to----
    Mr. Shays. And I'll just describe one. When I was in Turkey 
a few years ago, the Turks were, and I was discussing the 
advisability and possibility of our going into Iraq. Rather 
than a red light, there was a yellow light. But at the same 
time, they tried to point out to us what has happened since we 
had forced him out, since he went into Kuwait and since we 
forced him out. This suffering economically that they 
encountered from a lack of trade with Iraq, a lack of tourism 
and so on, to the tunes of billions of dollars.
    I think intuitively, maybe not intuitively, but our country 
accepted that a little illegal activity between the Turks and 
the Iraqis and between the Jordanians and the Iraqis was 
somewhat of a just compensation for their significant loss of 
trade and so on during this time. I just intuitively know that, 
in fact, I know it first hand. So it isn't as clean as we would 
like it to be.
    I guess I got the last word, sorry. But you triggered it, 
sir.
    I would like to thank all of you very much for your 
patience all day. It's been a long day, and it's been very 
helpful, and thank you for all your good work on this. You've 
been working on this a long time. We are kind of Johnny-come-
latelies on this issue. But we're going to stick with it. Thank 
you. I have excellent staff and they've done good work as well, 
and I would thank them so much.
    We're going to adjourn this panel, and we're going to ask 
Mr. Claude Hankes-Drielsma to come back up for just a little 
bit longer, and thank you for waiting, sir.
    I don't think this needs to take too much longer, but it 
would be nice to conclude. Dr. Luck, thank you for waiting 
longer and not leaving. That was very nice of you.
    You are still a sworn-in witness. I don't know what it 
means when someone's a citizen from Great Britain and they're 
sworn in. It must carry even more weight. [Laughter.]
    Please be seated, and we're going to have Mr. 
Ruppersberger----
    Mr. Ruppersberger. Thank you, Mr. Chairman.
    Mr. Claude Hankes-Drielsma, is that correct?
    Mr. Hankes-Drielsma. Yes.
    Mr. Ruppersberger. OK. First, I want to thank you for 
staying. It seems to me you, through your client, have a lot of 
information that would hopefully get to the bottom of where we 
want to be with respect to these really broad, very damaging 
allegations that if true, would have an impact on credibility 
throughout the world. So we have to move as quickly as 
possible.
    You made a comment about how you were concerned right now 
that there could be people shredding evidence, which normally 
happens in an investigation and cover up and things of that 
nature. I want to refer you, and you might have read it because 
your name is in it, to an article in Reuters, March 16th, where 
you were quoted in this article. Basically it says, Claude 
Hankes-Drielsma, a British businessman and long-time 
acquaintance of Chalabi, who advises the Governing Council, 
said, Iraqis keep detailed records of every illegitimate move. 
The paper trail is second to none, said Hankes-Drielsma, a 
former executive of Price Waterhouse, in an interview. Did you 
make that statement?
    Mr. Hankes-Drielsma. Not exactly as it's written. I said 
that the Iraqi government officials and ministries keep 
meticulous records. I did not say illegal transactions or 
illegal records, you used the word illegal. They keep detailed 
records.
    Mr. Ruppersberger. OK, well, basically what they're saying, 
and I want to ask you then, the paper trail is second to none, 
as far as the detailed records of illegitimate moves or 
whatever. Do you feel that there are records that are out there 
that would be extremely relevant, damaging and would help in 
any investigation to get to the bottom line of this issue?
    Mr. Hankes-Drielsma. The records do not necessarily 
differentiate between those that are legal or illegal. But the 
records certainly, in my view, will provide very, very detailed 
and damaging----
    Mr. Ruppersberger. OK, well, furthermore, you were quoted, 
and I want to ask you about this quote, because most of us in 
this business are always misquoted, or we don't have the chance 
to counter what was said. ``It will not come as a surprise if 
the Oil-for-Food program turns out to have been one of the 
world's most disgraceful scams, an example of inadequate 
control, responsibility and transparency.'' You wrote in a 
letter to Annan asking that all documents be preserved. Is that 
correct?
    Mr. Hankes-Drielsma. Correct.
    Mr. Ruppersberger. OK. Finally, I have two more and then 
I'll get to my question. However, no papers documenting the 
charges have been given to the United Nations. Is that correct?
    Mr. Hankes-Drielsma. I did not make that----
    Mr. Ruppersberger. Well, I want to get--OK. No, that's not 
your quote, but that's a statement. However, no papers 
documenting the charges have been given to the United Nations. 
Is that true, that no papers documenting the allegations that 
you've made today have been given to the United Nations?
    Mr. Hankes-Drielsma. No, that's not true.
    Mr. Ruppersberger. All right, well, I want to get into 
that. Let me finish this and we'll get into that. And then the 
accounting firm KPMG was preparing a report the world body 
would receive, and that's true.
    Mr. Hankes-Drielsma. Yes.
    Mr. Ruppersberger. OK. In January, an Iraqi newspaper 
published a list of 270 groups and individuals, many of them 
past and present government officials, charging they received 
vouchers for oil they could sell. Hankes-Drielsma calls the 
list ``only the tip of the iceberg.'' Is that true?
    Mr. Hankes-Drielsma. Correct.
    Mr. Ruppersberger. OK. Is there anything, and let me start 
from the back and go forward, is there anything that you 
haven't testified so far today that would add to your comment 
that this is only the tip of the iceberg?
    Mr. Hankes-Drielsma. No.
    Mr. Ruppersberger. So you've really, most of what you've 
given us today is where you would stand and you don't have any 
additional information that would help in the hard evidence to 
try to prove or disprove these allegations?
    Mr. Hankes-Drielsma. At this stage, we have to wait for the 
KPMG report. The list is certainly only part of the problem. 
We're talking about 10 percent added to invoices, so a complete 
list needs to be produced of all suppliers. KPMG is looking at 
all illegal oil sales and what happened to that cash. KPMG had 
already secured a list of all the iraqi accounts held in the 
name of individuals on behalf of Iraq. KMPG, with the audit 
bureau of Iraq, will be requesting the banks to provide 5 year 
records of all transactions on those accounts.
    So the work that needs to be done is very extensive. So 
that list that the media has focused on is only part of the big 
picture.
    Mr. Ruppersberger. Who has retained KPMG or who is paying 
them right now?
    Mr. Hankes-Drielsma. The appointment by KPMG is being made 
by the Iraq Governing Council. It was actually done by the 
finance committee, with the CPA present.
    Mr. Ruppersberger. And who is president of the finance 
committee?
    Mr. Hankes-Drielsma. Dr. Chalabi.
    Mr. Ruppersberger. Is he in charge of that investigation on 
behalf of the Iraqi Governing Council now?
    Mr. Hankes-Drielsma. He and his colleagues on the finance 
committee.
    Mr. Ruppersberger. Yes, but there's one chairman just like 
we have a chairman here. So his duty is he's in charge and he's 
conducting this investigation as it relates to what we've 
talked about here today, and right now, the Iraqi Governing 
Council is paying KPMG to conduct this investigation.
    Mr. Hankes-Drielsma. No. First of all, as I testified 
earlier, the Governing Council unanimously endorsed the 
decision to appoint KPMG. But at this stage, although initial 
indications, assurances were given by Ambassador Bremer that 
the Iraq Development Fund would pay for the work, this has not 
been reconfirmed by the CPA. The Governing Council certainly 
doesn't have, at this stage, any resources to pay KPMG, because 
all the Iraqi money is in the Iraq Development Fund, over which 
Ambassador Bremer has sole signing authority.
    Mr. Ruppersberger. But basically the Iraqi Governing 
Council retained or----
    Mr. Hankes-Drielsma. Retains KPMG.
    Mr. Ruppersberger. Retains KPMG to do the work they're 
doing to investigate the alleged corruption that has been put 
out here today.
    Mr. Hankes-Drielsma. Right.
    Mr. Ruppersberger. Now, the only issue now is that the 
Iraqi Governing Council, through Chalabi, is trying to get 
Bremer to be able to pay for this. Is that correct?
    Mr. Hankes-Drielsma. Correct.
    Mr. Ruppersberger. OK. And Bremer is leaving now, correct, 
in 2 months?
    Mr. Hankes-Drielsma. You'll know more about that than I.
    Mr. Ruppersberger. Do you know who is taking his place?
    Mr. Hankes-Drielsma. I know who's going to be the 
Ambassador.
    Mr. Ruppersberger. Who is that?
    Mr. Hankes-Drielsma. I understand from the media that it's 
Ambassador Negroponte.
    Mr. Ruppersberger. Yes, but isn't Negroponte also on the 
investigation committee appointed by Annan which is Volcker and 
Annan?
    Mr. Hankes-Drielsma. No.
    Mr. Ruppersberger. He's not? OK. And by the way, I want to 
say about the appointment of Volcker on that committee, I'm 
very impressed with the credibility of Volcker. He's a tough 
individual who will get to the bottom, if he's given the 
resources and the ability to get the facts and data that are 
needed. Do you agree with that?
    Mr. Hankes-Drielsma. I agree with that.
    Mr. Ruppersberger. OK. So I think we clear up, as far as 
where KPMG is. Suppose Bremer won't pay them. What's going to 
happen then?
    Mr. Hankes-Drielsma. Well, if the CPA refuses to pay for 
this, I think it would be a very sad day for the Iraqi people.
    Mr. Shays. I would agree.
    Mr. Ruppersberger. And I would agree, too.
    The final issue, I just want to ask you the question, you 
talk about KPMG. The issue with respect to the information that 
KPMG has developed right now, I'm very much concerned that 
we're waiting, the United Nations is waiting for something, 
when in fact, there could be crimes and cover-ups going on at 
this point. It is going to have a tremendous impact, in my 
opinion, on world media. I think this is something that we have 
to deal with right away and move as quickly as we can.
    What is the holdup with respect to KPMG or you or any 
information the Iraqi Governing Council has to getting it to 
the authorities immediately, right now, and why wait or hold 
back, when you yourself said today you're concerned about 
shredding of documents?
    Mr. Hankes-Drielsma. Because an investigation needs to be 
thoroughly done. The documents, there needs to be forensic work 
done on them. And the information, some of the transactions 
need to be traced, ultimate beneficiaries need to be 
identified. If you produce a document that is half-baked, you 
will end up being criticized for precisely the reasons that we 
want to try and avoid, that this needs to be done 
professionally and properly.
    Mr. Ruppersberger. But my point is that Volcker is out 
there investigating, you're going to communicate with him, it 
seems to me that KPMG and any information that they have or you 
have should be brought to the table with Volcker and move as 
quickly as possible. Why isn't that being done?
    Mr. Hankes-Drielsma. Well, you're prejudging what might 
happen. We haven't had a discussion with Mr. Volcker. We 
suggested the meeting with Mr. Volcker. It was not at the 
request, at this stage, of Mr. Volcker, although the U.N. has 
suggested it, the internal IOS has. We suggested the first 
opportunity for us and Mr. Bates is flying over specially 
tonight from the U.K. to actually be present at that meeting so 
we can discuss----
    Mr. Ruppersberger. When is that meeting?
    Mr. Hankes-Drielsma. Tomorrow morning.
    Mr. Ruppersberger. That's very good. Tomorrow morning with 
Mr. Volcker and the other gentleman.
    Mr. Hankes-Drielsma. I don't know who else Mr. Volcker will 
include.
    Mr. Ruppersberger. OK, and at that point, you, representing 
the Iraqi Governing Council, are you willing to put forth any 
hard evidence, documents, whatever, that you have, that will 
help Mr. Volcker in his investigation of this serious matter?
    Mr. Hankes-Drielsma. As the formal letter from the 
Governing Council has already stated to Mr. Kofi Annan, that we 
will cooperate and Iraq will cooperate fully with the United 
Nations, and we hope that the U.N. will also make all the 
information that the Governing Council and the information that 
they've requested is part of my evidence is made available to 
the Iraqis, so they can see for themselves.
    Mr. Ruppersberger. OK, thank you.
    Mr. Shays. Mr. Ose. This is good practice for you tomorrow 
for when you meet Mr. Volcker, because Mr. Volcker will really 
have questions.
    Mr. Ose. Thank you, Mr. Chairman. I'm going to take that as 
a compliment. [Laughter.]
    Mr. Ruppersberger. That was against me. [Laughter.]
    Mr. Ose. I just want to make sure we get it for the record. 
We've had a lot of comments about why isn't this happening, why 
isn't that happening, and if I understand correctly, Volcker's 
authority was vested in him this morning and he's having his 
first meeting tomorrow. Is that your understanding, too?
    Mr. Hankes-Drielsma. I don't know whether he's had any 
meetings this afternoon, but we're having a meeting with him 
tomorrow morning.
    Mr. Ose. I want to go back to your second letter to the 
Secretary General. We didn't quite get through all that. When 
last we left it, we were talking about why the transactions for 
oil were priced in dollars, converted into Euros and then 
converted back to dollars. And I believe your statement, or 
your response to my question as to why that was happening was 
you didn't know either. That's not what your statement was?
    Mr. Hankes-Drielsma. No, that was my statement.
    Mr. Ose. That was your statement. You make a comment about 
three additional banks, Jordan National Bank, the Arab Bank and 
Housing Bank. I presume you make those references because some 
portion of the Oil-for-Food money or the letters of credit 
either originated or were redeemed there?
    Mr. Hankes-Drielsma. The reason I made that statement is as 
follows. First of all, there are still very significant amounts 
of money in those Jordanian banks, which ought to have been 
transferred to the Iraq Development Fund.
    Mr. Ose. When you say ought to be, on what basis do you 
make that suggestion?
    Mr. Hankes-Drielsma. Because as the U.N. resolution called 
for all funds still to be held, Iraqi funds still to be held 
under the Oil-for-Food program to be transferred to the Iraq 
Development Fund.
    Mr. Ose. You've come to the conclusion that there are funds 
in these three Jordanian banking institutions that are 
attributable to transactions that occurred under the auspices 
of the Oil-for-Food program?
    Mr. Hankes-Drielsma. I do. And worse, the Jordanian banks 
are still taking moneys out of those accounts, possible claims 
against Iraq, we don't know. And when the minister of finance 
and the Governor of the central bank asked for details of why 
$20 million, $30 million was withdrawn from these accounts, 
they received no answer.
    Mr. Ose. Do you have any information as to the amount of 
money in the aggregate held in these three Jordanian banking 
institutions?
    Mr. Hankes-Drielsma. It's probably in the region of several 
hundred million.
    Mr. Ose. It's my understanding that there are commercial 
claims in Jordan amounting to around $900 million against Iraq, 
or Iraq businesses. Is that accurate also?
    Mr. Hankes-Drielsma. I don't know what the amount is.
    Mr. Ose. So it may be possible that the Jordanian 
authorities froze the accounts, the purpose of which was to 
protect domestic businesses in the event of claims?
    Mr. Hankes-Drielsma. Anything is possible.
    Mr. Ose. OK. Now, has the Governing Council been able to 
establish what money flowed into those accounts and where it 
came from?
    Mr. Hankes-Drielsma. Yes. The records show that.
    Mr. Ose. For example transaction flowed by wire to a 
certain bank and was deposited in account number so and so. 
This transaction, is it an all inclusive list? Do you have 
records for all the transactions?
    Mr. Hankes-Drielsma. The records for all the transactions.
    Mr. Ose. And it's several hundred million dollars in the 
aggregate?
    Mr. Hankes-Drielsma. Yes.
    Mr. Ose. You're saying those banks still hold those funds. 
Are those banks paying interest on those funds?
    Mr. Hankes-Drielsma. I don't know the answer to that. 
Iraqis find it almost impossible--they're not getting any--
there's no transparency.
    Mr. Ose. These were questions that you asked of Mr. Hans 
Corell. His response to you has been, for instance, when you 
asked him in the context of these, there were questions such as 
whether these banks still holding funds, and if so, how much, 
why and how is this monitored. What has Mr. Corell told you?
    Mr. Hankes-Drielsma. In response to that complete letter, 
it was, show us the evidence.
    Mr. Ose. Show us the evidence that the money is in the 
banks?
    Mr. Hankes-Drielsma. That must be one of them.
    Mr. Ose. Did he make that statement to you in writing?
    Mr. Hankes-Drielsma. I had a letter from the Under 
Secretary--no, the person in charge for communications, I 
think, requesting, saying, show us the evidence.
    Mr. Ose. Communications from the Under Secretary for Legal 
Affairs at the United Nations?
    Mr. Hankes-Drielsma. Yes. I need to check and confirm who 
it was. But I had an e-mail from them, saying, show us.
    Mr. Ose. Could we get a copy of that e-mail? Would you be 
willing to provide that?
    Mr. Hankes-Drielsma. Yes, sir.
    Mr. Ose. You also asked Mr. Hans Corell whether he had any 
information regarding a link between these three Jordanian 
banking institutions and the Iraq secret service, or any other 
part of the Saddam Hussein system. And the response from Mr. 
Hans Corell or his communications person has been?
    Mr. Hankes-Drielsma. Show us the evidence.
    Mr. Ose. Show us the evidence that would lead you to ask 
that question?
    Mr. Hankes-Drielsma. I need to be clear. The response to 
that letter was simply, show us the evidence on the 
allegations. It wasn't----
    Mr. Ose. Four words?
    Mr. Hankes-Drielsma. Yes, absolutely. That was it.
    Mr. Ose. It said, Dear Mr. Hankes-Drielsma, show us the 
evidence? Sincerely, your friend.
    Mr. Hankes-Drielsma. Absolutely. Basically that's what it 
said. The concern has been, and I think the evidence will show 
that the Jordanian banks were in concert with the Iraq 
government and worse, the Iraq secret service. For that reason, 
when Ambassador Bremer proposed that one of the banks should be 
given a banking license, the evidence was produced, Washington, 
and eventually the Jordanian bank was not given the banking 
license, because the evidence was overwhelming that they had 
held accounts for Iraqi secret service.
    Mr. Ose. Now, you also asked Mr. Hans Corell, the Under 
Secretary for Legal Affairs and Legal Counsel of the United 
Nations for the Secretary General, why did the U.N. approve oil 
contracts to non-end users. And he said, show us the evidence, 
your friend, Hans Corell?
    Mr. Hankes-Drielsma. It was only one sentence for the whole 
letter.
    Mr. Ose. And he had no information about the price of the 
oil contracts that the U.N. approved to non-end users?
    Mr. Hankes-Drielsma. If they did, they certainly weren't 
prepared to provide it.
    Mr. Ose. Well, I've heard of stonewalling, this is pretty 
good.
    Why do you believe the Security Council did not take 
concrete steps to prevent these fraudulent transactions where 
oil was priced differently?
    Mr. Hankes-Drielsma. I can't, I don't know.
    Mr. Ose. Show me the evidence.
    Mr. Hankes-Drielsma. Show me the evidence. [Laughter.]
    Mr. Ose. You still haven't received any response, or 
actually received a response, you still haven't received any 
answers to the letter or letters that you've submitted on 
behalf of the Iraq Governing Council to Mr. Hans Corell 
regarding these various issues, other than show me the 
evidence, your friend, Hans Corell?
    Mr. Hankes-Drielsma. The only communication I had from the 
United Nations was the IOS internal oversight department asking 
whether I would be prepared to meet with them, and I said I 
would. And I met with them in New York. They came to see me in 
my hotel. They asked if I could possibly provide them some 
particularly evidence relating to individuals within the U.N. 
and the evidence that I had at that moment I provided to them, 
and they requested today, they would agree for that to be 
passed on to the new panel. And I of course said----
    Mr. Ose. Are they going to turn that over to Mr. Volcker's 
group?
    Mr. Hankes-Drielsma. They are.
    Mr. Ose. Would you be willing to turn it over to this 
committee?
    Mr. Hankes-Drielsma. Yes, sir. I have no problem with that.
    Mr. Ose. For the record, the witness said that he would be 
willing, maybe we ought to followup on that letter, Mr. 
Chairman.
    Are you aware of any contacts between companies contracting 
with Iraq and members of the Security Council, representatives 
of the member states on the Security Council?
    Mr. Hankes-Drielsma. In contact with who?
    Mr. Ose. Are you aware of any contacts between companies 
contracting with Iraq under the Oil-for-Food Program and 
representatives of the member states of the Security Council?
    Mr. Hankes-Drielsma. I wouldn't know.
    Mr. Ose. What about Russian owned or controlled companies 
in particular?
    Mr. Hankes-Drielsma. I do not know whether there's any 
contact.
    Mr. Ose. How about French companies?
    Mr. Hankes-Drielsma. I do not know.
    Mr. Ose. OK. Are you aware of any contacts between Mr. 
Sevan and any of the contractors under the Oil-for-Food 
Program?
    Mr. Hankes-Drielsma. I'm not aware of any.
    Mr. Ose. I just want to make sure I have it clear in my 
head. There were surcharges charged to the oil that was sold 
under the Oil-for-Food Program, either in the form of little 
added bits to the price or the requirement to purchase 
vouchers, and then on the other side, there were kickbacks, if 
you will, on the purchase of material that was supposedly going 
to go to the Iraqi people, whether it be for food or medicine 
or a Mercedes Benz or what have you. Is that correct?
    Mr. Hankes-Drielsma. Right.
    Mr. Ose. So it was kind of getting money on both ends?
    Mr. Hankes-Drielsma. Yes, correct.
    Mr. Ose. All right. Thank you, Mr. Chairman.
    Mr. Shays. I just have one question, it won't keep us here 
long at all. What is the institutional and political 
relationship between the Iraqi Governing Council and the Iraqi 
Board of Supreme Audit?
    Mr. Hankes-Drielsma. I don't know the answer to that, Mr. 
Chairman.
    Mr. Shays. What I want to know is, are they both doing the 
same audit of Oil-for-Food?
    Mr. Hankes-Drielsma. I do not know whether they are 
actually going to--what happened was that they put out a 
tender, invitation to tender, subsequent to the invitation to 
tender----
    Mr. Shays. I'll have my crack staff get the answer to that 
question.
    Mr. Hankes-Drielsma. Thank you.
    Mr. Shays. Is there anything you would like to put on the 
record before we adjourn?
    Mr. Hankes-Drielsma. No.
    Mr. Shays. You've been a wonderful witness. This hearing 
today would not have been as meaningful had you not been able 
to come here, and we're very grateful that you made the effort 
to be here, and thank you so very much.
    With that, we are now adjourned. Thank you.
    [Whereupon, at 4:15 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional information submitted for the hearing record 
follows:]

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