[Senate Hearing 109-43]
[From the U.S. Government Publishing Office]
S. Hrg. 109-43
THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD
PROGRAM
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
----------
FEBRUARY 15, 2005
----------
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT
OF THE OIL-FOR-FOOD PROGRAM
20-172 PDF
2005
S. Hrg. 109-43
THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD
PROGRAM
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 15, 2005
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
20-172 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Amy B. Newhouse, Chief Clerk
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
TOM COBURN, Oklahoma DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Raymond V. Shepherd, III, Staff Director and Chief Counsel
Leland B. Erickson, Counsel
Mark L. Greenblatt, Counsel
Stephen A. Groves, Counsel
Elise J. Bean, Minority Staff Director and Chief Counsel
Dan M. Berkovitz, Minority Counsel
Zachary I. Schram, Minority Professional Staff Member
Mary D. Robertson, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator Coleman.............................................. 1
Senator Levin................................................ 9
Senator Collins..............................................
2
Senator Domenici............................................. 14
Prepared statement:
Senator Pryor................................................ 67
WITNESSES
Tuesday, February 15, 2005
Robert M. Massey, Chief Executive Officer, Cotecna Inspection
S.A., Geneva, Switzerland...................................... 16
Andre E. Pruniaux, former Senior Vice President, Africa and
Middle East Division, Cotecna Inspection S.A., Geneva,
Switzerland.................................................... 18
Arthur Ventham, former Inspector for Cotecna Inspection S.A.,
Western Australia.............................................. 20
Vernon P. Kulyk, former Deputy hief Customs Expert, United
Nations Office of the Iraq Program (OIP), Dar es Salaam,
Tanzania....................................................... 22
John Denson, General Counsel, Saybolt Group, Houston, Texas...... 24
Milan Radenovic, Contract Manager, Cotecna Inspection S.A........ 41
Joseph A. Christoff, Director, International Affairs and Trade,
Government Accountability Office, Washington, DC............... 45
Stafford Clarry, former Humanitarian Affairs Advisor, United
Nations Oil-for-Food Program, Syracuse, New York............... 47
Hon. Patrick F. Kennedy, Ambassador to the United Nations for
Management and Reform, United States Mission to the United
Nations, New York, New York.................................... 54
Alphabetical List of Witnesses
Christoff, Joseph A.:
Testimony.................................................... 45
Prepared statement........................................... 147
Clarry, Stafford:
Testimony.................................................... 47
Prepared statement with attachments.......................... 165
Denson, John:
Testimony.................................................... 24
Prepared statement........................................... 139
Kennedy, Hon. Patrick F.:
Testimony.................................................... 54
Prepared statement........................................... 188
Kulyk, Vernon P.:
Testimony.................................................... 22
Prepared statement........................................... 127
Massey, Robert M.:
Testimony.................................................... 16
Prepared statement with attachments.......................... 168
Pruniaux, Andre E.:
Testimony.................................................... 18
Prepared statement with attachments.......................... 188
Radenovic, Milan:
Testimony.................................................... 41
Ventham, Arthur:
Testimony.................................................... 20
Prepared statement........................................... 110
EXHIBITS
1. Iraqi Memo Estimating Sevan's Profits at $1.2 Million....... 202
2. Benon Sevan's Oil Allocations for Phase IV.................. 204
3. Sevan's Oil Allocations for Phases V, VII, VIII, X, XI and
XII............................................................ 206
4. Iraqi Chart Indicating Allocations to Benon Sevan in Phases
VI & VII....................................................... 216
5. State Oil Marketing Organization (Baghdad, Iraq) Invoices
for Iraqi Crude Oil sold to IBEX Energy France, dated June and
September 2001................................................. 220
6. Iraqi Memo Describing The Bribe of a U.N. Oil Inspector..... 222
7. Letter Of Iraqi Oil Minister Ordering Payment Of Bribe To
U.N. Oil Inspector............................................. 225
8. Iraqi Accounting Spreadsheet Showing Bribe Payments To U.N.
Oil Inspector.................................................. 227
9. Letter From Iraqi Oil Minister Describing Bribe Of U.N. Oil
Inspector...................................................... 228
10. Copy of Portuguese Passport of Armando Carlos Costa
Oliveira, Number F-504464, issued July 4, 2000, and related
documents...................................................... 231
11. Documents establish that Armando Carlos Costa Oliveira was
an oil inspector for Saybolt in Iraq........................... 241
12. Documents establishing that Armando Carlos Costa Oliveira
was a U.N. oil inspector at the unauthorized loading in Mina Al
Bakr in May 2001............................................... 249
13. Documents establishing that Armando Carlos Costa Oliveira
was a U.N. oil inspector at the unauthorized loading in Mina al
Bakr in August 2001............................................ 261
14. Saybolt email, dated February 23, 2002, informing the Iraqi
government and the U.N. that Oliveira would travel from Basra
to Baghdad on March 3, 2002, from Baghdad to Amman on March 5,
2002........................................................... 270
15. Saybolt email, dated January 24, 2002, discussing the travel
schedules of various employees. Notably, Oliveira is listed to
leave from Amman, Jordan to Frankfurt on March 7, 2002......... 272
16. Oliveira's Bank Statement (March 2002)...................... 273
17. Deposit slip reflecting cash deposit into Oliveira's account
in March 2002.................................................. 274
18. Cotecna Fax from Kojo Annan to Robert Massey, dated
September 14, 1998, regarding Non Aligned Movement (NAM)
Summit, Durban-South Africa.................................... 275
19. Cotecna Fax from Kojo Annan to Robert Massey, dated October
26, 1998, regarding Outstanding Consultancy Expenses........... 276
20. Cotecna correspondence from Andre Pruniaux to Neville
Brunnetta, dated December 4, 1995, regarding Kojo Annan joining
Cotecna. (One copy produced to the Permanent Subcommittee on
Investigations on August 28, 2004, from the Cotecna files
located in Geneva, Switzerland; second copy produced to the
Permanent Subcommittee on Investigations on December 22, 2004,
from the Cotecna files located in Lagos, Nigeria.)............. 277
21. Cotecna Memorandum from Michael Wilson to Elie Massey,
Robert Massey, Andre Pruniaux, et al., dated December 4, 1998,
regarding Mission To The UN-Iraq Oil for Food Programme--1-2
December 1998.................................................. 278
22. Cotecna Fax from Kojo Annan to Elie Massey, dated August 28,
1998, regarding Consultative Status for IFIA with the United
Nations........................................................ 279
23. Cotecna document prepared for Kojo Annan titled 1998 Meeting
of the UN General Assembly..................................... 280
24. Cotecna Fax from Michael Wilson to Kojo Annan, dated August
28, 1998, regarding Ghana, Current Situation................... 281
25. Cotecna Letter from Elie Massey to Joseph Connor, U.N. Under
Secretary-General for Management, and Kofi Annan, U.N.
Secretary-General, dated October 6, 1998, regarding Possible
Additional Funding............................................. 282
26. Resume of Kojo Annan........................................ 283
27. Cotecna meeting minutes, dated December 23 [1998], regarding
the Oil-for-Food Program and the role of Independent Inspectors 284
28. Cotecna Memo, dated February 18, 1999, regarding UMMQASR
Situation...................................................... 286
29. Cotecna faxes, dated February 1999, regarding lab analysis--
``fit for human consumption''.................................. 288
30. Cotecna email, dated April 1999, regarding G3 06--medical
samples--waiting in fr (procedures--no testing)................ 291
31. Cotecna email, dated June 1999, regarding G3 06 Sampling--
medical samples--new (concerns with quality)................... 292
32. a. Cotecna fax to UN O.I.P.-N.Y., dated March 1999,
regarding Claims From Iraqi Receivers.......................... 293
b. Cotecna fax to Cotecna UMM QASR, dated March 1999,
regarding Claims From Iraqi Receivers.......................... 297
c. Cotecna fax to Cotecna UMM QASR, dated June 1999,
regarding Delays In Authentications............................ 302
33. Cotecna Notes from meeting with Cotecna 23-25 March 1999,
regarding Jonas Larsen's Mission Report and Cotecna's concerns
with level of inspections...................................... 204
34. Cotecna email, dated April 1999, regarding G2 07 Larsen 01--
answer to report--10........................................... 308
35. Cotecna fax to UN O.I.P.-New York, dated April 1999,
regarding Response to J. Larsen's Mission Report............... 316
36. Cotecna fax, dated March 1999, regarding Confidential: J.
Larson's Report. Mission Report [prepared by Jonas Larsen,
Customs Officer]--The purpose of the visit was to evaluate the
services provided by Cotecna, the new Independent Inspection
Agents and to attend the monthly meeting between UNOHCI and
Cotecna........................................................ 322
37. United Nations Office of the Iraq Programme (OIP) fax to
Cotecna, dated April 25, 1999, regarding Outstanding matters (.
. . would first however like to address the question that
continues to be the cause of the majority of correspondence
between Cotecna and the UN, that is the question of quantity
and quality inspections and Cotecna's liability arising there
from.)......................................................... 328
38. United Nations Office of the Iraq Programme (OIP) fax to
Cotecna, dated May 1999, regarding Letter from Mr Sevan to the
Permanent Mission of Iraq (. . . letter . . . from Benon Sevan
. . . in regards to quality inspection of goods arriving to
Iraq.)......................................................... 331
39. Cotecna fax, dated May 1999, regarding Sites' Sampling
Methods........................................................ 334
40. Cotecna fax, dated June 1999, regarding Report On A Visit to
UMM QASR, May 1999............................................. 344
41. Cotecna email from UN OIP, dated March 2000, regarding
Authentications of missing cargos.............................. 363
42. Cotecna email from UN OIP, dated November 2000, regarding
Continued--Umm Qasr inspection procedures...................... 367
43. Cotecna email, dated January 2001, regarding Craig Airey's
fax on containers leaving the port without inspection (SOMO is
intentially creating delays.).................................. 369
44. Cotecna email, dated April 2001, regarding Greenlight to
reduce backlog in Umm Qasr..................................... 371
45. Cotecna email, dated July 2002, regarding Visit of UNOHCI
Deputy Humanitarian Coordinator (questions . . . related to
smuggling of cargo.)........................................... 372
46. Cotecna letter of recommendation on Cotecna employee Arthur
William Ventham, dated September 24, 2003...................... 374
47. Cotecna email and Arthur Ventham resignation memo, dated
September 29, 2003............................................. 375
48. Oil-for-Food Contract between the Ministry of Irrigation,
Baghdad, Iraq [Government of Iraq] & Shanghai Machinery, Imp &
Exp (Group) Corp., Ltd, China, dated November 12, 1998, with
related documents.............................................. 378
49. Summary of the UN Oil-for-Food Program Audits Conducted by
the Office of Internal Oversight Services, prepared by the
Permanent Subcommittee on Investigations Majority Staff........ 412
50. Financial Losses Resulting from Waste, Abuse or
Mismanagement Identified by OIOS Audits, prepared by the
Permanent Subcommittee on Investigations Majority Staff........ 423
51. Illicit Iraqi Revenue 1991-2003, chart prepared by the
Permanent Subcommittee on Investigations Minority Staff........ 426
52. BBC News, March 25, 1998, Despatches, Iraq's illegal trade
in oil......................................................... 427
53. Documents relating to exports from Kohr al-Amaya, Iraq...... 429
54. Iraq Military Expenditures 1980-2002, chart prepared by the
Permanent Subcommittee on Investigations Minority Staff........ 434
55. Supplemental Submission of Arthur Ventham................... 435
56. Letter of Personal Reference--Arthur Ventham, dated January
14, 2005....................................................... 440
57. Responses to supplemental questions for the record for
Joseph A. Christoff, Government Accountability Office.......... 441
THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD
PROGRAM
----------
TUESDAY, FEBRUARY 15, 2005
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:31 a.m., in
room 342, Dirksen Senate Office Building, Hon. Norm Coleman,
Chairman of the Subcommittee, presiding.
Present: Senators Coleman, Collins, Stevens, Domenici,
Warner, Levin, Carper, and Pryor.
Staff Present: Raymond V. Shepherd, III, Staff Director;
Mary D. Robertson, Chief Clerk; Joseph V. Kennedy, Chief
Counsel; Leland Erickson, Counsel; Mark Greenblatt, Counsel;
Steven Groves, Counsel; Jay Jennings, Investigator; Katherine
Russell, Detailee (FBI); Phillip Thomas, Detailee (GAO);
Gregory Coats, Detailee (IRS); Jeffrey James, Detailee (IRS);
Richard Fahy, Detailee (ICE); Mike Williams, Intern; Erin
Brannigan, Intern; Elise J. Bean, Staff Director/Chief Counsel
to the Minority; Dan Berkovitz, Counsel to the Minority; Laura
Stuber, Counsel to the Minority; and Merril Springer, Intern.
OPENING STATEMENT OF CHAIRMAN COLEMAN
Senator Coleman. This hearing of the Permanent Subcommittee
on Investigations will be called to order. Good morning and
welcome. This is the second in a series of hearings that the
Permanent Subcommittee on Investigations will hold to address
the abuses of the U.N. Oil-for-Food Program.
That noble program was established by the United Nations to
ease the suffering of the Iraqi people, who were languishing
under Saddam's iron-fisted rule and because of the economic
sanctions imposed on Iraq by the United Nations after the
Persian Gulf War. While sanctions were designed to speed the
removal of Saddam Hussein from power, or at least render him
impotent, the Oil-for-Food Program was designed to support the
Iraqi people with food and other humanitarian aid under the
watchful eye of the United Nations. Instead, Saddam Hussein
manipulated the program to generate billions of dollars in
illegal revenue.
At our first hearing in November, we detailed the methods
used by Saddam Hussein to abuse the Oil-for-Food Program. The
Hussein regime bought influence and favors by granting oil
allocations to its friends and allies and made money on the
deal by demanding surcharge payments on the actual oil sales.
As Secretary of State Condoleezza Rice testified at her
confirmation hearing, Saddam Hussein was ``playing the
international community like a violin.''
On contracts for humanitarian goods, Hussein demanded that
suppliers inflate their contracts and pay the difference into
secret regime accounts. These ill-gotten gains may be funding
the insurgency in Iraq against our troops and allies today. All
of this misconduct occurred under the supposedly vigilant eye
of the United Nations.
The weaknesses in the Oil-for-Food Program raise serious
questions about the U.N.'s ability to enforce sanctions and
administer a humanitarian aid program in the future. American
taxpayers pay close to 22 percent of the U.N.'s operating
costs. They need assurance that their tax dollars are well
spent, especially in light of the fact that sanctions will
likely be imposed upon rogue nations in the future. I believe
the credibility of the United Nations to monitor any future
sanctions programs hangs in the balance unless the corruption
and mismanagement in Oil-for-Food is identified and rooted out.
Our hearing today focuses on U.N. oversight of the program
in the hope of revealing whether mismanagement by the United
Nations aided or abetted Saddam's abuses of the program.
Despite multiple entreaties by the Subcommittee and public
statements of cooperation, the United Nations has not permitted
the Subcommittee access to relevant U.N. documents or
personnel, with the sole exception of the public release of 58
internal audit reports last month. Given the U.N.'s
intransigence, our inquiry is limited to information that we
have uncovered from other sources.
While the U.N. publicly asserts it is cooperating with
Congressional investigations, in fact, this Subcommittee
continues to be frustrated by the United Nations' refusal to
make witnesses and documents available. On June 1 and November
9, Senator Levin and I requested that the U.N. provide
documents and make U.N. personnel available for interviews. To
date, neither the documents nor the key U.N. players involved
in the scandal have been provided to the Subcommittee. It is
often said of governments that sunshine is the best antiseptic.
The United Nations should move towards greater transparency.
Just a few days ago, the Independent Inquiry Committee,
headed by Paul Volcker, released its interim report. In that
report, the committee revealed a significant amount of evidence
exposing serious problems in the United Nations' management of
the Oil-for-Food Program. It is clear that the Volcker
Committee arrived at these findings after diligent
investigation. I applaud their efforts and hope they will
continue their work.
Some of the committee's most important findings addressed
the actions of the head of the Oil-for-Food Program, a senior
U.N. official named Benon Sevan. Mr. Sevan was the head of the
U.N.'s office that oversaw the Oil-for-Food Program. Mr. Sevan,
according to Mr. Volcker's report, solicited lucrative
allocations of Iraqi crude oil for an acquaintance, an Egyptian
oil trader named Fakhry Abdelnoor. Mr. Abdelnoor owned an oil
trading company called African Middle East Petroleum, or AMEP
for short. According to Mr. Volcker's report, Sevan requested
that the Hussein regime grant AMEP the right to buy oil under
the Oil-for-Food Program. The Volcker panel determined that
Sevan's solicitations on behalf of African Middle East created
a ``grave and continuing conflict of interest, were ethically
improper, and seriously undermined the integrity of the United
Nations.''
While I agree with Mr. Volcker's conclusions that Mr.
Sevan's actions amounted to grave misconduct, I believe the
evidence goes further than just a conflict of interest. As a
former prosecutor, I believe that clear and direct evidence
establishes probable cause that Benon Sevan broke the law. I
arrive at this conclusion not only from the evidence that Mr.
Volcker presented in his report, but also documents obtained by
this Subcommittee that Mr. Volcker did not use, documents
created by the Iraqi State Oil Marketing Organization, commonly
called SOMO, which controlled the export of Iraqi crude oil
under the Oil-for-Food Program. These documents provide further
evidence that Benon Sevan received oil allocations from the
Hussein regime. Each Iraqi oil allocation is worth hundreds of
thousands of dollars. As a result, if Sevan was granted oil
allocations, it is reasonable to infer that Sevan received a
substantial amount of money from them.
So the question becomes, did Benon Sevan personally receive
oil allocations from the Hussein regime? A review of the
evidence will suggest the answer to that is yes.
The first document we will analyze is created by SOMO after
the fall of Saddam Hussein, which we have labeled Exhibit 1.\1\
Written in Arabic, this chart is entitled ``Estimate of
Financial Proceeds Achieved by a Sample of People Benefiting
from the Crude Oil Allocations.'' The chart clearly states that
it explains the estimates achieved by some individuals and
other parties as a result of obtaining oil allocations from the
former regime. The chart lists the ``Allocated Party,'' which
identifies the person that received the precious oil
allocations. Next to the allocated party appears ``Total Crude
Oil Lifted in All Phases,'' which indicates the amount of oil
lifted in connection with those allocations. Last, we see an
``Estimate of Financial Proceeds for All Lifted Quantities,''
in which SOMO estimated the amount of money that the selected
allocation recipients earned through selling their high-priced
allocations.
---------------------------------------------------------------------------
\1\ See Exhibit No. 1 appears in the Appendix on page 202.
---------------------------------------------------------------------------
I will direct your attention to the last entry on the
chart, which indicates that one of the selected allocated
parties was Benon Sevan. Next to Sevan's name, the chart
indicates that 9.3 million barrels of oil was lifted in
connection with Mr. Sevan's allocations. The last column next
to Mr. Sevan's name estimates that Mr. Sevan made $1.2 million
from oil allocations under the Oil-for-Food Program. It is
worth emphasizing that this chart makes no reference to Fakhry
Abdelnoor or his company, African Middle East Petroleum.
Therefore, this document makes a strong case that Benon Sevan
received many oil allocations under the Oil-for-Food Program
and made a significant amount of money from those allocations.
Exhibit 2 is another SOMO chart illustrating that Benon
Sevan received allocations.\2\ Like the previous chart, this
exhibit was created after the fall of the Hussein regime. It
identifies every person, official, or company that received an
oil allocation in the fourth phase of the Oil-for-Food Program.
Those people are listed under the heading, ``Allocated Party.''
In the next column, the chart identifies the company that
purchased the allocation from the allocated party, listed as
the ``Contractual Company.'' The last two columns indicate the
amount of oil allocated and the amount ultimately exported.
---------------------------------------------------------------------------
\2\ See Exhibit No. 2 appears in the Appendix on page 204.
---------------------------------------------------------------------------
In the highlighted section of the chart, we see Contract
Number M-04-60, which lists the allocated party as Mr. Benon
Sevan, the United Nations. Moving to the next column, we see
that African Middle East Panamanian Company is listed as the
contractual company, meaning that it was the party that bought
the oil allocated to Benon Sevan. It is important to emphasize
that this document clearly suggests that Benon Sevan was
granted the allocation and that African Middle East was simply
buying the oil set aside for Mr. Sevan.
Exhibit 3 indicates that Sevan was granted allocations in
at least six other phases.\1\ For the sake of brevity, I will
not walk through every chart one by one, but suffice it to say
that each of the other charts clearly identifies the allocated
party, that is the party receiving the allocation, as Benon
Sevan.
---------------------------------------------------------------------------
\1\ See Exhibit No. 3 appears in the Appendix on page 206.
---------------------------------------------------------------------------
The exhibits we have seen so far were written after the
fall of the Hussein regime, but Exhibit 4,\2\ however, presents
documents that were created by SOMO during the life of the
program. The excerpt on the upper left of the exhibit is a
handwritten chart that shows oil allocations for Phase Six of
the Oil-for-Food Program. The principal column headers indicate
``Country,'' which relates to the country of the oil purchaser,
``Allocations of for the Period Phase (5),'' ``Allocations of
Phase (6),'' and the ``Proposed Allocations for the Period
Following Phase (6).'' Under the header ``Country,'' we see
Panama, which is the country of incorporation for Africa Middle
East. Under the country, we see ``Regular Requests'' and
``Special Requests.'' The meaning of these headings remains
unclear and the Subcommittee is attempting to determine
precisely what those headings mean. The key, however, is below
those words. There appears the name, ``Mr. Sevan.'' Next to Mr.
Sevan's name, under the heading ``Allocations for Phase (6),''
we see ``2 million barrels.'' Thus, this document confirms that
oil lifted in Phase Six by the AMEP, the Panamanian company,
was allocated to Benon Sevan. In addition, this chart indicates
that SOMO proposed allocating 1.5 million barrels of oil to Mr.
Sevan for Phase Seven.
---------------------------------------------------------------------------
\2\ See Exhibit No. 4 appears in the Appendix on page 216.
---------------------------------------------------------------------------
The document on the lower half of the exhibit is the same
type of chart, but it deals with Phases 6 and 7. The key is the
lower part of the table, in which Mr. Sevan's name is
prominently displayed. This excerpt indicates that Mr. Sevan
was allocated 2 million barrels in Phase 6, 1.5 million barrels
in Phase 7, and was poised to receive another 1.5 million
barrels after Phase 7.
The final document on this exhibit appears on the right-
hand side of the chart. That document is yet another chart
created by SOMO during the Hussein regime. The date on the
chart appears to be July 12, 1999, which fell in Phase 7 of the
program. Under the header, ``Quantity allocated and expected to
be allocated,'' we see Mr. Sevan yet again. The chart indicates
that Sevan was allocated or expected to be allocated 2 million
barrels from Kirkuk, a region in the northern part of Iraq.
Although we are releasing just four charts from the Hussein
regime, the Subcommittee has additional documents written by
the Hussein regime that are similar to these exhibits,
indicating that Benon Sevan received oil allocations under the
Oil-for-Food Program.
Previously, some have questioned whether Mr. Sevan himself
received oil allocations. The documents we have presented here
today are considerable evidence that the answer is an
unmitigated yes, that Sevan did, in fact, receive oil
allocations from the Hussein regime.
This evidence begs the question, how did the fact that the
head of the Oil-for-Food Program receive lucrative oil
allocations from Iraq affect the Oil-for-Food Program? How did
the receipt of oil allocations affect Mr. Sevan's
decisionmaking? There have been recent press reports that Mr.
Sevan blocked an audit by the U.N. auditors into his own
office. Was that a result of his oil allocations?
In April 1998, which is roughly the same time Mr. Sevan
received his first oil allocation, he instructed U.N. oil
inspectors to delete information concerning Iraqi smuggling
activities in a report to the U.N. Security Council. He later
instructed those inspectors not to be ``detectives,'' with
respect to Iraqi oil smuggling. Did Mr. Sevan turn a blind eye
because of the oil allocations? The Iraqis believed Mr. Sevan
would assist their efforts with respect to the import of spare
parts for oil machinery as a result of the oil allocations. Did
those allocations affect his support for the spare parts
importation? All of these questions and many others remain
unanswered.
As a result, I believe that Mr. Sevan's misconduct goes
well beyond a mere conflict of interest. Instead, these
documents, when combined with the evidence presented in the
Volcker Report, certainly establish probable cause that Mr.
Sevan's actions rose to the level of criminal liability.
Accordingly, I call upon Secretary-General Kofi Annan to strip
Mr. Sevan of his diplomatic immunity so that he will be
available for judicial process and can be called to testify
before this Subcommittee about the evidence we have gathered.
Over the course of our bipartisan investigation, this
Subcommittee has uncovered evidence of even more corruption in
the U.N. Oil-for-Food apparatus. In particular, we have found
disturbing evidence that one of the U.N. oil monitors, the
individuals hired by the United Nations to inspect the oil
exports from Iraq under the Oil-for-Food Program, took a bribe.
In doing so, the inspector helped Saddam Hussein generate $9
million in under-the-table cash.
Other evidence establishes the following facts. The bribed
oil inspector was a Portuguese man named Armando Carlos
Oliveira. We have matched up Iraqi documents to Mr. Oliveira's
passport and other documents to confirm his identity. According
to the documents, Mr. Oliveira participated in the
falsification of shipping papers related to two purchases by a
French company called IBEX Energy. We have accumulated
significant evidence proving that Mr. Oliveira was at the oil
terminal for both illegal loadings.
With the help of the falsified documents, the two shipments
took a total of 500,000 barrels of oil worth $9 million in
excess of what was approved by the United Nations. Iraqi
documents indicated that Saddam Hussein personally ordered the
falsification of the documents. Iraqi documents also indicate
that Mr. Oliveira had agreed to falsify the documents in
exchange for 2 percent of the value of the smuggled oil. In the
end, however, Mr. Oliveira received far less than that, only
$105,819.
Internal SOMO accounting spreadsheets indicate that
$105,819 was paid to Saybolt for ``added value.'' The $105,819
was spread over two payments. One was for $86,119 in September
2001 and the other for $19,700 in March 2002. The entry on the
spreadsheet for the $19,700 payment in March 2002 to Saybolt
complements was a handwritten note to the Iraqi Minister of
Oil, which reveals that Mr. Oliveira received $19,700 in March
2002. The note indicates that the $19,700 payment was in cash
at the Ministry of Oil in Baghdad on March 4, 2002.
We have further documentation to indicate Mr. Oliveira's
presence in Baghdad. We have letters written from the Minister
of Oil to the Central Bank requesting approval. We have
documentation when Mr. Oliveira left Iraq, and that on his
return from Portugal, he deposited $5,000 into a cash account
in Portugal within days after returning.
We have released the evidence that the Subcommittee has
uncovered related to these facts and we invite you to review
these documents.
In addition, we will hear testimony describing the role of
Cotecna, the U.N. independent inspection agent for humanitarian
goods imported into Iraq under the Oil-for-Food Program.
Cotecna was charged with authenticating the arrival of goods
into Iraq upon which the United Nations would authorize payment
of those goods from the escrow account at BNP Paribas. This
escrow account was funded by U.N. approved oil sales by Iraq
under the program.
Looking into the role of Cotecna is important because
Saddam Hussein was able to receive kickbacks on humanitarian
goods sold under the program. For example, as raised in our
earlier hearing, the Weir Group paid $8 million in kickbacks to
a Swiss account under the Oil-for-Food Program. In addition,
using substandard goods was another form of kickback known to
have occurred under the program, where lesser-quality goods
were shipped into Iraq, allowing for the former regime and the
complicit supplier to pocket the difference between the lesser-
quality goods and the higher-quality goods specified under the
goods contract. It is essential to understand if Cotecna's
duties were to verify the price or quality of the goods coming
into Iraq, or merely to just verify the arrival of humanitarian
goods into Iraq. I will note that the U.N. Secretary-General
and the Office of the Iraq Program were responsible for
overseeing the price, quality, and quantity of goods coming
into Iraq, and were responsible for overseeing Cotecna's
operations and duties.
I am also looking forward to hearing testimony from a
former employee of the U.N.'s Office of the Iraq Program. The
Office of the Iraq Program would review humanitarian contracts
between the former regime and suppliers around the world. It is
important to determine whether this review would identify
price-inflated contracts that could be used for kickbacks as
well as fraudulent contracts.
I have a number of concerns about the procurement of goods,
particularly as they regard the Northern Kurdish regions. There
have been widespread reports from the Kurdish regions that they
did not receive all the goods they were entitled to, which was
supposed to be 13 percent of all humanitarian goods under the
program.
Another serious allegation that has been hanging over the
United Nations concerns Secretary-General Kofi Annan and his
son, Kojo. This allegation involves improprieties in the U.N.'s
award of a multi-million-dollar contract to a Swiss company
called Cotecna Inspection during the time when Kojo Annan was
employed by Cotecna as a paid consultant. Our concerns are
heightened due to the fact that the Volcker Commission's
recently released interim report revealed major improprieties
in the U.N.'s award of contracts in 1996 to Saybolt and
Lloyd's, and revealed the direct intervention of then-
Secretary-General Boutros Boutros-Ghali in the selection of BNP
Paribas. To date, the Subcommittee has reviewed thousands of
documents produced by Cotecna and has interviewed a half-dozen
current and former Cotecna officers and employees, including
Kojo Annan himself.
Our investigation of these allegations has revealed a
disturbing pattern of information gaps and memory lapses. For
example, despite Cotecna's assertions to the contrary, we have
learned that Kojo Annan's activities were not strictly limited
to Nigeria and Ghana and that he lobbied many other countries
while in New York during the 1998 session of the U.N. General
Assembly. Particularly troubling is a report written by Mr.
Annan relating to some kind of network he was setting up in New
York City, and I think if we have Exhibit 18,\1\ we could
display that.
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\1\ See Exhibit No. 18 appears in the Appendix on page 275.
---------------------------------------------------------------------------
In his report dated September 14, 1998, Kojo Annan stated
the following: ``As we discussed with you on Sunday, PM and
myself put in place a `machinery' which will be centred in New
York that will facilitate the continuation of contacts
established and assist in developing new contacts for the
future. This `machinery', due to its global nature and its
longevity, is as important overall as any other contacts
made.''
Subcommittee staff interviewed Kojo Annan this past Friday,
but he could not recall what he was referring to when he
described a machinery that he had put into place, why it was
centered in New York, or why it was of a global nature, or how
the machinery might ultimately prove to be beneficial for
Cotecna's long-term marketing strategy. In short, Mr. Annan
cannot recall what his own words meant. This memory lapse is
troubling. Subcommittee staff also interviewed Cotecna's
officers about this report, but they, too, could shed no light
on Mr. Annan's statements. Our suspicions are further raised
due to the fact that there is no report regarding Mr. Annan's
activities while in New York during the U.N. General Assembly,
and I would note that we have substantial documentation of
other reports by Mr. Annan when he was doing other activities
at other times. Memory lapses combined with an absence of trip
reports is not only troubling, it strains credibility.
The Subcommittee has invited Mr. Annan to appear today to
address these matters further and afford him an opportunity to
explain his statements, but he has declined.
Our second panel will address the 58 U.N. audits of the
Oil-for-Food Program. I can say at the outset that I find a
great many red flags in these audits. The gross mismanagement
of almost every aspect of the Oil-for-Food Program is simply
inexcusable and wasted over $690 million.
Every organization has its shortcomings, but I cannot
recall any organization where the scope of its problems
encompassed every basic management skill needed to ensure an
effective program. The Office of Internal Oversight Services'
audits identified problems with budget planning and execution,
coordination, strategic planning, communication, procurement,
inventory control, cash management, accounting for assets,
documenting and/or justifying expenditures, information
technology, and human resources management. This represents the
complete panoply of required management skills.
In our third panel, we will hear testimony from the Hon.
Patrick F. Kennedy, U.S. Ambassador to the United Nations for
Management and Reform at the U.S. Mission to the United
Nations. Ambassador Kennedy will address a variety of issues
pertaining to the management and oversight of the U.N. Oil-for-
Food Program, including the pervasive oil smuggling that
occurred under the program.
In our November 15, 2004, hearing, Subcommittee Majority
staff estimated that the magnitude of fraud perpetrated by
Saddam Hussein in contravention of U.N. sanctions from 1991 to
2003 was over $21.3 billion, of which $13.6 billion, 64
percent, was a result of the Iraqi oil smuggling. The
Subcommittee believes that the Oil-for-Food Program provided
Saddam Hussein with an enhanced opportunity to circumvent
sanctions and amass a greater amount of illicit funds. This was
particularly the case with oil smuggling.
The export of Iraqi oil under the U.N. Iraq sanctions
program was strictly forbidden. It is clear that from the onset
of sanctions in 1991, members of the U.N. Security Council were
aware of Iraqi oil being exported through the protocols in
contravention of the sanctions. Security Council members in the
661 Sanctions Committee took note of Iraqi oil being exported
to Jordan under the protocols and did not respond to Turkey's
request. The United States and the United Kingdom tried
unsuccessfully in the Security Council to tighten controls on
oil smuggling. Russia, a veto-holding permanent member of the
Security Council, consistently blocked such initiatives.
However, other Security Council members did not initiate any
other significant action to prevent the flow of Iraqi oil to
Jordan and Turkey, nor did they provide financial relief to
countries like Jordan and Turkey, who were adversely affected
by Iraqi sanctions and had petitioned the Security Council for
relief. I look forward to discussing these issues related to
smuggling with Ambassador Kennedy, and I suspect so will
Senator Levin.
I know that was a very long statement. We have a lot of
information and this is just the second in a series of
hearings, so I thank my Subcommittee Members for their patience
as I walked through that and appreciate their presence today.
I turn to my distinguished Ranking Member, Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Mr. Chairman, thank you for holding these
hearings, and for your leadership. As you mentioned, today, the
Permanent Subcommittee on Investigations is conducting its
second hearing on the United Nations Oil-for-Food Program.
Today's focus is on the process used by the United Nations
to monitor Iraq's oil sales and inspect goods imported by Iraq
with the proceeds from those sales. U.N. employees, U.N.
contractors, and U.N. member states all had roles to play in
inspecting goods, monitoring oil sales, and enforcing U.N.
sanctions. Their failures, as well as their successes, hold
important lessons for future U.N. sanctions programs.
The U.N. recently released 58 audit reports on the Oil-for-
Food Program that were prepared by the U.N.'s internal auditor,
the Office of Internal Oversight Services. The release of these
reports set an important new precedent in U.N. auditing, opened
the door to greater U.N. oversight, and contributed to the
culture of increased transparency and accountability that needs
to take hold at the United Nations. It is a positive omen.
The U.N. audit reports show that the Office of the Iraq
Program lacked basic financial controls and exercised
inadequate oversight of the Oil-for-Food Program. The U.N.'s
Independent Inquiry Committee, also known as the Volcker
Committee, also shows that the U.N.'s auditing efforts
themselves were inadequate. The Volcker Report found, for
example, that the audits of the Oil-for-Food Program were
understaffed and underfunded. The audit's scope was often too
narrow, and the follow-up process to correct identified
problems was flawed.
The Volcker Report also presented disturbing evidence that
the head of the U.N.'s Office of the Iraq Program, Benon Sevan,
may have personally profited from oil allocations made by Iraq,
and the Chairman in his statement a moment ago outlined
significant additional evidence which supports allegations of
wrongdoing by Benon Sevan.
In addition, the Volcker Report identified problems with
how the U.N. selected Saybolt, Lloyd's Register and BNP for key
Oil-for-Food contracts. The Volcker Report noted that it was
continuing to investigate the U.N.'s decision to award an
inspection contract to Cotecna in 1998 to determine whether
favoritism played a role. This Subcommittee, as our Chairman
has outlined, is examining that issue at great length and that
will be a subject of the discussion today.
Kojo Annan denies any wrongdoing. Kojo Annan has cooperated
with the Subcommittee by voluntarily submitting to an
interview, but we have been unable to reach a judgment about
the contract award due primarily to the Subcommittee's lack of
access to relevant documents and personnel at the United
Nations. For that reason, questions remain unanswered about how
the Cotecna contract was awarded and about Kojo Annan's
activities.
The United Nations has responded to the Volcker Report by
expressing a determination to remedy identified deficiencies
and strengthen its management, procurement, and auditing
functions. The U.N.'s comments suggest that the U.N. staff has
gotten the Volcker Committee's message and is willing to embark
on real change. I hope so. To bolster public confidence, it is
essential that the United Nations fully implement the Volcker
Committee's recommendations.
A key concern about the Oil-for-Food Program is the extent
to which it was manipulated by Saddam Hussein to obtain illicit
revenues for his regime. We know that some of Saddam Hussein's
revenue from sales of oil came from kickbacks that he got from
contractors involved in the Oil-for-Food Program. But the bulk
of his illicit oil sale revenue, as the Chairman has just
pointed out, actually came from the money he received from
unregulated sales of Iraqi oil entirely outside of the Oil-for-
Food Program to Turkey, Jordan, and Syria. That is sometimes
called oil smuggling, but these are the open sales of Iraqi oil
to those three countries. We in the world looked the other way
from those sales, even though they were prohibited by the
U.N.'s sanctions regime.
The Volcker Report states, ``There can be no question that
bribes and other abuses provided many opportunities for illicit
gain, often as part of a deliberate effort by Iraq to reward
friends or cultivate political influence.'' What is not clear
is the extent to which those illicit financial gains benefited
middlemen and corrupted individual Iraqi officials rather than
the Iraqi regime.
What does appear clear is that the major source of external
financial resources for the Iraqi regime resulted from
sanctions violations outside the Oil-for-Food Program's
framework, and that is shown on the chart which is up here now
showing that,\1\ in our computations, about 73 percent of the
money which went to Saddam Hussein from oil sales came through
those open oil sales primarily to those three countries,
principally to Jordan, but also to Syria and Turkey. That was
the open oil sales, the dark blue. I think the Chairman's
estimated percentage was about 67 percent as I remember, but
that is the same oil sales that he referred to as oil smuggling
and that I refer to as open oil sales.
---------------------------------------------------------------------------
\1\ See Exhibit No. 51 appears in the Appendix on page 426.
---------------------------------------------------------------------------
Using numbers provided by the Duelfer Report, it appears
that Saddam Hussein's abuse of the Oil-for-Food Program
provided about one-sixth of Iraq's total illicit income, while
nearly three-quarters of this illicit income came from those
open oil sales which weren't supposed to take place because
they were outside of the Oil-for-Food Program. They occurred
with the knowledge and acquiesence of the world community,
including the United States.
As a matter of fact, as we have dug into the historical
record, we found evidence suggesting that Iraq may have
obtained even more illicit revenue from its oil trade with
Turkey than previously estimated. The Duelfer Report, for
example, states that from 1991 to 1998, Iraq obtained at most
$30 million per year from illegal oil sales outside of the U.N.
Oil-for-Food Program with its neighbors. However, the evidence
now suggests that Iraq's illegal oil trade with Turkey alone
during these years generated far more revenue for Saddam
Hussein than that, perhaps hundreds of millions of dollars each
year.
These were openly made sales. The press reported big
profits were being made from Iraq's oil sales to Turkey in
1992. The New York Times report noted that, ``The Western
allies and just about everybody else seem ready to avert their
gaze from this illegal smuggling.'' Three years later, the New
York Times estimated that Iraq was illegally selling about
200,000 barrels of oil per day through Turkey, obtaining
illicit revenue for Saddam Hussein totaling between $700
million and $800 million per year.
The oil sales that we in the world tolerated were open and
obvious, despite their being in violation of the U.N. sanctions
that we helped put in place. For example, in March 1998, the
BBC posted a photograph purporting that it had found, ``clear
evidence that Iraq is breaking U.N. sanctions by exporting
hundreds of millions of dollars worth of oil across its borders
into the Gulf and Turkey.\1\ Huge convoys of trucks and many
ships carry the fuel out of Iraq, where it is sold on the black
market,'' and that is a copy of that BBC news report showing
those lines of trucks going into Turkey.
---------------------------------------------------------------------------
\1\ See Exhibit No. 52 appears in the Appendix on page 427.
---------------------------------------------------------------------------
The Administration acknowledged the illegal trade in a
quote in the New York Times of June 1998, saying that, ``the
tendency has been to turn a blind eye because the Turks are
benefiting from it at a time when they are complaining anyway
about sanctions on Iraq.'' It is clear that the whole world,
including the United States, knew about Iraq's oil sales to
Turkey, Jordan, and Syria.
In the case of the United States, we not only knew about
the oil sales, we actively stopped the U.N. Iraq Sanctions
Committee, known as the 661 Committee, from acting to stop
those sales. Beginning in 1996, Turkey formally asked the
United Nations through the 661 Committee for permission to
increase its oil trade with Iraq. The United States expressly
and repeatedly objected to the 661 Committee's consideration of
Turkey's application instead of voting to simply turn it down.
The United States could have voted to end the sales. Instead,
it stopped the United Nations from acting. The result was that
illegal oil sales to Turkey continued unabated. Hundreds of
millions of dollars went into the pockets of Saddam Hussein as
a result.
Both the Clinton and Bush Administrations demonstrated in
other ways an awareness and implicit approval of Iraq's oil
sales to Turkey and Jordan. Both Administrations repeatedly
sent to Congress waivers from U.S. laws prohibiting U.S.
foreign aid to any country that violated U.N. sanctions on
Iraq. Each year since 1994, Congress has prohibited foreign aid
to any country violating U.N. sanctions on Iraq. Both the
Clinton and Bush Administrations repeatedly issued waivers for
Turkey and Jordan. Oil sales by Iraq to Turkey and Jordan
continued apace in violation of U.N. sanctions with our
knowledge and implied consent.
Now, the U.N. sanctions, despite all the leakage, abuses,
and looking the other way to violations, were stopping Saddam
Hussein from rearming Iraq. In testimony to Congress in 2001
about the sanctions, Secretary of State Colin Powell said the
following, ``I think credit has to be given for putting in
place a sanctions regime that has kept him pretty much in
check.''
As a matter of fact, the sanctions were working
sufficiently well that Saddam Hussein used every tactic at his
disposal to circumvent and to corrupt them. He was intent on
undermining the U.N. sanctions regime precisely because they
were working so well. U.N. sanctions represent one of the few
available non-military tools to control the behavior of
threatening nations. Helping sanctions work more effectively is
an important goal, and fixing responsibility when they are
allowed to be circumvented or corrupted will hopefully prevent
that from happening in the future.
I commend the Chairman for his determined efforts to
achieve those goals through these hearings and I commend our
staffs for the way they have worked together in carrying out
the investigation on which our hearings are based. Thank you,
Mr. Chairman.
Senator Coleman. Thank you, Senator Levin.
We are pleased to have with us the Chairman of the full
Homeland Security and Government Affairs Committee, Senator
Collins.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. Thank you, Mr. Chairman. I know that
everyone is very eager to hear from the witnesses today, so I
would ask unanimous consent that my full statement be entered
into the record and I am just going to make a very few
comments.
Senator Coleman. Without objection.
Chairman Collins. First, let me commend you for leading
this much-needed investigation into the U.N. Oil-for-Food
Program. This is a matter of extraordinary complexity and of
great importance.
The Subcommittee's first hearing last November established
that Saddam Hussein systematically looted the Oil-for-Food
Program and turned what should have been one of the greatest
humanitarian aid programs in history into one of history's
greatest frauds. We know that Saddam Hussein used some of his
illicit proceeds to buy international support for his regime
and to undermine numerous U.N. resolutions. We know that some
of the proceeds were used to buy the weapons that Saddam
Hussein needed to remain in power. Some of these weapons are
now being used by terrorists against our troops and against the
Iraqi people.
The question before the Subcommittee now is how was Saddam
Hussein able to do this. The interim report of the Volcker
Commission provides part of the answer. Indeed, its findings
confirm some of our worst suspicions. In the critical
components of the Oil-for-Food contracting, the inspections of
oil exports, the inspections of humanitarian imports, and the
banking arrangements, the report finds that political
considerations, favoritism, and expediency seems to take
precedence over integrity, transparency, and accountability.
In the area of internal program audits, the words used by
the Volcker Commission--inadequate, erroneous, and
unsatisfactory--are, if anything, an understatement as the
Subcommittee's own investigation demonstrates. The clear lack
of anything resembling diligent oversight for a program worth
some $64 billion is, to use another word, unconscionable.
As the Chairman has outlined, the Subcommittee's own
investigators have uncovered very disturbing information
suggesting improprieties and possible fraud at many levels of
the Oil-for-Food Program. This investigation, as well as the
investigations by five House Subcommittees, has been hampered
considerably by the U.N.'s reluctance to cooperate fully. I
believe that we have only explored what appears to be an
iceberg. We have only explored the tip of it. As we go deeper,
this lack of full cooperation will become increasingly
unacceptable.
Accountability is vital for all institutions. This is
especially true for public institutions. It is clear that
something went terribly wrong with the Oil-for-Food Program,
and those responsible must be held accountable.
Again, Mr. Chairman, thank you for your leadership.
Senator Coleman. Thank you, Chairman Collins.
[The prepared opening statement of Senator Collins
follows:]
PREPARED OPENING STATEMENT OF SENATOR COLLINS
Thank you, Senator Coleman. I commend you for leading this much-
needed investigation of the United Nations' Oil-for-Food Program. This
is a matter of extraordinary complexity, and of great importance.
The Subcommittee's first hearing on this program last November laid
a solid foundation for the work ahead. As a result of our inquiry and
others, we know that Saddam Hussein systematically looted the Oil-for-
Food program and turned what should have been one of the greatest
humanitarian-aid programs in history into one of history's greatest
frauds. We know that Saddam Hussein used some of his illicit proceeds
to buy international support for his regime, and to undermine the
numerous U.N. resolutions demanding compliance with the Gulf War cease-
fire agreement.
We know that some proceeds were used to buy the weapons the brutal
dictator needed to remain in power. We also know that some of those
weapons--the ammunition and rocket-propelled grenades--now are being
used by terrorists against our troops and against the Iraqi people.
The question before us now is, how was Saddam Hussein able to do
this? The interim report of the Volcker Commission provides part of the
answer. It reviews the way this program was set up and operated. Its
findings confirm some of our worst suspicions.
In the awarding of contracts to get the program under way, the
interim report finds that the U.N. not only failed to follow generally
accepted practices, but also failed to follow its own internal
policies. In the critical components of Oil-for-Food contracting--the
inspections of oil exports, the inspections of humanitarian imports,
and the banking arrangements--the report finds that political
considerations, favoritism, and expediency seemed to have taken
precedence over integrity, transparency, and accountability.
In the area of internal program audits, the words used by the
Volcker Commission--inadequate, erroneous, and unsatisfactory--are, if
anything, understatement. The clear lack of anything resembling
diligent oversight for a program worth some $64 billion is, to use
another word, unconscionable.
It is only in the area of administrative expenditures that the
findings are merely disturbing. The report noted that payments were
made for expenditures that were not sufficiently documented or
explained. In addition, given the widespread allegations of fraud and
corruption in this program, the decision to reduce administrative
expenditures by shortchanging internal inspections and audits is a
glaring example of being penny-wise and pound-foolish.
Finally, we come to the findings regarding Benon Sevan, the former
Executive Director of the U.N.'s Office of the Iraq Program, the so-
called ``ambassador'' of the Oil-for-Food Program. The Commission's
finding that Mr. Sevan engaged in, ``a grave and continuing conflict of
interest'' regarding extremely lucrative oil allocations speaks for
itself. Mr. Sevan's explanation for his unexplained wealth--a gift from
an elderly aunt on a modest pension--fails anyone's straight-face test.
As the Chairman has outlined, this Subcommittee's own investigators
have uncovered very disturbing information suggesting improprieties at
many levels of the Oil-for-Food program. This investigation, as well as
the investigations by five House committees, has been hampered
considerably by the U.N.'s reluctance to cooperate fully. These
investigations so far have only explored the tip of what appears to be
an iceberg. As they go deeper, this lack of full cooperation will
become increasingly unacceptable.
Accountability is vital for all institutions. This is especially
true for public institutions. It is clear that something went terribly
wrong with the way the Oil-for-Food program was set up and
administered, and those responsible must be held accountable. I look
forward to the evidence the PSI investigators have uncovered and will
be presenting today.
Chairman Coleman. Senator Domenici.
OPENING STATEMENT OF SENATOR DOMENICI
Senator Domenici. Mr. Chairman, first, I want to say to you
that I have been here a long time, longer than many people
believe I should have been, but frankly, I have not seen a new
Senator take an issue of this magnitude and do the kind of job
you have done with it. I have no doubt that many people were
skeptical of your first comments with reference to what was
going on, but I believe before we are finished that you will
prove that you were right and that you found something that is
terribly important to what has gone on in the Middle East.
From my standpoint, I always wondered how Saddam Hussein
could remain so strong when sanctions indicated to the world
that he was depleted of resources that would permit him to
remain such a strong power with reference to military might and
control over his people. The sanctions were intended to
diminish his power, but it seems like something else was
happening. I think we might find out when we are finished with
these hearings that this is what happened, this is where he got
his support. If that is the case, I believe the U.S. Congress
has uncovered something that is truly important to our country
as we look at what we have tried to do. We have been misled. We
have been put upon, without any question, by those who have
done this in a very serious way.
And last and almost more important, and we don't know the
extent of this, but I am very suspicious of countries that
seemed to be questioning resolutions that would have led to a
conclusion that we should intervene in Iraq. Somehow it seems
certain countries decided not to continue down that line, and
the question is, were they affected by the transactions that
occurred here, directly or indirectly? Were they biased because
of the monetary receipts that were coming in to either them or
their friends, friends of that government?
I think you have talked about that and around that, and I
don't know that we have proof yet, but I think these hearings
will at least put on the table that something else was
happening that might have had an impact on why countries didn't
support us with votes in the United Nations when the time came
to finally decide enough was enough in Iraq. I hope you
understand what I am saying, and I hope the people understand
what I am saying.
I don't want to openly accuse these countries, but it seems
to me very close to a logical conclusion that there was some
impact and it might have come from the resources that were
siphoned into those countries or people close to the leadership
in those countries. If that is the case, and it may very well
be so, then these hearings will have proven something far
beyond what you started out talking about and far beyond what
our people in America were thinking when these U.N. votes were
occurring.
I thank you for your diligence and I hope we can conclude
with facts that you were right from the beginning and that this
is a terrible set of actions on the part of the United Nations.
If so, something has to happen. Thank you, Mr. Chairman.
Senator Coleman. Thank you, Senator Domenici.
I would like to welcome our first panel of witnesses for
today's important hearing. This morning, we will hear from
Robert Massey, the Chief Executive Officer for Cotecna
Inspection; Andre Pruniaux, a former Senior Vice President of
the Africa and Middle East Division for Cotecna Inspection;
Arthur Ventham, a former Inspector for Cotecna; Vernon Kulyk, a
former Customs Officer for the United Nations Office of the
Iraq Program; and finally, John Denson, the General Counsel for
Saybolt Corporation.
I welcome all of you to today's hearing and look forward to
hearing your views on the United Nations' handling of the Oil-
for-Food Program as well as discussing the role of Saybolt and
Cotecna as independent inspectors for the Oil-for-Food Program.
Cotecna was the independent inspecting agent for the
humanitarian goods imported into Iraq under the program.
Saybolt Group was the independent inspection agent for Iraqi
oil exports under the program. I think it is important to
understand how you carried out your duties and whether these
duties were consistent and appropriate with the purpose of the
Oil-for-Food Program and U.N. sanctions.
I want to take this opportunity to thank all of you for
coming such a long distance to be at this hearing. It is
important that you are with us this morning and we do
appreciate your being here.
Before we begin, pursuant to Rule 6, all witnesses who
testify before the Subcommittee are required to be sworn. At
this time, I would ask you to please stand and raise your right
hand.
Do you swear that the testimony you are about to give
before this Subcommittee is the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Massey. I do.
Mr. Pruniaux. I do.
Mr. Ventham. I do.
Mr. Kulyk. I do.
Mr. Denson. I do.
Senator Coleman. We will be using a timing system today.
Please be aware that approximately one minute before the red
light comes on, you will see the lights change from green to
yellow. It will give you an opportunity to conclude your
remarks. Your written testimony will be printed in the record
in its entirety. We ask that you limit your oral testimony to
no more than 5 minutes.
Mr. Massey, we will have you go first, followed by Mr.
Pruniaux, Mr. Ventham, Mr. Kulyk, and we will end up with Mr.
Denson. After we have heard all the testimony, we will turn to
questions. Mr. Massey, you may proceed.
TESTIMONY OF ROBERT M. MASSEY,\1\ CHIEF EXECUTIVE OFFICER,
COTECNA INSPECTION S.A., GENEVA, SWITZERLAND
Mr. Massey. Thank you, Mr. Chairman. Mr. Chairman and
distinguished Members, good morning. My name is Robert Massey.
From 1993 to the present, I have been the CEO for Cotecna
Inspection S.A. in Geneva, Switzerland. Cotecna served as
independent inspection agent for humanitarian goods entering
Iraq in the U.N. Oil-for-Food Program between 1999 and 2003.
Thank you for this opportunity to address the Subcommittee.
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\1\ The prepared statement of Mr. Massey with attachments appears
in the Appendix on page 168.
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You have received my written statement. Therefore, my
prepared oral statement will make only four points.
First, Cotecna was selected fairly on objective grounds,
including price, responsiveness to the RFP, and expertise.
Second, we performed our limited and technical role
professionally under extraordinarily difficult circumstances.
Third, we had no role whatsoever in the financial aspect of
the program.
Finally, the employment of Kojo Annan was in connection
with the company's substantial work in West Africa exclusively
and had absolutely no relationship to Cotecna's selection for
the Oil-for-Food Program.
I will elaborate on these four points in no particular
order.
Between 1992 and 1996, the inspection mission in the U.N.
humanitarian programs for Iraq changed, becoming much more
limited. In 1992, Cotecna was competitively selected in the
first international call for tender for a U.N. program to
monitor Iraq's purchase of humanitarian goods. The company's
1992 draft contract would have provided for Cotecna to perform
price verification, pre-shipment inspection, and post-landing
inspection. The 1992 program was never implemented, however,
because the United Nations and Iraq did not reach agreement.
In 1996, Cotecna participated in a new U.N. call for
tender, this time merely for the authentication of goods.
Authentication, a service unique to the U.N. program, compares
the shipping documents accompanying the goods and the goods
themselves against U.N. documents and database, confirming the
goods actually arrived. Authentication was developed by the
United Nations as one of the several steps in the process for
paying suppliers under the Oil-for-Food Program.
Cotecna did not begin to authenticate shipments in 1996
because the United Nations awarded the contract to another
company. This leads me to my next point. Cotecna's limited
technical role under the 1998 contract did not place us in a
position to detect illegal payments by suppliers.
I can best explain our role by specifying what we did and
did not do. Cotecna was contracted to, and did, compare the
U.N. documents and database with the shipping documents
accompanying all Oil-for-Food goods crossing the Iraqi borders
at specified locations, did visually check 100 percent of these
goods and more closely examined a 10 percent random subset, and
did test whether 100 percent of foodstuff was fit for human
consumption.
Cotecna was not contracted to, and did not, verify that
foodstuff shipped was of the grade contracted, did not assess
the value of the goods, did not interdict prohibited goods
outside the program, did not perform any task with respect to
goods not voluntarily presented, and did not select the goods
imported, establish their specifications, choose suppliers,
negotiate or verify prices, designate sales intermediaries,
establish sales commissions, or handle funds for the payment of
goods.
Your invitation asks me to describe my or my company's
knowledge, if any, of illegal payments by suppliers to either
U.N., Cotecna, or Iraq officials. My company and I have no
knowledge of any such payments to anyone. We as inspectors with
a limited and technical role were in no position to have such
knowledge.
My third main point is that Cotecna performed its job well
and fully in accordance with its mandates. My colleague Andre
Pruniaux will explain this point in more detail. Let me make
only two related observations.
First, while limited and technical, Cotecna's mission was
difficult and sometimes ambiguous. There were, for example,
ambiguities concerning how and whether Cotecna was to test the
quality of foodstuffs and how extensive Cotecna's physical
inspection for all goods should be. Largely, our role was
clarified over time through communications with UNOIP people,
although formal contract amendments did not always follow.
After 1998, Cotecna asked the United Nations to expand the
company's scope of work to include services supporting price
verification. The United Nations declined because it saw itself
as solely responsible for this task.
My final point is that the United Nations properly awarded
Cotecna its contract. Before I discuss the 1998 U.N.
procurement, let me say that Kojo Annan played no role in
helping Cotecna obtain the U.N. contract. A detailed timeline
provided with my written statement places his work for us in
its proper African context. His employment with us had nothing
to do with Iraq and everything to do with West Africa.
Cotecna hired him in late 1995 to work in Lagos, Nigeria,
on Cotecna's government pre-shipment inspection contract there.
He resigned in December 1997, some months after the Nigerian
administration terminated Cotecna's contract. Because of his
marketing skills in Nigeria and Ghana, Cotecna subsequently
hired him to work under a 10-month consultancy agreement, which
included a non-compete clause. In January 1999, after
completion of this consultancy agreement, we negotiated a new
and enforceable non-competition agreement providing
compensation, as required under Swiss law.
There was a clear business rationale for these
arrangements. In 1999 and 2000, Cotecna was pursuing inspection
contracts in Nigeria and Ghana and did not want Kojo Annan
available to the competition. As reflected in the provided
timeline, the intense competitive environment in Nigeria and
Ghana continues until this day.
Cotecna was awarded a U.N. contract in 1998 based on our
proposal, which offered the lowest cost and highest technical
expertise, as well as experience working in harsh conditions.
Along with the handful of other inspection companies worldwide,
Cotecna learned of the U.N.'s October 9, 1998, RFP per standard
procurement procedures. Cotecna had in the past been awarded
U.N. contracts, had been selected for the unimplemented 1992
program, and had been invited to bid on the new Oil-for-Food
Program in 1996.
Mr. Chairman, under the unusual and restrictive conditions
I have described, Cotecna fully met its obligation to the
United Nations. I am proud of Cotecna's performance in this
program.
From the outset, Cotecna has cooperated fully with this
Subcommittee's investigation.
This concludes my prepared statements and I would gladly
answer any questions.
Senator Coleman. Thank you, Mr. Massey. Mr. Pruniaux.
TESTIMONY OF ANDRE E. PRUNIAUX,\1\ FORMER SENIOR VICE
PRESIDENT, AFRICA AND MIDDLE EAST DIVISION, COTECNA INSPECTION
S.A., GENEVA, SWITZERLAND
Mr. Pruniaux. Mr. Chairman and distinguished Members of the
Subcommittee, thank you for inviting me to speak today. My name
is Andre Pruniaux. I served as Senior Vice President of Cotecna
Inspection S.A. between 1998 and 2004. As such, I managed
Cotecna's operations in Africa and the Middle East, including
its work as independent inspection agent for humanitarian goods
in the U.N. Oil-for-Food Program.
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\1\ The prepared statement of Mr. Pruniaux with attachments appears
in the Appendix on page 88.
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Today, I will describe, first, our negotiation of the 1998
Oil-for-Food Program contract with the United Nations, then how
we performed our duties, then our working relationship with the
UNOIP.
We worked on this program from early 1999 to late 2004, so
there is a great deal of information for me to cover in a short
time. Everything I describe today is detailed in my written
testimony and the extensive records that Cotecna has produced
to investigators.
Cotecna received the Oil-for-Food tender in late 1998. We
found that the tender was broadly worded and did not provide
detailed technical and process specifications. We found the
lack of detail surprising, as the program had already been in
operation for 2 years.
Although not mentioned in the tender, the United Nations
imposed Cotecna the use of their existing Lotus Notes system
during the negotiations. We had proposed using our in-house IT
and communication system and had fixed the contract price on
this assumption. At the time, we did not know that much about
Lotus Notes, but our IT team understood that communication
costs would be higher and the system less efficient. To
accommodate their Lotus Notes requirement, the United Nations
agreed to a price increase even before finalization of the
original contract.
When we arrived on the ground in Iraq, the conditions were
worse than anticipated. The inspection sites had recently been
evacuated and were in disarray. There was a huge backlog of
documents to be processed. We had only 1 month's lead time from
contract award to implementation. No standard operating
procedures existed when we assumed responsibility, although
procedures unique to the Oil-for-Food Program were demanded of
us.
An example of the initially vague scope of work concerns
the testing of foodstuffs to ensure only that they were fit for
human consumption. This is not a recognized concept within our
industry. We had to work out what the United Nations wanted by
making suggestions that they would accept or reject until we
knew exactly what they intended our mandate to be. These
clarifications were not documented in formal contract
amendments, but were agreed ad hoc and then reflected in the
standard operating procedures we developed for the program and
which were approved by the United Nations
If there was any doubt about whether or not we should
authenticate a shipment because the paperwork was incomplete or
a shipment arrived at the wrong crossing, we would consult with
the United Nations in New York and get their decision. These
frequent consultations resolved many of our mandate's
ambiguities. However, it still seems to have left room for
confusion amongst outside observers, such as the U.N. auditors,
as to our performance as well as to the scope of our work.
We also found that in reality, the U.N. Lotus Notes system
was cumbersome and unsuited for the authentication purpose.
Replicating data between our servers in Iraq and the U.N.'s
servers in New York often took days and the system often
crashed. Then we would start the data replication process over,
causing us to expend many more man hours. The Lotus Notes
system was controlled by the United Nations and was the only
way supplier contract information was electronically
transmitted to us.
The system's shortcomings greatly impacted upon the
workload of inspectors, who had to work long hours, often
through the night. For example, the system meant that we had
manually to fax often 2,000 or more authentication sheets from
Iraq through to New York each night.
Due to the design of the system, the audit trail was
manual. It could take hours to track a single delivery. Think
of this in terms of over 30,000-plus contracts, some of which
involved several thousand individual deliveries.
As you can see, the program presented significant
challenges. I will now explain how we worked with the UNOIP
staff to overcome these challenges.
Cotecna developed standard operating procedures for every
aspect of the mandate. We established a three-level internal
oversight and audit process. These were carried out by a team
leader at each site, the contract manager in Amman, and our
head office in Geneva. The contract manager position was
introduced by Cotecna at our own cost to ensure efficiency and
compliance. We also would hire technical experts as required,
for example, customs specialists and financial auditors. The
contract manager would be in daily contact with inspectors on
the ground and would also conduct detailed field audits at each
site on average every 2 months. I would also personally conduct
my own on-site reviews twice a year, and there were semi-annual
management meetings in Amman and Baghdad which the UNOIP staff
would attend when possible.
We communicated with the UNOIP daily, providing them with
detailed reports as to the precise level of authentication
activity at each site. We also provided reports on the pending
authentications. The UNOIP regularly visited and audited our
sites, and I would visit New York two or three times a year for
working sessions with the UNOIP.
In conclusion, Cotecna met the terms of its mandate in
full. In order to develop the best service possible, we
insisted on 100 percent visual inspection of all imports. We
also put in place a contract manager and we hired up to 30
surplus inspectors to allow for strenuous shift demands and
sufficient rest and recuperation for our inspectors in Iraq. We
took these steps at our own expense. We developed clear SOPs
that the United Nations approved.
Mr. Chairman, I am confident that Cotecna met and exceeded
its obligations under the U.N. mandate and we did so under very
difficult circumstances.
This concludes my prepared statement and I would be happy
to answer any questions.
Senator Coleman. Thank you very much, Mr. Pruniaux. Mr.
Ventham.
TESTIMONY OF ARTHUR VENTHAM,\1\ FORMER INSPECTOR FOR COTECNA
INSPECTION, S.A., WESTERN AUSTRALIA
Mr. Ventham. Mr. Chairman and Members of the Subcommittee,
my name is Arthur Ventham and I am here at your request to
testify about my experiences as an inspector with Cotecna
Inspections S.A., the independent inspection and authentication
contractor for the Oil-for-Food Program.
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\1\ The prepared statement of Mr. Ventham appears in the Appendix
on page 110.
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Before I begin my testimony, I want to thank you and the
Subcommittee for giving me the opportunity to travel to your
Nation's capital to provide assistance to your investigation
into the United Nations Oil-for-Food Program and I hope my
testimony assists with your endeavors.
I would like to iterate that my intent is not to denigrate
my fellow inspectors employed by Cotecna Inspections but to
provide the insight into what occurred on the ground in Iraq at
the sites that I spent time at, namely Ar'Ar, Al-Waleed, Um
Qasir, and Zakho, and Iskenderun in Turkey.
The period that I spent with Cotecna in Iraq, Turkey, and
Jordan was an experience I would not have missed. I went to
Iraq to try and do something for the people of that country as
well as assisting an organization that I had a lot of time for,
namely the United Nations. Before answering the Subcommittee's
questions, let me give you a brief description of my background
and role at Cotecna.
From 1977 to 1994, I was employed in various capacities
with the Australian Customs Service. During my 18 years there,
I served in senior positions including their Training Officer,
Customs Commercial Systems and Investigations Section; Senior
Operations Officer, Investigations and Compliance Section; Duty
Manager, Compliance and Passenger Processing Section; and
Senior Investigator, Inland Revenue Section.
From 1994 to 1995, I was contracted as a Manager, Tariff
and Trade Section of Coopers and Lybrand, which is one of the
big four accounting firms in Australia.
From 1995 to 1998, I was employed in private industry as
the Managing Director, Business and Development, Tariff and
Trade Section of ArMar Holdings International, an international
boutique consulting agency, and as the Chief Executive Officer
of Business Development of Power Management Australasia, a
specializing accounting, CPA, and business consulting agency
for major projects both onshore and offshore Australia.
In 1998, I returned to the public service as a contract
employee for the West Australia State Government, where I
worked until December 2002, when I was hired as an inspector
for Cotecna. Upon terminating my employment with Cotecna, I
returned to public service work for the State of West
Australia, where I work at the present time.
As for my employment with Cotecna, I landed the job through
a former colleague with the Australian Customs Service who had
himself worked for Cotecna as an inspector in Iraq. He
suggested that I apply for the inspector position, which I did.
I was subsequently hired. I actually departed Australia on
December 20, 2002, for service in Iraq. I served as an
inspector at the Ar'Ar inspection station on the Saudi Arabian
border until the end of January 2004.
In mid-January, I volunteered to visit the Al-Waleed
inspection station on the Syrian border for the purpose of
observing and learning the inspection process so that I could
prepare a standard operating procedure for the Ar'Ar site at
the request of the team leader. After approximately 1 week at
Al-Waleed, I returned to Ar'Ar, where I learned that I was
being transferred to Um Qasir inspection station near the
Kuwait border and the Persian Gulf.
I remained at Um Qasir as an inspector until March 17, when
we were evacuated to Jordan due to hostilities associated with
Operation Iraqi Freedom. I remained in Jordan until April 7,
when I was transferred to Iskenderun, Turkey, as an inspector.
While at Iskenderun, I rotated through a satellite site in
Mersin, Turkey, and also visited other inspection sites in the
area on an as-needed basis. Eventually, I was promoted to the
position of Administrative Deputy Team Leader, which meant that
I was responsible for administration, accounts, and other
activities associated with the Mersin site.
In late June, I accepted an opportunity to become the Site
Leader of the Zakho inspection station on the Turkish border--
--
Senator Coleman. Mr. Ventham, if I may, rather than going
through your history of assignments, can you focus on your
observations to help the Subcommittee?
Mr. Ventham. Prior to being accepted as an inspector, my
understanding of the Oil-for-Food Program was somewhat limited
and I was of the opinion that all goods entering Iraq were
subject to the same strict inspection services to ensure that
no unlawful or inappropriate goods, such as military,
chemicals, or other potential dangerous goods were brought into
the country illegally. From the procedures and processes I
witnessed as an inspector, this did not appear to be the case,
as we were only interested in those goods that complied with
U.N. SCR 986 sanctions.
As an ex-military officer and business consultant, I am
aware of and have been trained in logistics, security, and
service delivery. The activities that I undertook while
employed with Cotecna was contrary to everything that I have
been taught, be that through the university, the military, or
customs. As a professional customs manager and business
consultant, I was somewhat surprised at how Cotecna operated
when dealing with a major U.N. activity such as the Oil-for-
Food Program.
To my dismay, I found that the inspections being performed
by Cotecna, inspections which I found to be inadequate were, in
fact, appropriate based on the instructions provided to them by
the OIP U.N. I could not allow myself to continue to be part of
such an inspection program or to be associated with a company
who conducted the inspection business in that manner.
While I am disappointed that I was unable to work with the
United Nations to achieve a desired outcome, I am not sorry to
have left Cotecna when I did, as I believe that the way they
operated was contrary to best practice.
I am now available to answer your questions.
Senator Coleman. We will enter your full statement into the
record, Mr. Ventham. Thank you very much. Mr. Kulyk.
TESTIMONY OF VERNON P. KULYK,\1\ FORMER DEPUTY CHIEF CUSTOMS
EXPERT, UNITED NATIONS OFFICE OF THE IRAQ PROGRAM, DAR ES
SALAAM, TANZANIA
Mr. Kulyk. Good morning, Mr. Chairman, Ranking Member
Levin, and Subcommittee Members. Thank you for this opportunity
to testify before this inquiry into matters concerning the
Office of the Oil-for-Food Program, United Nations.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kulyk appears in the Appendix on
page 127.
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In July 1998, I joined the United Nations Office of the
Iraq Program, UNOIP, as a customs expert. Eventually, I became
the Deputy Chief Customs Expert and my responsibilities
included reviewing contracts for humanitarian aid to be shipped
into Iraq under the program as well as monitoring the
performance of the independent inspection contractors in the
program.
I am a Canadian citizen, and prior to my arrival at the
United Nations Office of the Iraq Program, I had in excess of
30 years of experience as a customs officer with the Government
of Canada and I also had substantial experience enforcing
sanctions in a sanctions environment, working in the Balkans in
1993 and 1994.
This Subcommittee's invitation requested that I address
several topics in my prepared remarks. However, in my opening
statement, I will focus on the humanitarian goods contract
review and approval process.
There were two main categories of contracts that the UNOIP
was responsible for reviewing under the program, contracts for
humanitarian goods and contracts for agency goods. For the
purpose of explanation, humanitarian goods were sometimes
referred to as the 53 percent account because 53 percent of the
revenues from the sale of Iraqi oil were used to purchase these
goods. Likewise, the agency goods were sometimes called the 13
percent account, because 13 percent of the oil revenues went to
their purchase.
The government of Iraq was permitted to contract directly
for the purchase of humanitarian goods with suppliers. Agency
goods, on the other hand, were purchased directly by the United
Nations agencies for use in the three northern governates
because it was felt that the government of Iraq could not be
trusted to deliver humanitarian goods to that region.
I will first discuss the contract review and approval
process for humanitarian goods, which had several distinct
steps which I believe demonstrate a reasonably comprehensive
review process.
First, at the beginning of each phase of the program, the
Program Management Division, or PMD, of the UNOIP was
responsible for creating a list of goods that could be
purchased, and this was called the distribution plan, which in
essence essentially was a large shopping list.
Second, the government of Iraq negotiated directly with
suppliers for the purchase of the goods that were included in
the distribution plan.
Third, the supporting mission of the supplier would submit
the contract to the United Nations, because suppliers were not
allowed to submit their contracts directly to UNOIP.
Fourth, customs experts at the UNOIP's Contracts Processing
Monitoring Division, or CPMD, as it is referred to, where I
worked, reviewed the contracts presented by the missions on a
first come, first served basis.
It is important to note that the review process is not
simply a paper exercise. We reviewed the contracts for
completeness, box by box, line by line, and clause by clause to
assess the following criteria: One, whether the goods being
purchased fell into a category of goods on the distribution
plan; two, whether the goods being purchased were appropriate
and/or suitable for the approved purpose in the sector; three,
whether the goods were reasonably priced under the
circumstances; and four, whether contracts included prohibited
clauses that were outside of the scope of the program, such as
preferred payment clauses or performance guarantees or
commissions, if you may wish.
To assess the reasonableness of prices, we attempted to
obtain the transactional value of the goods by various methods.
These methods included cross-checking the prices on similar
goods from different phases of the program, checking catalogs
of different suppliers for price comparisons, researching price
information available on the Internet, and contacting suppliers
via the permanent missions. It should be noted that customs
experts were not allowed to meet with suppliers without mission
representatives being present to reduce potential offers or
bribes or other financial incentives that suppliers may extend.
Following this thorough review of the application and the
contract, the customs officer compiled his or her findings in
an officer's comment or report, which included the expert's
assessment of whether the contract price was reasonable,
slightly high, or excessive.
Fifth, the Chief Customs Expert or the Deputy Chief Customs
Expert conducted another supervisory level of compliance review
of each written contract report. Thus, while I was serving as
the Deputy Chief Customs Expert, I reviewed most of the
contracts and written contract reports compiled by customs
experts.
Finally, the 661 Committee reviewed each contract and each
report, including whether the contract complied with the
relevant U.N. resolutions, in particular Resolution 986, and
the 661 Committee had the option of approving the contract,
denying the contract, or putting the contract on hold pending
clarification.
Agency goods, or 13 percent account goods, had a slightly
different contract review and approval process and it is
important for the members of the panel to note that while the
authentication of agency goods was not a trigger to payment for
suppliers, it was facilitative to the extent of gathering
statistics and to some degree of reconciliation of the arrival
of agency goods. It was not a trigger to payment.
I worked with a group of highly qualified and committed
customs experts in the Contracts Processing Management
Division, who I believe were dedicated to doing their best to
report overpricing and suspected fraud to the 661 Committee. To
my knowledge, the 661 Committee was fully aware of all
suspected overpricing and fraud detected and reported.
In conclusion, the stated goal of the program was to get
the humanitarian goods to the Iraqi people who were suffering
as a result of the U.N. sanctions while ensuring that the
government of Iraq did not manipulate the program to rearm its
military. I believe the program was successful in achieving its
goal in spite of the limitations placed on it.
Mr. Chairman, I am now happy to answer any questions you
may have.
Senator Coleman. Thank you, Mr. Kulyk. Mr. Denson.
TESTIMONY OF JOHN DENSON,\1\ GENERAL COUNSEL, SAYBOLT GROUP,
HOUSTON, TEXAS
Mr. Denson. Chairman Coleman, Ranking Member Levin,
distinguished Members of the Subcommittee, thank you for the
opportunity to testify before you today. My name is John
Denson. I am General Counsel of Saybolt. You have asked me to
speak today about the activity of Saybolt in its capacity as
independent inspection agent for the United Nations during the
Oil-for-Food Program.
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\1\ The prepared statement of Mr. Denson appears in the Appendix on
page 139.
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I would like to make a personal observation, if I might,
and that is that Saybolt had both the blessing and the curse of
playing a very pivotal role in one of the most politically
charged international programs in history. We ourselves are not
political, and that may be one of the reasons we were chosen
for that role. We welcome the opportunity to uncover the truth
about what went right and what went wrong in this program, and
for that reason, we have worked very closely with your
Subcommittee and with all the official investigators to bring
things out into the open and have them clearly understood by
everybody that needs to learn from and look at this program.
Going back to my prepared oral testimony. I have submitted
a detailed written statement, so I will keep my oral comments
brief, focusing on only a few key points which I hope will help
the Subcommittee evaluate the information it has received
regarding Saybolt, including almost 300,000 pages we have
already provided to the Subcommittee during the last several
months.
I would like to take a moment to put our performance and
our duties as a U.N. contractor in Iraq in some context. Over 7
years of the Oil-for-Food Program, Saybolt inspected some 2,700
loadings at two inspection points designated by the United
Nations, the Ceyhan, Turkey, and the Mina Al-Bakr, Iraq,
loading terminals. Saybolt also monitored the flow of oil
through the pipeline connecting Iraq to the Ceyhan port, in
addition to inspecting some oil industry equipment imports and
coordinating three expert studies on the Iraqi oil industry for
the United Nations.
The United Nations extended our contract every 6 months
between 1996 and 2000, and in 2000, the United Nations renewed
our contract, which was further extended through the end of the
program in 2003. These extensions and renewals are a reflection
of the quality of work we did under very difficult
circumstances.
On the subject of the selection of Saybolt to be a
contractor for the United Nations, I would like to emphasize
one point. The manner in which the United Nations conducted
this process, which is described further in my written
testimony, elicited some criticism in the interim report
produced earlier this month by the U.N. Independent Inquiry
Committee, also known as the Volcker Commission. In particular,
the interim report found that the United Nations did not adhere
to some of its internal rules in conducting that process.
However true that finding may be, it is not a finding about
Saybolt. Saybolt was not made aware of any such rules. Further,
the rules are not even made publicly available, as far as we
know. The only guideline that the United Nations made known to
Saybolt at the time is that it reserved the right to conduct
the procurement process in whatever manner it deemed to be in
the best interest of the United Nations.
In order to compete in the bidding process, Saybolt
therefore had to tailor its efforts to the concerns expressed
by U.N. officials, such as the need for a lower price, and to
make the various bids an apples-to-apples comparison rather
than the apples-to-oranges comparison it started out being. In
the end, as detailed in my written testimony, we are confident
that Saybolt was the most qualified bidder and that we offered
the most competitive price.
At Saybolt, we are proud of our performance under the U.N.
contract. Although living and working conditions were extremely
tough and the Iraqi infrastructure was also found wanting in
critical ways, Saybolt inspectors carried out their duties with
a very high level of dedication and professionalism. Saybolt
always worked in close coordination with the United Nations and
always responded promptly to difficulties it encountered in the
field.
I won't take up the Subcommittee's time with an exhaustive
list of the challenges we face in Iraq. Suffice it to say that
Iraq under the Hussein regime was not very welcoming to foreign
contractors.
One operational challenge does bear mention here because it
has been periodically discussed at hearings on the program, the
lack of functioning metering equipment in Mina Al-Bakr. This,
like some of the other issues we will discuss today, reflects
some of the inherent flaws in how the program was structured to
operate. Although Saybolt alerted the United Nations to this
problem from the onset of the program, and to some extent even
before the program started, Iraq did not undertake to put into
place functioning meters at the Mina Al-Bakr platform. As a
result, Saybolt could not measure the flow of oil into
individual tankers. Instead, Saybolt had to rely on an
alternate method of measurement. This method, while compliant
with commercial standards, was not as foolproof as a meter or
as accurate as a meter would be.
This lack of proper metering equipment was also a
contributing factor in the 2001 topping-off incidents involving
the oil tanker Essex. As noted in my written testimony, Saybolt
immediately investigated this problem and we detailed our
findings to the 661 Committee. Our investigation found no
evidence at the time to suggest that the company knew of these
two topping-off incidents before they happened. The available
evidence indicates that the Essex loaded additional oil,
approximately 230,000 barrels each of the two times, after the
Saybolt inspectors had already certified the loading amount and
left the vessel to return to the living quarters.
Saybolt immediately instituted several additional
safeguards to prevent any recurrence of this. Under the new
procedures, our inspectors stayed on board ships until their
departure. If their departure was delayed, Saybolt placed
numbered, sealed caps on the vessel loading valves, which we
again inspected prior to departure to make sure they had not
been removed. These additional measures were effective and we
are aware of no further incidence of topping off.
Furthermore, Saybolt prepared a report for the U.N.'s 611
Committee to analyze the likelihood that there were prior
incidents of topping off. This report concluded that it was
extremely unlikely that there were other incidents of topping
off.
As you may know, documents obtained from Iraq last year
have led to an allegation that Iraq tried to bribe one of the
Saybolt inspectors on the platform in connection with the Essex
loadings. I have personally overseen our recent investigation
into that allegation. We have sought to gather evidence on a
global scale and are in the process of evaluating the evidence
we have been able to obtain.
In addition, I have cooperated with this Subcommittee and
have kept it fully informed of everything that we have been
able to do on this investigation and we look forward to
continuing to do so. I understand that the Subcommittee has
obtained additional documents from Iraq relating to this
allegation and that these documents will be placed in the
record today. Saybolt will review these documents very
carefully. Saybolt does not take allegations of bribery of
company employees lightly. If there is any credible evidence to
support the allegation, Saybolt will take appropriate
disciplinary action.
The other point of clarification should be made as it
relates to the scope of our duties as a U.N. inspector. As I
have mentioned, our inspectors worked at two locations, the
Ceyhan-Zakho pipeline between Iraq and Turkey, and the Mina Al-
Bakr loading platform in Southern Iraq. Saybolt's mandate was
not to inspect all of Iraq oil exports, nor was it to act as a
police force. We were not tasked with monitoring exports of oil
by Iraq from all locations other than the two I just mentioned.
Nonetheless, when we became aware of instances of exports
outside of the Oil-for-Food Program, we alerted authorities.
For example, in November 2000, Saybolt informed the United
Nations of rumors that the pipeline to Syria had been put into
operation. In March 2001, Saybolt informed the United Nations
of information indicating that there was smuggling into Turkey
via tankers, avoiding the Iraq-Turkey pipeline at which our
inspectors were stationed. In addition, we informed both the
United Nations and the MIF about illegal loadings that we
understood were taking place at Khor Al Amaya, a terminal about
ten kilometers to the north of Mina Al-Bakr.
Finally, I would like to clarify how our contract with the
United Nations for inspecting oil exports was priced. As you
know, last month, the IIC released an audit report on the
management of the Saybolt inspection contract. In its annex to
the briefing paper, the IIC summarized certain conclusions from
that report. What the IIC did not mention or take into account
was that the U.N. Office of Iraq Program, the OIP, and Saybolt
had informed the auditors that several of their conclusions
were based on a misunderstanding of the nature of Saybolt's
contract with the United Nations.
Specifically, auditors in the U.N. office had misunderstood
the contract as a cost-plus contract rather than a fixed-price
contract. In fact, the price of the contract was fixed on a per
man, per day rate. In negotiating this rate, Saybolt assumed--
--
Senator Coleman. Mr. Denson, could you sum up? You are
about 4 minutes over, and I am trying to let you say everything
you need to say----
Mr. Denson. Sorry.
Senator Coleman [continuing]. But if you can please sum up,
and we will submit that statement for the record.
Mr. Denson. All right. We have produced to the Subcommittee
documents regarding the audit and the correspondence following
the audit and we would encourage their release as other things
are being put in the public record.
Let me close by saying that Saybolt has been in close
contact with the Subcommittee staff through this investigation,
has worked hard to be responsive to all requests by the
Subcommittee, and we will continue to do so. I hope the
Subcommittee has found the information Saybolt has provided
useful, and again, I thank you for the opportunity to testify
and I would be happy to respond to any questions you may have.
Senator Coleman. Thank you, Mr. Denson.
I would note, we are going to do 8-minute rounds of
questions to start, and I would presume we are going to have
more than one round.
I would note that Saybolt has been very cooperative with
the Subcommittee and we do appreciate that.
You indicated that you informed the United Nations in
November 2000 about the pipeline into Syria. Do you know if any
action was taken on that issue?
Mr. Denson. As far as we know, no action was taken.
Senator Coleman. And you also informed the United Nations
in March 2001 about the smuggling into Turkey. Do you know if
any action was taken on that?
Mr. Denson. As far as we know, no action was taken.
Senator Coleman. Do you know whether Mr. Sevan's office
ever inspected your oil monitoring activities in Iraq?
Mr. Denson. You mean other than the audits, Senator?
Senator Coleman. Yes.
Mr. Denson. Mr. Sevan's office, I don't think, physically
inspected our operations in Iraq.
Senator Coleman. Let me just, for the record, in my opening
statement, we talked about an Armando Carlos Oliveira, who our
records indicate was a Saybolt employee in Iraq under the Oil-
for-Food Program. Can you confirm that he was, in fact, a
Saybolt employee?
Mr. Denson. He was, in fact, a Saybolt employee.
Senator Coleman. One other issue for now, Mr. Denson. In
Charles Duelfer's report, the name Saybolt appears as a
recipient of an oil allocation Phase 12, though it says no oil
was ever lifted. Would you confirm under oath that Saybolt
never requested or received any allocation of Iraqi crude oil?
Mr. Denson. Absolutely. Saybolt did not request and did not
receive an oil allocation and we have no idea how our name
ended up on that list.
Senator Coleman. I wonder if we could put Exhibit 52,\1\
Senator Levin's exhibit, actually, it is the picture, it is
right back there. I would ask Mr. Ventham, since you were on
the ground, just looking at the picture of trucks that were
lined up, is that a site that you are familiar with?
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\1\ See Exhibit No. 52 appears in the Appendix on page 427.
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Mr. Ventham. Yes.
Senator Coleman. Now just to make it clear, you were
focused on what we call 986 goods?
Mr. Ventham. That is correct, yes.
Senator Coleman. Can you explain the difference between 986
goods and other goods?
Mr. Ventham. Well, basically, we were only told to inspect
goods that complied with the U.N. Security Council Resolution
986. Anything else, we weren't interested in talking about.
Senator Coleman. So if someone had papers but the papers
weren't relating to 986, those trucks would just go through?
Mr. Ventham. As far as I was concerned, yes.
Senator Coleman. And we are talking about--could you give
me an estimate of the number of trucks that passed through Al-
Waleed border station during the week you spent there prior to
Operation Iraqi Freedom?
Mr. Ventham. I saw approximately 400 to 500 trucks, I think
it was.
Senator Coleman. And how many of those trucks were 986
trucks that you inspected?
Mr. Ventham. I inspected three.
Senator Coleman. Three?
Mr. Ventham. Three.
Senator Coleman. Thank you. I wonder if we can turn to Mr.
Massey. I want to focus a little bit on Kojo Annan and the
filing of reports. We interviewed one of your former employees,
Michael Wilson. I think, in fact, he is currently one of your
consultants. Do you know Mr. Wilson?
Mr. Massey. Yes.
Senator Coleman. At least he indicated to us it was
standard practice for Cotecna employees to write trip reports
detailing what was accomplished on a particular trip, is that
correct?
Mr. Massey. This is correct.
Senator Coleman. We were not supplied with any trip report
for the time, apparently there were 15 days that Mr. Annan was
in New York for the General Assembly. Do we have Exhibit 19?
\1\ I believe on that exhibit, he is submitting a request for
consultancy expenses, 15 days in New York, for work for the
General Assembly and various meetings relating to other special
projects. Do you have any trip report for those 15 days?
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\1\ See Exhibit No. 19 appears in the Appendix on page 276.
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Mr. Massey. We haven't found any trip report. We looked
into our files. We also looked into the archives in Lagos,
where he was residing at that time, to see whether there was
any trip report. We haven't found any.
Senator Coleman. So in spite of the fact that you have a
practice and procedure that calls for trip reports, for this,
for what he is being reimbursed for for 15 days in New York,
the General Assembly, you have no documentation of what he did
during that period of time?
Mr. Massey. No, and it may very well be that he hasn't
written any trip reports. What may have happened is that soon
after the General Assembly meeting, which was attended by
himself and Mr. Pierre Mouselli, we met again, he and I, in
Washington, early October, I think, on the occasion of the IMF
World Bank annual meeting. Maybe we have discussed his meetings
that he had had during the General Assembly. So that may
explain why we haven't found any original reports. This is the
only explanation that we can come up with to explain the lack
of reports in our archives.
Senator Coleman. Mr. Pruniaux, I believe the Subcommittee
requested Exhibit 20.\2\ Can you put Exhibit 20 up there,
please? Exhibit 20 is a letter from you, Mr. Pruniaux, dated
December 4. The original one was produced on August 28 to the
Subcommittee, and in that, I believe, there are actually two
documents. We have an original document received August 20, and
then as we were going through our investigation, we asked for
some other documents, and the document refers to, ``I refer to
our telephone conversation of Friday, 1 December 1995. Attached
is Mr. Annan's CV.''
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\2\ See Exhibit No. 20 appears in the Appendix on page 277.
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We also then got another copy of that document with a
series of papers just a little while ago, on December 22, 2004.
It appears that the original document that was sent to us in
August, there is information that is redacted. In other words,
what we got in our first request in August there is apparently
no reference to the ``P.S.'' that is apparently in the original
document. It was supplied to us in December of this year. As a
``(P.S.: Attached is also copy of a recent article in newsweek
on Kojo's father, Kofi Annan).''
Can you explain to me why the document that was originally
sent to the Subcommittee in August had that information
redacted?
Mr. Pruniaux. No. I recognize my own document, the one I
produced on the 4th of December 1995, and the other one which
comes from the files in Lagos.
Senator Coleman. Do you recall whether the--I am trying to
understand why a document that was submitted to this
Subcommittee in August has information that was apparently
redacted from what was the original. The original document made
specific reference to Secretary-General Annan.
Mr. Pruniaux. Yes. There is no evidence that it was
redacted again, but I can recognize the writing of Mr.
Bunnetta, who was the Chief Liaison Officer in Lagos at that
time.
Senator Coleman. I am deeply concerned, Mr. Pruniaux, that
the documents that we received in August apparently had
information that was removed. Can you shed any light on how
that was removed or why it was removed or why that reference
was not seen on the copy that was presented to this
Subcommittee?
Mr. Pruniaux. It was not removed.
Senator Coleman. Well, apparently it was removed. I mean,
the documents that we got on August 28 do not have that
reference, and I am just trying to understand how that
occurred, who would have been responsible, who might have taken
that action. You have no information?
And I turn to Mr. Massey about this. There are no public
references. When you were negotiating working with the United
Nations, talking to the United Nations about the contract on
December 28, was there any discussion with U.N. officials about
the fact that the Secretary-General's son had a relationship
with Cotecna?
Mr. Massey. Never, ever. Absolutely, 100 percent
affirmative. We never mentioned the fact that Mr. Annan, Kojo
Annan, worked for us at that time.
Senator Coleman. If we can go to Exhibit 21?\1\ Exhibit 21
is a memorandum from Michael Wilson, again, who worked for
Cotecna and is presently a consultant, and I believe Exhibit
21, Mr. Wilson's memo indicates that in December 1998, Cotecna
believed it had to win the approval of Benon Sevan, Kofi Annan,
and the 661 Committee. Can you tell me, were there any efforts
made to approach either Mr. Sevan or Mr. Annan about the
Cotecna contract?
---------------------------------------------------------------------------
\1\ See Exhibit No. 21 appears in the Appendix on page 278.
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Mr. Massey. Never.
Senator Coleman. In the Wilson memo, I believe it talks
about Cotecna had the active backing of the Swiss mission as
well as there was quiet lobbying within diplomatic circles in
New York. Can you explain what quiet lobbying was done within
diplomatic circles in New York?
Mr. Massey. That was an initiative that Mr. Wilson took and
I was not informed of the details of the people he met, but he
reported to us that he had met several people that could have a
say or could be--could help us in promoting the name and the
project that we were presenting.
Senator Coleman. Exhibit 18,\2\ just one more series of
questions for you, Mr. Massey. This is a memo from Kojo Annan
to yourself, and in that memo, and I discussed it in my opening
statement, it says, ``As discussed with you Sunday, PM and
myself put in place a `machinery' which will be centered in New
York that will facilitate the continuation of contacts
established and assist in developing new contacts for the
future. This `machinery,' due to its global nature and its
longevity, is as important overall as any other contacts made.
For certain reasons, PM was integral to creating the
aforementioned structure.'' Can you tell me what this machinery
was?
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\2\ See Exhibit No. 18 appears in the Appendix on page 275.
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Mr. Massey. I am sorry to say, but this is a bit of a
mystery to us, also. I remember that Kojo tried to elaborate on
a system that he could develop in New York to have access to
different ambassadors of different countries where we had a
specific interest in promoting our abilities, mainly African
countries.
I think there is also another aspect that needs to be taken
into consideration. We are in September here in 1998 and we are
6 or 7 months down the line with this consultancy agreement.
Kojo had gone already to the NAM Summit, the Non-Aligned
Movement Summit, and very little achievement, very little
results, had come out of his different missions and visits. But
the main project had given him to really focus on was the
Nigerian project, which has been and still is one of the most
important projects for Cotecna.
Senator Coleman. Now, this is December 1998. This is a few
months before Cotecna gets the contract for the Oil-for-Food
Program. That was in December 1998----
Mr. Massey. Yes, but this has nothing to do with the U.N.
Oil-for-Food Program. I am trying to explain to you what is
this machinery about and the way he put it to us. I think in
August 1998, the Nigerian administration changed because the
then-president died. So suddenly, you find a new Nigerian
administration. We had lost a contract a year before in
Nigeria. For us, it was an opportunity to reopen doors with the
newly formed or caretaker government in Nigeria, the Nigerian
administration.
The fact that you see the letters mention PM, this PM
stands for Pierre Mouselli, who is the Lebanese origin, but
based in Nigeria and Lagos, I think. They were introduced and I
won't say they were close friends, but a business relation to
Kojo Annan. I had agreed for Kojo to work together with Pierre
Mouselli to try to establish a relation with the newly-formed
government.
Now, Kojo, I think, reading this document, is trying to
convince me that he has a good idea on how to penetrate the
different governments through the ambassadors or through the
missions in New York thanks to his relations and so on and so
forth. This is what I perceived when reading this document.
Senator Coleman. I know my time is up and I am going to
turn to my Ranking Member, Senator Levin. The memo does talk
about global nature?
Mr. Massey. Yes, global nature in the sense of having
different approaches to different contracts and countries. But
just to finish my statement, Kojo was a very young man at that
time. He was trying to prove himself. We were disputing--I was
disputing him, the type of fees he was charging us with and he
was trying to prove to me that he was, if not already yet now,
soon to become efficient in trying to reach out to contacts and
make his effort efficient.
Senator Coleman. How old is he at this time?
Mr. Massey. Maybe late 20's--28, 27, something like that.
Senator Coleman. Senator Levin.
Senator Levin. Thank you, Mr. Chairman.
Just on the questions, some additional questions related to
Kojo Annan. When did you hire him?
Mr. Massey. OK. When looking at the file, what we saw is, I
think--I will turn to Andre Pruniaux because he was the one to
really hire and he has a better memory than I do.
Mr. Pruniaux. Yes. Kojo was graduated in the U.K. and he
approached our company in London. He was looking for training
in 1995 and it was--the first person in Geneva who heard of him
was my colleague who was in charge of the London office. When
he saw the background of the gentleman and that he was African,
he spoke several languages, he immediately turned to me and
said, ``Andre, are you interested?'' and I said, ``Why not. Let
him come to Geneva.'' I have always been looking for young
Africans who could take over the positions of chiefs of our
offices in Africa.
He came to Geneva. I interviewed him. He spoke English,
French, and a couple of local languages. I said, let us not
hire him for a junior position in London just for summer. Let
us train him, and this we did. Sometimes that irritated even
the General Manager of the British company.
He got 2 months training, after which he was sent to
Nigeria at the end of the year because he had the capacity and
the background to be of assistance in Lagos.
Senator Levin. And he was hired in 1995?
Mr. Pruniaux. Ninety-five, yes.
Senator Levin. And was his father the Secretary-General at
that time?
Mr. Pruniaux. No.
Senator Levin. Now, I think that Cotecna bid on a contract
in 1998, and I want to just make clear that I think I heard
your answer to the Chairman's question, but I want to make sure
that I am clear on this. Did anyone at Cotecna talk to Kofi
Annan about that contract during the negotiations of that
contract?
Mr. Pruniaux. Never.
Mr. Massey. Never.
Senator Levin. Not just you, but as far as you know, nobody
at Cotecna?
Mr. Pruniaux. Nobody.
Mr. Massey. Nobody.
Senator Levin. Did the Secretary-General have any role, as
far as you know, in the selection of a company to authenticate
the goods that were going into Iraq?
Mr. Massey. I don't believe so, no.
Senator Levin. Exhibit 18 \1\ is the memo that the Chairman
referred to as the memo from Kojo Annan to you, Mr. Massey, and
you have referred to it already, but is this where he is giving
you a country-by-country breakdown of, what, his efforts on
behalf of the company?
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\1\ See Exhibit No. 18 appears in the Appendix on page 275.
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Mr. Massey. Correct.
Senator Levin. So he made efforts in Mozambique, Tanzania,
Uganda, Malawi, Zimbabwe. Is that the entire document, or is
that page----
Mr. Massey. It is the second page, I think.
Senator Levin. This is the only page?
Mr. Massey. No. There is a second page, I believe.
Senator Levin. There is an additional page, as far as you
know? So there may be additional countries?
Mr. Massey. Yes, I think----
Senator Levin. He was working on behalf of the company?
Mr. Massey. No. What happened is that when--OK. The main
goal of--the main objective of Kojo Annan during this
consultancy agreement with us in 1998 was to get us back in
Nigeria. That was the very first top priority, I think.
Senator Levin. All right.
Mr. Massey. The second job was to also help us in
strengthening our presence in Ghana, because as you know, Kojo
Annan is a dual national, Ghanaian and Nigerian. But we also
used this young man to represent the company in different
seminars and meetings, and this is an example of one of the
meetings he had attended in Durban and the Non-Aligned Movement
Summit.
Senator Levin. So that was not his primary responsibility.
Nigeria was the main effort----
Mr. Massey. Absolutely.
Senator Levin [continuing.] But there were additional
things----
Mr. Massey. But what he would do during that few days he
would spend there would just be to go from one mission to the
other mission and trying to introduce himself and present the
company and so on and so forth, and this is a report----
Senator Levin. I understand. Thank you.
Mr. Denson, the employee of Saybolt that has been referred
to already, is it Mr. Oliveira, is that his name?
Mr. Denson. Yes, sir.
Senator Levin. Does he still work for Saybolt?
Mr. Denson. He does, pending completion of our
investigation, which is ongoing, and with the information that
the Subcommittee has now made public, we will revisit his
situation at that time.
Senator Levin. Now, that information of the Subcommittee,
you have that information? Has that been given to you before
today, or----
Mr. Denson. We have seen----
Senator Levin. You have seen that before today?
Mr. Denson. We have seen bits and pieces of it, but this is
the first time we have had this type of access to it.
Senator Levin. And so you are saying that you are going to
get back to the Subcommittee based on what is in those
documents that you have seen the full documents for the first
time today?
Mr. Denson. Absolutely. We, in fact, have already talked to
the Subcommittee staff about how closely we can cooperate in
conducting the rest of our investigation----
Senator Levin. The Chairman has made reference to your
cooperation and it is appreciated, I know, by all of us as well
as by our staffs. It has been very good on your behalf, and I
think the same thing is true, may I say, for our other
witnesses here today. Mr. Chairman, I perhaps shouldn't say
that. That would be up to you to make an assessment on, but I
think our witnesses have all cooperated with us and the staff
today.
Is there any other instance that you know of besides this
one where there is any allegation of a bribe brought to your
attention?
Mr. Denson. In connection with the Oil-for-Food Program?
Senator Levin. Yes.
Mr. Denson. No, sir.
Senator Levin. So this is the only one that you know of so
far?
Mr. Denson. That is correct.
Senator Levin. OK. Mr. Pruniaux, I would like to talk to
you, or someone who I think is maybe with you today, if you are
unable to answer these questions about the trucks, and I wonder
if we could get the pictures of those trucks up there again.\1\
These are oil trucks. These are oil trucks which are taking
Iraqi oil to Turkey outside of the Oil-for-Food Program. All
oil that was supposed to be sold was supposed to be sold inside
the Oil-for-Food Program so the proceeds would go to buy
humanitarian goods for the Iraqi people. But at least with
three countries, and probably four, all the countries closed
their eyes, including us, to massive sales of oil by Saddam
Hussein to Turkey, to Jordan, to Syria, and slight sales to
Egypt.
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\1\ See Exhibit No. 52 appears in the Appendix on page 427.
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Did you personally see those lines of oil trucks leaving
Iraq for Turkey?
Mr. Pruniaux. Oh, yes. I came to Iraq for the first time in
early January 1999, just before the start of our contract, and
to enter into Iraq, you had to go through Amman and get the
visas from the Iraqi embassy in Amman, and then you had to
drive all the way. There was only one way for inspectors, other
persons, to enter Iraq. It was to drive from Amman to Baghdad
or other places.
Senator Levin. I just want to, because of the time limits,
I just want to ask you, did you personally see these lines of
trucks----
Mr. Pruniaux. Oh, yes.
Senator Levin [continuing.] Leaving Iraq for Turkey outside
of the Oil-for-Food Program?
Mr. Pruniaux. Absolutely.
Senator Levin. It was common knowledge. Now, my last
question. Mr. Kulyk, you made an assessment, I believe, in your
testimony that in your judgment, the Oil-for-Food Program
worked well and I would like to ask you to amplify that
statement.
Mr. Kulyk. I think it is important----
Senator Levin. In spite of all the difficulties and so
forth, why did you reach that conclusion?
Mr. Kulyk. Of course, Senator Levin. I think it is
important to bring our thinking back to the fact that the Oil-
for-Food Program was a humanitarian effort. It was not intended
to be nor was it viewed, in my opinion as someone who had
worked in a sanctions environment, as a sanctions mission. It
was in no way an effort to control the movement of goods
outside of the 986 program. So authentication is not sanctions
monitoring. I think that needs to be said.
So within that context, whether or not the Oil-for-Food
Program met its goals and objectives, I think it did. The goals
and objectives were to provide humanitarian relief, and on my
visits to Iraq--I made three such visits--I did see
improvements in terms of quality of life, improvements in the
availability of goods, improvements in terms of food and
nutrition, and also improvements in two different industries,
whether it was the electrical sector or the oil sector. These
did happen.
There were introductions through the 986 program of these
goods into Iraq and that was essentially the mandate of the 986
program, not to control sanctions. None of the independent
inspection agencies, whether it was Lloyd's or Cotecna, were
tasked or responsible or authorized to monitor sanctions. We
were aware of it. I saw it personally myself from my visits as
well, and it was reported as asides and in mission reports to
the 661 Committee.
Senator Levin. All right. On that line of questioning----
Senator Domenici. Senator Levin, could I just ask a
question?
Senator Levin. Of course.
Senator Domenici. What does it mean to monitor sanctions?
Mr. Kulyk. That is a good question. Perhaps the best way I
can answer that is to give you a little bit of an idea of what
I did in the Balkans as a sanctions monitor.
Senator Domenici. Thank you. I just wanted the Chairman not
to charge this against Senator Levin's time.
Senator Levin. I am over my time.
Senator Coleman. You may answer the question.
Senator Domenici. Mr. Chairman, thank you.
Senator Levin. Thank you, Senator Domenici.
Mr. Kulyk. In my experience in my role, and I will speak
about my time in the Balkans during the early years, 1993 and
1994, as a sanctions monitor, there were resolutions in place
that indicated that sanctions were to be imposed upon Serbia
and the former Yugoslavian Republic, and in those missions,
actually, customs officers participated and had a presence at
the border, customs officers who looked at the passage of goods
across the borders with a reference to what was considered to
be acceptable as humanitarian relief. And when we saw things
which were not considered to be within the humanitarian scope
of the relief crossing the border, those occurrences were
identified and reported to the United Nations as a sanction.
No such monitoring took place in respect of the Oil-for-
Food Program. Oil-for-Food was a humanitarian effort. It was
not a sanctions enforcement regime.
Senator Coleman. Senator Levin.
Senator Levin. Thank you. You made reference in your
prepared testimony to Cotecna's, ``demonstrated outstanding
performance.'' You also said that Cotecna had been a very
dependable contractor under difficult circumstances and often
did more than they were contractually obligated upon request
from you, or your office.
Mr. Kulyk. Yes, sir.
Senator Levin. Is that correct? Is that your testimony?
Mr. Kulyk. Yes, it is.
Senator Levin. Thank you, Mr. Chairman.
Senator Coleman. Senator Domenici.
Senator Domenici. Mr. Chairman, I just have one line of
questioning. I am interested in finding out from the two of you
as consultants what your job did and didn't include. As I
understand it, the authority that you had did not permit you or
charge you with determining if there was any price manipulation
that was occurring, is that correct?
Mr. Pruniaux. Absolutely.
Senator Domenici. So we have a consulting firm that on the
surface is supposed to determine that the transactions were
honest and the pricing and all other things were above board
and were visible. That was your job. But as to manipulation,
you were not given that authority.
Mr. Pruniaux. With due respect, it is not exactly like that
that I would phrase the----
Senator Domenici. Phrase it as you would like.
Mr. Pruniaux. OK. In 1996, the Security Council decided
that the price verification--the verification of price would be
done by UNOIP.
Senator Domenici. By who?
Mr. Pruniaux. By UNOIP, by the United Nations itself.
Senator Domenici. Yes.
Mr. Pruniaux. This is what Mr. Kulyk explained. And it was
not the duty of the independent inspectors, who had been hired
for other things, to look into the valuation of the goods
presented to them.
Senator Domenici. So as I understand it, there were similar
consulting agreements in the region that had the authority to
determine whether or not there was price manipulation. I
understand that is correct. In fact, wasn't the first proposal
submitted, didn't it include as part of a task the authority to
determine price manipulation?
Mr. Pruniaux. The very first proposal you mentioned
referred to 1992. At that time, the tender, the technical--the
scope of work covered by the tender clearly indicated pre-
shipment inspection and price verification, but that proposal
and that contract that Cotecna was selected, but the contract
was never signed, as explained before.
Senator Domenici. I understand.
Mr. Pruniaux. By 1996, the scope of the contract was of--
the tender was totally different. As I said, the United Nations
decided to keep for itself at the UNOIP level the price
verification but to select independent inspectors, independent
meaning also that these inspectors would not be permitted to do
commercial inspections. A commercial inspection is an
inspection that a supplier and an importer would agree on so
that before shipment, the quality of the goods or the quality
of the goods would be clearly specified and that upon arrival,
there would be discrepancies, commercial discrepancies, then
the receiver would act against the supplier. That was--that is
a commercial inspection. And we, as independent inspectors, we
were strictly forbidden from entering into this.
Senator Domenici. But the United Nations decided that you
wouldn't do it but somebody else would?
Mr. Pruniaux. Well, you have to realize that for the
contracts, the Iraqis were sovereign. They could select--as
long as the goods were in the--were acceptable----
Senator Domenici. I understand.
Mr. Pruniaux [continuing.] They could select whatever
supplier they wanted in any acceptable country. It was--we
recommended very often, and I know UNOIP also at the highest
level repeatedly told the Iraqi authorities that in order to
reduce the amount of disputes on commercial grounds, they
should appoint professional inspection companies to inspect
before shipment and possibly match the inspections upon arrival
of the goods in Iraq.
Senator Domenici. So if you repeatedly suggested that to
them, that indicates that----
Mr. Pruniaux. The Iraqis did not.
Senator Domenici [continuing.] The Iraqis did not do that.
Mr. Pruniaux. No.
Senator Domenici. So there is a vacuum as to who would do
that, or if it was done at all.
Mr. Pruniaux. Yes. That was more a commercial dispute, as I
said, than----
Senator Domenici. Couldn't that be, if--I am not suggesting
that you know it was, but wouldn't that be an easy way, if
somebody intended, wouldn't that be an easy way to arrive at
conclusions that would lead to some manipulation for the
benefit of a people or institution that were not intended to
benefit? It could happen, couldn't it?
Mr. Pruniaux. Manipulations might not be the right word. In
my opinion----
Senator Domenici. Well, why did you suggest that it should
be done? What was the reason?
Mr. Pruniaux. Because this is normal practice when you do--
--
Senator Domenici. Why is it the normal practice? It isn't
the normal practice just to do it----
Mr. Pruniaux. Well, you have to pay for that. Maybe the
Iraqis did not want to pay for the commercial inspections by
another inspection company.
Senator Domenici. But are they useless?
Mr. Pruniaux. No, they are not useless, but it is the
privilege of the importer to decide to appoint or not to
appoint.
Senator Domenici. I understand.
Mr. Pruniaux. I believe that--they did that on a lot of
shipments, but on certain shipments, they did not do that. I am
talking of the Iraqis. That would give them some leverage on
the suppliers, you see, from--but maybe not manipulations of
prices, but just to put some pressure on them to get some
incentives upon arrival of the goods in Iraq. You claim that
you have a commercial dispute, whether it is true or not is to
be confirmed, and you put pressure on the supplier.
Senator Domenici. Thank you, Mr. Chairman.
Senator Coleman. Thank you. We are going to do a 5-minute
follow-up round, and I have a lot more questions, but we have
other panels.
First, to Mr. Massey and Mr. Pruniaux, you have indicated
in response to Senator Levin's questions that the Secretary-
General did not have any role in selecting the Cotecna
contract?
Mr. Pruniaux. Yes.
Senator Coleman. If I refer you to Exhibit 21, which is
Michael Wilson's memorandum to Cotecna, this is dated December
4, 1998.\1\ This is shortly before you were awarded the
contract, and I note that Mr. Massey and Mr. Pruniaux are both
individuals who received a copy of this. In that memo on the
``next stages,'' the very end, Mr. Wilson says, ``The current
contract with Lloyd's ends in December 1998. The OIP would make
its recommendations to the Procurement Division within days to
enable them to present it to the U.N. Contracts Committee after
approval has been obtained from B. Sevan and the SG.'' I take
it SG relates to the Secretary-General?
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\1\ See Exhibit No. 21 appears in the Appendix on page 278.
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Mr. Massey. This is his own statement, but I don't think
that that was the case. I think the contract was being
negotiated with the Procurement Division and we don't know
exactly at which level the contract was being eventually
awarded, but we have never imagined that the contract would
have gone as high as the SG office itself.
Senator Coleman. My concern is, first of all, this memo was
sent to you. Did you receive it?
Mr. Massey. Right. Yes.
Senator Coleman. And did you ever correct Mr. Wilson in
saying the Secretary-General has no role in this?
Mr. Pruniaux. But Mr. Chairman, with due respect, the way I
read it--maybe I misunderstood your question. It does not say
that he has got to talk to the Secretary-General. He is just
explaining the machinery for contract approval at the level of
the United Nations. In fact, this is wrong. I believe that the
Secretary-General has no word to say in the awarding of such a
contract. It goes to the Contract Committee.
Senator Coleman. But Mr. Wilson was under the impression
that the Secretary-General had an approval role, is that
correct?
Mr. Pruniaux. Yes, which is not true.
Senator Coleman. But he was under the impression, and he
sent this to you.
Mr. Massey. This is what he wrote, right.
Senator Coleman. Let me also ask you, and my concern is
that you have a 23-year-old kid--that is, I believe, how old
Kojo was--in 1998. He is submitting to you in October 1998,
submitting outstanding consultancy expenses 2 months before you
get the contract. He is getting $500 a day.
Mr. Massey. Right.
Senator Coleman. He spends 15 days at the General Assembly,
of which you have no reports of what he talked about, nothing
in writing.
Mr. Massey. We haven't found any report, no.
Senator Coleman. And yet at this point in time, you are
negotiating a contract with the United Nations of which your
own consultant says it needs the approval of ``B. Sevan'' and
Secretary-General, and you are saying that you never mentioned
his employment to anybody in the United Nations.
Mr. Massey. Absolutely true.
Mr. Pruniaux. But he was 28 in 1998.
Senator Coleman. I will check the record on that. I will
stand corrected if that is the case.
Mr. Kulyk, by the way, and I appreciate your kind words
about Cotecna, do you work for Cotecna right now?
Mr. Kulyk. Yes, I do. That is mentioned in my tendered
written statement.
Senator Coleman. I just want to clarify that for the
record. You are presently employed by Cotecna?
Mr. Kulyk. Yes, I am.
Senator Coleman. Did you have any concerns about member
states putting pressure on inspectors at the time you were
working for the OIP Program?
Mr. Kulyk. Concerns or experiences? I think I witnessed
some experiences.
Senator Coleman. Could we get Exhibit 48?\1\ One of them
involved a Chinese contract for diesel dredges worth about $12
million? Can you look at Exhibit 48. Does this look like the
Chinese contract you were dealing with, and can you tell me the
events and circumstances surrounding it?
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\1\ See Exhibit No. 48 appears in the Appendix on page 378.
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Mr. Kulyk. Mr. Chairman, it appears to be familiar to me.
Senator Coleman. Were you reviewing this contract?
Mr. Kulyk. Initially, I did. If this is the one that, in
fact, turns out to be the one, I did have some impact in terms
of reviewing the contract.
Senator Coleman. Now, did you get a fax stating that--that
appeared on your desk--the contract was fraudulent, was for
used road graders and various people getting kickbacks?
Mr. Kulyk. Yes, I recall that.
Senator Coleman. And can you tell us what happened with
that fax and the circumstances surrounding it?
Mr. Kulyk. I can tell you the circumstances at the time. I
don't know where the fax is. It does not appear to be in this
package. But in essence, Mr. Chairman, the circumstances were
that this contract appeared on my desk. It was early in the
contract review phase. There was nothing initially unusual
about it. At some point in time, perhaps a couple of days
later, an anonymous fax came through relating specifically to
this contract. My recollection is that it was sufficiently
specific to draw attention to the fact that it was this
particular contract.
It's been 4 years since I have left OIP, so I am working
from memory. My recollection is that there were allegations
with respect to the fact that the road graders were, in fact,
not new, they were used and refurbished, and also my
recollection is that there were suggestions that the contract
was, in fact, I guess we can call it put up. It was a false
contract with false valuations and that there would be, upon
payment, that the proceeds from this contract would be shared
amongst a number of different parties.
When that fax came to my desk, I took it to my Chief
Customs Expert, Jeremy Owen. We discussed it in the office
amongst a number of the customs officers. I think at that time
we were about five or six customs officers. It was early in the
program. I think it was late 1998. My recollection is that this
contract was resubmitted in 1999 because it was not proceeded
with in 1998.
The discussion essentially was that, well, we should take a
look at the pricing issues very closely and see what we could
dig up. The fax was in itself simply an anonymous fax, and as a
point of law, it had certain weight as evidence, but was not
necessarily true. But it did raise sufficient concerns that we
should have special scrutiny on this.
The circumstances were that after this discussion, I went
back to my office and I left the contract on my desk, went
outside to have a cigarette, came back, and the contract was
gone, disappeared from my desk. I looked for it, came back
after lunch, and it had reappeared. Being a customs officer, I
wanted to know where it was during the time it was missing. I
went around and I polled each of the fax machines in the office
and I found a corresponding fax to the Chinese mission for the
same number of pages that were in the fax. I went back with
this information to the Chief Customs Expert, Mr. Owen, who
eventually confronted the Chinese customs officer that was
working in the program who admitted that he had faxed it to the
Chinese mission. His explanation was that he didn't want his
mission to be involved in any illegal activity.
Senator Coleman. Do you know if any disciplinary action was
taken against the individual that was involved?
Mr. Kulyk. No, not really.
Senator Coleman. Not really? You don't know whether it was
taken or you just don't----
Mr. Kulyk. Well, I know his duties changed, Mr. Chairman. I
don't know whether it was the result of any disciplinary
action, but I know his duties changed at some point in time to
essentially only reviewing agency contracts.
Senator Coleman. And also, just two other follow-up
questions. A Russian customs officer----
Mr. Kulyk. I think it is fair, Mr. Chairman, to say that
every customs officer in the program had some contact with
their missions. This was not in itself unusual. However, it was
on some occasions, and the Russian customs officer who I knew
quite well at one point in time complained that he had been
receiving pressure from his mission. I think it is fair to say
that many of the missions considered what we were working in as
more than a humanitarian program, I think they considered it as
a commercial opportunity. So it was a very commercial
atmosphere. So, the emphasis was on pushing contracts.
Senator Coleman. Mr. Ventham, just to clarify the testimony
regarding Exhibit 52, that picture may actually have been of
oil trucks going out, but your testimony is focused on trucks
coming into Iraq, is that correct?
Mr. Ventham. That is correct, yes.
Senator Coleman. And so during the week you were there, how
many trucks did you see coming into Iraq, bringing goods in?
Mr. Ventham. About 400 or 500.
Senator Coleman. And I presume they weren't bringing oil.
Mr. Ventham. No, no different----
Senator Coleman. And you inspected how many of those?
Mr. Ventham. I inspected three.
Senator Coleman. Three. And do you have an idea what was in
those trucks?
Mr. Ventham. They were fire trucks. Nothing was in them.
They were actually fire trucks themselves.
Senator Coleman. Bringing trucks in. What about the other
hundreds of fire trucks?
Mr. Ventham. Fire engines.
Senator Coleman. Fire engines. And the other hundreds of
trucks, do you have an idea what they were carrying?
Mr. Ventham. Some were carrying different pieces of wood,
piping, machinery components, and agricultural equipment.
Senator Coleman. But because they didn't have documents
relating to the specific program that Cotecna was responsible
for, they simply went into Iraq?
Mr. Ventham. Well, yes, but there were other shifts working
at the same time. They may have been processed through those
but I didn't see them.
Senator Coleman. Mr. Pruniaux, do you want to add anything
to that?
Mr. Pruniaux. I would be pleased to introduce the contract
manager who worked for us 5 years in Iraq and he was based in
Amman. Before that, he was the Team Leader in Trebil, to
explain in practical words what happened at the border when the
trucks would arrive and those which would come to Cotecna to be
authenticated.
Senator Coleman. We need the witness to be sworn.
Please raise your right hand. Do you swear the testimony
you will give before the Subcommittee is the truth, the whole
truth, and nothing but the truth, so help you, God?
Mr. Radenovic. I do.
Senator Coleman. Would you please identify yourself?
TESTIMONY OF MILAN RADENOVIC, CONTRACT MANAGER, COTECNA
INSPECTION S.A.
Mr. Radenovic. Mr. Chairman, Ranking Member, distinguished
Members of the Subcommittee, my name is Milan Radenovic. I
served most of my time as contract manager, initially in Geneva
and then in Amman.
In the very beginning of the program, I was hired by
Lloyd's Register and served for 6 months in Iraq and then was
continued with Cotecna once the contract was awarded to Cotecna
Inspection.
In regards to the cargo passing through the land borders, I
can say that Iraqi authorities, Iraqi government exercised its
complete sovereignty on the borders in terms of customs. To my
knowledge, there were no other international presence or
customs enforcement on the borders apart from our mandate,
which is absolutely away from any customs enforcement or any
anti-smuggling reporting mandate.
So on every border crossing--talking about the land
borders, we had virtually two streams of traffic. One stream of
traffic is traffic going straight to Iraq, and only trucks
which are voluntarily presented to Cotecna team in order that
the authentication will be condition, triggering payments later
on, would stop for the inspection at Cotecna office. The proof
is that it very often happened that some of the truck drivers,
especially those who are either new in the trucking route,
would simply continue in a normal flow towards Iraq and then by
Iraqi customs would be instructed to divert and to come to the
parking lot of Cotecna and to present their cargo and documents
for inspection.
It means that I leave to your assessment even the
qualification of the smuggling concept. It was a daylight,
normal traffic into Iraq, so whoever wanted to--whatever cargo
is subject to authentication by Cotecna has to stop by Cotecna
premises. Otherwise, it would easily, normally come to Iraq.
What I normally noticed and what was concern for our
inspectors traveling to and from Iraq is the frequency of
traffic of the oil tankers. Whatever arrangement might be,
either bilateral government or whatever, but anyway, as I was
always concerned about the security of people on the road, they
normally, very often, they had to overtake or to be careful
driving behind the trucks, especially on the route between
Amman and Iraqi border. However, in Iraq, the truck, the oil
trucks, the tankers were directed and they were usually driving
on the former dual carriage way, which was parallel to the
highway Trebil, it means the Jordanian border--Baghdad.
We completely focused on our mandate on the inspection of
cargo pertaining to 986 program. It means maybe 53, later 59,
or 13 percent. So any other observation or remark on other
traffic would be outside the mandate or entirely at the
internal interest of individual over there, but absolutely
there were no mandate and there were no requirement to report
anything else apart from outlined system of reporting, it means
authentication and either electronic or faxing means of
confirming the arrival of cargo in Iraq.
Senator Coleman. Senator Levin.
Senator Levin. I just have one other question of Mr. Kulyk.
You said that you had a favorable impression, or you have a
favorable impression of Cotecna. And you work for Cotecna now.
You also said in your testimony that others, I guess of your
colleagues at the U.N. office, also had a favorable impression
of Cotecna at that time, is that correct?
Mr. Kulyk. Yes, I did. I think it is important, first of
all, and let me state something for the record. I have been
asked to come and testify in my capacity as the former Deputy
Chief Customs Expert in the Iraq Program. It is a matter of
record in my statement that I currently do work for Cotecna. I
left the Office of the Iraq Program in March 1998. I have never
had any input into any RFPs, was not involved in any
decisionmaking process. And when I joined Cotecna, I joined in
the capacity of liaison officer in Tanzania. There had been
discussion and a decision was taken by Cotecna management that
I not be involved in any activities related to their contract
with the Office of the Iraq Program to avoid any perceived or
real conflict of interest.
So in my capacity here, I am a former law enforcement
officer. I am someone that believes in testifying and
testifying truthfully under oath. So it is for you to decide
whether or not my comments or observations bear any weight.
But I think it is a general impression, sir----
Senator Levin. That was my question.
Mr. Kulyk [continuing.] That Cotecna's services--and I
would be saying the same thing if I was working for SGS or
Bureau Veritas--it was a general impression that Cotecna, as a
service provider, was extremely responsive, and the Office of
the Iraq Program, whenever they saw a deficiency or needed
something done, they never had to fight for it.
An example is, of course, the agency goods, and I don't
want to belabor that point, but at some point in time there was
a decision made that Cotecna, they wanted Cotecna to assist in
authenticating the arrival of agency goods, which I have
explained were never subject to--it wasn't a prerequisite for
payment. And Cotecna, it was outside the scope of their
contract and they did it.
Senator Levin. Thank you, Mr. Chairman.
Senator Coleman. Thank you. Just one, if I can, a quick
follow-up. Were you aware of Cotecna's concerns about staff
shortages that were presented to OIP?
Mr. Kulyk. I don't know if there were specific concerns
with respect to staff shortages. I think there were times early
on in the process where there may not have been a very clear
indication as to the expectations that the United Nations had
with respect to Cotecna's role and responsibilities and their
activities. I think it is fair to say, Mr. Chairman, that
Cotecna was approaching this authentication process from a
point of commercial inspection, and as the program evolved, it
became clear that their activities were not going to be
consistent with a commercial level of inspection.
Senator Coleman. Just to clarify, and I think it is Exhibit
35.\1\ I am not sure who wrote that, but maybe Mr. Pruniaux or
Mr. Massey could, but Cotecna did raise concerns to the United
Nations saying that our site ``staffing does not allow to
fulfill our contractual responsibilities, and we further
believe that these have not been comprehensively fulfilled in
the past, either.'' So you raised these to the United Nations.
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\1\ See Exhibit No. 35 appears in the Appendix on page 316.
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Mr. Pruniaux. Yes, we did.
Senator Coleman. And did the United Nations increase your
staffing? Did they--particularly, by the way, at Um Qasir, did
they respond to the concerns there?
Mr. Pruniaux. Not during the first phase. For the other
phases, it was a commercial move to get more money from the UN-
OIP. However, the opinion was that we could handle with the
staff that had been allocated by contract.
Senator Coleman. Nothing further.
Senator Levin. Thank you.
Senator Coleman. Thank you. This panel is excused. Thank
you, gentlemen, very much. Very appreciative. Thanks.
Mr. Massey. Mr. Chairman.
Senator Coleman. Mr. Massey.
Mr. Massey. Mr. Chairman, if you would allow me, I would
like to make a comment and a request. My company has been
working with this Subcommittee in a fully cooperative basis
since early July last year when our counsel first met with you.
We have gone to extreme effort and expense to provide you with
every document you have asked for and to facilitate interviews
with any and all individuals you have asked to interview,
regardless of where we had to bring them from around the world.
Again, we have been nothing but cooperative.
Last week, our counsel met with your Staff Director and
investigators and were told that this is a professional
proceeding. We were told that there would be no surprises, and
yet here we sit with this surprise witness, a disgruntled
former employee who quit after he was demoted and was refused a
raise.
Mr. Chairman, in further supporting the fact finding
objective of this Subcommittee and in light of the decision not
to share the details of Mr. Ventham's absurd and
unsubstantiated testimony, I would respectfully request the
opportunity to supplement my written statement with a response
to his assertions as well as the previously undisclosed
document you showed with two versions.
Senator Coleman. Mr. Massey, the record will remain open
and I would love to have a further explanation from you as to
why this Subcommittee received documents that are apparently
different from the original documents, and I would love to have
further explanation from you as to whether, in fact, there are
written documentation regarding Kojo Annan's participation and
work at the United Nations during the 14 days in question. The
record will remain open and we certainly appreciate that.
And let me say, we do appreciate your cooperation, but this
Subcommittee has concerns and this Chairman has concerns. And
so certainly if you have anything additional to add, it will be
made part of the record.
Mr. Massey. Thank you.
Senator Coleman. Thank you. This panel is excused.
I would now like to welcome our second panel of witnesses.
It is my pleasure to welcome Joseph A. Christoff, the Director
of the International Affairs and Trade Team of the Government
Accountability Office, GAO; and Stafford Clarry, a former
Humanitarian Affairs Advisor for the United Nations Oil-for-
Food Program.
I would ask if Dileep Nair is in the Subcommittee hearing
room today. Noting that he is not here, I would like to note
that we invited U.N. Under-Secretary-General for Internal
Oversight Services Dileep Nair to testify at this hearing. I am
saddened that the United Nations did not see fit to allow Mr.
Nair to appear today, despite assurances from the United
Nations that it would cooperate closely with our investigation.
Our research indicates that U.N. witnesses have appeared at
no less than 64 Congressional hearings in the past, including
an appearance before this Subcommittee in 1996. We informed the
United Nations that we would waive the Subcommittee's customary
practice of swearing in our witnesses in order to secure the
testimony of Mr. Nair, but that does not seem to have made a
difference.
I regret that we will not be afforded the opportunity to
discuss the audits with Mr. Nair and share his insights.
Further, I am deeply troubled when representations of
cooperation result in empty witness chairs.
Mr. Christoff and Mr. Clarry, I welcome you to today's
hearing and look forward to your views on the U.N.'s management
and oversight of the Oil-for-Food Program and on the audits of
that program.
Before we begin, pursuant to Rule 6, all witnesses before
the Subcommittee are required to be sworn in. Will you please
raise your right hand.
Do you swear the testimony that you are about to give
before this Subcommittee is the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Christoff. I do.
Mr. Clarry. I do.
Senator Coleman. Thank you, gentlemen, very much.
We have a timing system here that I think we are going to
try to use in this panel. When the amber light goes on, turns
from green to amber, you have a minute to sum up. Then when the
red light goes on, your testimony should end. We will submit
your written statements for the record.
We will start with Mr. Christoff, who will go first,
followed by Mr. Clarry, and then after we have heard all the
testimony, we will proceed with questions. Mr. Christoff.
TESTIMONY OF JOSEPH A. CHRISTOFF,\1\ DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Christoff. Mr. Chairman, Members of the Subcommittee,
Senator Levin, thank you. Thank you for inviting GAO to this
important hearing.
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\1\ The prepared statement of Mr. Christoff appears in the Appendix
on page 147.
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In January, the Volcker Commission released 58 internal
audits of the Oil-for-Food Program and I am here today to
present our analysis of these audits, which were completed by
the U.N.'s Office of Internal Oversight Services. First, I just
wanted to begin with a brief history about OIOS.
Before OIOS was established, the United States and other
member nations criticized the United Nations for not having an
internal audit function. In 1993, the U.S. proposed an
Inspector General position within the United Nations and
withheld funds until that office was established. In 1994, the
General Assembly created OIOS to conduct audits,
investigations, and inspections of U.N. programs and funds. Its
124 professional staff have access to all U.N. records and
documents.
During the Oil-for-Food Program, OIOS generally provided
its reports only to the heads of the agencies it audited.
Accordingly, member states were not aware of ongoing problems
with the program and these problems included flaws in the
procurement of contracts, weak safeguards over financial and
fixed assets, and poor planning and coordination among U.N.
agencies. The audit reports focused on projects in Northern
Iraq, the U.N. Compensation Commission, and the inspection
contracts, and I would like to highlight some of their key
findings.
In the North, nine U.N. agencies implemented the Oil-for-
Food Program. With almost $5 billion, they built houses,
schools, health clinics, and power stations. The auditors found
numerous problems with coordination, planning, procurement, and
asset management in the 26 reports they completed. For example,
an audit in 2000 found that the U.N. Habitat program had no
asset inventory system. As a result, materials worth $1.6
million were still on hand at the end of a construction
project. In November 2002, OIOS reported that a $38 million
procurement of equipment was not based on a needs assessment.
As a result, 51 generators were unused for nearly 2 years.
OIOS also completed 19 audits of the U.N. Compensation
Commission. The Commission was established to pay for losses
resulting from Iraq's invasion of Kuwait. As of December 2004,
the Commission had resolved nearly 2.6 million claims and paid
out almost $19 billion. In its audits, OIOS identified
duplicate payments, insufficient evidence to support losses,
and inconsistent methods for computing the claims. Overall,
OIOS documented overpayments of more than $500 million in
claims. In response, the Commission reduced claims by $3.3
million and the Commission also challenged the auditors'
authority to review the claims.
OIOS also completed audits of contracts the United Nations
let for the inspection of commodity imports and oil exports. A
July 1999 audit found problems with the U.N.'s oversight of the
Lloyd's contract. Lloyd's was contracted to verify the quantity
and quality of goods imported into Iraq. However, the United
Nations certified the Lloyd's payments without any on-site
verification or inspection of the contractors' services. A July
2002 audit found problems with the U.N.'s management of
Saybolt's contract. The company was contracted to oversee the
export of oil from Iraq. The auditors found that the United
Nations paid $1 million more than necessary for equipment
already included in the contract. And finally, an April 2003
report found that the United Nations had increased Cotecna's
contract by $356,000 4 days after the contract was signed. The
amendment included costs for communications equipment and
operations that the auditors asserted were already in the
contract.
Now, let me turn to what the audits did not cover. OIOS did
not examine certain headquarters functions, particularly the
oversight of the contracts for Central and Southern Iraq that
accounted for almost $40 billion in Oil-for-Food proceeds. The
Iraqi government used these funds to purchase humanitarian
goods and collect illicit commissions. The Volcker Commission
contends that the auditors would have uncovered these illicit
commissions if they had reviewed the contracts for humanitarian
goods.
However, the Commission also noted several reasons why OIOS
did not audit these contracts. First, OIOS did not believe it
had the authority to review the contracts because the Sanctions
Committee approved them. Second, the head of the Office of the
Iraq Program steered the auditors toward programs in the field
rather than headquarters. Third, the auditors' independence was
limited because they relied on funds from the audited agency to
conduct their reviews. And finally, U.N. management prevented
the auditors from reporting their results directly to the
Security Council.
Mr. Chairman, that concludes my statement and I am prepared
to answer any of your questions.
Senator Coleman. Thank you very much, Mr. Christoff. Mr.
Clarry.
TESTIMONY OF STAFFORD CLARRY,\1\ FORMER HUMANITARIAN AFFAIRS
ADVISOR, UNITED NATIONS OIL-FOR-FOOD PROGRAM, SYRACUSE, NEW
YORK
Mr. Clarry. Thank you, Mr. Chairman, Senator Levin. Thank
you for inviting me. I am honored to be here.
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\1\ The prepared statement of Mr. Clarry with attachments appears
in the Appendix on page 165.
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I have been in Iraq since 1991. I was a U.N. liaison
officer with Operation Provide Comfort and the Kurdish refugee
situation, and then I followed the refugees back into Iraq and
was based in Baghdad, but I served most of my time in the
Kurdistan region. I will use the term ``Kurdistan region''
because Northern Iraq includes more than the current Kurdistan
region that is separately administered by the Kurdistan
regional government. That is my bias and that is my focus.
I am here to help you understand the workings of the
program, to the extent of my experience and knowledge on the
ground in Kurdistan. I have been there throughout the 1990's. I
am still there. I will go back next week or the week after.
There is tremendous experience there and tremendous lessons
that have not been learned. Our experience with the Oil-for-
Food Program. I am going to try to just focus on what is in my
prepared remarks and that is the 13 percent account. I think
any of us would like to know how much money do we have in our
personal account? How much has been spent, and how much is left
over?
After 7 years of the Oil-for-Food Program, which concluded
over a year ago, we still do not know, and that is part of my
campaign and part of my mission, is that we should know and why
don't we know. I suggest to you that one way of going about
investigating this, this is just an additional contribution, is
that you have two sets of transactions, earnings and
expenditures.
I would suggest taking each of the earning transactions and
look at what you received, what the program received, and what
the market prices were available at that time, because the
undercharges are losses. Similarly, look at expenditures and
each transaction and compare it to the market prices at that
time and you will see overcharges. Those are losses. But who
suffered those losses? Those losses were suffered by the Iraqi
people. But who caused the losses?
This is what I believe this investigation and other
investigations have to get to, because once it is determined
how much those losses are and who is responsible for those
losses, then someone should pay, and it is that pinch of
penalty and compensation which may drive improvement in the way
the United Nations goes about its business, because many of us
have been involved with the United Nations over many, many
years. I have only been a direct employee with the United
Nations in Iraq. We are very proud to work with the United
Nations, but we are unsatisfied with the way the U.N. functions
and goes about its business and it is about time that this be
cured.
The Oil-for-Food Program probably offers the last grant
opportunity to do that because it is just so massive that it is
the whole U.N. system pretty much except UNOOSA. UNOOSA is the
U.N. Office of Outer Space Affairs. There is a U.N. office for
everything.
But you have the Security Council directly involved in this
program. You have the U.N. Secretariat. You have nine U.N.
agencies. You have many governments. We can almost say everyone
is culpable.
The audits are part of that process of examining what went
wrong. The next step is to assign responsibility. Now, looking
at the 13 percent account, which is my bias and my focus, I
think it is--let me just interject here, but I think it is
important that there be conflict and competition amongst the
investigations, because already one thing I missed earlier, and
I just happened to see last night, is that the ICC interim
report states that $6.1 billion was spent from the 13 percent
account. I just heard $5 billion. My calculations from December
2002 is $4 billion.
We need some conflict and competition amongst the
investigations in order to get at the final figure, because
once we get those, then we can determine what the losses are,
who is to pay, and how were those losses incurred, and what
needs to be done to prevent those losses occurring in the
future.
In my written testimony, I gave you various points of
departure. I have had contact with virtually, let me say, all
entities with the exception of Cotecna. I had contact with
their predecessor, Lloyd's Register. I have had contact with
pretty much all the U.N. agencies, with New York, with Baghdad,
and with the local authorities. Thank you very much.
Senator Coleman. Thank you very much, Mr. Clarry.
We will do 8-minute rounds of questions here.
Mr. Christoff, I believe in your testimony, you indicated
that had the headquarters functions been examined, oversight of
contracts with Central and Southern Iraq accounting for 59
percent, almost $40 billion of Oil-for-Food proceeds, is it
your sense that the kickbacks and other things could have been
uncovered if those activities had been audited?
Mr. Christoff. I think the one area that I would have
thought that the auditors could have covered was looking at the
roles and responsibilities of the Office of the Iraq Program. I
have heard over the past couple years that we have looked into
this program an unclear understanding of what they were tasked
to do. They were tasked with looking at the price and value of
the contracts. I am still unclear, even after listening today
to the previous panels, how they went about looking at the
contracts for the price reasonableness of the contracts. If the
auditors would have at least placed some focus on the roles and
responsibilities in Mr. Sevan's shop, maybe we would have had
some early attention about the contracts.
Senator Coleman. In your testimony, your written testimony,
you indicated OIP management steered the OIOS toward program
activities in Iraq rather than headquarters functions where OIP
reviewed the humanitarian contracts. In your oral testimony,
you were more specific. You indicated that the head of the OIP
steered the audit function away from the headquarters
functions, is that correct?
Mr. Christoff. Correct. In fact, that is the Volcker
Commission's finding, as well.
Senator Coleman. And we are talking about Benon Sevan?
Mr. Christoff. Correct.
Senator Coleman. Could you give me an overall assessment,
then, of the--I mean, the audits deal with a lot of minutiae, a
lot of minutiae, but the overall body of audit work, what kind
of picture does that paint of U.N. management of Oil-for-Food
and other programs in Iraq?
Mr. Christoff. I think it does two things. First, it sheds
some light on some of the programs that haven't gotten much
attention, the 13 percent account that Mr. Clarry refers to,
the 25 percent of the money that went to this U.N. Compensation
Commission. But it also shows that there really was a lack of a
basic foundation of financial asset management, procurement
management, that you really need in any type of a program. And
if you don't have that foundation, then it can lead to fraud,
waste, and abuse.
Senator Coleman. What role does Benon Sevan have, then, in
the oversight and management of these kinds of programs, be it
the Oil-for-Food, the compensation, things that were going on
in Iraq?
Mr. Christoff. The Office of the Iraq Program had a
critical role. In fact, some of the concerns that the auditors
mentioned was the fact that there was lack of on-site kinds of
oversight occurring within Iraq itself. It was oversight that
was occurring from New York rather than on the field.
Senator Coleman. Mr. Clarry, we didn't get at this in your
oral testimony, but I think your written testimony talks about
it. Can you talk to me a little bit about any problems with
quality of goods that were delivered into Northern Iraq under
the 13 percent program, medicines out of date, food not fit for
human consumption, as described in the audits?
Mr. Clarry. Mr. Chairman, there were always chronic
complaints about the quality of food and medicines. These were
supplied by the Baghdad regime. I would like to interject here
that 40 percent of the 13 percent account, 40 percent of that
account was actually under the control of the Saddam Hussein
regime, not under control of the U.N. agencies procuring goods
and services for the North.
There were some expired medicines. There were some
medicines that were thought to be defective. There were always
chronic shortages of the medicines, even though there were
substantial funds available. There was $340 million allocated
during the first 11 phases, of which by August 2002 only $100
million had been supplied, and there were shortages. The
Kurdistan regional government had to go out, use their own
funds on occasion to procure urgent and important medical
supplies.
Food, many local people would not use the vegetable oil,
for instance. It may be a matter of taste. It was all certified
fit for human consumption. But certainly with the amount of
funds available, and if you could command the best market
prices in the world, you could serve steak and eggs for
breakfast every single day of the year to everybody. There was
plenty of funds available, and some of the food money was, let
me say, wasted. Just look at how many people in the world could
eat 20 kilograms, 20 pounds of wheat flour a month, but that
was the program.
Senator Coleman. Were you aware of any kickback schemes in
humanitarian goods when you were there?
Mr. Clarry. It was just felt, because the contracts were
negotiated in Baghdad or by the U.N. agencies themselves. We
were plugged into the system after that. So in Northern Iraq or
in the Kurdistan region, we were unaware of any specifics
regarding kickbacks.
Senator Coleman. Mr. Christoff, the draft report on the
activities of OIOS said it is OIOS's view that the overall
management of the Oil-for-Food Program was not fully
satisfactory. It certainly got an assessment from one of the
witnesses earlier that they seemed to be satisfied with the
work of Cotecna and the inspectors. Can you reflect on what the
audits showed regarding Lloyd's, Cotecna, and the other folks
responsible for overseeing the program?
Mr. Christoff. Yes. The audits that OIOS performed placed a
lot of emphasis on the lack of oversight on the part of the
United Nations and the Office of the Iraq Program. For Cotecna,
for example, they questioned an amendment to that contact
occurring 4 days after the contract was signed that increased
that contract price by $356,000. So a lot of the thrust of
those internal audit reports placed a picture on the extent to
which any oversight was being conducted on the part of the
Office of the Iraq Program.
Senator Coleman. What kind of response did you see within
the United Nations to the audit reports?
Mr. Christoff. It varied. I think if you look at some of
the audits that were done on the U.N. programs in the north,
you found that the audited agencies appeared to be receptive to
the recommendations. However, in some of the audits, a few
follow-up audits that were conducted, OIOS often found that
even though the agencies agreed to implement the
recommendations, they didn't do it. You look at the audits of
the U.N. Compensation Commission, the U.N. Compensation
Commission responded to the auditors by challenging their legal
authority.
Senator Coleman. What responsibility does the top
management have to kind of pull everyone together to respond to
audits in an appropriate fashion?
Mr. Christoff. Well, it is imperative. You can't have
change implemented unless you have buy-in by top management.
Senator Coleman. And is there any sense that there was buy-
in by top management in terms of managing this program well,
responding to audits, keeping things clean?
Mr. Christoff. Again, I think it varied by the different
programs. You had the auditors constantly being challenged. I
think there was probably a lot of wasted time debating the
merits of what the auditors found and not fixing the problems.
Senator Coleman. Senator Levin.
Senator Levin. Thank you. Mr. Christoff, in 2002, the GAO
issued a report called ``U.N. Confronts Significant Challenges
in Implementing Sanctions Against Iraq,'' and I think you are
familiar with that report, and may have contributed to it at
the time.
Mr. Christoff. Yes, sir.
Senator Levin. Now, we introduced a chart from that report
at the last hearing. This is the chart that we put up.\1\ The
GAO found in 2002 that, ``Sanctions may have constrained Iraq's
purchases of conventional weapons. There is no indication that
Iraq has purchased large-scale weapons systems such as
aircraft, ships, or armor.''
---------------------------------------------------------------------------
\1\ See Exhibit No. 54 appears in the Appendix on page 434.
---------------------------------------------------------------------------
As I understand your conclusion, it was primarily because
of U.N.'s control of Iraq's oil revenues that, ``Iraq's
military expenditures have dropped dramatically.'' Is that what
that chart shows?
Mr. Christoff. That is correct.
Senator Levin. That was after the imposition of the U.N.
program that the military expenditures of Iraq dropped
significantly, and that was in--what year is that? I can't read
it from here.
Mr. Christoff. It begins with when the sanctions were
implemented in 1991.
Senator Levin. And then it shows, after that massive drop
in 1991, it shows a level spending at a very much lower level--
--
Mr. Christoff. Correct.
Senator Levin [continuing.] Right through your report in
2002, is that correct?
Mr. Christoff. Yes, that is correct.
Senator Levin. The Duelfer Report found in 2004 that the
U.N. sanctions stopped Saddam Hussein from rearming Iraq with
either large-scale conventional weapons or weapons of mass
destruction. Is that a fair reading, also, of your report?
Mr. Christoff. I think what we found in our report was that
the sanctions were effective in limiting some of the major arms
shipments that had been going to Iraq prior to the sanctions.
Senator Levin. You said also in your 2002 report that one
of the challenges in implementing the sanctions was the
``illicit revenue outside of U.N. control obtained from oil
sales through neighboring states.'' Your report noted that most
recent U.N. resolutions did not address those oil sales to the
neighboring states and that the omission was a significant
challenge to the enforcement of the sanctions. Is that correct?
Mr. Christoff. That is correct.
Senator Levin. Did the U.S. Government take action to
address the oil trade from Iraq to those neighboring states
following your report?
Mr. Christoff. Following the report?
Senator Levin. Yes.
Mr. Christoff. I don't know following the report. I know
during the sanctions program, the United States did bring
information to the Security Council about neighboring nations
that were violating the sanctions.
Senator Levin. And did they take action to stop those
sales?
Mr. Christoff. We know that the United Nations, ``took note
of the smuggling that was occurring to Jordan,'' but we don't
know what additional actions, if anything, were undertaken.
Senator Levin. So other than that, as far as you know,
other than bringing it to the attention of the Security
Council, the Security Council taking note of the sales, it did
nothing beyond that?
Mr. Christoff. Not to my knowledge.
Senator Levin. And subsequent to your report?
Mr. Christoff. I do recall at least in public statements
that former Secretary of State Colin Powell noted that he was
putting pressure on the Syrians to stop the oil pipeline that
was being constructed and then the oil shipments that were
going through Syria, as well.
Senator Levin. And any reference to putting pressure on the
Turks or the Jordanians?
Mr. Christoff. No.
Senator Levin. Mr. Clarry, are you now a consultant for--
what do you do now?
Mr. Clarry. I am a consultant to the Kurdistan regional
government.
Senator Levin. And the claims that you say that they have,
and this is, as you put it, your bias and your focus to try to
get those claims resolved, they relate to money which you
believe--or goods which should have been delivered to that
region, is that correct?
Mr. Clarry. Yes, a little bit of the goods, and mostly the
remaining unspent funds, yes.
Senator Levin. And were some of those unspent funds
delivered to the region?
Mr. Clarry. Yes.
Senator Levin. It was in cash?
Mr. Clarry. Cash.
Senator Levin. Do you know about how much that was?
Mr. Clarry. About $2 billion.
Senator Levin. Two billion?
Mr. Clarry. Yes.
Senator Levin. And when was that?
Mr. Clarry. Last June.
Senator Levin. Is that included in your figures?
Mr. Clarry. Yes, I do mention it in a written statement. We
are looking for the other three.
Senator Levin. So that is included in your bottom line----
Mr. Clarry. Yes.
Senator Levin [continuing.] As to what you believe is still
owing?
Mr. Clarry. Yes.
Senator Levin. Thank you. Thank you, Mr. Chairman.
Senator Coleman. Mr. Christoff, have you had a chance to
review the Duelfer Report?
Mr. Christoff. I have read it, yes.
Senator Coleman. As I recall, the Iraq Survey Group, they
indicated that the Iraqi Military Industrialization Committee
budget grew substantially post-implementation of Oil-for-Food.
Do you recall that?
Mr. Christoff. From the Duelfer Committee report? Yes.
Senator Coleman. I think the figures were--I am trying to
get a copy of the report--that their budget grew from about
$7.8 million per year to $500 million per year by 2003, and as
I recall Duelfer's testimony before this Subcommittee, he
indicated that, in fact, as a result of the Oil-for-Food
Program, that Saddam Hussein was able to get around the
sanctions and to rearm himself. Do you recall that in the
Duelfer Report and is that inconsistent with the chart that we
just saw?
Mr. Christoff. The information that we presented in our
report in 2001 was information that was provided to us by the
State Department in terms of what the arms sales were and what
they were back in 1980 going through 2001.
Senator Coleman. So the Duelfer Report, the information
that the Iraq Survey Group provided, was certainly more recent
information and more thorough information----
Mr. Christoff. It is more recent, definitely.
Senator Coleman. And, in fact, I believe that Mr. Duelfer
indicated that the Iraqi military budget actually grew a
hundred-fold under the Oil-for-Food Program.
Senator Levin. Was that consistent with your report, that
their budget for equipment grew a hundred-fold under the
program?
Mr. Christoff. No. In 2001, when we completed our report,
we were basing the information on what we had received from the
State Department--it is not there--but which showed that the
high peak of armament sales that had occurred before sanctions
were imposed declined as a result of the sanctions.
Senator Levin. Thank you.
Senator Coleman. I just want to follow up. At the time of
that report, 2001, were you aware of the kickbacks, the extent
of the fraud under the Oil-for-Food Program?
Mr. Christoff. Yes.
Senator Coleman. Nothing further.
Senator Levin. I am all set. Thanks.
Senator Coleman. This panel is excused. Thank you very
much.
I would now like to welcome our final witness, the Hon.
Patrick F. Kennedy, the Ambassador to the United Nations for
Management and Reform at the U.S. Mission to the United
Nations.
Ambassador Kennedy, I appreciate your appearance at today's
hearing and look forward to your views on U.N.'s management and
oversight of the Oil-for-Food Program, U.S. awareness of fraud
and abuse in the program, including oil smuggling, and U.S.
actions to prevent use of the program by the regime of Saddam
Hussein.
Before we begin, pursuant to Rule 6, all witnesses before
this Subcommittee are required to be sworn in. Will you please
raise your right hand.
Do you swear the testimony you are about to give before the
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Ambassador Kennedy. I do, sir.
Senator Coleman. Thank you very much.
I think you know the system here, Ambassador. When the
light turns from green to amber, if you can conclude. We will
have your written statement submitted in its entirety for the
record. Ambassador Kennedy, you may proceed.
TESTIMONY OF HON. PATRICK F. KENNEDY,\1\ AMBASSADOR TO THE
UNITED NATIONS FOR MANAGEMENT AND REFORM, UNITED STATES MISSION
TO THE UNITED NATIONS, NEW YORK, NEW YORK
Ambassador Kennedy. Thank you very much, Mr. Chairman. Mr.
Chairman, distinguished Members of the Subcommittee, I welcome
the opportunity to appear before you to discuss the U.N. Oil-
for-Food Program and to answer your questions on various
aspects of the management and execution of the program.
---------------------------------------------------------------------------
\1\ The prepared statement of Ambassador Kennedy appears in the
Appendix on page 188.
---------------------------------------------------------------------------
Mr. Chairman, I want to reiterate three points regarding
the context in which the Oil-for-Food Program was established
and implemented. First, I want to emphasize that the United
States was fighting an often uphill battle. The very
establishment of the program was the result of arduous
negotiations among 15 Security Council members, some of whom
were arguing for the complete lifting of sanctions. As a result
of this political context, the ability of the United States and
the United Kingdom to take measures to counter or address
noncompliance during the life of the program was often
countered by other members' desires to, in fact, ease sanctions
on Iraq.
Second, sanctions have always been an imperfect tool, but
given the United States's national goal of restricting Saddam's
ability to obtain new materials of war, sanctions offered an
important and viable approach short of the use of force to
achieve this objective.
Third, the United States made decisions and took actions
relating to the Oil-for-Food Program and the comprehensive
sanctions on Iraq also to achieve overarching national security
goals within the larger political and economic context of the
region.
Mr. Chairman, given this general context, I would like to
attempt to outline some of the issues relating to the
responsibility for implementing the program and for sanctions
in general.
The Oil-for-Food Program was established to address the
serious humanitarian crisis that Saddam Hussein had inflicted
on the Iraqi civilian population while concurrently maintaining
strict enforcement of sanctions on items that Saddam Hussein
could use to rearm or reconstitute his weapons of mass
destruction or other military programs.
We believe the system the Security Council devised by and
large met these two specific objectives. The Oil-for-Food
Program did have measurable success in meeting the day-to-day
needs of Iraqi civilians. The daily caloric intake of Iraqi
citizens increased and health standards in the country
improved. And as Mr. Duelfer testified before this Subcommittee
on November 15 last year, ``U.N. sanctions curbed Saddam's
ability to import weapons, technology, and expertise into
Iraq.''
Investigations over the past year have uncovered
significant sanctions-busting activity that arose both from
Saddam Hussein's manipulation of the program and from his and
others' abuse of the sanction regime for financial gain.
In the end, the Oil-for-Food Program reflected three
factors: A collective international desire to assist and
improve the lives of Iraq's civilian population; a desire by
the United States and others to prevent Saddam Hussein from
acquiring materials of war and from posing a renewed regional
and international threat; and a decision by some companies,
member states, and individuals to pursue their own financial
interests at the expense of the international community.
Mr. Chairman, this final point about actors who colluded
with Saddam Hussein in breaching sanctions and violating the
rules of the Oil-for-Food Program leads me to the issue of
responsibility.
The United Nations, first and foremost, is a collective
body comprised of its 191 members. A fundamental principle
inherent in the U.N. charter is that all member states will
uphold decisions taken by the Security Council. The
effectiveness of the sanctions regime against Iraq and the
integrity of the Oil-for-Food Program depended completely on
the ability and willingness of member states to implement and
enforce the sanctions. In this regard, member states held the
primary responsibility for ensuring that their national
companies and their citizens complied with states'
international obligations.
Through the Treasury Department, the United States, for
instance, took measures to establish a vetting process for U.S.
companies seeking to do business in Iraq. We also implemented a
comprehensive process to review the contracts for humanitarian
goods going to Iraq in order to ensure that dual-use items were
not being supplied to Iraq through the Oil-for-Food Program.
In addition to the responsibilities of member states, the
Security Council also established a subsidiary body of the
Council, the 661 Committee, to monitor the sanctions on Iraq,
and once it was established--the Oil-for-Food Program--the 661
Committee discussed issues related to violation of the
sanctions between 1990 and 2003 and issues related to the Oil-
for-Food Program between 1995 and 2003. Action, however, could
only be taken to address those issues if there were political
will and a consensus of all the members of the committee to do
so. Although the United States and the United Kingdom
repeatedly raised concerns within this context and often
offered solutions to mitigate abuses, consensus in the 661
Committee continually proved elusive as we faced opposition
from one or more members of the committee.
The Security Council also authorized the Secretary-General
and the U.N. Secretariat, under Security Council Resolution 986
in 1995 and subsequent resolutions, to implement and monitor
the Oil-for-Food Program. The Office of the Iraq Program staff
was hired to devise a system whereby oil revenues from the
program could be used to pay for humanitarian supplies for
Iraq. To be clear, Mr. Chairman, the Secretariat, OIP, and the
U.N. agencies were given the authority and they had the power
to implement the program only within the mandate given to them
by the Security Council. They were not empowered to monitor or
enforce implementation by member states of the overall
sanctions on Iraq or act as a border patrol.
To make the division of responsibilities clear, Mr.
Chairman, let me offer two examples. The first regards oil
flowing out of Iraq. The former Iraqi regime, through the State
Oil Marketing Organization, proposed prices for various markets
and grades of crude for review by the U.N. Oil Overseers and
for approval by the 661 Committee. The U.N. Oil Overseers and
661 Committee members verified that the purchase price of the
petroleum and the petroleum products were reasonable in light
of prevailing market conditions.
The U.N. contracted monitoring group, Saybolt, provided on-
site inspection agents who keep 661 Committee members informed
of the amount of petroleum exported from Iraq. Saybolt
inspectors also monitored the arrival of oil industry spares
under the Oil-for-Food Program. A U.N. escrow account
administered by Banque Nationale de Paris received payments for
such liftings. Oil flowing out of Iraq through other means--
smuggling, trade protocols, and the voucher system--was outside
the mandate of the U.N. Secretariat. Member states were
responsible for monitoring these activities.
My second example involves goods coming into Iraq. Again,
there was a clear division of responsibility. While Iraqis
retained the authority to contract with specific suppliers
under the Oil-for-Food Program, the 661 Committee was tasked at
ensuring that the contracted goods were appropriate for export
to Iraq under the conditions set out in Security Council
Resolution 986. Once a contract was approved by the 661
Committee and the goods shipped, the U.N. inspection agent,
Lloyd's Register and later Cotecna, were responsible for
authenticating the arrival of these goods into Iraq.
Separately, it was the responsibility of member states to
prevent sanctioned goods from entering into Iraq.
Mr. Chairman, I offer these examples to illustrate exactly
where responsibility lay. These were, in hindsight, substantial
problems related to all these areas of responsibility. Some
members did not take their international obligations seriously
and either directly or indirectly facilitated sanction-busting
activities by the Saddam Hussein regime. The 661 Committee was
mired in a political debate with regard to Iraq that often
impeded it from taking action against violators of the embargo.
As the recent Volcker Independent Inquiry Committee Report
indicates, there were serious charges that U.N. officials may
have allowed Saddam Hussein to further undermine their system.
I stated earlier that the United States has made every
effort to address violations within the 661 Committee, even
though we were often impeded by other committee members.
Violations with respect to the Oil-for-Food Program
manifested themselves in two key areas, manipulation of oil
pricing and kickbacks on the Oil-for-Food Program.
In late 2000, U.N. Oil Overseers reported that Iraqis were
attempting to impose excessive premiums on oil exports. The 661
Committee, led by the United States and the United Kingdom,
agreed to a statement on December 15, 2000, making clear that
additional fees above the selling price approved by the 661
Committee were not acceptable.
Despite circulation of this message to all companies
approved to lift Iraqi oil, evidence of the illicit surcharges
continued during the spring of 2001. The United States, working
in close coordination with the British delegation, raised the
issue of excessive oil price premiums in a series of more than
40 formal and informal 661 Committee and Security Council
meetings during that period.
After months of stalemate within the 661 Committee, the
U.S. and British experts made creative use of the consensus
rule governing decisions in the 661 Committee by withholding
support until the end of the month on oil pricing proposals
submitted at the beginning of the month by the Iraqis. This
retroactive price analysis gave the U.S. and British experts
the opportunity to compare oil prices sought to the actual
market price of similar crude oils to determine if SOMO's
prices reflected fair market value, a requirement under
Resolution 986.
Beginning in October 2001, the United States and the United
Kingdom regularly employed the retroactive pricing mechanism to
evaluate SOMO's prices until the suspension of the Oil-for-Food
Program in 2003. The retroactive oil pricing we imposed had the
intended effect. By the spring of 2002, the U.N. Oil Overseers
reported that the oil price variation from market levels had
been reduced from as much as 50 cents per barrel to an accepted
industry variation of three to five cents.
Separately, allegations of kickbacks to the Oil-for-Food
Program began to surface in late 2000. U.S. and British experts
raised this issue with the 661 Committee experts and the Office
of the Iraq Program representatives in 2002 and early 2001 and
formally submitted proposals to address this issue during a 661
Committee meeting in March 2001. However, no documentary
evidence was available at the time to support these
allegations. Consequently, our proposals received no support.
Committee members claimed that absent evidence indicating that
such kickbacks existed, no action could be taken.
Important measures taken to address this issue occurred
after the fall of Saddam's regime, when the United States,
through the Coalition Provisional Authority, was informed of
the kickback scheme by Iraqi ministry representatives in
Baghdad. With the fall of the Hussein regime in the spring of
2003, and with the subsequent authorities granted under U.N.
Security Council Resolution 1483, CPA officials, in
coordination with U.N. officials and Iraqis, took steps to
eliminate surcharges in the remaining Oil-for-Food contracts.
In addition to eliminating and countering surcharges and
kickbacks, the United States also took initiatives to provide
members of the 661 Committee and the Security Council with
information and evidence of violations by the Saddam Hussein
regime during various briefings. The United States briefed
Security Council members in 2000 on the various ways the Saddam
Hussein regime was diverting funds to benefit Iraq's elite,
including through the use of diverted funds to build and
furnish Saddam's palaces. The U.S. again briefed Security
Council's ambassadors in the spring of 2002 on Saddam's
noncompliance with U.N. Security Council resolutions and
Saddam's attempts to procure WMD-related materials.
In March 2002, a U.S. interagency team briefed the 661
Committee on the regime's diversion of trucks. The U.S.
commanders of the Multilateral Interception Force in the Gulf
also briefed the committee each year, starting in 1996, on the
MIF's activities in combating the illegal smuggling of Iraqi
crude oil.
Mr. Chairman, I know that an issue of concern to this
Subcommittee is our relationship with Jordan and Turkey with
respect to the imports of oil from Iraq during the Oil-for-Food
period and why we felt the need to treat these nations
differently.
Beginning in 1991 and extending through 2003, the annual
Foreign Operations Appropriation Act contained restrictions on
U.S. assistance to any country not in compliance with U.N.
Security Council resolutions against Iraq. In 2002, the Foreign
Operations Appropriation Act, as carried forward in the 2002
Supplemental, for example, enacted such legislation as Section
531. The restrictions under 531 and its predecessors could be
waived if the President determined and certified to the
Congress that providing assistance was in the national
interest.
In the case of Jordan, as we explained to then-Senate
Foreign Relations Committee Chairman Biden in a letter dated
October 2, 2002, the restriction had been waived each year
since its enactment in 1991 by three successive
Administrations.
Jordan was and remains a critical partner with the United
States in bringing stability and a lasting peace to the Middle
East. By ensuring that Jordan was not strangled by a lack of
critical resource, the Jordanian government was able to pursue
policies of critical importance to U.S. national security in
the region. The Jordanians made clear to us that their trade
would not aid Saddam's weapons procurement programs. We
understood that they were sending manufactured products to Iraq
in exchange for oil. The U.S. determination and certification
were solely in recognition of Jordan's lack of economically
viable alternatives. The U.N. Sanctions Committee, with U.S.
support, took note of Jordan's imports of Iraqi oil and its
lack of economic alternatives.
As we also explained in the October 2002 letter, similar
consideration was given to Turkey, a close ally of the United
States, a NATO partner, and host of Operation Northern Watch.
Turkey cooperated closely with the U.S. nonproliferation
efforts against Saddam's regime. Our approach was to encourage
Turkey to bring its trade with Iraq into conformity with the
U.N. Security Council resolutions.
Turkey claimed that its cumulative losses from the Gulf War
and ensuing sanctions against Iraq amounted to about $35
billion, and throughout the 1990's pushed for ways to expand
its trade with Iraq. From 1991 to the start of Operation Iraqi
Freedom, the United States worked with Turkey to discourage
trade out of the U.N. sanctions regime. For instance, the
United States did not support a Turkish request for relief from
sanctions under Article 50 of the U.N. Charter. In addition,
the United States sought to ensure that the U.N. Security
Council resolutions did not legitimize trade with Iraq outside
the Oil-for-Food Program.
Senator Coleman. Ambassador Kennedy, if you could sum up.
Ambassador Kennedy. Yes, sir.
Senator Coleman. I am sure Senator Levin will follow up on
some of these issues.
Ambassador Kennedy. Yes, sir. The last issue I would like
to address is the accusations of impropriety, mismanagement, or
abuse by U.N. personnel, contractors, or agencies. The recently
released U.N. Office of Internal Oversight Services audits and
the Independent Inquiry Committee interim report paint a very
disappointing and disturbing picture.
The lack of transparency on the part of the United Nations
with regard to OIOS has long been a particular concern. The
United States mission has continually sought access to OIOS
reports. These were initially denied, as access was deemed
outside of the General Assembly rules. Our staff worked
tirelessly since last summer to get these particular OFF
reports released, both from the Secretary and the Volcker
Commission, which both denied.
Therefore, last fall, the United States put forward
language for inclusion in General Assembly resolutions that
required that the United Nations make all OIOS audit reports
available to U.N. member states on their request. The General
Assembly adopted this U.S. initiative during the evening of
December 23. Within an hour, the United States formally
requested copies of the OIOS reports covering the Oil-for-Food
Program. Two weeks later, these audits were made available,
thanks to our efforts, and these are the reports that your
staff has reviewed.
Mr. Chairman, I convey this information to you because we
at the United States mission take our responsibility to make
the United Nations a more transparent body very seriously and
we intend to continue this initiative in order to ensure
adequate follow-up of auditors' recommendations.
The Oil-for-Food Program was a unique endeavor, and
although it was essential to the Iraqi people, it was also
manipulated by Saddam Hussein and his cronies to undermine the
sanctions. We will go forward, Mr. Chairman, and take the
lessons we have learned from this experience very seriously and
apply them to all future U.N. endeavors.
I now stand ready to answer any questions the Subcommittee
might have.
Senator Coleman. Thank you, Ambassador Kennedy. I
appreciate that very extensive statement.
I also want to say I appreciate the efforts to get us
access to the--in the end, I think it was the 58 internal
audits. I know we had been promised them at some later time,
but it wasn't until the resolution that you discussed was
passed that caused us to get them when we did, so I want to
thank you for those efforts.
In the Duelfer Report, the Iraqi Survey Group noted, and I
am going to quote here, and I will have the portion submitted
to the record, ``Although Saddam had reluctantly accepted the
U.N. Oil-for-Food Program by 1996, he soon recognized its
economic value and additional opportunities for further
manipulation and influence of the UNSC,'' U.N. Security
Council, ``Iraq 661 Sanctions Committee member states.
Therefore, he resigned himself to the continuation of U.N.
sanctions, understanding that they would become a paper tiger,
regardless of continued U.S. resolve to maintain them.'' The
report goes on then to detail the significant increases in
military funding. It goes on to detail individuals with
connections to member states receiving vouchers which then were
actually bribes.
My question to you is at what point in time were folks in
our delegation aware of vouchers being handed out to folks with
influence in member states? At what point in time were our
folks aware that kickbacks that have been detailed before this
Subcommittee by the Weir Group? I am trying to get a sense of
what the thinking was as this stuff is going on and the massive
way in which it was happening. Were we simply blind at the time
it was happening, or were we aware but unable to do anything?
Ambassador Kennedy. Mr. Chairman, if I can divide your
question into three parts, no one became aware of the voucher
program until after the fall of Baghdad. The voucher program
was kept very secret by Saddam Hussein. He ran, as you are well
aware, sir, an extremely brutal regime and he was able to keep
secrets.
However, we were certainly aware, and became aware in 2000,
of his efforts to subvert the activities, both through the
first--the premium pricing on oil and then by kickbacks and we
moved to counter this. It was, in fact, a chess game, sir.
Saddam Hussein was always on the lookout for a way to get
around the sanctions, and as information came to our attention,
the United States, and always allied with the United Kingdom,
were looking for ways to combat that.
The example I laid out in my opening statement about how
once we discovered, because the U.N. Oil Overseers reported to
us his attempts to put premiums on sales, we moved in the
committee. We met resistance from other nations in the
committee, something we faced at all times. And then we
employed the consensus mechanism, as I said, in a reverse way
to end the sanctions.
So 2001, 2002, we began to hear a variety of rumors and we
then moved to take whatever steps we could to counter them.
Senator Coleman. And specifically, you talked about the
retroactive pricing. That is the issue described where Saddam
Hussein could manipulate price, but once you instituted this
retroactive pricing mechanism, that took away his ability to do
that.
Ambassador Kennedy. It took it away, yes, sir.
Senator Coleman. Who was resisting--first of all, how long
did it take, from the time we first became aware of this and
wanted to change the policy, to actually change the policy?
Ambassador Kennedy. I think it took somewhere around 6 to 9
months. We met resistance within the committee. Other members
of the committee were always saying, bring us proof positive,
and we said, we don't need proof positive. The rumor on the
street is sufficient that we must pursue this in order to
maintain the integrity of the sanctions system. Other nations
resisted.
Senator Coleman. Which other members of the 661 Committee
were most resistant to changing the retroactive pricing
mechanism?
Ambassador Kennedy. We received inquiries and challenges to
our efforts from the Russians, from the Chinese, from the
French, from the Syrians, from others, because the composition
of the 661 Committee was the permanent five plus others as they
changed.
Senator Coleman. Was there ever any concern raised about
the value of Oil-for-Food contracts going to these specific
member nations and somehow that relating to the measure of
their resistance?
Ambassador Kennedy. No, sir. I mean, obviously, there may
have been colleagues who had speculated on that, but if you go
back to the beginning of the program, in 1995, the sanctions
had been in place on Iraq for 5 years. Because of Saddam's
total lack of care for his own people, his people were simply
starving. Child mortality was up. Maternal mortality was up.
And the public perception in the world was not that Saddam
Hussein was causing this but that the sanctions regime was
causing it.
The U.S. national goal was to maintain those sanctions, and
therefore, we were looking for a way to keep the sanction
regime in place but overcome this public perception that the
sanctions were causing great harm to the Iraqi people.
Therefore, as we worked to implement the Oil-for-Food Program
to work it out, that was our dilemma.
Our primary goal was to maintain the sanctions. If we could
not have a solid wall, then we wanted a screen, and we needed
to construct a screen that was as tight as possible within the
context. But when we negotiated, the ability to write contracts
had to be left to Saddam Hussein. That was the only way to get
the program implemented.
Senator Coleman. Wasn't there concern that by giving him
that ability, that you were giving him the power to manipulate,
which obviously he ultimately did?
Ambassador Kennedy. It was anticipated, yes, that Saddam
Hussein would do anything he could to manipulate the program.
We tried to put in means to counter the manipulation, to limit
the manipulation, but at the same time, faced with Saddam
Hussein manipulating something versus the loss of sanctions as
they dissipated, that other countries in the world did not
implement the sanctions as aggressively as we felt the United
Nations required, the U.N. Security Council resolutions
required them to, we did not want the sanctions to fritter
away.
Senator Coleman. You talked a number of times about the
responsibility of ``member states'' to do certain kinds of
enforcement. Can you explain what you meant by that?
Ambassador Kennedy. Yes, sir. A resolution passed by the
U.N. Security Council is, under international law, binding on
all member states. So if sanctions are put by the United
Nations on Xanadu or Iraq, it is the responsibility of all
other 190 members of the United Nations to enforce those
sanctions. They are required to bar the movement of goods, to
only ship goods into Iraq under the program.
But the enforcement mechanism is the court of world public
opinion. There is no sanctions mechanism absent going back to
the Security Council for another resolution to attempt to take
military action against a violator.
Senator Coleman. But in this case, where you have an
incredibly wide pattern of abuse of contracts, kickbacks,
manipulation of contracts, oil smuggling, topping off, a whole
range of things, it is difficult for me sitting here to
understand how we somehow would not be aware all this is going
on when it is going on.
Ambassador Kennedy. As I said, sir, we became aware in 2002
of his attempts to manipulate oil pricing, and then as we
tamped that down, he moved to kickbacks, moving from one
activity to--we were aware of it and we constantly moved to
counter it. As I said earlier, Mr. Chairman, I am not here to
tell you that sanctions are a perfect tool, but sanctions are a
tool. They were a tool that were available to us, and as Mr.
Duelfer says several times in his report, they did have an
effect on limiting Saddam Hussein's ability to acquire
materials.
There are other examples in his statement, in his report, I
would say, where he talks about the Iraqis, for example,
attempting to purchase aluminum powder by setting up massive
front companies, and a year later, he never was able to obtain
that aluminum powder, which is one of the components of
building weapons.
So sanctions were having an effect. A perfect effect,
absolutely not. But the United States felt it was very
important to maintain that screen in place for the value of
keeping out as much as was possible.
Senator Coleman. Thank you, Ambassador. Senator Levin.
Senator Levin. The way Secretary Powell put it was, I
think, credit has to be given for putting in place a sanctions
regime that has kept Saddam Hussein pretty much in check. Is
that what you basically are saying?
Ambassador Kennedy. Yes, sir.
Senator Levin. And you stick to that?
Ambassador Kennedy. Yes, sir.
Senator Levin. Even knowing of the abuses that we have
heard of, do you still stick to that conclusion?
Ambassador Kennedy. Sir, the program, Senator, was
certainly not perfect, but it kept Saddam Hussein basically in
check, as the Secretary said.
Senator Levin. If we could put that chart up,\1\ that
revenue that was going to Iraq, you made reference to what we
didn't know until 2002. That is what we didn't know. That is
only a quarter of the money that he was getting for oil sales
that he shouldn't have gotten if the Oil-for-Food Program was
working and applied to everybody, including Turkey and Jordan,
because what we did know was that big segment of that pie,
which is 73 percent of the revenue that he got, and that was
all outside of the U.N. Oil-for-Food Program. Are you familiar
with that?
---------------------------------------------------------------------------
\1\ See Exhibit No. 51 appears in the Appendix on page 426.
---------------------------------------------------------------------------
Ambassador Kennedy. Yes, sir.
Senator Levin. Does that look like about the right
proportions?
Ambassador Kennedy. Yes----
Senator Levin. That was the Duelfer----
Ambassador Kennedy. Yes, sir. I think those numbers are
good numbers.
Senator Levin. So what we did know in terms of what he was
doing outside of the program was that he got a huge amount of
revenue from oil sales to our allies, at least in the case of
Turkey, Jordan, and Egypt. Obviously, Syria is not an ally, but
in terms of the major recipient, which was Jordan, we knew that
he was selling that oil outside of the program, in other words,
in ways that the U.N. resolution did not contemplate, did not
provide for.
Now, the question is, we decided basically not to object.
We could say rhetorically we didn't agree. We could tell
Jordan, as we did, that we were aware--we took note at the
United Nations of these sales to Jordan, and that was about it.
We took note, I guess, that Turkey--we didn't even take
note. We didn't even let their application for approval of that
direct sale to be considered by the United Nations. We
prevented that from coming to U.N. consideration for reasons
which are not clear to me, but probably because they may have
been vetoed, would be my guess.
Essentially, looking at this honestly, is it not accurate
to say that the majority of that illicit revenue that Duelfer
identified, about three-quarters of the illicit revenue went to
Iraq with our implicit knowledge? Is that fair to say? We knew
about it?
Ambassador Kennedy. Yes, sir, we were aware of it.
Senator Levin. And for these strategic reasons you gave or
these national--what you call national security reasons, we
decided that we were going to basically allow that to continue
without trying to stop it, is that fair?
Ambassador Kennedy. In the case of Jordan and Turkey, not
in the case of----
Senator Levin. Obviously.
Ambassador Kennedy [continuing.] Not in the case of Syria.
And in the case of Jordan, for example, we worked with the
Jordanians to constantly emphasize to them that this should be
a barter arrangement.
Senator Levin. Right.
Ambassador Kennedy. The receipt of oil and its swapping for
material that would be acceptable under the sanctions regime
writ large. We urged the same with Turkey.
Senator Levin. We urged them to do that, is that correct?
We urged them to barter?
Ambassador Kennedy. We urged the--yes, sir. We urged them
to barter.
Senator Levin. We don't know whether they got cash or not,
do we?
Ambassador Kennedy. No, sir, we do not.
Senator Levin. All right.
Ambassador Kennedy. We do not.
Senator Levin. So when we talk about the Oil-for-Food
Program and the efforts to get around the Oil-for-Food Program
and the sanctions regime which he made, without any doubt, he
would use any tactic he possibly could to get around the
sanctions, and one of the ways he did it was with kickbacks and
with surcharges and with what is called smuggling up there. The
major way he got around that sanction program was through sales
of his oil to countries, to neighboring countries which were
not stopped by the international community, and at least in the
case of Jordan and Syria, we acquiesced in and did not attempt
to stop. Is that a fair summary?
Ambassador Kennedy. With one, if I might apologize, a
correction. You said Syria----
Senator Levin. Did I say Turkey?
Ambassador Kennedy. No, sir.
Senator Levin. Let me correct that, obviously. In the case
of Jordan and Turkey, we knew those sales were taking place and
we acquiesced in them. Is that a fair summary?
Ambassador Kennedy. We notified the Congress every year----
Senator Levin. And notified us.
Ambassador Kennedy [continuing.] Under the exception of the
Foreign Assistance Act that Jordan and Turkey were--actions
were in violation of the sanctions regime, yes, sir.
Senator Levin. You notified us. As a matter of fact, you
notified us, because under our law, aid to those two allies,
Jordan and Turkey, could not take place unless you notified
Congress and waived the restrictions of the law, is that
correct?
Ambassador Kennedy. Yes, sir, that is under the Foreign
Assistance Act.
Senator Levin. Because I do think it is important that when
we assess responsibility, that we also look at our own actions
and decide--we can look retrospectively and decide they were
the right actions, by the way. As far as I am concerned, I
didn't object to them at the time and I think that there was
good cause to do what we did.
But it is not good enough to point the finger at other
countries such as Russia, France, and so forth for stopping
things at the 661 Committee. They did it for their strategic
reasons. We looked the other way when it came to putting money
into Saddam's pocket for oil sales outside of the sanctions
program that we had approved and worked so hard to get in
place. We did it for what we considered to be good reasons, and
may have been good reasons, by the way. They may have been good
reasons. I am not arguing with that. But we looked the other
way when large amounts of money, three-quarters of the illicit
revenue, was going to Saddam Hussein under those direct sales
and we ought to acknowledge it.
That is my only argument here with your testimony, it is
important that we acknowledge it and we be straightforward
about what the implications of that were. Jordan was an ally.
Turkey is an ally. They had economic problems, and so we
acquiesced in, we didn't try to stop those direct sales from a
bitter enemy of ours, in violation of a sanctions program that
we had helped put in place.
Ambassador Kennedy. What I would say, Senator, is I would
not use the phrase ``look the other way,'' because we
constantly engaged with the Jordanians----
Senator Levin. Did we try to stop it? Let us be honest.
Ambassador Kennedy. We engaged with them to mitigate it to
the maximum extent possible and to encourage them to use barter
so that the exchange would not be any materials of war.
Senator Levin. And as you testified, we don't know that
they engaged in barter. They may have just paid in cash to
Iraq. We don't know whether they did or not.
Ambassador Kennedy. I would have to get back to you for
that for the record, sir.
INFORMATION PROVIDED FOR THE RECORD
Official Jordanian representations to the U.S. Government indicate
that no cash was provided to Iraq under the protocol arrangement,
although the Duelfer Report quotes several Iraqi sources as indicating
that a small amount of the trade was in cash. We understand the
arrangement between the two countries was to have been one of straight
barter, with nothing from the Jordanian government to have been paid
directly to the Government of Iraq. Rather, the Government of Jordan
was to have paid into a clearing account at the Central Bank of Jordan
an amount equal to the price of oil that Iraq was shipping to Jordan.
Jordanian companies, under contract to Iraqi government ministries,
exported goods to Iraq and were to have drawn down the price of the
goods they exported from the clearing account at the Central Bank of
Jordan.
Senator Levin. All right. And when I say looked the other
way, we did not try to stop it.
Ambassador Kennedy. As we notified, sir, we----
Senator Levin. As you notified Congress. I said ``we.''
Ambassador Kennedy. I am not shifting the----
Senator Levin. No.
Ambassador Kennedy. I am just saying, this was a public
position taken by three successive Administrations----
Senator Levin. Absolutely.
Ambassador Kennedy [continuing.] That the U.S. national
interest was best served by taking this action.
Senator Levin. I couldn't agree with you more. When I said
``we,'' I mean America. I am not pointing at this
Administration. I am saying, we as a country, decided, this
Administration, the previous Administration. We, the Congress,
that got the notice decided that all that money or equipment,
whatever it was, and we didn't know, would be going to Saddam
Hussein, a bitter enemy of ours, in violation of a program that
we fought to put in place for reasons that this country thought
were good and sufficient. That is all I am saying, and we ought
to be honest about it.
One other question and then I am done. You didn't react to
that, but I assume you would agree we ought to be
straightforward in acknowledging that was the facts, is that
fair enough? Were those facts that I stated an accurate summary
of the facts?
Ambassador Kennedy. The sales--the trade was going on and
we were aware of it, yes, sir.
Senator Levin. OK, final question. About 10 days ago,
Ambassador, we asked the State Department for two dozen
documents, roughly, which is a very specific number and they
all were identified, I believe, by specific Bates numbers. This
morning, after the hearing began, we got about half of those
documents. What was the holdup in getting us those documents,
and second, can we get the other dozen?
Ambassador Kennedy. We had some trouble locating the
documents because of their age and my staff in New York
personally put in a great deal of time. We were able to locate
them by searching our files. The other half are so old that we
have been unable to locate them in our active files and we have
an all points search out for them, including consulting with
the U.N. central archives in order to obtain them. As soon as
we obtain them, sir, they will be immediately delivered.
Senator Levin. I appreciate that, and Mr. Chairman, I would
ask that we make part of the record a number of documents which
I will ask the Ambassador to comment on for the record relative
to some ship deliveries to specific ports which apparently
were--this is of Iraqi oil to Jordanian ports, or for Jordan,
which apparently were escorted by American ships. There have
been a number of press reports on those deliveries and I would
ask that we make part of the record at this time a number of
documents which we have received by subpoena in the record.\1\
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\1\ See Exhibit No. 53 appears in the Appendix on page 429.
---------------------------------------------------------------------------
Senator Coleman. Without objection.
Senator Levin. Thank you. Thank you, Mr. Chairman.
Senator Coleman. Thank you, Senator Levin. Thank you,
Ambassador Kennedy.
I will leave the record open for 10 days to accommodate
both the requests of the individuals from Cotecna and the
records that Senator Levin has asked for.
We will continue with these hearings, the issue of why were
certain actions taken by member states, whether it was
strategic reasons or whether it was because of bribery or
influence or issues that still have to be reviewed further. I
reiterate my concern about the need for greater cooperation
from the United Nations and for the United Nations to make
available certain witnesses and documents to this Subcommittee,
to Members of Congress, so that these investigations may
proceed.
With that, this hearing is now adjourned.
[Whereupon, at 1:02 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
PREPARED STATEMENT OF SENATOR PRYOR
Senator Coleman, I'd first like to thank you for your leadership on
this subcommittee. Today's hearing, the second into the management of
the Iraqi Oil-For-Food Program, is important in furthering our
understanding of both the failures of the program but also how the
program worked. In November, we heard testimony regarding how Saddam
Hussein abused the Oil-For-Food Program. As I noted during that first
hearing on November 15, the U.N. sanctions against Iraq will likely not
be the last time the international community attempts sanctions against
a country; it is therefore important that we understand the ways in
which there were breakdowns in the Iraq sanctions and the Oil-For-Food
Program. In much the same vain, I look forward to today's testimony
regarding the United Nations' management and oversight of the Iraqi
Oil-For-Food Program.
There is not doubt that there are many lessons to be learned from
the Oil-For-Food Program. I am deeply concerned to hear of troubles
this subcommittee has had in its attempts to gain access to some
records and personnel at the United Nations in New York, and I would
urge Secretary General Kofi Annan to cooperate with the U.S. Government
and this Congressional Committee as it attempts to piece together the
truth about the Oil-For-Food Program. It is in the best interest of the
international community, all of us, that we know exactly where Oil-For-
Food Program and United Nations policies went awry because we all have
an interest in seeing that future sanctions and humanitarian programs
are successful.
I thank today's witnesses for taking the time to be here today as
this Subcommittee attempts to provide a clearer picture of the
shortcomings of the Oil-For-Food Program, and I look forward to their
testimony. Again, Chairman Coleman, thank you for your important
leadership.
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