Weapons of Mass Destruction: U.N. Confronts Significant 	 
Challenges in Implementing Sanctions against Iraq (23-MAY-02,	 
GAO-02-625).							 
                                                                 
United Nations sanctions were first imposed in August 1990	 
following Iraq's invasion of Kuwait. The Security Council, in	 
1991, established sanctions to stop Iraq from acquiring or	 
developing biological, chemical, and nuclear weapons. To achieve 
this, the Security Council prohibited all nations from buying	 
Iraqi oil or selling the country any commodities, except for food
and medicine. It further established a weapons inspection regime 
to ensure that Iraq destroyed its weapons of mass destruction and
stopped its weapons programs. Concerned about the humanitarian	 
need of the Iraqi people, in 1995 the Security Council		 
established a controls program for Iraq's oil sales that allows  
for the purchase of food, medicine, and essential civilian goods 
(the oil for food program). With international support for the	 
sanctions eroding, in 2001 the Security Council passed a new	 
sanctions resolution to address humanitarian concerns while	 
keeping Iraq from rebuilding its weapons systems. Although the	 
U.N. controlled $51 billion of Iraq's oil revenues from 1997 to  
2001, Iraq earned an additional $6.6 billion in illegal revenue  
from oil smuggling and surcharges during the same time. Further, 
although the sanctions prohibit Iraq from obtaining goods not	 
approved by the Security Council, Iraq is able to buy unapproved 
goods with its illegal revenue. The U.N. Security Council also	 
requires weapons inspections to verify that Iraq is not 	 
rebuilding weapons of mass destruction, but Iraqi actions forced 
the U.N. to withdraw its weapons inspectors in 1998. As a result,
the U.N. cannot ensure that Iraq has stopped programs to develop 
chemical, biological, and other weapons. Moreover, there are	 
indications from multiple sources that it continues to develop	 
such weapons. In design, U.S. licensing standards for exports to 
Iraq are more restrictive than U.N. requirements. In practice,	 
however, U.S. and U.N. requirements are almost identical because 
the United States plays a substantial role in the U.N. approval  
process for exports to Iraq. Consequently, almost all U.S.	 
exporters who get U.N. approval are also granted a U.S. export	 
license. A new sanctions agreement, due to take effect at the end
of May 2002, changes the contract screening process and could	 
make the sanctions more effective in allowing imports of	 
humanitarian and civilian goods to Iraq. The new sanctions allow 
Security Council members to hold only items on a controlled list,
which includes dual-use items. Further, the new sanctions have	 
provisions to single out an objectionable item from a shipment of
goods. These expected changes should make it easier for Iraq to  
import goods to rebuild its civilian economy. However, the new	 
agreement has no provisions to deter oil smuggling and illicit	 
trade or to reintroduce weapons inspectors. Prior Security	 
Council resolutions address weapons inspections but Iraq is not  
complying with them. Until these problems are addressed, the	 
sanctions cannot provide assurance that Iraq has stopped trying  
to acquire and build weapons of mass destruction.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-625 					        
    ACCNO:   A03370						        
  TITLE:     Weapons of Mass Destruction: U.N. Confronts Significant  
Challenges in Implementing Sanctions against Iraq		 
     DATE:   05/23/2002 
  SUBJECT:   Chemical and biological agents			 
	     Crude oil						 
	     Export regulation					 
	     Inspection 					 
	     International relations				 
	     International trade restriction			 
	     Monitoring 					 
	     Nuclear weapons					 
	     Sanctions						 
	     Smuggling						 
	     Chemical warfare					 
	     Biological warfare 				 
	     International organizations			 
	     Iraq						 
	     Kuwait						 
	     United Nations Oil for Food Program		 

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GAO-02-625
     
A

Sanctions Do Not Assure The Security Council established a weapons
inspection regime to provide

Iraq Has Stopped final assurance that Iraq was not reconstituting its
nuclear, biological, and Developing Weapons of

chemical weapons programs, but Iraq?s actions forced the withdrawal of Mass
Destruction weapons inspectors in 1998. Prior to their withdrawal, the
inspectors were able to confirm the destruction of much of Iraq?s weapons of
mass destruction program, including buildings used to produce and test
prohibited solid propellant rocket motors, 180 tons of sodium cyanide, and

more than 6,000 122mm rockets designed to carry sarin gas. However, the U.
N. Special Commission issued several reports concluding that, due to Iraqi
obstruction and lack of access to suspected sites, it cannot ensure that
Iraq has stopped its prohibited weapons programs. 5 In addition, there are
indications from the United Nations, the Central Intelligence Agency, and
other sources that Iraq continues to develop weapons of mass destruction,
particularly since weapons inspections ceased.

In January 1999, the U. N. Special Commission reported to the Security
Council that Iraq substantially misled the United Nations on the extent of
its proscribed weapons program and the continuation of prohibited
activities. The report cited numerous examples where Iraq failed to

account for known weapons and related items, including

 biological weapon warheads,

 liquid missile propellant,

 artillery shells filled with mustard gas, and

 R- 400 bombs filled with biological agents. According to some U. N.
Security Council members, other factors raising concern that Iraq continues
its weapons programs are (1) Iraq?s history of developing and using weapons
of mass destruction, (2) its access to illegal revenues, (3) the ease with
which it can import illicit goods, and (4) its willingness to accept more
than a decade of economic and political isolation to maintain a weapons
capability. 5 The U. N. Special Commission was superceded by the United
Nations Monitoring,

Verification, and Inspection Commission in December 1999.

In a January 2002 unclassified report to Congress, 6 the Central
Intelligence Agency stated that without an inspection- monitoring program,
it is difficult to determine the current status of Iraq?s weapons of mass
destruction program but it is likely the government has used the period
since inspectors were forced out to reconstitute prohibited programs. The
report indicates that Iraq has rebuilt key portions of its chemical
production infrastructure as well as its missile production facilities. The

report further states that Iraq has probably continued low- level
theoretical research and development associated with its nuclear program and
expresses concern that the government may be attempting to acquire materials
that could help reconstitute its nuclear weapons program.

There are other indications that Iraq continues programs to develop weapons
of mass destruction since the sanctions were imposed. For example:

 In February 2001, Germany?s Federal Intelligence Service reported that
Iraq has created a military intelligence bureau in Russia to carry out arms
negotiations. The service reported that an Indian- based company is acting
for Iraq to buy materials and equipment related to developing chemical and
biological weapons.

 In January 1999, the United Nations reported that 50 specialty missile
warheads for biological or chemical agents declared to be in Iraq?s arsenal
could not be accounted for. Further, tests indicated that Iraq, contrary to
its official claims, had loaded similar warheads with deadly nerve gas
agents.

 In September 1996, the Monterey Institute reported that a shipment of 300
Swiss- made valves for uranium enrichment centrifuges, as well as a shipment
of cascade components, bound for Iraq was seized in Jordan. The valves and
components could be used to develop fissile material for weapons.

 In January 1995, the Department of Commerce reported that a New York
resident pleaded guilty to arranging to transport ammonium 6 Central
Intelligence Agency, Unclassified Report to Congress on the Acquisition of
Technology Relating to Weapons of Mass Destruction and Advanced Conventional
Munitions (Washington, D. C.: Jan. 2002).

perchlorate, a highly explosive chemical used to manufacture rocket fuel,
from China to Iraq via Jordan.

 In November 1995, Jane?s Defence Weekly reported that Jordanian officials
intercepted a shipment of 115 Russian- made gyroscopes bound for Iraq
designed for use in long- range intercontinental missiles.

Sanctions May Limit Iraq in Sanctions may have constrained Iraq?s purchases
of conventional weapons. Obtaining Conventional According to U. S. and U. N.
officials, U. N. screening and monitoring of Weapons

Iraq?s imports provide some deterrent to bringing in weapons and also
provide limited on- the- ground checking that commodities are not being
diverted to military use. Furthermore, these officials say there is no
indication that Iraq has purchased large- scale weapons systems, such as
aircraft, ships, or armor. Iraq?s conventional rearmament efforts are
limited

to purchases of small arms and spare parts to keep weapons and vehicles not
destroyed during the Gulf War operational.

Most importantly, according to State Department arms experts, conventional
weapons systems, such as aircraft and ships, are expensive and U. N.
controls have limited the amount that Iraq can spend on arms. As previously
discussed, since 1997, the United Nations has controlled about

90 percent of Iraq?s oil revenues-$ 51 billion in the oil for food account
versus $6.6 billion in illegal revenues. Partly because of this control,
according to State officials, Iraq?s military expenditures have dropped
dramatically. Iraq?s annual military expenditures averaged more than $18.8
billion between 1980 and 1990 (in constant 2001 dollars) but dropped in the
years after sanctions were imposed and, beginning in 1995 remained flat,

averaging an estimated $1.4 billion annually. Figure 4 shows Iraq?s military
expenditures from 1980 to 2000.

Figure 4: Iraq Military Expenditures 1980- 2000

Source: Department of State, World Military Expenditures and Arms Transfers
and the International Institute for Strategic Studies, Military Balance.

Little Divergence The United Nations requires that exports to Iraq be
reviewed and receive a between U. N. and U. S. U. N. letter of approval; U.
S. exporters must also obtain a U. S. export license. In design, the
standards for granting a U. S. export license are more Decisions on Exports
restrictive than requirements for a U. N. letter of approval. However,

to Iraq because the United States, as a permanent member of the Security
Council,

may block any contract processed through the U. N. oil for food program, U.
S. and U. N. decisions on approving exports to Iraq are nearly identical. As
part of the U. N. process, the United States conducts the most thorough
review of any Security Council member, firmly applying U. N. resolutions as
it scrutinizes all contracts to prevent any imports with a potential
military application. In 2001, the United States was responsible for more
than 90 percent of the contracts withheld for shipment to Iraq. As of April
2002, the Sanctions Committee was withholding $5. 1 billion worth of
contracts that had been submitted for approval. 7 U. S. and U. N. Decisions

U. N. Security Council Resolution 687 and other resolutions on Iraq provide
Nearly Identical in Practice the requirements for Iraq sanction committee
members? actions and call for strict control of imports to Iraq of arms and
munitions and materials or technology that could be used to produce weapons
of mass destruction,

ballistic missiles with a range over 150 kilometers, and conventional
military equipment and spare parts. The U. N. resolutions apply to all
nations, but members of the Iraq Sanctions Committee apply the

resolutions when screening applications for export to Iraq. U. S. standards
for getting a U. S. export license to Iraq require that licenses comply with
all applicable U. N. resolutions. 8 In addition, however, Treasury
Department regulations allow the United States to prohibit exports that
comply with U. N. Security Council resolutions. 9 For example, according to
U. S. officials, denials can be related to U. S. national security concerns,
such as terrorism.

7 Since the inception of the oil for food program, the Security Council has
approved more than $23 billion in food, medicine, and other contracts for
Iraq. The holds represent a snapshot at a specific date; some holds are
released at a later date, while others become inactive and are no longer
counted. See appendix II for information on how Iraq?s oil revenues are
distributed. 8 As stipulated by 31 C. F. R. section 575.525.

9 Id. 575.205

In actual practice, though, there is little difference between U. S. and U.
N. requirements, as U. S. and U. N. decisions on proposed shipments to Iraq
are nearly identical. Our examination of all U. S. export license actions
taken in 2000 and 2001 revealed that very few applications were denied, if
they met U. N. requirements. Out of the 503 applications for a U. S. export
license that met U. N. standards, only 4 were denied a license. In those
four

instances, the commodities in question were controlled for anti- terrorism
reasons. United Nations and United

Figure 5 outlines the screening process a member nation must initiate on
States Conduct Thorough

behalf of a company to obtain a U. N. letter of approval for exports to Iraq
Screening of Contracts for and procedures that U. S.- based firms, their
foreign- based subsidiaries, and foreign companies selling U. S.- origin
products must also follow to get a Exports to Iraq

U. S. export license. 10 10 The vast majority of U. S. export applications
to Iraq are submitted by U. S. foreign- based subsidiaries and foreign
companies selling U. S. origin products. In cases where a U. S. company is
seeking authorization to ship commodities to Iraq, the licensing process
starts with the firm submitting the export license request to the Department
of Treasury for review.

Figure 5: U. N. and U. S. Export Approval and Licensing Processes

Source: GAO.

For the U. N. process, Iraq negotiates a contract with an international
supplier and the contract is submitted by the exporting state to the U. N.
Office of the Iraq Program in New York. The Office of the Iraq Program
manages the oil for food program and refers the contract to the U. N. ?s

Monitoring, Verification, and Inspection Commission and the International
Atomic Energy Agency, as necessary, for an assessment of whether weapons and
related items are present. The Office of the Iraq Program has authority to
immediately approve contracts that contain only items on a

?fast track? list 11 of goods- generally food, medicine, and other
humanitarian goods. Otherwise the contracts are forwarded to the U. N.
Security Council?s Iraq Sanctions Committee for final review and

determination. The Iraq Sanctions Committee comprises representatives of the
U. N. Security Council?s 15 member states. Each member has authority to
approve or hold any contract. The United States is an active member of the

Iraq Sanctions Committee and, according to Security Council members and
State officials, conducts the most thorough and complete review compared
with other Security Council members. U. S. technical experts assess each
item in a contract to determine its potential military application and if
the

item is appropriate for the end user. They also examine each end user's
track record with such commodities. An estimated 60 U. S. government
personnel within the Departments of State, Defense, Energy, and other
agencies examine all proposed sales of items that could be used to assist
the Iraqi military or develop weapons of mass destruction. According to U.
N. Secretariat data, of the more than 2,100 contracts currently being held
by the Iraq Sanctions Committee, the United States is responsible for
approximately 90 percent of the holds. As of April 2002, about $5. 1 billion
worth of goods were being withheld for shipment to Iraq. Our review of held
contracts indicated they cover numerous sectors- including
telecommunications, agriculture, health- and involve goods with both
civilian and military application, such as chemicals and electronics.
Examples of contracts currently being held at the U. N. include

 water supply trucks worth $34 million, pending submission of additional
technical specifications on composition and weight bearing capacity; 11 The
fast track list is compiled and agreed to by the Iraq Sanctions Committee.

 oil well equipment, including detonators and charges, worth $9. 2 million;
and

 agricultural tire production equipment and insecticides, which include
proscribed dual- use chemicals, worth $1. 5 million. The Department of the
Treasury is responsible for issuing the U. S. export licenses to Iraq. It
compiles the results of the review by U. S. agencies under the U. N.
approval process and obtains input from the Department of Commerce on
whether the contract includes any items found on a list of goods prohibited
for export to Iraq for reasons of national security or nuclear, chemical,
and biological weapons proliferation. 12 Since several U. S. agencies have
already reviewed the contract during the U. N. export approval process, 99
percent of the suppliers with U. N. approval are granted a U. S. export
license. New Sanctions

Security Council Resolution 1409 commits the Security Council to Agreement
Addresses implement a new sanctions agreement by May 30, 2002, that should
expedite shipments of civilian goods to Iraq. As outlined in the resolution,
Humanitarian

only weapons and specified items with potential military application will be
Concerns but Not

subject to review by the Iraq Sanctions Committee. All other items will be
Monitoring and

approved by the United Nations. U. N. Security Council members and U. S.
officials believe these steps will eliminate contract holds, increase the
flow Enforcement Problems of goods into Iraq, and effectively address
humanitarian concerns while continuing to ensure that militarily useful
items are not exported to Iraq under the oil for food program. However, the
new sanctions agreement does not address problems of oil smuggling and
illicit imports of goods into

Iraq or the return of weapons inspectors. 12 In some cases, where the
Department of Commerce classified commodities as controlled for export to
Iraq, the State Department?s Sanctions Office or Bureau for Non-
Proliferation Affairs is consulted a second time before a decision to
approve or deny is made.

Adoption of Goods Review As outlined in Resolution 1409, the new sanctions
contain a goods review List Should Accelerate

list of specific items subject to review by the Security Council. The list
Screening Process should expedite the screening process and result in
increased imports of goods designed to repair Iraq?s civilian
infrastructure, according to U. N. Security Council members. Under the
existing sanctions, all exports to Iraq are forbidden unless specifically
permitted by Security Council resolution or specific decision. Under the new
system, all goods are permitted except products that could be used to
develop weapons of mass destruction, conventional weapons, and military-
related or dual- use goods. These controlled items will be specifically
listed, and only these items will be referred to the Iraq Sanctions
Committee for review. According to U. N. and

U. S. officials, Security Council members reached agreement on lists of (1)
nuclear, chemical, biological, and missile- related items contained in
Security Council Resolution 1051 13 and (2) dual- use materials used in

conventional weapons contained in the Wassenaar Arrangement. 14 In April
2002, Security Council members- primarily the United States and Russia-
reached agreement on a more contentious and expanded third list that
included dual- use items in nine categories, such as telecommunications,

fiber optic technologies, sensors and lasers, and computers. U. N. Security
Council members and U. S. officials involved in the screening process expect
a marked increase in the number of export applications granted because
suppliers will have a specific list of items that must be referred for
review and control. By following this list, suppliers should be able to
submit contracts that can be quickly processed. The adoption of a goods
review list will also focus the trade restrictions against Iraq on
designated categories of goods, resulting in closer scrutiny of only the
more difficult, borderline cases. Under the revised controls, the Sanctions
Committee would evaluate specific items, not entire contracts. For example,
if a contract contained items on a goods review list as well as items that
are not, the United Nations would approve the latter. Under current
practice, committee members must hold an entire contract if there

is a single offending item on it. 13 Adopted in March 1996, Security Council
Resolution 1051 and its amendments contain lists of items used in ballistic
missiles and missile delivery systems; chemicals capable of being used for
the development, production, or acquisition of chemical weapons; and
microorganisms, viruses, and toxins.

14 The Wassenaar Arrangement is a global multilateral arrangement on export
controls for conventional weapons and sensitive dual- use goods and
technologies that began operations in September 1996.

New Sanctions Do Not The new sanctions agreement does not address the oil
smuggling and illicit Address Oil Smuggling and

trade occurring outside U. N. control, nor does it contain provisions to
Illicit Trade or Return of improve monitoring or enforcement of existing
sanctions. According to Weapons Inspectors Security Council members, the
British government in fall 2001 submitted a proposal to compensate states
that were being harmed economically by the trade embargo in return for
tougher enforcement. However, this proposal was dropped, as states bordering
Iraq were more concerned with maintaining access to smuggled oil at a
heavily discounted price than in

enforcing sanctions against Iraq, according to some Security Council
members. According to oil industry experts, the value of the discount has
fluctuated over time, with Jordan receiving the largest discount of up to
two- thirds the market price and the other countries receiving about a
onethird discount. In addition, the new sanctions do not provide for
resumption of weapons inspections. In December 1999, the Security Council
established a U. N. Monitoring, Verification, and Inspection Commission to
fulfill the weapons inspection tasks mandated by Security Council
resolutions. The commission has produced an organizational plan and is
prepared to resume weapons inspections upon acceptance of the Security
Council resolution by Iraq. The U. N. inspection commission is mandated to
inspect any designated site at any time and plans to carry out inspections
to provide assurance that Iraq has stopped developing nuclear, chemical, and
biological weapons. Figures 6, 7, and 8 help illustrate the continuing
concerns in these areas and what prior weapons inspections teams did to
address these concerns.

Figure 6: Inspection for Prohibited Missile Components

Iraq is prohibited from having ballistic missiles with a range greater than
150 kilometers. Components and production equipment for shorter- range
missiles could be used to produce longer- range missiles and must be
monitored.

Source: United Nations.

Figure 7: Inspection for Chemical Nerve Agents

Iraq is prohibited from developing chemical and biological weapons. Weapons
inspectors from the earlier weapons inspection teams check for deadly nerve
agents in a storage tank. Source: United Nations.

Figure 8: Destruction of Chemical Weapons

U. N. resolutions call for the elimination of all weapons of mass
destruction. Weapons inspectors destroy 500 kg bombs designed for use as
chemical weapons. Source: United Nations.

Agency Comments and The U. N. Office of the Iraq Program and the U. N.
Monitoring, Verification,

Our Evaluation and Inspection Commission provided oral comments, which we

incorporated in the report as appropriate. Treasury provided technical
clarifications, which we also incorporated. The Department of Defense
accepted the report without comment. State provided written comments that
are reprinted in appendix IV.

State noted that the new sanctions agreement is a sign of renewed consensus
on Iraq among the five permanent members of the Security Council. That
consensus will be useful not only to improve the efficacy of sanctions
against Iraq but also if the United States should choose a different path to
end Iraq?s threat to international peace and security. State

also provided additional information on how the new sanctions agreement will
be implemented.

State expressed concern that a statement in our draft report that the new
sanctions agreement has no provisions to reintroduce weapons inspectors
leaves the false impression that Security Council resolutions do not

adequately provide for weapons inspections and that the new resolution
should do so. State further stated that it has rejected all efforts to
modify previous resolutions that require Iraq to admit and cooperate fully
with

weapons inspectors without conditions. We have revised our report to clearly
state that prior Security Council resolutions address weapons inspections,
but that Iraq is failing to comply with them. Our report does not imply that
State has failed to take a firm stand on weapons inspections. As noted in
our report, the sanctions are an integrated system of three elements: (1)
control of Iraqi oil revenue; (2) rigorous screening and monitoring of Iraqi
imports for proscribed items; and (3) weapons inspectors to ensure that Iraq
is not acquiring or developing nuclear, chemical, and biological weapons.

State also commented that we leave the impression that U. N. personnel have
the authority to stop and inspect all shipments into Iraq, even those
outside the oil for food program. We believe our report clearly presents the
facts concerning U. N. authority to stop and inspect shipments to Iraq. Our
report states that ?U. N. monitors only have authority to check goods
approved under the oil for food program and thus do not stop or check any
other shipments.? Our report further states that ?under Security Council
resolutions, all member states have responsibility for enforcing the

sanctions and the United Nations especially depends on neighboring countries
to deter the importation of illicit commodities.? We are sending copies of
this report to interested congressional committees, the secretary of state,
the secretary of the treasury, the

secretary general of the United Nations, the director of the Office of
Management and Budget, and the director of the Office of the Iraq Program.
We will also make copies available to other parties upon request.

If you or your staff have any questions concerning this report, please call
me at (202) 512- 4128 or my director, Joseph Christoff at (202) 512- 8979.
Key contributors to this report were Tet Miyabara, Janey Cohen, Patrick
Dickriede, Stacy Edwards, Philip Farah, Peter Ruedel, and Richard Seldin.

Sincerely yours, Susan S. Westin, Managing Director International Affairs
and Trade

Appendi Appendi xes x I

Scope and Methodology At your request, we examined (1) the challenges
confronting the United Nations in implementing sanctions, (2) whether U. S.
standards for approving exports to Iraq are more stringent than U. N.
requirements, and (3) the elements of a new sanctions agreement that could
make it more effective than the current sanctions agreement.

As an agency of the U. S. government, we have no authority to review
operations of multilateral organizations such as the United Nations.
However, throughout this review we obtained broad access to officials and
information from the U. N. Secretariat and Security Council member states.
To examine the challenges in implementing the sanctions, we compared the

results of U. N. actions taken against Iraq with the criteria set forth in
Security Council resolutions on Iraq. We reviewed related Security Council
resolutions, a memorandum of agreement between Iraq and the United Nations,
and quarterly and semi- annual reports submitted by the U. N. Secretariat
describing developments in implementing the sanctions program. We
interviewed officials from the Office of the Iraq Program and the United
Nations Monitoring, Verification, and Inspection Commission responsible for
the weapons inspections. We also met with Security Council members Norway
and Britain to obtain their perspective on

implementing sanctions and interviewed U. S. government officials
responsible for managing and monitoring sanctions against Iraq, including
officials from the Department of State, the U. S. Mission to the United
Nations, the Department of Defense, the Defense Intelligence Agency, and the
Central Intelligence Agency. We also met with Iraqi experts at the Brookings
Institution and the Fourth Freedom Forum and obtained and analyzed reports
on Iraq and U. N. sanctions from various knowledgeable think tanks,
including the Center for Strategic and International Studies,

the Wisconsin Project, and the Bonn- Berlin Process. As part of our analysis
of the challenges in implementing the sanctions, we estimated Iraq?s illicit
earnings from oil smuggling, surcharges on oil, and commissions on commodity
contracts. We obtained data and reports related to Iraqi oil production,
capacity, and smuggling from the Department of Energy?s Energy Information
Administration, the Middle

East Economic Survey, and the International Monetary Fund. We then divided
our analysis into two periods: January 1991 to January 1997 (the beginning
of the sanctions to the beginning of the oil for food program) and

January 1997 to the end of 2001. (Estimates of oil production, consumption,
and exports are measured in thousands of barrels per day

(kbd).) We used the following steps to estimate the revenues from oil
smuggling, surcharges, and commissions.

Period 1 (1991 to 1997)

 To estimate the amount of oil smuggled through Turkey and the Persian
Gulf, we started with Energy Information Administration estimates of Iraqi
oil production and subtracted estimates of Iraqi domestic

consumption and exports to Jordan. The remaining amount was the volume of
smuggled oil. We assumed that Iraqi domestic consumption was 300 kbd in 1992
and grew slowly during the first few years, then more quickly during
subsequent years, until it reached nearly 400 kbd in 2001. Exports to Jordan
started at 75 kbd in 1992 and grew by 2 kbd each year. Our estimates of the
amount of smuggled oil were lower than some U. S. government estimates, but
higher than some oil industry estimates.  To estimate the revenues from
smuggled oil during the first period, we multiplied the volume of smuggled
oil by a discounted proxy Iraq oil price. Since data on Iraq oil prices were
not available for this period, we

used the Iran Light crude price and discounted it by 9 percent for the
quality differential. (This is consistent with the implicit price of Iraqi
oil exports under the oil for food program between 1997 and 2001.) We
assumed that the price of exports to Jordan was a third of the resulting

figure, and the price of exports to Turkey and the Persian Gulf was
twothirds of this resulting figure. According to oil industry experts, this
is representative of the prices paid for smuggled oil.

Period 2 (1997 to 2001)

 To estimate the volume of smuggled oil for the second period, we started
with Energy Information Administration estimates of Iraq production and
subtracted oil sold under the oil for food program and domestic consumption.
We assumed that the remaining oil was the oil smuggled through Turkey, the
Persian Gulf, Jordan, and Syria. We adjusted the amounts of smuggled oil in
1998 and 1999 to reflect some

Iraqi storage of oil in 1998 to sell at a higher price in 1999. The price of
oil in the second period (1997 to 2001) was based on the same assumptions
regarding the pricing of smuggled oil as in the first period (1991 to 1997).
(Note that oil smuggling through Syria began in late 2000; we priced this
oil at two- thirds of Iran Light crude discounted by 9 percent.)

 To estimate the amount Iraq earned from surcharges on oil from 1997 to
2000, we multiplied the barrels of oil sold by Iraq under the oil for food
program by 25 cents per barrel- the most conservative estimate of the
surcharge by Security Council members and oil industry experts we
interviewed. In 2001, we priced the surcharge at 35 cents per barrel as both
oil industry experts and Security Council members estimate that Iraq was
trying to get 50 cents per barrel.

 To estimate the commission from commodities, we multiplied Iraq?s letters
of credit for commodity purchases by 5 percent- the most conservative
estimate of the commission by Security Council members.

The final element of our examination of the challenges facing U. N.
sanctions was to analyze the effect of sanctions on Iraq?s ability to fund
its conventional military. To do this, we interviewed U. S. officials,
Security Council members, and U. N. weapons inspectors about military
armaments Iraq was obtaining. We also analyzed Iraq?s military expenditures
from 1980 to 2001, based on data from the State Department and the

International Institute of Strategic Studies in London. We compared these
military expenditures with Iraq?s oil revenues during the same period and
focused particularly on the period since the sanctions were imposed
beginning in 1991.

To assess whether U. S. standards for approving exports to Iraq are more
stringent than the United Nations?, we interviewed officials from the Office
of the Iraq Program and the U. N. Monitoring, Verification, and Inspection
Commission involved in screening contracts to gain an understanding of the
U. N. screening process. We analyzed databases detailing the screening
process and obtained statistics on the number of contracts submitted,
approved, and blocked, as well as the criteria and time frames employed. We
met with Security Council members Britain and Norway, which along with the
United States are the only Iraq Sanctions Committee members to review all
contracts, to determine the process and criteria they used when screening
contracts. We then met with officials from the Treasury Department?s Office
of Foreign Assets Control, the Department of Commerce?s Bureau of Export
Administration, and the Department of State who are responsible for
reviewing export application requests from U. S. based

firms, their foreign- based subsidiaries, and foreign companies selling U.
S.- origin products. We reviewed applicable U. S. laws and regulations to
determine U. S. standards for exports to Iraq. To test whether export
applications received a different outcome when going through the U. N. and

U. S. screening processes, we conducted a comprehensive review of all U. S.
export application actions to Iraq during 2000 and 2001. To assess the
elements of the new sanctions agreement that could make it more effective
than the present sanctions, we analyzed U. N. Security Council Resolution
1382 of 2001, which outlined the new sanctions and set May 30, 2002, as the
date they were intended to go into effect. We compared resolution 1382 with
the previous resolutions about the

sanctions and the memorandum of understanding with Iraq on the oil for food
program. Since most of the previous resolutions are still applicable, we
focused on the new material in resolution 1382, including appendixes that
dealt with the goods review list of prohibited items. We compared the goods
review list with documents from the Wassenaar Arrangement, which

also identified items that should be controlled for export because they
could have military uses. We interviewed U. N. weapons inspectors, officials
of the Office of the Iraq Program, members of the U. N. Security Council,
and U. S. officials about what changes they expected in the implementation
of the new sanctions. Due to travel restrictions and security concerns, we
were unable to travel to Iraq or the frontline states of Turkey, Jordan, or
Syria to examine firsthand the U. N. monitoring of commodities imported into
Iraq under the oil for food program.

We performed our review from October 2001 through April 2002 in accordance
with generally accepted government auditing standards.

Appendi x II

The U. N. Oil for Food Program The U. N. Security Council established the
oil for food program, which authorized Iraq to sell oil and put the funds
into a U. N.- controlled escrow account to pay for humanitarian and other
goods. Since the program was established, more than $51 billion in Iraq oil
revenues have been channeled into the escrow account. A distribution plan
prepared by the government of Iraq and approved by the U. N. secretary
general authorizes Iraq to purchase and import goods for 11 sectors of the
economy, including food,

health, sanitation, electricity, agriculture, and telecommunications. For
example, the most recent distribution plan included the purchase of 400
ambulances for the health sector; the purchase of 15,000 irrigation pumping
sets and pesticides for the agriculture sector; and the expansion of a
mobile cellular system for the telecommunication sector.

Under a current Security Council resolution, 72 percent of the oil revenue
in the escrow account must fund the purchase of food, medicine, and other
commodities for Iraq; 25 percent must go to a compensation commission to pay
for war reparations; 2. 2 percent covers the U. N. cost for administering
the program; and 0.8 percent funds the operations of the U. N. Monitoring,

Verification, and Inspection Commission. Table 2 shows the amount of funds
allocated to procure commodities by sector and to fund war reparations and
U. N. administrative costs.

Table 2: Oil for Food Revenues and Allocation, 1997 through 2001

Dollars in millions

Security Security

Council Sector or other

Council review not

Percentage expenses

approved required Total of total

Sector

Food $ 5, 782 $ 5,213 $10, 995 21. 5 Food handling 2, 286 137 2, 423 4. 7
Health 1, 749 604 2, 353 4. 6 Oil production 1, 860 872 2, 732 5. 3
equipment Electricity 2, 622 12 2, 634 5. 1

Water/ Sanitation 1, 233 116 1, 349 2. 6 Agricultural 2, 312 302 2, 614 5. 1
Education 580 185 765 1. 5 Telecommunications

1, 432 0 1, 432 2. 8 Transportation Housing 1, 930 324 2, 254 4. 4

Northern governorates 1, 154 95 1, 249 2. 4

Other expenses

Special allocation 13 13 0. 1 War reparations 13,960 13, 960 27. 3
Administrative fees 1,485 1, 485 2. 9 Approved but not yet

4,948 4,948 9. 7 funded Total $22, 953 $28,253 $51, 206 100 Source: United
Nations.

Screening and Monitoring U. N. and member state screening and monitoring
help verify that Iraq?s purchases are not for military uses and that it is
not illegally selling oil. First, U. N. Security Council resolutions require
that Iraq clear its proposed

purchases from the escrow account through a U. N. screening and approval
process. U. N. customs and weapons inspectors screen proposed Iraq contract
purchases for weapons and related dual- use items and ensure that prices
being charged are reasonable. The proposed contracts are then submitted to
the Iraq Sanctions Committee for further review. 15 As a member of the
sanctions committee, the United States subjects all potential Iraqi imports
to a thorough examination to ensure that they have no military application
before approving them.

To verify that the goods actually delivered to Iraq are the approved ones,
the United Nations deploys 78 contract workers at 4 designated entry points
on Iraq?s borders with Turkey, Jordan, and Syria, and at the Persian Gulf.
At these border crossings, vehicle drivers who have U. N.- approved
purchases and want to be paid by the escrow account must stop to have their
shipments authenticated by the U. N. contractors. The authentication form
must be signed to receive payment from the U. N. escrow account. The United
Nations also monitors the use of sensitive goods within Iraq,

such as vehicle spare parts and helicopters, through 158 observers from 9 U.
N. agencies working in Iraq. According to their mandate, however, the
observers are not weapons inspectors and do not track all items in a
shipment to their final use. 16 To check that Iraq is selling the approved
quantity of oil under the oil for

food program, the United Nations deploys 14 contract workers inside Iraq at
three designated exit points, one on the Gulf and on both ends of an oil
pipeline to Turkey. These contractors check that the quantity of oil pumped
through the pipeline matches the quantity allowed under an 15 The U. N. ?s
Office of the Iraq Program has authority at this point to immediately clear-
or fast track- contracts that include items in such sectors as food,
education, health, agriculture, sanitation, and oil and electricity spare
parts. 16 U. N. agencies and programmers working as end- use monitors of oil
for food commodities include the Department for Economic and Social Affairs,
the Food and Agricultural

Organization (FAO), the International Telecommunication Union (ITU), the
United Nations Children?s Fund (UNICEF), the United Nations Development
Program (UNDP), the United Nations Educational, Scientific and Cultural
Organization (UNESCO), the United Nations Office for Project Services
(UNOPS), the World Food Program (WFP), and the World Health Organization
(WHO).

approved oil contract. There are also 7 personnel who monitor spare parts
procured for the oil industry. In addition, a 16- nation Multilateral
Maritime Inspection Force is deployed in the Persian Gulf to limit smuggling
of illicit goods into Iraq and oil from Iraq. The force varies in size but
consists of between six and eight vessels.

Timeline of Major Events Related to Sanctions

Appendi x II I against Iraq Date Event / Action Summary

Aug. 2, 1990 U. N. Security Council Resolution Iraqi forces invade Kuwait.
Resolution 660 condemns the invasion and demands 660 immediate withdrawal
from Kuwait. Aug. 6, 1990 U. N. Security Council Resolution Resolution 661
imposes economic sanctions against the Republic of Iraq. The

661 resolution calls for member states to prevent all commodity imports from
Iraq and exports to Iraq, with the exception of supplies intended strictly
for medical purposes, and in humanitarian circumstances, foodstuffs. Aug. 6,
1990 Operation Desert Shield President Bush orders the deployment of
thousands of U. S. forces to Saudi Arabia.

Nov. 5, 1990 U. S. legislation Public Law 101- 510 prohibits import of
products from Iraq into the United States and export of U. S. products to
Iraq. Jan. 12, 1991 U. S. legislation Iraq War Powers Resolution authorizes
the president to use ?all necessary means? to compel Iraq to withdraw
military forces from Kuwait. Jan. 16, 1991 Operation Desert Storm Operation
Desert Storm is launched: Coalition operation is targeted to force Iraq to
withdraw from Kuwait.

Feb. 28, 1991 Gulf War cease- fire Iraq announces acceptance of all relevant
U. N. Security Council resolutions. Apr. 3, 1991 U. N. Security Council
Resolution Resolution 687 mandates that Iraq must respect the sovereignty of
Kuwait and 687 declare and destroy all ballistic missiles with a range of
more than 150 kilometers (Cease- Fire Resolution)

as well as all weapons of mass destruction and production facilities. June
17, 1991 Creation of U. N. Special The U. N. Special Commission is charged
with monitoring Iraqi disarmament as Commission mandated by U. N.
resolutions and to assist the International Atomic Energy Agency in nuclear
monitoring efforts.

Oct. 6, 1992 U. S. legislation Public Law 102 -391 stipulates that funds to
carry out the Foreign Assistance Act or the Arms Control Act may not be used
to provide assistance to any country not complying with U. N. Security
Council sanctions against Iraq.

Apr. 14, 1995 U. N. Security Council Resolution Resolution 986 allows Iraq
to sell $1 billion worth of oil every 90 days. Proceeds 986

must be used to procure foodstuffs, medicine, and material and supplies for
(oil for food resolution)

essential civilian needs. Resolution 986 is supplemented by several U. N.
resolutions over the next 6 years that extend the oil for food program for
different periods of time and increase the amount of oil that may be
exported and humanitarian goods that may be imported.

Dec. 10, 1996 Start of oil for food program With the completion of measures
for implementing Resolution 986, Phase I of the oil for food program begins.

(Continued From Previous Page)

Date Event / Action Summary

Aug. 14, 1998 U. S. legislation Public Law 105 -235 finds Iraq in
unacceptable and material breach of its international obligations.

Oct. 31, 1998 U. S. legislation: Public Law 105 - 338 authorizes the
president to provide assistance to Iraqi Iraq Liberation Act democratic
opposition organizations. Oct. 31, 1998 Iraqi termination of U. N. Special
Iraq announces it will terminate all forms of interaction with UNSCOM and
that it

Commission activity. will halt all UNSCOM activity inside Iraq. Dec. 16,
1998. Operation Desert Fox Following Iraq?s recurrent blocking of U. N.
weapons inspectors, President Clinton orders 4 days of air strikes against
military and security targets in Iraq that contribute to Iraq's ability to
produce, store, and maintain weapons of mass destruction and potential
delivery systems. Nov. 29, 2001 Security Council Resolution 1382 Resolution
1382 extends the oil for food program an additional 180 days.

Phase 11 of the program will be in effect until May 29, 2002. The resolution
stipulates that a new Goods Review List will be adopted and relevant
procedures will be subject to refinement.

Appendi x V I Comments from the Department of State

h

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Report to the Honorable Tom Harkin U. S. Senate

May 2002 WEAPONS OF MASS DESTRUCTION U. N. Confronts Significant Challenges
in Implementing Sanctions against Iraq

GAO- 02- 625

Lett er

May 23, 2002 The Honorable Tom Harkin United States Senate Dear Senator
Harkin: After nearly 12 years of debate, U. N. sanctions against Iraq remain
controversial. U. N. sanctions were first imposed in August 1990 following
Iraq?s invasion of Kuwait. In 1991, the Security Council declared Iraq a
threat to international security and focused the sanctions on stopping Iraq
from acquiring or developing biological, chemical, and nuclear weapons. To
achieve this, the Security Council prohibited all nations from buying Iraqi
oil or selling the country any commodities, except for food and medicine. It
further established a weapons inspection regime to ensure that Iraq
destroyed its weapons of mass destruction and stopped its

weapons programs. In 1995, concerned about the humanitarian need of the
Iraqi people, the Security Council established a U. N. program that controls
Iraq?s oil sales and allows the purchase of food, medicine, and essential
civilian goods (the oil for food program). In 2001, with international
support for the sanctions eroding, the Security Council passed a new
sanctions resolution intended to address humanitarian concerns while

continuing to stop Iraq from rebuilding its weapons systems. Because of your
interest in the sanctions? effectiveness and your role as Chairman of the
Senate Agriculture Committee, you asked us to examine (1) the challenges
confronting the United Nations in implementing sanctions against Iraq, (2)
whether U. S. standards for approving exports to

Iraq are more stringent than U. N. requirements, and (3) the elements of the
new sanctions agreement that could make it more effective than the current
sanctions agreement. To examine the challenges confronting the United
Nations and the potential effectiveness of the new sanctions agreement, we
met with U. N. officials responsible for implementing the sanctions and some
members of the Security Council. We analyzed U. N. resolutions and reports
and

obtained information from U. S. databases detailing the screening process
for commodities imported into Iraq. We met with officials from the
Departments of State and Defense and U. S. intelligence agencies responsible
for managing and monitoring the Iraq sanctions. We obtained data on Iraq?s
oil production from U. S. government and oil industry reports

and developed a model to estimate the revenue Iraq earns from oil smuggling.
To determine whether the United States employs a more stringent standard
than the United Nations for approving exports to Iraq,

we examined all license applications for Iraq processed by the U. S.
government in 2000 and 2001. We did not visit Iraq or neighboring countries
due to security concerns. (For a more complete description of our scope and
methodology, see app. I.)

Results in Brief The United Nations faces three major challenges in
implementing sanctions against Iraq. First, although the United Nations has
controlled $51 billion of Iraq?s oil revenues from 1997 to 2001, we
conservatively estimate that Iraq earned an additional $6. 6 billion in
illegal revenue from oil smuggling and surcharges during the same time.
Second, although the sanctions prohibit Iraq from obtaining goods that are
not approved by the Security Council, Iraq is able to buy unapproved goods
with its illegal revenue. Iraq

brings the illicit goods in through numerous routes, in part because some
neighboring states are not fully enforcing the sanctions. Third, the U. N.
Security Council requires weapons inspections to verify that Iraq is not
rebuilding weapons of mass destruction, but Iraqi actions forced the United

Nations to withdraw weapons inspectors in 1998. As a result, the United
Nations concludes that it cannot ensure that Iraq has stopped programs to
develop chemical, biological, and other weapons. Moreover, there are

indications from multiple sources that it continues to develop such weapons.
In design, U. S. licensing standards for exports to Iraq are more
restrictive than U. N. requirements. In practice, however, U. S. and U. N.
requirements are almost identical because the United States plays a
substantial role in

the U. N. process for approving exports to Iraq. Consequently, almost all U.
S. exporters who get U. N. approval are also granted a U. S. export license.
As part of the U. N. screening and approval process, the United States
conducts the most thorough review of any Security Council member, firmly
applying U. N. resolutions as it scrutinizes all contracts to limit imports
that could be diverted for military use. As a result, the United States is
the Security Council member that most frequently places holds on proposed
sales to Iraq.

A new sanctions agreement, due to take effect at the end of May 2002,
changes the contract screening process and could make the sanctions more
effective in allowing imports of humanitarian and civilian goods to Iraq.
Unlike the current system, which allows Security Council members to hold

any shipment to Iraq except for preapproved humanitarian goods, the new
sanctions allow Security Council members to hold only items on a controlled
list, which includes dual- use items. Further, the new sanctions

have provisions that allow members to single out an objectionable item from
a shipment of goods. Currently, Security Council members must hold an entire
shipment of goods even if it contains only one offending item. According to
State Department and U. N. officials, these expected changes should make it
easier for Iraq to import goods to rebuild its civilian

economy. However, the new agreement has no provisions to deter oil smuggling
and illicit trade or to reintroduce weapons inspectors. Prior Security
Council resolutions address weapons inspections but Iraq is not complying
with them. Until these problems are addressed, the sanctions cannot provide
assurance that Iraq has stopped its efforts to acquire and build weapons of
mass destruction.

We received comments on a draft of this report from the United Nations and
the Departments of Treasury, Defense, and State. The United Nations provided
oral comments, which we incorporated in the report as appropriate. Treasury
provided technical notes, which we incorporated into the report. The
Department of Defense accepted the report without comment. State provided
written comments that are reprinted in appendix

IV. State officials commented that the new sanctions agreement signifies a
renewed consensus that will be useful in seeking the return of weapons
inspectors or other options for dealing with Iraq. However, they said our
statement that the new sanctions resolution does not address weapons
inspections leaves the false impression that other Security Council
resolutions do not adequately address the issue and that the new resolution

should. We have revised the report to clearly state that prior Security
Council resolutions address weapons inspections and Iraq is failing to
comply with them.

Background Since 1990, the United Nations has passed more than 56
resolutions related to Iraq sanctions and the country?s invasion of Kuwait.
In August 1990, the

U. N. Security Council determined that Iraq?s invasion of Kuwait threatened
international peace and the region and imposed sanctions on Iraq. (Fig. 1
shows Iraq and the Middle East region.) The sanctions continued after Iraq
was expelled from Kuwait to ensure that Iraq would destroy its nuclear,
chemical, and biological weapons and ballistic missiles and that it would
not use, develop, or acquire new weapons. 1 The Security Council prohibited
all nations from buying Iraqi oil or selling the country any commodities
except for food and medicine, and also established a weapons inspection
regime. However, confrontations began almost as soon as U. N. weapons
inspectors started operations in April 1991. At that time there was also
growing international concern over the humanitarian situation in Iraq. The
Security Council responded by offering Iraq an opportunity to sell oil to
meet its people?s basic needs. The Iraq government rejected the offer and
over the following 5 years, food shortages and a general deterioration

of social services were reported. By 1996, the United Nations reported that
the average Iraqi?s food intake was about 1, 275 calories per day compared
with the standard requirement of 2,100 calories. 1 U. N. Security Council
Resolution 687 (April 3, 1991) - the Gulf War cease- fire resolution -

stipulates that Iraq shall unconditionally accept the destruction of its
weapons of mass destruction and provides for U. N. weapons inspection to
monitor Iraqi compliance. Since 1991 the U. N. Security Council has passed
seven resolutions condemning noncompliance with Security Council resolutions
and demanding Iraqi government cooperation with weapons inspectors.

Figure 1: Iraq and the Middle East

Source: National Geographic.

During the mid- through late 1990s, Iraq continued to hinder weapons
inspectors from entering suspected weapons sites and the Security Council
passed several resolutions demanding Iraqi cooperation. The humanitarian
situation continued to deteriorate and, in December 1996, the United Nations
and Iraq agreed on the oil for food program, which permitted Iraq to sell a
set amount of oil to pay for food, medicine, and infrastructure repairs. In
1999, the Security Council removed all restrictions on the

amount of oil Iraq could sell to purchase civilian goods. Under the program,
Iraq agreed to put all of its oil revenues into a U. N.- controlled escrow
account. The United Nations supervises and monitors all of Iraq?s oil sales
and the Security Council screens and approves purchases from the account. To
ensure that the approved goods are the actual goods brought

into Iraq, the United Nations checks the goods at the border and monitors
the use of the purchased goods in Iraq. (App. II describes how the escrow
account works and how the United Nations conducts screening and monitoring.)
According to U. N. reports, from 1996 to 1998, Iraq?s actions- including
endangering weapons inspectors? helicopters, manhandling an inspector,
expelling Americans from the inspection teams, and preventing inspectors?
access to suspected weapons sites- led to numerous condemnations in

Security Council resolutions and the withdrawal of weapons inspectors in
December 1998. Sanctions against Iraq are now in their 12th year, though
continued international support for them has eroded. In addition to
humanitarian concerns, some member states are politically opposed to the
sanctions for various reasons, including Arab solidarity and their

assessment of Iraq?s threat to regional stability. U. N. weapons inspectors
have not returned to Iraq since their departure in 1998. (App. III provides
a timeline of significant events related to sanctions against Iraq.) The
United Nations

U. N. efforts to control Iraq?s oil revenues, screen and monitor its
purchases, Faces Challenges

and inspect for weapons of mass destruction face several challenges. Iraq
smuggles oil through neighboring states, and the illicit revenue is outside
of Implementing U. N. control. Iraq also brings in illicit and unchecked
commodities through Sanctions against Iraq numerous entry points on its
borders. Finally, Iraqi actions led to the

withdrawal of weapons inspectors in December 1998 and the United Nations
concludes it cannot ensure that Iraq has stopped programs to acquire and
build weapons of mass destruction. Several sources have found indications
that Iraq has continued such programs. Nevertheless, U. N. sanctions may
have deterred Iraq from obtaining most conventional weapons.

Sanctions Do Not Stop Iraq?s Although the oil for food program controls most
of Iraq?s oil revenues in an Illegal Revenue Stream

escrow account (more than $51 billion since the program was established), we
conservatively estimate that Iraq has illegally earned at least $6.6 billion
since 1997-$ 4.3 billion from smuggling and $2.3 billion in illegal

surcharges on oil and commissions from its commodity contracts. 2 For
example, in 2001, we estimate that Iraq earned $1. 5 billion by smuggling
oil through Jordan, Syria, Turkey, and the Persian Gulf. U. S. government
and oil industry sources indicate that the quantity of oil being smuggled
varies by destination over time. Oil industry experts estimate that Iraq
smuggled out as much as 480,000 barrels of oil per day in March 2002. (See
table 1.)

Table 1: Estimates of Smuggled Oil, March 2002 Exit route Barrels per day

Jordan 75,000 to 110, 000 Syria 180,000 to 250, 000 Turkey 40,000 to 80, 000
Persian Gulf 30,000 to 40, 000

Total 325, 000 to 480, 000

Source: Middle East Economic Survey.

In addition to revenues from oil smuggling, U. N. Security Council and U. S.
officials say the Iraqi government has been levying a surcharge against oil
purchasers and commissions against commodity suppliers participating in the
oil for food program. We estimate Iraq earned more than $700 million in

2001 using these illegal practices. According to some Security Council
members, the surcharge is up to 50 cents per barrel of oil and the
commission is 5 to 10 percent of the commodity contract, with the funds paid
directly to officials connected with the Iraqi government. A State
Department official said the United Nations has had some success in stopping
these payments from the larger, more established companies but has been less
successful with smaller and regionally based companies

engaged in purchasing oil or supplying commodities to Iraq. Figure 2 shows
our estimate of Iraq?s oil revenues that are controlled by the U. N. oil 2
Our estimate is based on U. S. government reports, U. N. reports, estimates
from oil industry publications, and interviews with U. N. Security Council
members. Appendix I details how we derived our estimate.

for food program and the illegal revenues earned through smuggling,
surcharges, and commissions since 1997.

Figure 2: Iraq Oil- Related Revenues Source: GAO analysis based on
information from the United Nations and oil industry experts.

Despite concerns that sanctions have worsened the humanitarian situation,
the oil for food program appears to have helped the Iraqi people. According
to the United Nations, the average daily food intake has

gradually increased from around 1,275 calories per person per day in 1996 to
about 2,229 calories at the end of 2001. 3 In a briefing to the Security
Council on his February 2002 trip to Iraq, the director of the Office of the
3 According to the World Health Organization, the standard food aid
requirement for a typical population is 2,100 calories per person per day.

Iraq Program stated that the oil for food program has had considerable
success in several sectors such as agriculture, food, health, and nutrition
by arresting the decline in living conditions and improving the nutritional
status of the average Iraqi citizen. However, Iraq?s decision in April 2002
to suspend oil exports for several weeks until Israeli troops withdrew from
Palestinian areas caused the oil for food program to forgo an estimated $1.3
billion. At that time, contracts approved for shipment to Iraq already
exceeded funds in the escrow account by $1.6 billion, including nearly 700
contracts for humanitarian supplies.

Iraq Smuggles Illicit Goods Iraq is able to obtain commodities that are not
approved by the Security and Oil through Numerous Council and smuggle them
in, as well as smuggle oil out through

Routes neighboring states and the Persian Gulf. Figure 3 shows potential
routes

for bringing illicit goods into Iraq and smuggling oil out of Iraq.

Figure 3: Iraq Smuggling Routes

Source: GAO analysis based on information from the United Nations and U. S.
government agencies.

a

GAO United States General Accounting Office

Why GAO Did This Study

After 12 years of debate, U. N. sanctions against Iraq remain controversial.
The sanctions aim to ensure that Iraq does not acquire or develop
biological, chemical, or nuclear weapons, while also providing for Iraq?s
humanitarian needs. The sanctions are based on three interrelated elements-
controlling Iraq?s oil revenues, screening and monitoring its imports, and
inspecting for weapons. The sanctions attempt to address Iraq?s humanitarian
needs through a U. N. program allowing Iraq to sell oil to purchase civilian
goods and through a new U. N. resolution (due to take effect on May 30,
2002) that facilitates Iraq?s purchases. GAO was asked to examine (1) U. N.
challenges in implementing the sanctions and (2) the elements of the new
resolution that could make sanctions more effective.

Agency Comments

The United Nations and the Departments of Defense and Treasury generally
agreed with the report and provided technical clarifications, which GAO
incorporated into the report. The Department of State commented that other
U. N. resolutions deal with weapons inspections, which GAO also incorporated
into the report.

May 2002

WEAPONS OF MASS DESTRUCTION

U. N. Confronts Significant Challenges in Implementing Sanctions against
Iraq

This is a test for developing highlights for a GAO report. The full report,
including GAO's objectives, scope, methodology, and analysis is available at
www. gao. gov/ cgi- bin/ getrpt? GAO- 02- 625. For additional information
about the report, contact Susan S. Westin (202) 512- 4128. To provide
comments on this test highlights, contact Keith Fultz (202- 512- 3200) or
email HighlightsTest@ gao. gov.

Highlights of GAO- 02- 625, a report to the Honorable Tom Harkin, United
States Senate United States General Accounting Office

What GAO Found

According to U. N. data, the United Nations controlled $51 billion of Iraq?s
oil revenues from 1997 to 2001and channeled it to civilian use. However,
based on U. S. government and oil industry data, we estimate Iraq earned
more than $6 billion in illegal revenue from oil smuggling and surcharges
during the same time. According to U. S. and U. N. officials, Iraq uses the
illegal revenue to buy items prohibited by the Security Council and brings
them into the country through numerous points (see figure below). Sanctions
further require weapons inspections to verify Iraq is not developing weapons
of mass destruction, but Iraqi action forced U. N. weapons inspectors to
withdraw in 1998. Thus, the United Nations cannot ensure that Iraq has
stopped developing weapons of mass destruction, and there are indications
from multiple sources that it continues to do so.

Unlike the current sanctions, which allow Security Council members to hold
any shipment to Iraq except preapproved humanitarian goods, the new
resolution allows members to hold only specific military and related items
on a control list. This should expedite and increase imports of humanitarian
and civilian goods to Iraq. But the new resolution does not address oil
smuggling, illicit trade, or weapons inspectors- the latter of which are
covered in other U. N. resolutions. Until these issues are resolved, the
sanctions cannot provide assurance that Iraq has stopped developing weapons
of mass destruction. G A O Accountability Integrity Reliability

Highlights

Page i GAO- 02- 625 Iraq Sanctions

Contents Letter 1

Results in Brief 2 Background 4 The United Nations Faces Challenges

Implementing Sanctions against Iraq 6 Little Divergence between U. N. and U.
S. Decisions on Exports to

Iraq 16 New Sanctions Agreement Addresses Humanitarian Concerns but

Not Monitoring and Enforcement Problems 21 Agency Comments and Our
Evaluation 26

Appendixes

Appendix I: Scope and Methodology 29

Appendix II: The U. N. Oil for Food Program 33

Appendix III: Timeline of Major Events Related to Sanctions against Iraq 37

Appendix IV: Comments from the Department of State 39 Tables Table 1:
Estimates of Smuggled Oil, March 2002 7

Table 2: Oil for Food Revenues and Allocation, 1997 through 2001 34

Figures Figure 1: Iraq and the Middle East 5 Figure 2: Iraq Oil- Related
Revenues 8

Figure 3: Iraq Smuggling Routes 10 Figure 4: Iraq Military Expenditures
1980- 2000 15 Figure 5: U. N. and U. S. Export Approval and Licensing

Processes 18 Figure 6: Inspection for Prohibited Missile Components 24
Figure 7: Inspection for Chemical Nerve Agents 25 Figure 8: Destruction of
Chemical Weapons 26

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As figure 3 illustrates, Iraq has long, open borders with neighboring
states. Moreover, shipments not approved by the Security Council are brought
into Iraq at designated U. N. entry points on Iraq?s borders, according to
U. N. officials. At these entry points, a U. N. contractor uses 78 monitors
to check the goods and validate shipments for payment under the oil for food
program. The monitors visually inspect approximately 7 to 10 percent of the
approved deliveries and review the shipping documents for the rest, the
officials said. However, U. N. monitors only have authority to check goods
approved under the oil for food program and thus do not stop or check any
other shipments. Under Security Council resolutions, all member states have
responsibility for enforcing the sanctions and the United Nations especially
depends on neighboring countries to deter the importation of illicit
commodities. However, despite Security Council resolutions controlling air
travel to Iraq, several countries within and outside the region allow
regular air flights to Baghdad. For example, according to U. S. government
officials, Syria allows daily flights between Damascus and Baghdad that the
United Nations has neither approved nor been notified of. According to
Security Council members, flights originating from eastern Europe are of
particular concern to weapons inspectors because of the region?s history as
a source of illicit weapons sales and the governments? close military
relationship with Iraq. In addition to these air flights, a rail line from
Syria, daily ferry traffic, and cargo ships bring unapproved commodities
into Iraq in violation of U. N. sanctions, according to Security Council
members. Oil is smuggled out through several routes, according to U. S.
government officials and oil industry experts. The major routes are through
an oil pipeline to Syria and by truck through entry on the borders with
Jordan and Turkey. Iraq has a trade protocol with Jordan under which Iraq
purchases up to $300 million in goods from Jordan in exchange for oil at a
heavily discounted price. 4 Also, according to U. S. government officials,
oil is smuggled out through the Persian Gulf. In the Gulf, a Multilateral
Maritime Inspection Force of six to eight ships tries to limit oil
smuggling. According to a Department of Defense official, the inspection
force interdicts only about 25 percent of the oil smuggled out through the
Gulf. 4 The U. N. Iraq Sanctions Committee noted the existence of the
protocol and took no further action.

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Appendix I

Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix I Scope and Methodology

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Appendix II

Appendix II The U. N. Oil for Food Program

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Appendix II The U. N. Oil for Food Program

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Appendix II The U. N. Oil for Food Program

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Appendix III

Appendix III Timeline of Major Events Related to Sanctions against Iraq

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Appendix IV

Appendix IV Comments from the Department of State

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Appendix IV Comments from the Department of State

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Appendix IV Comments from the Department of State

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