United Nations: Observations on the Oil for Food Program and	 
Iraq's Food Security (16-JUN-04, GAO-04-880T).			 
                                                                 
The Oil for Food program was established by the United Nations	 
and Iraq in 1996 to address concerns about the humanitarian	 
situation after international sanctions were imposed in 1990. The
program allowed the Iraqi government to use the proceeds of its  
oil sales to pay for food, medicine, and infrastructure 	 
maintenance. The program appears to have helped the Iraqi people.
From 1996 through 2001, the average daily food intake increased  
from 1,300 to 2,300 calories. From 1997-2002, Iraq sold more than
$67 billion of oil through the program and issued $38 billion in 
letters of credit to purchase commodities. However, over the	 
years numerous allegations have surfaced concerning potential	 
fraud and program mismanagement. GAO (1) reports on its estimates
of the illegal revenue acquired by the former Iraqi regime in	 
violation of U.N. sanctions, (2) provides observations on program
administration; and (3) describes the current and future	 
challenges in achieving food security.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-880T					        
    ACCNO:   A10541						        
  TITLE:     United Nations: Observations on the Oil for Food Program 
and Iraq's Food Security					 
     DATE:   06/16/2004 
  SUBJECT:   Financial analysis 				 
	     Foreign aid programs				 
	     Foreign financial assistance			 
	     Foreign governments				 
	     Foreign trade policies				 
	     International agreements				 
	     International cooperation				 
	     International food programs			 
	     International organizations			 
	     International relations				 
	     International trade regulation			 
	     Smuggling						 
	     Iraq						 
	     United Nations Oil for Food Program		 

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GAO-04-880T

United States General Accounting Office

GAO	Testimony before the Committee on Agriculture, House of
Representatives

For Release on Delivery

Expected at 10:00 a.m., EDT UNITED NATIONS

Wednesday, June 16, 2004

       Observations on the Oil for Food Program and Iraq's Food Security

Statement of Joseph A. Christoff, Director International Affairs and Trade

GAO-04-880T

Highlights of GAO-04-880T, a testimony before the House Committee on
Agriculture

The Oil for Food program was established by the United Nations and Iraq in
1996 to address concerns about the humanitarian situation after
international sanctions were imposed in 1990. The program allowed the
Iraqi government to use the proceeds of its oil sales to pay for food,
medicine, and infrastructure maintenance. The program appears to have
helped the Iraqi people. From 1996 through 2001, the average daily food
intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq sold
more than $67 billion of oil through the program and issued $38 billion in
letters of credit to purchase commodities. However, over the years
numerous allegations have surfaced concerning potential fraud and program
mismanagement.

GAO (1) reports on its estimates of the illegal revenue acquired by the
former Iraqi regime in violation of U.N. sanctions, (2) provides
observations on program administration; and (3) describes the current and
future challenges in achieving food security.

www.gao.gov/cgi-bin/getrpt?GAO-04-880T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or [email protected].

Wednesday, June 16, 2004

UNITED NATIONS

Observations on the Oil for Food Program and Iraq's Food Security

GAO estimates that from 1997-2002, the former Iraqi regime acquired $10.1
billion in illegal revenues, including $5.7 billion in oil smuggled out of
Iraq and $4.4 billion through surcharges on oil sales and illicit
commissions from suppliers exporting goods to Iraq through the Oil for
Food program. This estimate includes oil revenue and contract amounts for
2002, updated letters of credit from prior years, and newer estimates of
illicit commissions from commodity suppliers.

The United Nations, through the Office of the Iraq Program (OIP) and the
Security Council's Iraq sanctions committee, were both responsible for
overseeing the Oil for Food Program. However, the Security Council allowed
the Iraq government, as a sovereign entity, to negotiate contracts
directly with purchasers of Iraqi oil and suppliers of commodities. This
structure was an important factor in allowing Iraq to levy illegal
surcharges and commissions. OIP was responsible for examining Iraqi
contracts for price and value, but it is unclear how it performed this
function. The sanctions committee was responsible for monitoring oil
smuggling, screening contracts for items that could have military uses,
and approving oil and commodity contracts. The sanctions committee took
action to stop illegal oil surcharges, but it is unclear what actions it
took on contract commissions. U.N. external audit reports contained no
findings of program fraud. Summaries of internal audit reports pointed to
some concerns regarding procurement, coordination, monitoring, and
oversight and concluded that OIP had generally responded to audit
recommendations. Ongoing investigations of the Oil for Food program may
wish to further examine how the structure of the program enabled the Iraqi
government to obtain illegal revenues, the role of member states in
monitoring and enforcing the sanctions, actions taken to reduce oil
smuggling, and the responsibilities and procedures for assessing price
reasonableness in commodity contracts.

Evolving policy and implementation decisions on the food distribution
system and the worsening security situation have affected the movement of
food commodities within Iraq. As a result, as of June 2004, food warehouse
stocks are low and Iraq has less than a month's supply of essential food
items, according to U.S. and World Food Program officials. In addition to
these current food security challenges, the new government will have to
balance the need to reform a costly food subsidy program with the need to
maintain food stability and protect the poorest populations. Also,
inadequate oversight and corruption in the Oil for Food program raise
concerns about the Iraqi government's ability to manage the food
distribution system and absorb $32 billion in expected donor funds for
reconstruction. The coalition authority has taken steps, such as
appointing inspectors general, to build internal controls and
accountability measures in Iraq's ministries.

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss GAO's review of the United
Nations (U.N.) Oil for Food program and Iraq's food security.

In 1996, the United Nations and Iraq established the Oil for Food program
to address growing concerns about the humanitarian situation after
international sanctions were imposed in 1990. The program's intent was to
allow the Iraqi government to use the proceeds of its oil sales to pay for
food, medicine, and infrastructure maintenance and, at the same time,
prevent the regime from obtaining goods for military purposes. From 1997
through 2002, Iraq sold more than $67 billion in oil through the program
and issued $38 billion in letters of credit to purchase commodities.1

Today, we will (1) report on our estimates of the illegal revenue acquired
by the former Iraqi regime in violation of U.N. sanctions, (2) provide our
observations on the administration of the program, and (3) describe the
current and future challenges in achieving food security.

To address these objectives, we reviewed documents and statements from (1)
the United Nations on its management and oversight responsibilities for
the Oil for Food program; (2) the Coalition Provisional Authority (CPA),
the Departments of Defense and State, and the United Nations and its World
Food Program (WFP) on the current implementation of the program and
challenges in ensuring a continued food supply; and (3) from the World
Bank and Iraq's 2004 budget regarding the effect of food subsidies on the
Iraqi economy. We also reviewed all external audits to determine the use
of Oil for Food funds prior to the transfer of the program to the CPA in
November 2003. We did not have full access to the U.N. internal audits of
the Oil for Food program, but we reviewed the summaries of 7 annual
internal audits from 1996 to 2003 and had access to one report made
publicly available in May 2004. We met with U.N. officials following the
transfer of the program to the CPA and with numerous U.S. officials
representing the CPA, the Departments of Defense and State, and the U.S.
Agency for International Development, to examine current program
management, the status of the food distribution system, and current and
future food security challenges.

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

We conducted our review from November 2003 through June 2004 in accordance
with generally accepted government auditing standards.

Summary  o  	From 1997 through 2002, we estimate that the former Iraqi
regime acquired $10.1 billion in illegal revenues-$5.7 billion in oil
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and
illicit charges from suppliers exporting goods to Iraq through the Oil for
Food program. This estimate is higher than our May 2002 estimate of $6.6
billion because it includes (1) oil revenue and contract amounts for 2002,
(2) updated letters of credit from prior years, and (3) newer estimates of
illicit commissions from commodity suppliers.

o  	The United Nations, through the Office of the Iraq Program (OIP) and
the Security Council's Iraq sanctions committee, were responsible for
overseeing the Oil for Food Program. However, the Security Council allowed
the Iraqi government, as a sovereign entity, to negotiate contracts
directly with purchasers of Iraqi oil and suppliers of commodities. This
structure was an important factor in enabling Iraq to levy illegal
surcharges and commissions. OIP was responsible for examining Iraqi
contracts for price and value, but it is unclear how it performed this
function. The sanctions committee was responsible for monitoring oil
smuggling, screening contracts for items that could have military uses,
and approving oil and commodity contracts. The sanctions committee took
action to stop illegal surcharges on oil, but it is unclear what actions
it took on the commissions on commodity contracts. U.N. external audit
reports contained no findings of program fraud. Summaries of internal
audit reports provided to GAO pointed to some operational concerns in
procurement, coordination, monitoring, and oversight. Ongoing
investigations of the Oil for Food program may wish to further examine how
the structure of the program enabled the Iraqi government to obtain
illegal revenues, the role of member states in monitoring and enforcing
the sanctions, actions taken to reduce oil smuggling, and the
responsibilities and procedures for assessing price reasonableness in
commodity contracts.

o  	Evolving policy and implementation decisions on the food distribution
system and the worsening security situation have affected the movement of
food commodities within Iraq. As a result, according to U.S. and WFP
officials, food warehouse stocks are low and the country has less than a
month's supply of essential food items, such as staple grains. In addition
to these current food security challenges, the new government will have to
balance the need to reform a costly food subsidy program with the need to
maintain food stability and protect

Background

the poorest populations. Also, inadequate oversight and corruption in the
Oil for Food program raise concerns about the Iraqi government's ability
to manage the food distribution system and absorb $32 billion in expected
donor funds for reconstruction. The CPA has taken steps, such as
appointing inspectors general, to build internal controls and
accountability measures in Iraq's ministries.

In August 1990, Iraq invaded Kuwait, and the United Nations imposed
sanctions against Iraq. Security Council resolution 661 of 1990 prohibited
all nations from buying and selling Iraqi commodities, except for food and
medicine. Security Council resolution 661 also prohibited all nations from
exporting weapons or military equipment to Iraq and established a
sanctions committee to monitor compliance and progress in implementing the
sanctions. The members of the sanctions committee were members of the
Security Council. Subsequent Security Council resolutions specifically
prohibited nations from exporting to Iraq items that could be used to
build chemical, biological, or nuclear weapons. In 1991, the Security
Council offered to let Iraq sell oil under a U.N. program to meet its
peoples' basic needs. The Iraqi government rejected the offer, and over
the next 5 years, the United Nations reported food shortages and a general
deterioration in social services.

In December 1996, the United Nations and Iraq agreed on the Oil for Food
program, which permitted Iraq to sell up to $1 billion worth of oil every
90 days to pay for food, medicine, and humanitarian goods. Subsequent U.N.
resolutions increased the amount of oil that could be sold and expanded
the humanitarian goods that could be imported. In 1999, the Security
Council removed all restrictions on the amount of oil Iraq could sell to
purchase civilian goods. The United Nations and the Security Council
monitored and screened contracts that the Iraqi government signed with
commodity suppliers and oil purchasers, and Iraq's oil revenue was placed
in a U.N.-controlled escrow account. In May 2003, U.N. resolution 1483
requested the U.N. Secretary General to transfer the Oil for Food program
to the CPA by November 2003. (Appendix I contains a detailed chronology of
Oil for Food program and sanctions events.) The United Nations allocated
59 percent of the oil revenue for the 15 central and southern
governorates, which were controlled by the central government; 13 percent
for the 3 northern Kurdish governorates; 25 percent for a war reparations
fund for victims of the Iraq invasion of Kuwait in 1990; and 3 percent for
U.N. administrative costs, including the costs of weapons inspectors.

From 1997 to 2003, the Oil for Food program was responsible for more than
$67 billion of Iraq's oil revenue. Through a large portion of this
revenue, the United Nations provided food, medicine, and services to 24
million people and helped the Iraqi government supply goods to 24 economic
sectors. Despite concerns that sanctions may have worsened the
humanitarian situation, the Oil for Food program appears to have helped
the Iraqi people. According to the United Nations, the average daily food
intake increased from around 1,275 calories per person per day in 1996 to
about 2,229 calories at the end of 2001. Malnutrition rates for children
under 5 fell by more than half. In February 2002, the United Nations
reported that the Oil for Food program had considerable success in several
sectors such as agriculture, food, health, and nutrition by arresting the
decline in living conditions and improving the nutritional status of the
average Iraqi citizen.

Since 1997, Iraq has imported almost 2.7 million metric tons of wheat
annually. During the 1980s, Australia was Iraq's primary wheat supplier
with 38 percent of the market, and the United States was the second major
supplier at 29 percent. By 1989, Iraq was the twelfth largest market for
U.S. agricultural exports, including rice. Since 1997, however, Australia
has dominated Iraq's Oil for Food wheat trade with a 73 percent market
share, and Vietnam has become a major supplier of rice to Iraq. The U.S.
market share for wheat dropped to 6 percent during that time. U.S. wheat
exports during the sanctions only occurred in 1997 and 1998.

We estimate that, from 1997 through 2002, the former Iraqi regime acquired
$10.1 billion in illegal revenues-$5.7 billion through oil smuggled out of
Iraq and $4.4 billion through surcharges against oil sales and illicit
commissions from commodity suppliers. This estimate is higher than the
$6.6 billion in illegal revenues we reported in May 2002.2 We updated our
estimate to include (1) oil revenue and contract amounts for 2002, (2)
updated letters of credit from prior years, and (3) newer estimates of
illicit commissions from commodity suppliers. Appendix II describes our
methodology for determining illegal revenues gained by the former Iraqi
regime.

  Former Iraqi Regime Acquired an Estimated $10.1 Billion in Illicit Revenue

2U.S. General Accounting Office, Weapons of Mass Destruction: U.N.
Confronts Significant Challenges in implementing Sanctions Against Iraq,
GAO-02-625 (Washington, D.C.: May 23, 2002).

Oil was smuggled out through several routes, according to U.S. government
officials and oil industry experts. Oil entered Syria by pipeline, crossed
the borders of Jordan and Turkey by truck, and was smuggled through the
Persian Gulf by ship. Jordan maintained trade protocols with Iraq that
allowed it to purchase heavily discounted oil in exchange for up to $300
million in Jordanian goods. Syria received up to 200,000 barrels of Iraqi
oil a day in violation of the sanctions. Oil smuggling also occurred
through Turkey and Iran.

In addition to revenues from oil smuggling, the Iraqi government levied
surcharges against oil purchasers and commissions against commodity
suppliers participating in the Oil for Food program. According to some
Security Council members, the surcharge was up to 50 cents per barrel of
oil and the commission was 5 to 15 percent of the commodity contract.

In our 2002 report, we estimated that the Iraqi regime received a
5-percent illicit commission on commodity contracts. However, a September
2003 Department of Defense review found that at least 48 percent of 759
Oil for Food contracts that it reviewed were potentially overpriced by an
average of 21 percent.3 Food commodity contracts were the most
consistently overpriced, with potential overpricing identified in 87
percent of the contracts by an average of 22 percent. The review also
found that the use of middlemen companies potentially increased contract
prices by 20 percent or more. Defense officials found 5 contracts that
included "aftersales service charges" of between 10 and 20 percent.

In addition, interviews by U.S. investigators with high-ranking Iraqi
regime officials, including the former oil and finance ministers,
confirmed that the former regime received a 10-percent commission from
commodity suppliers. According to the former oil minister, the regime
instituted a fixed 10-percent commission in early 2001 to address a prior
"compliance" problem with junior officials. These junior officials had
been reporting lower commissions than what they had negotiated with
suppliers and pocketing the difference.

3The Defense Contract Audit Agency and the Defense Contract Management
Agency, Report on the Pricing Evaluation of Contracts Awarded under the
Iraq Oil for Food Program (Washington, D.C.: Sept. 12, 2003).

  United Nations and Security Council Had Responsibility for Oversight of
  Program, but Iraq Contracted Directly with Purchasers and Suppliers

Both OIP, as an office within the U.N. Secretariat, and the Security
Council's sanctions committee were responsible for overseeing the Oil for
Food Program. However, the Iraqi government negotiated contracts directly
with purchasers of Iraqi oil and suppliers of commodities. While OIP was
to examine each contract for price and value, it is unclear how it
performed this function. The sanctions committee was responsible for
monitoring oil smuggling, screening contracts for items that could have
military uses, and approving oil and commodity contracts. The sanctions
committee responded to illegal surcharges on oil purchases, but it is
unclear what actions it took to respond to commissions on commodity
contracts. Ongoing investigations of the Oil for Food program may wish to
consider further examining how the structure of the program enabled the
Iraqi government to obtain illegal revenues, the role of member states in
monitoring and enforcing the sanctions, actions taken to reduce oil
smuggling, and the responsibilities and procedures for assessing price
reasonableness in commodity contracts.

Iraq Negotiated Directly with Oil Purchasers and Suppliers

U.N. Security Council resolutions and procedures recognized the
sovereignty of Iraq and gave the Iraqi government authority to negotiate
contracts and decide on contractors. Security Council resolution 986 of
1995 authorized states to import petroleum products from Iraq, subject to
the Iraqi government's endorsement of transactions. Resolution 986 also
stated that each export of goods would be at the request of the government
of Iraq. Security Council procedures for implementing resolution 986
further stated that the Iraqi government or the United Nations
Inter-Agency Humanitarian Program would contract directly with suppliers
and conclude the appropriate contractual arrangements. Iraqi control over
contract negotiations was an important factor in allowing Iraq to levy
illegal surcharges and commissions.

When the United Nations first proposed the Oil for Food program in 1991,
it recognized this vulnerability. At that time, the Secretary General
proposed that the United Nations, an independent agent, or the government
of Iraq be given the responsibility to negotiate contracts with oil
purchasers and commodity suppliers. The Secretary General concluded that
it would be highly unusual or impractical for the United Nations or an
independent agent to trade Iraq's oil or purchase commodities. He
recommended that Iraq negotiate the contracts and select the contractors.
However, he stated that the United Nations and Security Council would have
to ensure that Iraq's contracting did not circumvent the sanctions and was
not fraudulent. The Security Council further proposed that U.N.

agents review contracts and compliance at Iraq's oil ministry, but Iraq
refused these conditions.

OIP Was Responsible for Key Oversight Aspects of the Program

OIP administered the Oil for Food program from December 1996 to November
2003. Under Security Council resolution 986 of 1995 and a memorandum of
understanding between the United Nations and the Iraqi government, OIP
monitored the sale of Iraq's oil, monitoring Iraq's purchase of
commodities and the delivery of goods, and accounting for the program's
finances. The United Nations received 3 percent of Iraq's oil export
proceeds for its administrative and operational costs, which included the
cost of U.N. weapons inspections.

The sanctions committee's procedures for implementing resolution 986
stated that independent U.N. inspection agents were responsible for
monitoring the quality and quantity of the oil shipped. The agents were
authorized to stop shipments if they found irregularities. OIP hired a
private firm to monitor Iraqi oil sales at exit points. However, the
monitoring measures contained weaknesses. According to U.N. reports and a
statement from the monitoring firm, the major offshore terminal at Mina
al-Basra4 did not have a meter to measure the oil pumped nor could onshore
storage capacity be measured. Therefore, the U.N. monitors could not
confirm the volume of oil loaded onto vessels. Also, in 2001, the oil
tanker Essex took a large quantity of unauthorized oil from the platform
when the monitors were off duty. In December 2001, the Security Council
required OIP to improve the monitoring at the offshore terminal. As part
of its strategy to repair Iraq's oil infrastructure, the CPA plans to
install reliable metering at Mina al-Basra and other terminals, but no
contracts have been let.

OIP also was responsible for monitoring Iraq's purchase of commodities and
the delivery of goods. Security Council resolution 986, paragraph 8a(ii)
required Iraq to submit a plan, approved by the Secretary General, to
ensure equitable distribution of Iraq's commodity purchases. The initial
distribution plans focused on food and medicines while subsequent plans
were expansive and covered 24 economic sectors, including electricity,
oil, and telecommunications.

4Previously called Mina al-Bakar.

The sanctions committee's procedures for implementing Security Council
resolution 986 stated that experts in the Secretariat were to examine each
proposed Iraqi commodity contract, in particular the details of price and
value, and to determine whether the contract items were on the
distribution plan. OIP officials told the Defense Contract Audit Agency
they performed very limited, if any, pricing review. They stated that no
U.N. resolution tasked them with assessing the price reasonableness of the
contracts and no contracts were rejected solely on the basis of price.
However, OIP officials stated that, in a number of instances, they
reported to the sanctions committee that commodity prices appeared high,
but the committee did not cite pricing as a reason to place holds on the
contracts. For example, in October 2001, OIP experts reported to the
sanctions committee that the prices in a proposed contract between Iraq
and the Al-Wasel and Babel Trading Company appeared high. However, the
sanctions committee reviewed the data and approved the contract.
Subsequently, the Treasury Department identified this company as a front
company for the former regime in April 2004. The United Nations also
required all countries to freeze the assets of this company and transfer
them to the Development Fund for Iraq in accordance with Security Council
resolution 1483.5

The sanctions committee's procedures for implementing resolution 986
stated that independent inspection agents will confirm the arrival of
supplies in Iraq. OIP deployed about 78 U.N. contract monitors to verify
shipments and authenticate the supplies for payment. OIP employees were
able to visually inspect 7 to 10 percent of the approved deliveries.

Audits Identified Some Security Council resolution 986 also requested the
Secretary General to Operational Concerns establish an escrow account for
the Oil for Food Program and to appoint but No Fraud independent and
certified public accountants to audit the account. The

Secretary General established an escrow account at BNP Paribas for the
deposit of Iraqi oil revenues and the issue of letters of credit to
suppliers with approved contracts. The U.N. Board of Audit, a body of
external public auditors, audited the account.6 The external audits
focused on

5U.N. Security Council Res. 1483 (May 22, 2003). Paragraph 19 states that
a Security Council committee will identify individuals and entities whose
financial assets should be transferred to the Development Fund for Iraq.

6The U.N. Board of Auditors is comprised of the Auditors General of three
member countries and their staff. Board members are appointed by the
General Assembly for 6-year terms and one member rotates every 2 years.
During the period of the Oil for Food program (1996-2003), France, Ghana,
India, the Philippines, South Africa, and the United Kingdom served on the
Board of Auditors.

management issues related to the Oil for Food program and the financial
condition of the Iraq account. U.N. auditors generally concluded that the
Iraq account was fairly presented in accordance with U.N. financial
standards. The reports stated that OIP was generally responsive to
external audit recommendations. The external audits determined that oil
prices were mostly in accordance with the fair market value of oil
products to be shipped and checked to confirm that pricing was properly
and consistently applied. They also determined that humanitarian and
essential services supplies procured with oil funds generally met contract
terms with some exceptions. U.N. external audit reports contained no
findings of fraud during the program.

The U.N. Office of Internal Oversight Services (OIOS) conducted internal
audits of the Oil for Food program and reported the results to OIP's
executive director. OIOS officials stated that they have completed 55
audits and have 4 ongoing audits of the Oil for Food program. Overall,
OIOS reported that OIP had made satisfactory progress in implementing most
of its recommendations. We did not have access to individual OIOS audit
reports except for an April 2003 report made publicly available in May
2004 that assessed the activities of the company contracted by the United
Nations to authenticate goods coming into Iraq. It found that the
contractor did not perform all required duties and did not adequately
monitor goods coming into the northern areas of Iraq. We also reviewed 7
brief summaries of OIOS reports covering the Oil for Food program from
July 1, 1996, through June 30, 2003. These summaries identified a variety
of operational concerns involving procurement, inflated pricing and
inventory controls, coordination, monitoring, and oversight. In one case,
OIOS cited purchase prices for winter items for displaced persons in
northern Iraq that were on average 61 percent higher than local vendor
quotes obtained by OIOS. In another case, an OIOS review found that there
was only limited coordination of program planning and insufficient review
and independent assessment of project implementation activities.

The Sanctions Committee Had a Key Role in Enforcing Sanctions and
Approving Contracts

The sanctions committee was responsible for three key elements of the Oil
for Food Program: (1) monitoring implementation of the sanctions, (2)
screening contracts to prevent the purchase of items that could have
military uses, and (3) approving Iraq's oil and commodity contracts.

U.N. Security Council resolution 661 of 1990 directed all states to
prevent Iraq from exporting products, including petroleum, into their
territories. Paragraph 6 of resolution 661 established a sanctions
committee to report to the Security Council on states' compliance with the
sanctions and to

recommend actions regarding effective implementation. As early as June
1996, the Maritime Interception Force, a naval force of coalition partners
including the United States and Great Britain, informed the sanctions
committee that oil was being smuggled out of Iraq through Iranian
territorial waters. In December 1996, Iran acknowledged the smuggling and
reported that it had taken action. In October 1997, the sanctions
committee was again informed about smuggling through Iranian waters.
According to multiple sources, oil smuggling also occurred through Jordan,
Turkey, Syria, and the Gulf. Smuggling was a major source of illicit
revenue for the former Iraqi regime through 2002.

A primary function of the members of the sanctions committee was to review
and approve contracts for items that could be used for military purposes.
The United States conducted the most thorough review; about 60 U.S.
government technical experts assessed each item in a contract to determine
its potential military application. According to U.N. Secretariat data in
2002, the United States was responsible for about 90 percent of the holds
placed on goods to be exported to Iraq. As of April 2002, about $5.1
billion worth of goods were being held for shipment to Iraq. According to
OIP, no contracts were held solely on the basis of price.

Under Security Council resolution 986 of 1995 and its implementing
procedures, the sanctions committee was responsible for approving Iraq's
oil contracts, particularly to ensure that the contract price was fair,
and for approving Iraq's commodity contracts. The U.N.'s oil overseers
reported in November 2000 that the oil prices proposed by Iraq appeared
low and did not reflect the fair market value.7 According to a senior OIP
official, the independent oil overseers also reported in December 2000
that purchasers of Iraqi oil had been asked to pay surcharges. In March
2001, the United States informed the sanctions committee about allegations
that Iraqi government officials were receiving illegal surcharges on oil
contracts and illicit commissions on commodity contracts. The sanctions
committee attempted to address these allegations by implementing
retroactive pricing for oil contracts in 2001.8

7The sanctions committee received reports from the independent oil experts
appointed by the Secretary General to determine whether there was fraud or
deception in the oil contracting process.

8Under retroactive pricing, the Security Council did not approve a price
per barrel until the oil was delivered to the refinery. The Iraq
government signed contracts with suppliers without knowing the price it
would have to pay until delivery.

It is unclear what actions the sanctions committee took to respond to
illicit commissions on commodity contracts. Due to increasing concern
about the humanitarian situation in Iraq and pressure to expedite the
review process, the Security Council passed resolution 1284 in December
1999 to direct the sanctions committee to accelerate the review process.
Under fast-track procedures, the sanctions committee allowed OIP to
approve contracts for food, medical supplies, and agricultural equipment
(beginning in March 2000), water treatment and sanitation (August 2000),
housing (February 2001), and electricity supplies (May 2001).

Issues for Further Investigation

Several investigations into the Oil for Food program are planned or under
way. A U.N. inquiry officially began on April 21, 2004, with a Security
Council resolution supporting the inquiry9 and the appointment of three
high-level officials to oversee the investigation. This investigation will
examine allegations of corruption and misconduct within the United Nations
Oil for Food program and its overall management of the humanitarian
program. In addition, Iraq's Board of Supreme Audit contracted with the
accounting firm Ernst and Young to conduct an investigation of the
program. Several U.S. congressional committees have also begun inquiries
into U.N. management of the Oil for Food program and U.S. oversight
through its role on the sanctions committee.

These investigations of the Oil for Food program provide an opportunity to
better quantify the extent of corruption, determine the adequacy of
internal controls, and identify ways to improve future humanitarian
assistance programs conducted within an economic sanctions framework.
Based on our work, we have identified several questions that should be
addressed:

o  	How did the size and structure of the Oil for Food program enable the
Iraqi government to obtain illegal revenues through illicit surcharges and
commissions?

o  	What was the role of U.N. member states in monitoring and enforcing
the sanctions? What were the criteria used to certify national purchasers
of oil and suppliers of commodities?

o  	What actions, if any, were taken to reduce the smuggling of Iraqi oil?
What precluded the sanctions committee from taking action?

9U.N. Security Council Res. 1538 (April 21, 2004).

o  	Who assessed the reasonableness of prices for commodity contracts
negotiated between the Iraqi government and suppliers and what actions
were taken? How were prices for commodities assessed for reasonableness
under fast-track procedures?

Much of the information on surcharges on oil sales and illicit commissions
on commodity contracts is with the Iraqi ministries in Baghdad and
national purchasers and suppliers. We did not have access to this data to
verify the various allegations of corruption associated with these
transactions. Subsequent investigations of the Oil for Food program should
include a statistical sampling of these transactions to more accurately
document the extent of corruption and the identities of companies and
countries that engaged in illicit transactions. This information would
provide a basis for restoring those assets to the Iraqi government.

Subsequent evaluations and audits should also consider an analysis of the
lessons learned from the Oil for Food program and how future humanitarian
programs of this nature should be structured to ensure that funds are
spent on intended beneficiaries and projects. For example, analysts may
wish to review the codes of conduct developed for the CPA's Oil for Food
coordination center and suppliers. In addition, U.N. specialized agencies
implemented the program in the northern governorates while the program in
central and southern Iraq was run by the central government in Baghdad. A
comparison of these two approaches could provide insight on the extent to
which the operations were transparent and the program delivered goods and
services to the Iraqi people.

Evolving policy and implementation decisions on the food distribution
system and the worsening security situation have affected the movement of
food commodities within Iraq. As a result, warehouse stocks are low, and
Iraq has less than a month's supply of several food items, including
staple grains, and no buffer stock. The food distribution system created a
dependency on food subsidies that disrupted private food markets. The
government will have to decide whether to continue, reform, or eliminate
the current system. In addition, inadequate oversight and corruption in
the Oil for Food program raise concerns about the Iraqi government's
ability to manage the food distribution system and absorb donor
reconstruction funds under existing structures. The CPA has taken steps,
such as appointing inspectors general, to strengthen accountability
measures in Iraq's ministries.

  Challenges in Addressing Iraq's Food Security

Inadequate Planning, Coordination, and Security Have Resulted in Tenuous
Food Supplies

The CPA's failed plans to privatize the food ration system and delayed
negotiations with WFP on food procurement and distribution resulted in
diminished stocks of food commodities and localized shortages in early
2004. The CPA administrator discussed eliminating Iraq's food distribution
system and providing recipients with cash payments based on plans
submitted to the CPA in summer 2003 that asserted that the system was
expensive and depressed the agricultural sector. As a result, the Ministry
of Trade began drawing down existing inventories of food. In December
2003, as the security environment worsened, the administrator decided not
to reform the ration system. In January 2004, the CPA negotiated a
memorandum of understanding (MOU) with WFP and the Ministry of Trade that
committed WFP to procuring a 3-month buffer food stock by March 31, 2004,
and assuming the delivery of food to hub warehouses inside Iraq through
June 2004. The MOU was delayed due to disagreements about emergency food
procurement, contract terms, and the terms of WFP's involvement. No
additional food was procured during the negotiations, and food stocks
diminished and localized shortages occurred in early 2004. WFP completed
its buffer stock procurement by March 31, 2004. The Ministry of Trade
assumed responsibility for food procurement on April 1, 2004, and will
implement the distribution system after June 30, 2004.

A U.S. official stated in early March 2004 that coordination between WFP
and the Ministry of Trade had been deteriorating. The Ministry had not
provided WFP with complete and timely information on monthly food
allocation plans, weekly stock reports, or information on cargo arrivals,
as the MOU required. WFP staff reported that the Ministry's data were
subject to sudden, large, and unexplained stock adjustments, thereby
making it difficult to plan deliveries. A State Department official noted
in April 2004 that coordination between WFP and the Ministry was
improving. However, according to early June 2004 discussions with other
U.S. officials, these coordination problems are continuing.

The security environment in Iraq has affected the movement of Oil for Food
goods since the fall of 2003. A September 2003 U.N. report found that the
evacuation of U.N. personnel from Baghdad, following the bombing of the
U.N. office in August 2003, affected the timetable and procedures for the
transfer of the Oil for Food program to the CPA and contributed to delays
in prioritizing and renegotiating contracts. The August bombing of the
U.N. office also resulted in the temporary suspension of the border
inspection process and shipments of humanitarian supplies and equipment. A
March 2004 CPA report noted that stability of the food supply would be
affected if security conditions worsened.

According to an Oil for Food coordination center official, the worsening
security situation during April 2004 affected food supplies. As of early
June, major food transport corridors from Jordan and the port of Umm Qasr
are restricted due to security concerns, and border crossings from Jordan,
Syria, and Turkey are congested. Also, fewer drivers are willing to work
in this environment, thereby reducing the movement of food from the
borders and ports to the food warehouses. This situation is exacerbated by
congestion at the major port of Umm Qasr, which is operating at 50 percent
of its capacity due to inadequate fuel and power supply, off-loading
delays, dredging activity, inadequate storage capacity, and security
concerns.

Initial planning and management problems, combined with security and port
congestion issues limiting the movement of food, have resulted in the
drawing down of warehouse food stocks. The food supply situation was
described as tenuous by several U.S. and WFP sources in early June. At
that time, Iraq had less than a 1-month food supply for several items in
the food basket, including grains. About 360,000 metric tons of the 1.6
million metric tons procured for the buffer stock had arrived as of June
10, but the full amount will not be delivered until September, according
to a WFP official. Moreover, these commodities are not being reserved as a
buffer stock, but are immediately used as operating stocks.

U.S. officials are concerned that, as the Iraqi government assumes full
responsibility for food distribution on July 1, 2004, it will find it
difficult to manage the food distribution system given low food supplies.
According to U.S. and WFP officials, the Ministry of Trade implemented the
food distribution system during the Oil for Food program under more
favorable conditions. For example, the Ministry was able to maintain at
least a 6month food inventory and operate in a more secure environment.

Food Distribution System The Oil for Food program facilitated the
operation of the Public Essential for Current Food Distribution System run
by Iraq's Ministry of Trade. Under this system, Security But May Not Be
each Iraqi is eligible to receive a monthly "food basket" that normally

                                       10

Sustainable consists of a dozen items.

10Wheat flour, rice, vegetable ghee (semifluid clarified butter used for
cooking), pulses (edible seeds of various leguminous crops, such as peas,
beans, or lentils), sugar, tea, salt, milk, infant formula, weaning
cereal, soap, and detergent.

After the CPA transfers responsibility for the food distribution system to
the Iraqi provisional government in July 2004, the government will have to
decide whether to continue, reform, or eliminate the current system.
Documents from the Ministries of Finance and Planning indicate that the
annual cost of maintaining the system is as high as $5 billion, or about
25 percent of total government expenditures. In 2005 and 2006,
expenditures for food will be almost as much as all expenditures for
capital projects. According to a September 2003 joint U.N. and World Bank
needs assessment of Iraq,11 the food subsidy, given out as a monthly
ration to the entire population, staved off mass starvation during the
time of the sanctions, but disrupted the market for food grains produced
locally. The agricultural sector had little incentive to produce crops in
the absence of a promising market.

However, the Iraqi government may find it politically difficult to scale
back the food distribution system with an estimated 60 percent of the
population relying on monthly rations as their primary source of
nutrition. WFP is completing a vulnerability assessment that Iraq could
use to make future decisions on food security programs and better target
food items to those most in need. WFP's preliminary assessment results
found that 10 percent of the population was extremely poor and needed food
aid in addition to the Public Distribution System. WFP is also developing
an emergency operation plan to meet the needs of vulnerable populations.
In addition, in April 2004, a USAID contractor submitted a strategy for a
short-term plan to stabilize the agricultural sector by providing
agricultural supplies, re-establishing domestic wheat markets,
rehabilitating irrigation systems, and rehabilitating Ministry of
Agriculture facilities. The strategy also includes a medium-term plan to
create appropriate agricultural policies, provide capacity building for
market-led agriculture, and strengthen the agricultural sector through
national programs.

                             Addressing Corruption

In the absence of significant reforms, the history of inadequate oversight
and corruption in the Oil for Food program raises questions about the
Iraqi government's ability to manage the import and distribution of food
commodities and the billions in international assistance expected to flow
into the country. The CPA and Iraqi ministries must address corruption to
help ensure that the food distribution system is managed with transparent
and accountable controls. Building these internal control and

11United Nations/World Bank, Joint Iraq Needs Assessment: Agriculture,
Water Resources, and Food Security (New York: October 2003).

accountability measures into the operations of Iraqi ministries will also
help safeguard the $18.4 billion in fiscal year 2004 U.S. reconstruction
funds and $13.8 billion pledged by other countries.

To address these concerns and oversee government operations, the CPA
administrator appointed inspectors general for Iraq's 26 national
ministries. At the same time, the CPA announced the establishment of two
independent agencies to work with the inspectors general-the Commission on
Public Integrity and a Board of Supreme Audit. Finally, the United States
will spend about $1.63 billion on governance-related activities in Iraq,
which will include building an effective financial management system in
Iraq's ministries.

The CPA's coordination center continues to provide on-the-job training for
ministry staff who will assume responsibility for food contracts after
July 2004. Coalition personnel have provided Iraqi staff with guidance on
working with suppliers in a fair and open manner and determining when
changes to letters of credit are appropriate. In addition, according to
center staff, coalition and Iraqi staff signed a code of conduct, which
outlined proper job behavior. Among other provisions, the code of conduct
prohibited kickbacks and secret commissions from suppliers. The center
also developed a code of conduct for suppliers. In addition, the center
has begun implementing the steps needed for the transition of full
authority to the Iraqi ministries. These steps include transferring
contractrelated documents, contacting suppliers, and providing authority
to amend contracts. In addition, the January 2004 MOU agreement commits
WFP to training ministry staff in procurement and transport functions
through June 30, 2004. Ten ministry staff are being trained at WFP
headquarters in Rome, Italy.

Mr. Chairman and Members of the Committee, this concludes my prepared
statement. I will be happy to answer any questions you may have.

Contacts and	For questions regarding this testimony, please call Joseph
Christoff at (202) 512-8979. Other key contributors to this statement were
Pamela

Acknowledgments 	Briggs, Mark Connelly, Lynn Cothern, Zina Merritt, Tetsuo
Miyabara, Valerie Nowak, Stephanie Robinson, Jonathan Rose, Richard
Seldin, Audrey Solis, Roger Stoltz, and Phillip Thomas.

                       Appendix I: Scope and Methodology

We used the following methodology to estimate the former Iraqi regime's
illicit revenues from oil smuggling, surcharges on oil, and commissions
from commodity contracts from 1997 through 2002:

o  	To estimate the amount of oil the Iraqi regime smuggled, we used
Energy Information Administration (EIA) estimates of Iraqi oil production
and subtracted oil sold under the Oil for Food program and domestic
consumption. The remaining oil was smuggled through Turkey, the Persian
Gulf, Jordan, and Syria (oil smuggling to Syria began late 2000). We
estimated the amount of oil to each destination based on information from
and discussions with officials of EIA, Cambridge Energy Research
Associates, the Middle East Economic Survey, and the private consulting
firm Petroleum Finance.

o  	We used the price of oil sold to estimate the proceeds from smuggled
oil. We discounted the price by 9 percent for the difference in quality.
We discounted this price by 67 percent for smuggling to Jordan and by 33
percent for smuggling through Turkey, the Persian Gulf, and Syria.
According to oil industry experts, this is representative of the prices
paid for smuggled oil.

o  	To estimate the amount Iraq earned from surcharges on oil, we
multiplied the barrels of oil sold under the Oil for Food program from
1997 through 2002 by 25 cents per barrel. According to Security Council
members, the surcharge varied, but Iraq tried to get as much as 50 cents
per barrel. Industry experts also stated the surcharge varied.

o  	To estimate the commission from commodities, we multiplied Iraq's
letters of credit for commodity purchases by 5 percent for 1997 through
1998 and 10 percent for 1999 through 2002. According to Security Council
members, the commission varied from 5 percent to 10 percent. This
percentage was also confirmed in interviews conducted by U.S. officials
with former Iraqi regime ministers of oil, finance, and trade and with
Saddam Hussein's presidential advisors.

GAO did not obtain source documents and records from the former regime
about its smuggling, surcharges, and commissions. Our estimate of illicit
revenues is therefore not a precise accounting number. Areas of
uncertainty in our estimate include:

o  	GAO's estimate of the revenue from smuggled oil is less than the
estimates of U.S. intelligence agencies. We used estimates of Iraqi oil
production and domestic consumption for our calculations. U.S.

        intelligence agencies used other methods to estimate smuggling.

o  	GAO's estimate of revenue from oil surcharges is based on a surcharge
of 25 cents per barrel from 1997 through 2002. However, the average
surcharge could be lower. U.N. Security Council members and oil industry
sources do not know when the surcharge began or ended or the precise
amount of the surcharge. One oil industry expert stated that the surcharge
was imposed at the beginning of the program but that the amount varied.
Security Council members and the U.S. Treasury Department reported that
surcharges ranged from 10 cents to 50 cents per barrel. As a test of
reasonableness, GAO compared the price paid for oil under the Oil for Food
program with a proxy oil price for the period 1997 through 2002. We found
that for the entire period, the price of Iraqi oil was considerably below
the proxy price. Oil purchasers would have to pay below market price to
have a margin to pay the surcharge.

GAO's estimate of the commission on commodities could be understated. We
calculated commissions based on the commodity contracts for the 15
governorates in central and southern Iraq (known as the "59-percent
account" because these governorates received this percentage of Oil for
Food revenues). We excluded contracts for the three northern governorates
(known as the "13-percent account"). However, the former Iraqi regime
negotiated the food and medical contracts for the northern governorates,
and the Defense Contract Audit Agency found that some of these contracts
were potentially overpriced. The Defense Contract Audit Agency also found
extra fees of between 10 and 20 percent on some contracts.

Appendix II: Timeline of Major Events Related to Sanctions Against Iraq
and the Administration of the Oil for Food Program

                           Date Event/Action Summary

Aug. 2, 1990 	U.N. Security Council Resolution 660

Iraqi forces invaded Kuwait. Resolution 660 condemned the invasion and
demands immediate withdrawal from Kuwait.

Aug. 6, 1990 U.N. Security Council Imposed economic sanctions against the
             Republic of Iraq. The resolution called Resolution 661

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.

                                                   President Bush ordered the 
Aug. 6, 1990  Operation Desert Shield      deployment of thousands of U.S. 
                                                              forces to Saudi 
                                                       Arabia.                
                                                 Public Law 101-513, S: 586C, 
                                            prohibited the import of products 
Nov. 5, 1990     U.S. legislation                       from Iraq into the 
                                         United States and the export of U.S. 
                                                  products to Iraq.           
                                         Iraq War Powers Resolution           
                                         authorized the president to use "all 
Jan. 12, 1991    U.S. legislation     necessary                            
                                          means" to compel Iraq to withdraw   
                                             military forces from Kuwait.     

Jan. 16, 1991 Operation Desert Storm	Operation Desert Storm was launched:
coalition operation was targeted to force Iraq to withdraw from Kuwait.

Feb. 28, 1991 Gulf War cease-fire Iraq announced acceptance of all
relevant U.N. Security Council resolutions.

Apr. 3, 1991 	U.N. Security Council Mandated that Iraq must respect the
sovereignty of Kuwait and declare and Resolution 687 destroy all ballistic
missiles with a range of more than 150 kilometers as well as (Cease-Fire
Resolution) all weapons of mass destruction and production facilities.

Jun. 17, 1991 Creation of U.N. Special The U.N. Special Commission
(UNSCOM) was charged with monitoring Iraqi Commission disarmament as
mandated by U.N. resolutions and to assist the International Atomic Energy
Agency in nuclear monitoring efforts.

Aug. 15, 1991 U.N. Security Council Proposed the creation of an Oil for
Food program and authorized an escrow Resolution 706 account to be
established by the Secretary General. Iraq rejected the terms of this
resolution.

Sep. 19, 1991 	U.N. Security Council Second attempt to create an Oil for
Food program. Iraq rejected the terms of Resolution 712 this resolution.

Oct. 2, 1992 U.N. Security Council Authorized transferring money produced
by any Iraqi oil transaction on or after

Resolution 778 	August 6, 1990, which had been deposited into the escrow
account, to the states or accounts concerned as long as the oil exports
took place or until sanctions were lifted.

Apr. 14, 1995 	U.N. Security Council Allowed Iraq to sell $1 billion worth
of oil every 90 days. Proceeds were to be Resolution 986 used to procure
foodstuffs, medicine, and material and supplies for essential civilian
needs. Resolution 986 was supplemented by several U.N. resolutions over
the next 7 years that extended the Oil for Food program for different
periods of time and increased the amount of exported oil and imported
humanitarian goods.

Mar. 27, 1996 	U.N. Security Council Resolution 1051

Established the export and import monitoring system for Iraq. May 20, 1996
Government of Iraq and the United Signed a memorandum of understanding allowing
 Iraq's export of oil to pay for Nations food, medicine, and essential civilian
                                   supplies.

Jun. 17, 1996 United States	Based on information provided by the
Multinational Interception Force (MIF), communicated concerns about
alleged smuggling of Iraqi petroleum products through Iranian territorial
waters in violation of resolution 661 to the Security Council sanctions
committee.

Date Event/Action Summary

Jul. 9, 1996 U.N. Security Council Sanctions Committee members asked the
United States for more factual information about

Committee smuggling allegations, including the final destination and the
nationality of the vessels involved.

Aug. 28, 1996 	U.S. delegation to the U.N. Security Council Sanctions
Committee

Provided briefing on the Iraqi oil smuggling allegations to the sanctions
committee.

 Dec. 3, 1996 Islamic Republic of Iran Permanent Acknowledged that some vessels
                carrying illegal goods and oil to and from Iraq

Representative to the United Nations

had been using the Iranian flag and territorial waters without
authorization and that Iranian authorities had confiscated forged
documents and manifests. Representative agreed to provide the results of
the investigations to the sanctions committee once they were available.

 Dec. 10, 1996 Iraq and the United Nations Phase I of the Oil for Food program
                                     began.

Jun. 4, 1997 	U.N. Security Council Resolution 1111

 Extended the term of resolution 986 another 180 days (phase II). Sep. 12, 1997
    U.N. Security Council Authorized special provision to allow Iraq to sell
           petroleum in a more favorable Resolution 1129 time frame.

Oct. 8, 1997 	Representatives of the United Kingdom of Great Britain and
Northern Ireland to the United Nations Brought the issue of Iraqi
smuggling petroleum products through Iranian territorial waters to the
attention of the U.N. Security Council sanctions committee.

  Nov. 18, 1997 Coordinator of the Multinational Reported to the U.N. Security
    Council sanctions committee that since February Interception Force (MIF)

1997 there had been a dramatic increase in the number of ships smuggling
petroleum from Iraq inside Iranian territorial waters.

Dec. 4, 1997 	U.N. Security Council Extended the Oil for Food program
another 180 days (phase III). Resolution 1143

Feb. 20, 1998 	U.N. Security Council Raised Iraq's export ceiling of oil
to about $5.3 billion per 6-month phase (phase Resolution 1153 IV).

Mar. 25, 1998 	U.N. Security Council Permitted Iraq to export additional
oil in the 90 days from March 5, 1998, to Resolution 1158 compensate for
delayed resumption of oil production and reduced oil price.

Jun. 19, 1998 	U.N. Security Council Authorized Iraq to buy $300 million
worth of oil spare parts to reach the export Resolution 1175 ceiling of
about $5.3 billion.

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

Oct. 31, 1998 U.S. legislation: Iraq Liberation Act 	Public Law 105-338,
S: 4, authorized the president to provide assistance to Iraqi democratic
opposition organizations.

Oct. 31, 1998 	Iraqi termination of U.N. Special Iraq announced it would
terminate all forms of interaction with UNSCOM and Commission (UNSCOM)
Activity that it would halt all UNSCOM activity inside Iraq.

Nov. 24, 1998 U.N. Security Council Renewed the Oil for Food program for 6
months beyond November 26 at the Resolution 1210 higher levels established
by resolution 1153. The resolution included additional oil spare parts
(phase V).

Dec. 16, 1998 Operation Desert Fox 	Following Iraq's recurrent blocking of
U.N. weapons inspectors, President Clinton ordered 4 days of air strikes
against military and security targets in Iraq that contribute to Iraq's
ability to produce, store, and maintain weapons of mass destruction and
potential delivery systems.

Date Event/Action Summary

Mar. 3, 1999 President Clinton Report to President Clinton provided the
status of efforts to obtain Iraq's compliance with Congress U.N. Security
Council resolutions. He discussed the MIF report of oil smuggling out of
Iraq and smuggling of other prohibited items into Iraq.

May 21, 1999 	U.N. Security Council Renewed the Oil for Food program
another 6 months (phase VI). Resolution 1242

Oct. 4, 1999 	U.N. Security Council Permitted Iraq to export an additional
amount of $3.04 billion of oil to make up Resolution 1266 for revenue
deficits in phases IV and V.

Nov. 19, 1999 	U.N. Security Council Extended phase VI of the Oil for Food
program for 2 weeks until December 4, Resolution 1275 1999.

Dec. 3, 1999 	U.N. Security Council Extended phase VI of the Oil for Food
program for 1 week until December 11, Resolution 1280 1999.

Dec. 10, 1999 	U.N. Security Council Renewed the Oil for Food program
another 6 months (phase VII). Resolution 1281

Dec. 17, 1999 U.N. Security Council Abolished Iraq's export ceiling to
purchase civilian goods. Eased restrictions on Resolution 1284 the flow of
civilian goods to Iraq and streamlined the approval process for some oil
industry spare parts. Also established the United Nations Monitoring,
Verification and Inspection Commission (UNMOVIC).

Mar. 31, 2000 	U.N. Security Council Increased oil spare parts allocation
from $300 million to $600 million under Resolution 1293 phases VI and VII.

Jun. 8, 2000 U.N. Security Council        Renewed the Oil for Food program 
                                      another 180 days until December 5, 2000 
                   Resolution 1302                 (phase VIII).              
Dec. 5, 2000 U.N. Security Council 
                   Resolution 1330    

  Extended the Oil for Food program another 180 days (phase IX). Mar. 8, 2001
  Deputy U.S. Representative to the Ambassador Cunningham acknowledged Iraq's
                       illegal re-export of humanitarian

United Nations Remarks to the Security Council

supplies, oil smuggling, establishment of front companies, and payment of
kickbacks to manipulate and gain from Oil for Food contracts. Also
acknowledged that the United States had put holds on hundreds of Oil for
Food contracts that posed dual-use concerns.

Mar. 8, 2001 Acting U.S. Representative  Ambassador Cunningham addressed   
                to the                     questions regarding allegations of 
                United Nations Remarks to   surcharges on oil and smuggling.  
                           the               Acknowledged that oil industry   
                                           representatives and other Security 
                     Security Council            Council members provided the 
                                                                United States 
                                           anecdotal information about Iraqi  
                                           surcharges on oil sales. Also      
                                           acknowledged                       
                                           companies claiming they were asked 
                                            to pay commissions on contracts.  

Jun. 1, 2001 	U.N. Security Council Extended the terms of resolution 1330
(phase IX) another 30 days. Resolution 1352

Jul. 3, 2001 	U.N. Security Council Renewed the Oil for Food program an
additional 150 days until November 30, Resolution 1360 2001 (phase X).

Nov. 29, 2001 	U.N. Security Council Resolution 1382

The resolution stipulated that a new Goods Review List would be adopted
and that relevant procedures would be subject to refinement. Renewed the
Oil for Food program another 180 days (phase XI).

 May 14, 2002 U.N. Security Council UNMOVIC reviewed export contracts to ensure
                that they contain no items on a Resolution 1409

designated list of dual-use items known as the Goods Review List. The
resolution also extended the program another 180 days (phase XII).

Nov. 6, 2002 	U.N. Security Council Sanctions MIF reported that there had
been a significant reduction in illegal oil exports Committee from Iraq by
sea over the past year but noted oil smuggling was continuing.

Date Event/Action Summary

Nov. 25, 2002 	U.N. Security Council Extended phase XII of the Oil for
Food program another 9 days. Resolution 1443

Dec. 4, 2002 	U.N. Security Council Renewed the Oil for Food program
another 180 days until June 3, 2003 (phase Resolution 1447 XIII).

Dec. 30, 2002 	U.N. Security Council Resolution 1454

Approved changes to the list of goods subject to review by the sanctions
committee.

 Mar. 12, 2003 U.N. Security Council Sanctions Chairman reported on a number of
            alleged sanctions violations noted by letters Committee

from several countries and the media from February to November 2002.
Alleged incidents involved Syria, India, Liberia, Jordan, Belarus,
Switzerland, Lebanon, Ukraine, and the United Arab Emirates.

Mar. 19, 2003 Operation Iraqi Freedom	Operation Iraqi Freedom is launched.
Coalition operation led by the United States initiated hostilities in
Iraq.

Mar. 28, 2003 U.N. Security Council Adjusted the Oil for Food program and
gave the Secretary General authority for Resolution 1472 45 days to
facilitate the delivery and receipt of goods contracted by the Government
of Iraq for the humanitarian needs of its people.

                                                  Public Law 108-11, S: 1503, 
Apr. 16, 2003    U.S. legislation      authorized the President to suspend 
                                                              the application 
                                            of any provision of the Iraq      
                                               Sanctions Act of 1990.         
                                          Extended provisions of resolution   
Apr. 24, 2003 U.N. Security Council        1472 until June 3, 2003.        
                    Resolution 1476     
                    Operation Iraqi        End of major combat operations and 
    May 1, 2003         Freedom              beginning of post-war rebuilding 
                                                                     efforts. 
                                        Lifted civilian sanctions on Iraq and 
                                        provided for the end of the Oil for   
May 22, 2003  U.N. Security Council  Food                                  
                                        program within 6 months, transferring 
                    Resolution 1483     responsibility for the administration 
                                                                       of any 
                                        remaining program activities to the   
                                        Coalition Provisional Authority       
                                        (CPA).                                
                                        Responded to allegations of fraud by  
                                        U.N. officials that were involved in  
Mar.19, 2004  U.N. Secretary General the                                   
                                         administration of the Oil for Food   
                                                      program.                

Nov. 21, 2003 U.N. Secretary General Transferred administration of the Oil
for Food program to the CPA.

 Mar. 25, 2004 U.N. Secretary General Proposed that a special investigation be
                       conducted by an independent panel.

April 21, 2004 	U.N. Security Council Supported the appointment of the
independent high-level inquiry and called Resolution 1538 upon the CPA,
Iraq, and member states to cooperated fully with the inquiry.

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