United Nations Was Warned Early Of Oil-for-Food Program Problem
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

UNITED NATIONS – The Clinton administration and the United Nations were warned of a crucial problem in the oil-for-food program when it was first designed, Claude Hankes-Drielsma, a former British consultant to the Iraqi Governing Council, told The New York Sun yesterday. Investigators under Paul Volcker admit that this problem now “seriously hampers” their probe.
Mr. Hankes-Drielsma said that Madeline Albright, the former secretary of state, as well as U.N. officials who designed the program before it was officially accepted by Saddam in late 1996, were warned by Iraqi dissidents that they should not allow oil to be sold through shadow companies and middlemen.
Such companies allowed for an elaborate scheme of bribes that allegedly were paid by Saddam in the form of allocations, or “vouchers,” of millions of barrels of oil to friendly politicians, government ministries, and U.N. officials. Those companies were set in a way that was designed to hide the true beneficiaries, or end users.
One of the Volcker team’s top officers, Swiss criminal lawyer Mark Pieth, told the Associated Press over the weekend that those who profited illegally from oil sales under the program “may have been able to hide behind a web of fiction by making transactions through ghost firms that exist mostly on paper.”
Mr. Volcker is expected to release an interim report in late January, then allow congressional investigators to examine internal U.N. documentation. According to Secretary-General Annan, Mr. Volcker might edit out some names and companies when the report is made public.
“There may be moments or situations where for the, not only the protection of individuals, but future prosecution, or of other things, names may have to be protected,” Mr. Annan told the Sun last week in his year-end press conference. But he added that Mr. Volcker will be the only one to grant such immunity. “That will be his decision, not mine,” he said.
Congressional investigators assert that because Mr. Volcker’s team lacks subpoena powers, it is ill-equipped to investigate shadow companies like the ones described by Mr. Pieth. Last week, outgoing U.N. ambassador John Danforth told his hometown newspaper, the St. Louis Post-Dispatch, that oil-for-food investigations will “very likely” lead to the American grand jury. “We had a grand jury in Waco, so we could compel testimony and the production of documents,” he said. “Volcker doesn’t have that, and it’s a real hardship.”
The U.N. originally devised oil-for-food after the 1991 Gulf War, and Mr. Hankes-Drielsma told the Sun that, right from the start, it should have known that allowing oil sales through shadow companies would give Saddam an opening to bribe-enablers. “Why did the U.N. allow oil sales to non-end users?” he said. “What mechanism do they have in place to find and ascertain who the end users were? This is such an obvious question.”
Mr. Hankes-Drielsma, who recently called on Mr. Annan to resign, said that he was present at a 1996 meeting with Ms. Albright in which a group of Iraqi dissidents warned her of the problem. Shortly afterwards America accepted the U.N.-designed plan to help Iraqis under international sanctions, and Saddam accepted.
According to a list prepared by the Volcker team and examined by the AP this weekend, 248 companies “lifted,” or exported, Iraqi oil under the program that handled over $64 billion in oil sales since 1996.
Most business was done by companies from Russia, responsible for more than $19 billion in sales. France, with more than $4 billion, was a distant second. More surprisingly, Switzerland was third, with $3.5 billion, and pea-sized Lichtenstein was eighth, with $2.5 billion. America, which does more oil business worldwide than any other nation, was only in the 26th place, with sales amounting to less than $500 million.
The prominence on the list of Switzerland and Lichtenstein, two nations known more for traditions of discreet banking than oil expertise, as well as of other well-known traditional tax-shelter sites, highlighted the difficulty of tracking down companies’ real owners.
One man recently cited in news reports for profiting from complex oil-for-food sales through such companies is the Swiss-based businessman Marc Rich, famous for being pardoned by President Clinton in the waning days of his administration. A spokesman for Swiss-based Marc Rich Holdings last week called allegations against the company “groundless.”
A U.N. official who requested his name not be used told the Sun yesterday that naming oil companies that sold oil under the program was the responsibility of Iraq and national “permanent missions” to the U.N. – and not of the U.N. itself. When asked about Mr. Hankes-Drielsma’s assertion about early warnings regarding the dangers of allowing shadow companies to participate in the program, the official who was among those at the U.N. who oversaw oil-for-food said it happened before his time.
According to a report by American weapons investigator Charles Duelfer, Saddam used a sophisticated scheme to bribe individuals and governments in a position to help his campaign to lift the sanctions and allow him to renew his weapons program.
The scheme relied on the fact that prices for Iraqi oil were set too low at the U.N. by a team of overseers, which at first was comprised of four experts from America, Norway, France, and Russia. As some overseers left, however, the Security Council blocked any nominations to replace them.
From July 1999 to August 2000, the team dwindled to one man, Aleksandr Kramar, a Russian who was allowed to set Iraqi oil prices by himself. The former American representative on the team, Maurice Lorenz, recently told the London Times that he had warned the Clinton administration about oil under pricing. Saddam used the gap between those low prices and the real oil market value to produce the famous oil vouchers for bribes.