Annan refuses to quit over oil-for-food but apologises

A chastened Mr Annan appeared before the UN Security Council yesterday to hear himself, UN managers and Security Council members criticised in public by the former chairman of the Federal Reserve, Paul Volcker.

Summarising the "litany of inefficiencies" which allowed Saddam Hussein to illegally pocket almost $12bn (£6.5bn) from a UN-administered scheme, Mr Volcker said responsibility should be "broadly shared" and told the UN to swiftly enact administrative reforms.

Mr Annan, who had been warned of the charges against him before the council session, said he accepted the criticism that he had not been diligent in investigating his son's involvement with a firm which received a lucrative contract under the $64bn scheme. "I deeply regret that," he said.

But he noted that the findings were "deeply embarrassing for all of us," and told reporters that he did not intend to fall on his sword only days before world leaders gather in New York to endorse plans for sweeping reforms. "I don't anticipate anyone to resign. We are carrying on with our work," Mr Annan said.

While Mr Annan may hold on to his job, he hardly emerges unscathed from the Volcker investigation, which took a year and cost a total of $35m. The secretary general's behaviour "has not been exonerated by any stretch of the imagination", Mr Volcker told reporters.

He added that it "really was unfortunate" that Mr Annan failed to open a proper investigation of the role of his son, Kojo Annan, who was on the payroll of a Swiss firm, Cotecna, as it was bidding in 1998 for a major oil-for-food contract.

Mr Volcker continued to give the secretary general the benefit of the doubt that he had not been aware at the time of his son's activities on behalf of Cotecna and done nothing himself to steer the contract in the firm's direction.

The report plays down an internal memo from Cotecna suggesting that its bid had in fact been discussed with Mr Annan at a summit of French-speaking countries in Paris in late 1998.

Mr Volcker also noted that the oil-for-food programme, set up to lessen the suffering of ordinary Iraqis under UN sanctions, had its successes and certainly contributed to saving many Iraqi lives.

Mr Volcker strongly criticised the Security Council for failing to react to reports both of corruption in the programme and of continuing smuggling by Iraq. Political differences between members on policy towards Iraq "hampered any forceful reaction - or any reaction - to any reports of smuggling," he said.

The new US ambassador to the UN, John Bolton, said: "There were bribes; there were kickbacks; there was lax oversight from the Secretariat; and some member states turned a blind eye toward this corruption."

"We need to reform the UN in a manner that will prevent another oil-for-food scandal," he said.