Britain implicated in oil-for-food scandal, damning report says

The British Government became directly involved in subverting the process for choosing companies to assist in the management of the United Nations' oil-for-food programme, intervening in 1996 on behalf of a London-based company that was ultimately granted the work, a report claimed yesterday.

The episode is an embarrassing revelation for the Foreign Office and is prominently described in an interim report released yesterday by former Paul Volcker, the US Federal Reserve Chairman, into allegations of widespread corruption in the running of the 6-year oil-for-food scheme.

Mr Volcker asserts there is "convincing and uncontested evidence that the selection process" for three main contractors at the time the programme was beginning "did not conform to established financial and competitive bidding rules".

The winning contractors were Banque National de Paris, Saybolt Eastern Hemisphere and the British company, Lloyd's Register Inspection Limited.

Lloyd's was among five companies that entered bids for the job of inspecting humanitarian goods that Iraq would be allowed to import with proceeds from limited oil sales. Its bid was $1.1m (£580m) above the lowest bid from a French rival, Veritas.

A UN official, Joseph Stephanides, who did not favour Veritas contacted a "diplomat" in the British Mission to the UN asking for help in persuading the relevant UN steering committee to choose Lloyd's instead.

An official letter, dated 8 August 1996, partially displayed in the report, was subsequently sent from the UK Mission to that committee, saying Lloyd's was willing to shave $900,000 of its bid.

The letter, which does not show any signature in the Volcker report, ends with this exhortation: "I hope this will enable the Steering Committee to come to the right decision". Lloyd's was chosen the next day. "For the selection of Lloyd's, there was a clear early preference for Lloyd's, and the regular competitive bidding process was tainted," the report states.