Oil-for-food scandal: UN officials are linked to $64bn fiasco

The inquiry into alleged corruption inside the six-year oil-for-food programme operated by the United Nations in Iraq widened further yesterday with new questions raised about the former Secretary General, Boutros Boutros-Ghali, as well as about British interference in the awarding of contracts.

An interim report from an independent commission investigating the allegations also seriously undermined the credibility of the former UN official who was in charge of the programme, Benan Sevan, saying he repeatedly made unethical requests to Iraq to award oil export contracts to a single oil company.

The chairman of the commission, Paul Volcker, a former chairman of the US Federal Reserve, said that the interim report was "not the whole story by any long shot", however.

A final report in the summer will try to identify what financial gain, if any, Mr Sevan received, which could imply straight bribes, and to resolve questions still surrounding Kojo Annan, the son of the current secretary general, Kofi Annan.

The 200-page report issued last night already describes a catalogue of lapses and shortcomings in the way the $64bn programme was managed by the UN under both Mr Boutros-Ghali and Mr Annan. So far, however, Mr Volcker has not offered any evidence of corruption punishable by criminal charges.

The oil-for-food programme was designed to allow Iraq to export limited amounts of fuel to generate proceeds for the purchase of urgent humanitarian goods. Almost as soon as it was wound up in 2003 after the US-led war against Saddam Hussein, allegations began to surface that scores of individuals around the world had illegally benefited from the scheme to the tune of many millions of dollars.

The interim report focused on three specific problem areas, Mr Volcker said. Many pages are dedicated to describing how Mr Sevan "created a grave and continuing conflict of interest" for himself, specifically by repeatedly soliciting Iraqi officials to award oil export allocations to a small oil-trading firm run out of Switzerland, African Middle East Petroleum.

Mr Volcker contends, moreover, that in being questioned by his investigators, Mr Sevan tried to deny any improper activities on behalf of AMEP or indeed making such requests to Bahgdad. But the report states that "ample evidence" was found to suggest that Mr Sevan was not being candid.

Also highlighted are alleged violations of the rules of procurement when the UN chose the three principle contractors to get the programme up and running in 1996. This was when Mr Boutros-Ghali was still in charge, and Mr Volcker confirmed last night that he has been approached by the commission more than once to offer explanations.

The companies awarded those contracts were the Banque National de Paris, to help handle the flow of funds, the engineering company Saybolt Eastern Hemisphere and, finally, London-based Lloyd's Register Inspection Limited, which was chosen to oversee the delivery back to Iraq of humanitarian supplies.

Included in the report are allegations that the UN mission of the British Government in New York became improperly involved in trying to persuade the committee that was choosing these companies to select Lloyds over its competition. "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. Moreover, it says that there was direct contact between the UN official guiding the awarding of contracts and the British mission.

The choice of the Banque National de Paris was "clearly affected by political considerations", Mr Volcker said last night, adding that Mr Boutros-Ghali had already been responding to questions in this regard. He noted that Iraq at the time "would not sit still for an American or British bank" while the Americans, he added, had made clear they did not want a Swiss bank involved.

Not addressed in the report are possible additional connections between the oil trading company aided by Mr Sevan and Mr Boutros-Ghali. It has been reported that the man running AMEP is a relative of the former secretary general.

Still to come also is further scrutiny of the part in this of Kojo Annan, who has already acknowledged that he worked for a company that benefited directly from the programme and continued to draw a salary from it some years after ceasing working for it.

Mr Volcker was clear last night that his investigators "had not found systematic misuse of funds dedicated to the running of the programme in the UN", which will offer some consolation to worried UN officials. He added, however, the ongoing investigation was "a painful episode I think for everybody in the life of the UN".