The Volker Report: Much ado...

Oil-for-food-for-money?-An embattled Minister and his Congress Party

The Congress Party seems to be completely rattled by some of the disclosures in the Independent Inquiry Committee into the UN Oil-for-Food Programme (Paul Volker Committee).

The Report on the Manipulation of the Oil-for-Food Programme was released on 27^th October 2005 and has since raised a veritable storm in the Congress Party. The Party is acutely embarrassed at finding its own name as well as that of a senior party member and Union Minister in the exhaustive tables that form a part of the Report.

In a completely knee-jerk, mindless and needless initial reaction, The Congress Party immediately threatened to issue a legal notice to the UN in its own behalf and virtually left the Minister Mr. Natwar Singh, a loyal party member, to fend for himself despite the fact that he is specifically shown in the records as Member of the Congress Party, not as a mere individual.

The Opposition parties, sensing that this was too good an opportunity to miss, immediately went into attack mode putting pressure on the Prime Minister to remove the External Affairs Minister. The media, especially the Television channels constantly on the look out for even molehills of snippets to convert into mountains of earth-shaking events, have been quick to grab this news to fill up their time. The Opposition attack and media presentations have succeeded in Mr. Natwar Singh being virtually pronounced guilty without trial. It appears too that his Party is not too worried about the focus on him while it tries to work out options to first defend itself. In this atmosphere of panic (Congress) and glee (the Opposition), it was left to the Left Parties to present a more mature and balanced initial reaction.

It is nobody’s case that anybody should go unpunished for any wrongdoing. At the same time, before anyone is hanged, it is necessary to have a somewhat broader view to place the matter in perspective. The allegations that are being leveled against the Congress Party and the senior Union Minister are not the result of any study, research or investigation within the country but are an incidental, unfortunate fall-out from a Report of a Committee related to a UN Programme for Iraq.

It is possible to appreciate different aspects of this matter only by examining the background for the Report, which is responsible for creating the ripples-termed as a storm- in the country.

Iraq and the Sanctions it faced (see)

On 6 August 1990, the United Nations Security Council imposed economic sanctions on Iraq in response to its invasion of Kuwait four days earlier. Under these sanctions, all imports into Iraq (except medical supplies) and all exports from Iraq were prohibited, unless the Security Council permitted exceptions. These sanctions were not only the toughest, most comprehensive sanctions in history but were also unprecedented in terms of longevity and its comprehensive nature.

As a result of these sanctions, and consequent inability to meet the basic needs of its people, Iraq suffered a disastrous humanitarian situation with regard to basic infrastructure, nutrition and health. In 1996, The 'oil for food' programme, which commenced in December 1996, allowed Iraq to export oil and use part of the money raised, which is kept in a UN bank account, to buy basic goods from other countries. Iraq was using its own money to buy these goods and the 'oil for food' programme was not "humanitarian aid". Details of the Programme can be found here and here.

Following allegations of irregularities involving UN personnel, the Secretary General appointed a high level committee in April 2004 to investigate the administration and management of the Programme. Contrary to the impression with some, the Committee was not set-up by the Security Council, which in its Resolution 1538 only welcomed the setting up of the Committee and called upon all to co-operate. The Terms of Reference of the Committee can be found here.

The Independent Inquiry Committee presented its final Report in October 2005. In its press release, the Committee claimed that there was extensive manipulation of the Programme and more than 2000 companies were involved in illict payments. It further claimed that Companies and other individuals and entities, which paid the illicit kickbacks came from some 66 member states, while those paying illicit surcharges on oil purchases came from, or were registered in, some 40 member states, according to the Report.

It is pertinent to reproduce excerpts from the Report. (see also here)

Quote

REPORT ON PROGRAMME MANIPULATION

CHAPTER TWO

OIL TRANSACTIONS AND ILLICIT PAYMENTS

REPORT ON PROGRAMME MANIPULATION–OCTOBER 27, 2005 PAGE 9 OF 623

I. INTRODUCTION AND SUMMARY

On December 10, 1996, after six years of facing export prohibitions as a result of sanctions, Iraq was authorized to sell its crude oil under the Oil-for-Food Programme. Iraq sold approximately $64.2 billion of Iraqi crude oil during the Programme.

xxx

Under Resolution 986 and the Iraq-UN MOU, Iraq could chose to whom it sold oil. It exercised its discretion to award oil contracts to its significant advantage. Two overriding factors determined Iraq’s choice of oil recipients. The first factor was influencing foreign policy and international public opinion in favor of ending sanctions against Iraq. Later in the Programme, Iraq sought to generate illicit income outside of the United Nation’s oversight. One source of illicit income was from so-called “surcharges” paid on crude oil contracts under the Programme. The Iraqi regime demanded that payments be made to Iraqi-controlled bank accounts and Iraqi embassies abroad. Iraq earned $228.8 million of income from these surcharges.

In allocating its crude oil, Iraq instituted a preference policy in favor of companies and individuals from countries that, as Tariq Aziz described, were perceived as “friendly” to Iraq, particularly those that were members of the Security Council. Russian companies purchased almost one-third of the oil sold under the Programme. The Russian Ministry of Fuel and Energy and the Iraqi Ministry of Oil coordinated the allocation of oil to Russian companies. French companies were the second largest purchasers of oil under the Programme overall. The Iraqi oil trade with French companies dropped significantly after Iraq imposed surcharges.If Iraq was dissatisfied with the political positions of a country, it stopped selling oil to that

country’s companies. Initially, Iraqi Vice President Taha Yassin Ramadan and Minister of Oil Amer Rashid convinced Saddam Hussein to allocate oil to companies based in the United States in an effort to persuade the United States government to soften its attitude toward Iraq.

According to Mr. Ramadan, Iraq shifted the oil to Russian companies when there was no perceived change in United States policies.5 Iraq’s policies did not prevent companies from disfavored countries from obtaining Iraqi crude oil. A substantial volume of oil under contract with Russian companies was purchased and financed by companies based in the United States and elsewhere. Many of the letters of credit executed under the Programme were financed by non-contracting companies. The

names of these companies typically did not appear on SOMO contracts or United Nations records.

Iraq awarded “special” allocations not only to companies, but also to individuals and their representatives. These individuals were influential in their respective countries, espoused pro- Iraq views, or organized anti-sanctions activities. They included present and former government officials, politicians and persons closely associated with these figures, businessmen, and activists involved in anti-sanctions activities. Iraq also allocated oil to political parties and organizations.

Instances of oil allocations to these individuals and parties are discussed in this Chapter.

Iraqi officials awarded these “special” allocations without regard to the beneficiary’s familiarity with the oil trading market. Some beneficiaries sought the assistance of intermediaries to arrange for oil sales. Others used front companies to enter into United Nations contracts and then sold the oil to established oil companies or traders who bought the oil for a premium over the United Nations official selling price for the oil. The premium covered the commissions owed to intermediaries and beneficiaries.

These layers of individuals and companies between the allocating and lifting of the crude oil resulted in transactions in which the United Nations could not determine from the face of the contract who was benefiting from or purchasing the oil. This lack of transparency took on added significance when Iraq instituted a policy to collect an illicit surcharge on every barrel of oil sold under the Programme.

Beginning in the fall of 2000, in the middle of Phase VIII, Iraq ordered its Ministry of Oil to collect surcharges. The surcharge phases ultimately extended until the fall of 2002, in the middle of Phase XII. Iraq initially set surcharges at $0.10 per barrel. At the end of 2000, Iraq tried to impose a surcharge of $0.50 per barrel, but soon reduced it to $0.25 to $0.30, and ultimately lowered it to $0.15 before the scheme ended. The Iraqi State Oil Marketing Organization (“SOMO”) ran a highly organized system to collect oil surcharges and maintained an extensive database to keep track of the payments. Every contracting customer, if not each beneficiary, was advised of the requirement. Surcharges were levied on each barrel lifted, that is, loaded by a tanker at the port. Surcharge payments were generally due within thirty days of the oil lift. Unless a higher official had given a company dispensation, SOMO prohibited a company from loading additional oil when surcharges were overdue. Surcharges owed on a contract were not always paid in full in one payment. Partial surcharge payments often were made in an effort to ensure that SOMO did not stop or delay future oil lifts.

B. THE POLITICIZATION OF OIL ALLOCATIONS

As early as Phase II of the Programme, the Government of Iraq began directing oil allocations to particular countries and individuals. Iraqi officials took the position that it was within their discretion to sell oil to countries “friendly to Iraq” and individuals perceived as being able to influence public opinion in favor of Iraq. The Government of Iraq also believed it had the discretion to cease oil sales to companies based in countries perceived as less friendly to Iraq.

Subsequent oil allocations fell into two categories, which appear in SOMO allocation tables beginning in Phase II. “Regular” oil allocations were given to established oil companies, many of which regularly had purchased Iraqi oil prior to the imposition of sanctions and had proved to be reliable purchasers. “Special” allocations were given to individuals, organizations, and political parties considered to be “friends” of Iraq or perceived as holding political views supportive of Iraq. Sometimes, to cover all bases, oil allocations were granted to members of the opposition parties as well as the ruling political party.

Unquote

It is in this background of Iraq desperately seeking to muster or retain support from friendly countries, governments, political parties and other entities that the ‘favours’ in terms of Oil Vouchers appear to have been made.

It is in the context of these inquiries that certain names, which have relevance to India have appeared in the Tables which form part of the Report. These data are essentially based on records of SOMO, the State Oil Marketing Organization who was in administrative control of the transactions. The Committee says that responses were sought from all those listed and has, indeed, appended a summary by nature of responses received. However, it must be remembered that the Terms of Reference of the Committeee had a specific purpose, viz.

a. to determine whether the procedures that were established were violated,

b. to determine whether any United Nations officials, personnel, agents or contractors engaged in any illicit or corrupt activities in the carrying out of their respective roles in relation to the Programme and

c. to determine whether the accounts of the Programme were in order and were maintained in accordance with the relevant Financial Regulations

It was not the job of the Committee to investigate the entities that have been mentioned in the Tables. Consequently, the inquiries made by the Committee to these entities and their responses or lack of them, as well as the conclusions reached have relevance only as regards its terms of reference. Therefore, the mention of certain names, which in any case are based on the databases of the SOMO, cannot be relied upon to prove wrongdoing on the part of these entities without due process of law.

Having said so, the Tables mention the following entities:

Oil Sales Summary by Contracting Company and Contract

Table 2

page 22

Indian Oil Corp. Ltd.

Barrels lifted Contract Value Surcharge Levied

42,582,387 USD 800,628,998 893,914 (entire outstanding)

page 29

Masefiled AG,

Barrels Lifted Contract Value Surcharge levied Surcharge Paid

2,936,788 USD 63,032,974 749,197 748,540

page 40-41

Reliance Petroleum Ltd.

Barrels lifted Contract Value Surcharge levied

2,832,881 USD 72,049,346 nil

Summary of Oil Sales by Non-Contractual Beneficiary

Table 3

p.25

Beneficiary: Congress Party India

Phase 10 Masefield AG

Mission Country : Switzerland

Barrels allocated : 1,000,000

Barrels lifted : 1,000,100

Phase 11,12 and 13

Barrels allocated 3,000,000

Barrels lifted nil (No contracting company per SOMO)

p.40

Reliance Petroleum Ltd.

Alcon Petroleum Ltd.

Mission Country: Liechtenstein & Switzerland

phase 9, 10 and 11

Barrles allocated 19,000,000

Barrels lifted 15,780,000

p.50

Bhim Singh

Phase 6,8,10,11,12,13

Barrels Allocated 7,300,000

Barrels lifted nil

K Natwar Singh

Phase 9

Barrels allocated 4,000,000

Barrels lifted 1,936,000

It is interesting to note that:

IOC has not paid the surcharge that was levied

The Congress Party apparently lifted only 1million barrels of the total 4 million allocated

K.Natwar Singh apparently lifted only 1.936 million barrels out of 4 million allocated

Bhim Singh did not lift a single barrel although a large beneficiary of the favour

Reliance Petroleum was a recipient of the oil allocations

The details above do indicate certain transactions in the name of the Congress Party and Mr. K. Natwar Singh but these are in themselves not conclusive to come to a conclusion on wrongdoing. Of course, from the point of view of political and moral propriety, the Government should initiate an inquiry into the matter and place the results of the inquiry before the people.

It would also be fair to pose a question whether the reported assertion by Volcker about the Committee having immunity is valid. After all, the Committee was appointed by the Secretary General to inquire into the management of the Oil-for-Food Programme. An independent Committee is not the same thing as the UN itself. Another issue related to the Inquiry by the Volker Committee that deserves to be mentioned is that the Inquiry itself has been conducted at a time when foreign forces are occupying Iraq after an unjustified attack on that sovereign country. It is also a point of issue whether the documents upon which the Committee relied could be said to have come into its possession by due process. It is also questionable whether the Committee was right in publicising and placing the Report in the public domain, even if it was done to demonstrate transparency. This Report would be used by the U.S. to further discredit the Iraq regime of that time and those who supported or were friendly to the country. Paul Volker and his colleagues went about earnestly trying to find illegalities, favours and kickbacks under the Saddam Regime. It is easy to find wrongs committed by a Regime that is no longer capable of defending itself.

(on a side note, those who are accused of wrongdoing in the Oil-for-food issue, could take a cue on defending themselves from the spirited defense by George Galloway, the British M.P. before a U.S. Senate Committee - see here and here and here).

Let it not be forgotten that the 1.8 billion dollars in illicit payments supposed to have been received by the Iraqi regime would be peanuts compared to the billions of dollars in contracts that the friends of Cheneys of this world have been securing in ‘re-building’ occupied Iraq. It would be interesting to see the considerable talents that Paul Volker and his team seem to have, being put to better use to investigate the state of affairs related to the utilization of funds for Iraq since the time other countries assumed effective control over Iraq.

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