Financial Daily from THE HINDU group of publications
Monday, Nov 21, 2005
Industry & Economy - Economic Offences
Columns - Wide Canvas
Volcker probe: The big picture
Ranabir ray Choudhury
But there is a much wider aspect of the issues which the Volcker report has focussed attention on, a proper appreciation of which could even lead to a scaling down of the alleged malfeasance which Indian entities and personalities have been charged with while engaging in oil transactions with the Saddam Hussein regime.
Briefly, the oil-for-food programme was the result of an appreciation by the international community of the fact that the economic sanctions imposed on Mr Hussein's Iraq following its invasion and occupation of Kuwait in August 1990 were probably hurting innocent civilians much more than the political masters of Baghdad. In fact, as the UN Secretary-General, Mr Kofi Annan, has pointed out, as early as 1991, the situation had visibly deteriorated to such an extent that the world body proposed steps "to enable Iraq to sell limited quantities of oil to meet its people's needs".
Not surprisingly, this suggestion (incorporated in Security Council resolutions 706 and 712 of 1991) was turned down by an arrogant and defiant Saddam Hussein with the result that, by 1995, Iraq's "essential services, from electricity to hospital care and education, had been severely degraded".
Clearly, this situation could not be allowed to continue because, at the end of it all, the sanctions were hurting not the Saddam Hussein regime but the Iraqi people, particularly the most vulnerable sections. Consequently, in April 1995, the Security Council adopted resolution 986 which set up the oil-for-food programme under which UN member-States were permitted to "import . . . petroleum and petroleum products originating in Iraq, including financial and other essential transactions directly relating thereto" for the eventual export to Iraq, under certain conditions, of "medicine, health supplies, foodstuffs, and materials and supplies for essential civilian needs".
This, therefore, was the genesis of the oil-for-food programme under which the first Iraqi oil export took place in December 1996, the first humanitarian import being executed in March the following year. What did the programme achieve in terms of benefits for the Iraqi people? As Mr Annan reported to the Security Council towards the end of 2003, when the programme was handed over to the Coalition Provisional Authority following the US-led military assault on Iraq, it had "delivered food rations sufficient to feed all 27 million Iraqi residents" one result of which was that the malnutrition rate among Iraqi children "had been reduced by fifty per cent".
Further, national vaccination campaigns had reduced child mortality from preventable diseases, power cuts in Baghdad had been reduced even under peak summer loads, the availability of clean water for personal use had increased, and schooling facilities had been improved to the extent that individual schools could do with operating two shifts instead of three.
According to the Secretary-General, a tough job had been executed satisfactorily for which the international staff of the UN was wholly responsible as also the Iraqi nationals who had worked for the programme. In fact, he singled out the executive director of the programme, Mr Benon Sevan who, Mr Annan said, had served the UN "in this, as in many previous capacities, far beyond the call of duty". But, of course, as everyone now knows, the true state of affairs was quite different. While the objectives of the programme were perhaps more or less met (there is some difference of opinion on this issue), what is now beyond doubt is that financial irregularities were also committed, so much so that on February 2005 (when the Volcker reports were being published), Mr Annan himself had to make the following statement: "...colleagues alongside whom we have worked face serious accusations. I made clear when I set up the inquiry that appropriate action, with full regard for due process, would be taken against individuals or entities found to have violated the rules or procedures of the UN. Accordingly, I have today initiated disciplinary proceedings against Joseph Stephanides, the person named in the report who is still on active duty, and against Benon Sevan, the former head of the Office of the Iraq Programme, against whom the report contains extremely troubling evidence of wrongdoing."
So what went wrong with the oil-for-food programme and where? Formally, the UN has to be held responsible for most of the flaws detected because resolution 986 (1995) made the Secretary-General responsible for ensuring the "effective implementation of this resolution, (authorising) him to enter into any necessary arrangements or agreements, and (requesting) him to report to the Council when he has done so".
Also made responsible by the resolution for implementing the oil-for-food programme was the Committee ("of the Security Council, comprising all members of the Council") set up by resolution 661(1990) to oversee the sanctions regime drawn up against Iraq. This is the formal position. However, at the grassroots level, it can be argued that the seeds of corruption which ultimately affected the operation of the programme were laid by the rules and guidelines themselves drawn up to implement the programme, the two heads under which most of the wrongdoing was committed being the pricing of Iraqi oil exports and deference to Iraqi sovereignty both in the matter of oil sales and import of humanitarian supplies.
As far as pricing of Iraqi oil exports was concerned, it was essentially left to Baghdad to determine the actual rates, the "independent inspection agents appointed by the Secretary-General" being entrusted with the responsibility of "(verifying) that the purchase price of the petroleum and petroleum products is reasonable in the light of prevailing market conditions" (para 6 of 986-1995).
"Of some interest is the fact that the problems faced in actual implementation of the programme were brought out clearly by none other than Benon Sevan himself in September 2002 when he told the Security Council that one of the reasons behind a revenue shortfall for the programme (geared to the import requirements of humanitarian supplies fixed by Baghdad) was "the manner in which the price of Iraqi crude oil is set the (Security Council) Committee has been pricing Iraqi oil retroactively amidst market reports of Iraq's demands for surcharge payments from its buyers". He added: "It is our understanding that the major traders are focussing their attention on the future of what has come to be known as the retroactive pricing of Iraqi oil. Accordingly, I should like to reiterate my appeal to the Government of Iraq to be forthcoming in order to resolve the continuing disagreement over the pricing of Iraqi oil in order to resolve the difficulties encountered in improving the critical funding situation. I should also like to reiterate my appeal to the members of the Security Council Committee to be forthcoming and take the necessary and appropriate actions, in response to positive measures, which the Government of Iraq may take in that regard." "So, in view of what Mr Sevan told the Security Council three years ago, there is nothing new about the surcharge payments which, according to one report, began in September 2000 and lasted till September 2002. If people knew about these payments and senior programme implementers at the UN at that why was nothing done about them at this time, or even earlier?
Among other things, it can be argued that the member-States of the UN were also responsible in making sure that whatever was paid by the buyers of Iraqi oil went straight into the escrow account set up by the Secretary-General for the purpose. Resolution 986(1995) is very clear on the point. Para 1 says that member-States are authorised "to permit the import of petroleum and petroleum products originating in Iraq" subject to the condition that "payment of the full amount of each purchase of Iraqi petroleum and petroleum products (should be made) directly by the purchaser in the State concerned into the escrow account to be established by the Secretary-General for the purposes of this resolution".
This has to be read with Para 14 which says that "all States shall take any steps that may be necessary under their respective domestic legal systems to assure this protection, and to ensure that the proceeds of the sale are not diverted from the purposes laid down in this resolution".
The pricing issue is closely related to the `sovereignty' aspect of the debate, one point of view suggesting that if Iraq was prevented from selling oil at prices and to parties of its choice (para 1a of 986-1995) and importing humanitarian supplies from people and companies on the same basis (para 8a), some of the loopholes which were taken advantage of by unscrupulous UN officials to line their own pockets by overlooking `infringements' could have been done away with.
"This can be easily accepted as a theoretical point, but, of course, the practicability of the suggested course of action would have been difficult in the early nineties since Iraq was a sovereign nation and, as a US Senator pointed out much later, "sovereign nations are generally free to determine to whom they will sell their national product and from whom they purchase supplies".
It is within this very large framework that the Congress Party and Mr Natwar Singh find their names splashed about in the media today. If they have infringed any law they must surely pay a penalty for doing so. But the big picture is the much more important issue here in which, if Senate investigations are any guide, the US too has not played an inconsiderable role.
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