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UN probe details scope of corruption in oil-for-food

Report cites collusion with Hussein regime

UNITED NATIONS -- In a final report documenting massive corruption in the UN oil-for-food program, investigators yesterday accused more than 2,200 companies, and prominent politicians, of colluding with Saddam Hussein's regime to bilk the humanitarian operation of $1.8 billion.

The 623-page document exposed the global scope of a scam that allegedly involved such name-brand companies as DaimlerChrysler and Siemens AG, as well as a former French UN ambassador, a firebrand British politician, and the president of Italy's Lombardi region.

It meticulously detailed how the $64 billion program became a cash cow for Hussein and more than half the companies participating in oil-for-food -- at the expense of Iraqis suffering under UN sanctions. It blamed shoddy UN management and the world's most powerful nations for allowing the corruption to go on for years.

''What I do want to emphasize is that the corruption of the program by Saddam . . . could not have been nearly so pervasive had there been more disciplined management by the UN and its agencies," said Paul Volcker, a former Federal Reserve chairman who led the investigation.

Volcker and many nations said the report underscored the urgent need to overhaul the United Nations. Earlier reports in his investigation have already led to criminal inquiries and indictments in the United States, France, and Switzerland. Volcker said his team would cooperate with legal authorities following up on the report.

The investigators found that companies and individuals from 66 countries paid illegal kickbacks using a variety of methods, and those paying illegal oil surcharges came from, or were registered in, 40 countries.

The companies came from Thailand, Malaysia, Russia, Belarus, Syria, Canada, and many other places. Many businesses in the developing world made large payments to get humanitarian contracts, the report said.

Vietnam Northern Food Corp. purportedly paid $37.5 million in kickbacks, while Egypt's Holding Company for Food Industries allegedly paid $30.5 million.

Asked what the report said about the state of global business, Volcker said: ''There's a lot of corruption in the world."

Most of the contracts went to Russian and French companies and individuals, who were rewarded for their governments' outspoken opposition to the sanctions. Still, even firms in countries supportive of the sanctions, such as the United States, found ways to manipulate the system illegally -- sometimes by using Russian firms as middlemen, the report said.

The oil-for-food program, which ran from 1996 to 2003, allowed Iraq to sell limited and then unlimited quantities of oil, provided most of the money went to buy humanitarian goods. It was launched to help ordinary Iraqis cope with UN sanctions imposed after Hussein's 1990 invasion of Kuwait.

But Hussein, who could choose the buyers of Iraqi oil and the sellers of humanitarian goods, awarded contracts to -- and got kickbacks from -- favored buyers.

Volcker's $38 million investigation, which ran for more than a year, had earlier faulted UN Secretary-General Kofi Annan, his deputy, and the Security Council for tolerating corruption.

Yesterday's report detailed how companies bilked the program: through surcharges paid for humanitarian contracts for supplies; and via kickbacks for oil contracts. Most of the illicit income -- more than $1.5 billion -- came from the humanitarian contracts.

Among the companies that paid illegal surcharges were South Korea's Daewoo International and three subsidiaries of Siemens AG of Germany, as well as the Brussels-based Volvo Construction Equipment, the report said.

On the oil side, contractors listed included Texas-based Bayoil and Coastal Corp., Russian oil giant Gazprom, and Lukoil Asia Pacific, a subsidiary of the Russian company Lukoil.

The founder and former chairman of Coastal, Texas oil tycoon Oscar Wyatt, pleaded not guilty yesterday in New York to charges that he conspired to pay several million dollars in illegal kickbacks to Hussein's regime to win contracts through the program. His trial date was set for June 20.

The report strongly criticizes the UN Secretariat and Security Council for failing to monitor the program and allowing the emergence of front companies and international trading concerns prepared to make illegal payments.

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