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| <title> - THE U.N. OIL FOR FOOD PROGRAM: CASH COW MEETS PAPER TIGER</title> | |
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| [House Hearing, 108 Congress] | |
| [From the U.S. Government Publishing Office] | |
| THE U.N. OIL FOR FOOD PROGRAM: CASH COW MEETS PAPER TIGER | |
| ======================================================================= | |
| HEARING | |
| before the | |
| SUBCOMMITTEE ON NATIONAL SECURITY, | |
| EMERGING THREATS AND INTERNATIONAL | |
| RELATIONS | |
| of the | |
| COMMITTEE ON | |
| GOVERNMENT REFORM | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED EIGHTH CONGRESS | |
| SECOND SESSION | |
| __________ | |
| OCTOBER 5, 2004 | |
| __________ | |
| Serial No. 108-286 | |
| __________ | |
| Printed for the use of the Committee on Government Reform | |
| Available via the World Wide Web: http://www.gpo.gov/congress/house | |
| http://www.house.gov/reform | |
| THE U.N. OIL FOR FOOD PROGRAM: CASH COW MEETS PAPER TIGER | |
| ======================================================================= | |
| HEARING | |
| before the | |
| SUBCOMMITTEE ON NATIONAL SECURITY, | |
| EMERGING THREATS AND INTERNATIONAL | |
| RELATIONS | |
| of the | |
| COMMITTEE ON | |
| GOVERNMENT REFORM | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED EIGHTH CONGRESS | |
| SECOND SESSION | |
| __________ | |
| OCTOBER 5, 2004 | |
| __________ | |
| Serial No. 108-286 | |
| __________ | |
| Printed for the use of the Committee on Government Reform | |
| Available via the World Wide Web: http://www.gpo.gov/congress/house | |
| http://www.house.gov/reform | |
| ------ | |
| U.S. GOVERNMENT PRINTING OFFICE | |
| 20-052 WASHINGTON : 2005 | |
| _____________________________________________________________________________ | |
| For Sale by the Superintendent of Documents, U.S. Government Printing Office | |
| Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 | |
| Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 | |
| COMMITTEE ON GOVERNMENT REFORM | |
| TOM DAVIS, Virginia, Chairman | |
| DAN BURTON, Indiana HENRY A. WAXMAN, California | |
| CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California | |
| ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York | |
| JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York | |
| JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania | |
| MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York | |
| STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland | |
| DOUG OSE, California DENNIS J. KUCINICH, Ohio | |
| RON LEWIS, Kentucky DANNY K. DAVIS, Illinois | |
| TODD RUSSELL PLATTS, Pennsylvania JOHN F. TIERNEY, Massachusetts | |
| CHRIS CANNON, Utah WM. LACY CLAY, Missouri | |
| EDWARD L. SCHROCK, Virginia DIANE E. WATSON, California | |
| JOHN J. DUNCAN, Jr., Tennessee STEPHEN F. LYNCH, Massachusetts | |
| NATHAN DEAL, Georgia CHRIS VAN HOLLEN, Maryland | |
| CANDICE S. MILLER, Michigan LINDA T. SANCHEZ, California | |
| TIM MURPHY, Pennsylvania C.A. ``DUTCH'' RUPPERSBERGER, | |
| MICHAEL R. TURNER, Ohio Maryland | |
| JOHN R. CARTER, Texas ELEANOR HOLMES NORTON, District of | |
| MARSHA BLACKBURN, Tennessee Columbia | |
| PATRICK J. TIBERI, Ohio JIM COOPER, Tennessee | |
| KATHERINE HARRIS, Florida BETTY McCOLLUM, Minnesota | |
| MICHAEL C. BURGESS, Texas ------ | |
| ERIC CANTOR, Virginia BERNARD SANDERS, Vermont | |
| (Independent) | |
| Melissa Wojciak, Staff Director | |
| David Marin, Deputy Staff Director/Communications Director | |
| Rob Borden, Parliamentarian | |
| Teresa Austin, Chief Clerk | |
| Phil Barnett, Minority Chief of Staff/Chief Counsel | |
| Subcommittee on National Security, Emerging Threats and International | |
| Relations | |
| CHRISTOPHER SHAYS, Connecticut, Chairman | |
| MICHAEL R. TURNER, Ohio DENNIS J. KUCINICH, Ohio | |
| DAN BURTON, Indiana TOM LANTOS, California | |
| STEVEN C. LaTOURETTE, Ohio BERNARD SANDERS, Vermont | |
| RON LEWIS, Kentucky STEPHEN F. LYNCH, Massachusetts | |
| TODD RUSSELL PLATTS, Pennsylvania CAROLYN B. MALONEY, New York | |
| ADAM H. PUTNAM, Florida LINDA T. SANCHEZ, California | |
| EDWARD L. SCHROCK, Virginia C.A. ``DUTCH'' RUPPERSBERGER, | |
| JOHN J. DUNCAN, Jr., Tennessee Maryland | |
| TIM MURPHY, Pennsylvania JOHN F. TIERNEY, Massachusetts | |
| KATHERINE HARRIS, Florida DIANE E. WATSON, California | |
| Ex Officio | |
| TOM DAVIS, Virginia HENRY A. WAXMAN, California | |
| Lawrence J. Halloran, Staff Director and Counsel | |
| Thomas Costa, Professional Staff Member | |
| Robert A. Briggs, Clerk | |
| Andrew Su, Minority Professional Staff Member | |
| C O N T E N T S | |
| ---------- | |
| Page | |
| Hearing held on October 5, 2004.................................. 1 | |
| Statement of: | |
| Kennedy, Ambassador Patrick F., U.S. Representative to the | |
| United Nations for U.N. management and reform, U.S. mission | |
| to the United Nations, U.S. Department of State............ 56 | |
| Smith, David L., Director, Corporate Banking Operations, BNP | |
| Paribas; Peter W.G. Boks, managing director, Saybolt | |
| International B.V; and Andre E. Pruniaux, senior vice | |
| president, Africa and Middle East, Cotecna Inspection S.A.. 97 | |
| Letters, statements, etc., submitted for the record by: | |
| Boks, Peter W.G., managing director, Saybolt International | |
| B.V, prepared statement of................................. 156 | |
| Kennedy, Ambassador Patrick F., U.S. Representative to the | |
| United Nations for U.N. management and reform, U.S. mission | |
| to the United Nations, U.S. Department of State, prepared | |
| statement of............................................... 62 | |
| Maloney, Hon. Carolyn B., a Representative in Congress from | |
| the State of New York, prepared statement of............... 32 | |
| Pruniaux, Andre E., senior vice president, Africa and Middle | |
| East, Cotecna Inspection S.A, prepared statement of........ 324 | |
| Ruppersberger, Hon. C.A. Dutch, a Representative in Congress | |
| from the State of Maryland, prepared statement of.......... 40 | |
| Shays, Hon. Christopher, a Representative in Congress from | |
| the State of Connecticut: | |
| Prepared statement of.................................... 3 | |
| Prepared statement of Christine Grenier, First Secretary, | |
| Political Section, French Embassy...................... 50 | |
| Smith, David L., Director, Corporate Banking Operations, BNP | |
| Paribas, prepared statement of............................. 101 | |
| Watson, Hon. Diane E., a Representative in Congress from the | |
| State of California, prepared statement of................. 18 | |
| Waxman, Hon. Henry A., a Representative in Congress from the | |
| State of California: | |
| E-mail dated October 4, 2004............................. 47 | |
| Prepared statement of.................................... 8 | |
| THE U.N. OIL FOR FOOD PROGRAM: CASH COW MEETS PAPER TIGER | |
| ---------- | |
| TUESDAY, OCTOBER 5, 2004 | |
| House of Representatives, | |
| Subcommittee on National Security, Emerging Threats | |
| and International Relations, | |
| Committee on Government Reform, | |
| Washington, DC. | |
| The subcommittee met, pursuant to notice, at 11:25 a.m., in | |
| room 2154, Rayburn House Office Building, Hon. Christopher | |
| Shays (chairman of the subcommittee) presiding. | |
| Present: Representatives Shays, Turner, Duncan, Murphy, | |
| Lantos, Sanders, Lynch, Maloney, Sanchez, Ruppersberger, | |
| Tierney, Watson, and Waxman [ex officio]. | |
| Also present: Representative Ose. | |
| Staff present: Lawrence Halloran, staff director and | |
| counsel; J. Vincent Chase, chief investigator; R. Nicholas | |
| Palarino, senior policy advisor; Thomas Costa and Kristine | |
| McElroy, professional staff members; Robert A. Briggs, clerk; | |
| Hagar Hajjar, intern; Phil Barnett, minority staff director; | |
| Kristin Amerling, minority deputy chief counsel; Karen | |
| Lightfoot, minority communications director/senior policy | |
| advisor; David Rapallo, minority counsel; Andrew Su, minority | |
| professional staff member; Early Green, minority chief clerk; | |
| and Jean Gosa, minority assistant clerk. | |
| Mr. Shays. A quorum being present, the Subcommittee on | |
| National Security, Emerging Threats and International Relations | |
| hearing entitled, ``The U.N. Oil-for-Food Program: Cash Cow | |
| Meets Paper Tiger,'' is called to order. | |
| The United Nations Oil-for-Food Program was mugged by | |
| Saddam Hussein. Through cynical, yet subtle manipulation, he, | |
| and an undeclared Coalition of the Venal on the Security | |
| Council, exploited structural flaws in the program and | |
| institutional naivete at the U.N. to transform a massive | |
| humanitarian aid effort in a multibillion dollar sanctions- | |
| busting scam. | |
| How did it happen? How was a well-intentioned program | |
| designed and administered by the world's preeminent | |
| multinational organization so systematically and so thoroughly | |
| corrupted? | |
| The answers emerging from our investigation point to a | |
| debilitating combination of political paralysis and a lack of | |
| oversight capacity, allowed to metasticize behind a veil of | |
| official secrecy. Acceding to shameless assertions of Iraqi | |
| sovereignty, sovereignty already betrayed by Saddam's brutal | |
| willingness to starve the Iraqi people, the U.N. gave the | |
| Hussein regime control over critical aspects of the program. | |
| Saddam decided with whom to do business and on what terms. | |
| While Chinese, French, and Russian delegates to the Security | |
| Council's Sanctions Committee deftly tabled persistent reports | |
| of abuses, the contractors hired to finance and monitor the | |
| program had only limited authority to enforce safeguards. | |
| We will hear from these contractors today. BNP Paribas, the | |
| international bank retained by the U.N. to finance oil and | |
| commodity transactions through letters of credit, describes its | |
| functions as purely nondiscretionary. Saybolt International, | |
| responsible for verifying oil shipments, faced physical and | |
| political constraints on performance of their work. | |
| Additionally the firm Cotecna Inspection was given only a | |
| limited technical role in authenticating shipments of | |
| humanitarian goods into Iraq. | |
| The U.N. appears to have assumed that the rigor of | |
| commercial trade practices would protect the program, while the | |
| contractors took false comfort in the assumption the U.N. would | |
| assure the integrity of this decidedly noncommercial | |
| enterprise. Once it became clear the Security Council was | |
| politically unable to police the program, no one had any | |
| incentive to strengthen oversight mechanisms that would only be | |
| ignored. | |
| As this and other investigations got underway, the | |
| companies expressed their willingness to provide detailed | |
| information on their Oil-for-Food activities but | |
| confidentiality provisions in U.N. agreements prevented their | |
| coming forward until the committee's ``friendly'' subpoenas | |
| trumped those contractual restraints. Since then, they have | |
| provided thousands of pages and gigabytes of data which we and | |
| other committees are reviewing. | |
| Today we are releasing some of those documents because, | |
| apart from any findings or recommendations we might adopt, a | |
| major goal of this investigation is to bring transparency to | |
| secretive U.N. processes and to put information about this | |
| highly important international program in the public domain. | |
| The documents provide the first detailed glimpse into the | |
| structural vulnerabilities and operational weaknesses exploited | |
| by Saddam and his allies. | |
| From what we have learned thus far, one conclusion seems | |
| inescapable: The U.N. sanctions regime against Iraq was all but | |
| eviscerated, turned inside out by political manipulation and | |
| financial greed. Saddam's regime was not collapsing from | |
| within; it was thriving. He was not safely contained, as some | |
| contend, but was daily gaining the means to threaten regional | |
| and global stability again, once sanctions were removed. | |
| Testimony from our witnesses today will contribute | |
| significantly to our ongoing oversight and to the public | |
| understanding of the United Nations Oil-for-Food Program. We | |
| sincerely thank them for their participation today and we look | |
| forward to their continued cooperation in our work. | |
| At this time the Chair would recognize the ranking member | |
| of the full committee, Mr. Waxman who is an ex officio member. | |
| [The prepared statement of Hon. Christopher Shays follows:] | |
| [GRAPHIC] [TIFF OMITTED] T0052.001 | |
| [GRAPHIC] [TIFF OMITTED] T0052.002 | |
| Mr. Waxman. Thank you, Mr. Chairman. | |
| Today the committee is holding the fifth congressional | |
| hearing to investigate allegations of mismanagement in the U.N. | |
| Oil-for-Food Program. This humanitarian effort was established | |
| in 1995 to provide for the basic needs of Iraqis while U.N. | |
| sanctions were in effect. Recently there have been serious | |
| allegations of corruption, overpricing and kickbacks under this | |
| program. | |
| And I want to make it clear that I believe it is | |
| appropriate for Congress to investigate these allegations in an | |
| evenhanded manner and follow the evidence wherever it leads. | |
| My complaint is that our scope is too narrow. If we are | |
| going to look at how Iraq's oil proceeds have been managed, we | |
| have an obligation to examine not only the actions of the U.N. | |
| but also our own actions. In fact, I would argue that our first | |
| priority should be to investigate our own conduct. | |
| The United States controlled Iraq's oil proceeds from the | |
| fall of Baghdad in May 2003 until June 2004. Yet Congress has | |
| not held a single hearing to examine the evidence of | |
| corruption, overpricing and lack of transparency in the | |
| successor to the Oil-for-Food Program, the Development Fund for | |
| Iraq--which was run by the Bush administration when the United | |
| States exercised sovereignty over Iraq. | |
| Here are the facts. When the Bush administration took over | |
| in Iraq, it received $20.6 billion through Iraqi oil proceeds, | |
| repatriated funds, and foreign donations. Halliburton was the | |
| single largest private recipient of these funds, receiving $1.5 | |
| billion under its contract to run Iraq's oil fields. | |
| This money belongs to the Iraqi people. It is not a slush | |
| fund. The Security Council directed the administration to use | |
| these funds in a transparent manner for the benefit of the | |
| Iraqi people. The Security Council passed Resolution 1483 which | |
| set up the International Advisory and Monitoring Board to make | |
| sure the Bush administration lived up to its obligations. | |
| But the Bush administration has not complied with this | |
| resolution. Reports from auditors at KPMG, an independent | |
| certified public accounting firm, as well as the Coalition | |
| Provisional Authority's own inspector general, have found that | |
| the Bush administration failed to properly account for Iraqi | |
| funds. | |
| KPMG said the Bush administration had inadequate accounting | |
| systems, inadequate recordkeeping, and inadequate controls over | |
| Iraqi oil proceeds. It reported that the administration's | |
| entire accounting system consisted of only one contractor | |
| maintaining excel spread sheets. That is one person for $20 | |
| billion. | |
| Likewise, the inspector general concluded that the Bush | |
| administration had no effective contract review tracking and | |
| monitoring system and that it failed to demonstrate the | |
| transparency required. | |
| These actions merit a full congressional investigation. | |
| They are compounded by evidence that the Bush administration is | |
| now actively blocking efforts to account for these funds. | |
| For 6 months, the Bush administration has been withholding | |
| documents from international auditors charged by the Security | |
| Council to oversee the administration's actions. In particular, | |
| the Bush administration is withholding documents about | |
| Halliburton's receipt of $1.5 billion in Iraqi oil proceeds. | |
| The auditors have made seven distinct requests for this | |
| information, including a letter from the Controller of the | |
| United Nations directly to Ambassador Bremer. But the | |
| administration has repeatedly refused to provide the documents, | |
| and continues to do so today. | |
| Three months ago, the international auditors ordered a | |
| special audit of the contract with Halliburton, but again the | |
| Bush administration has obstructed their work. Administration | |
| officials have refused to approve the audit's statement of work | |
| and refused to issue a request for proposal. The special audit | |
| has simply languished inside the Department of Defense. | |
| At this committee previous hearing, Mr. Claude Hankes- | |
| Drielsma, an advisor to the Iraqi Governing Council, testified | |
| that the Bush administration was not properly accounting for | |
| Iraqi funds. Ambassador Kennedy, who is here again today, could | |
| not explain why the Bush administration failed to follow its | |
| own rules and hire an accounting firm to manage the Iraqi oil | |
| proceeds. And the administration failed to adequately respond | |
| to the questions for the record we sent jointly regarding the | |
| DFI. | |
| These actions are hypocritical, they are arrogant, they | |
| breed resentment in the Arab world and they further deteriorate | |
| our global alliances, but most of all they undermine our | |
| efforts in Iraq because they reinforce the image that our | |
| primary objective in Iraq was to seize control of the country's | |
| oil wealth. | |
| If we are going to examine how Iraq's oil money has been | |
| spent, which I believe we should, we need to proceed in a fair | |
| and transparent way; and if we refuse to ask tough questions | |
| about the conduct of our own government officials, our efforts | |
| will have little credibility in the eyes of the world. | |
| After the opening statements today, I am going to make a | |
| motion for subpoenas so that we can continue the investigation | |
| of the success or failure of the U.N. Oil-for-Food Program | |
| which was run by the United States. I am going to ask for | |
| subpoenas, which we asked for, by the way, when subpoenas were | |
| issued for this investigation. We asked for subpoenas on the | |
| same basis that we needed a subpoena, for example, for the | |
| corporate banking operations of BNP Paribas to give us the | |
| documents which the chairman is going to make public today. | |
| Those documents would not be turned over without a subpoena. | |
| Documents will not be turned over to us from the Federal | |
| Reserve Bank on the same basis. We need a subpoena to get them. | |
| We need further subpoenas as well, and I will be making a | |
| motion for both subpoenas to be issued so that while we have | |
| our hearing today, we can be prepared to do the full | |
| investigation of what happened to the oil money after we took | |
| over. | |
| We want to know what happened when the U.N. was running it; | |
| if there was corruption, if there was fraud, if there was a | |
| lack of transparency. But we have a special obligation to know | |
| what happened to that money when we took it over, if there was | |
| corruption, if there was fraud, if there was a lack of | |
| transparency. And so far the Bush administration is refusing to | |
| help in this investigation to know what happened after they ran | |
| those funds. | |
| So I know, Mr. Chairman we are going to have the opening | |
| statements from the Members first. Before we then proceed to | |
| the first witness, I will make my motion for subpoenas. And as | |
| I understand it, you are going to ask that vote be held later, | |
| after the witnesses have testified, presumably because we have | |
| done too good a job of getting the Democrats here to vote, and | |
| the Republicans, unaware that the vote would be taking place, | |
| are not here in sufficient numbers. I understand that is in the | |
| chairman's discretion. | |
| I want to vote. If it is a bipartisan vote, that would be | |
| great. I think we ought to have a bipartisan vote to get these | |
| subpoenas. If it is a partisan vote, well, I think the American | |
| people ought to know that the Republicans are going to vote to | |
| stop a real investigation of the actions of the Bush | |
| administration with regard to the use of those funds and | |
| particularly because of the Halliburton involvement. | |
| [The prepared statement of Hon. Henry A. Waxman follows:] | |
| [GRAPHIC] [TIFF OMITTED] T0052.003 | |
| [GRAPHIC] [TIFF OMITTED] T0052.004 | |
| [GRAPHIC] [TIFF OMITTED] T0052.005 | |
| [GRAPHIC] [TIFF OMITTED] T0052.006 | |
| [GRAPHIC] [TIFF OMITTED] T0052.007 | |
| [GRAPHIC] [TIFF OMITTED] T0052.008 | |
| Mr. Shays. I thank the gentleman. I also thank him for | |
| letting me know that he was going to make this motion, but I | |
| did not know in time to tell the Members. This is a hearing and | |
| I don't think they thought there would be votes, so I | |
| appreciate his letting us know. | |
| At this time, the Chair would recognize the vice chairman, | |
| Michael Turner. | |
| Mr. Turner. Thank you, Chairman Shays, for holding this | |
| hearing and for continuing your efforts to continue to examine | |
| the Oil-for-Food Program. | |
| In our first hearing, we explored the accountability and | |
| integrity issues with the program. We discovered a lack of | |
| transparency and little accountability. Except for the actions | |
| of the United States and the United Kingdom, it appears that no | |
| one was bringing to light the corruption in the program. | |
| The Oil-for-Food Program at its creation was poised for | |
| corruption. The U.N. allowed Iraq to select not only the | |
| suppliers of food and medicine but also the buyers of Iraqi | |
| oil. The mechanisms established by the U.N. for controlling | |
| Oil-for-Food contracts were inadequate. Transparency was | |
| nonexistent, and an effective internal review of the program | |
| did not occur. We do not know if members of the Security | |
| Council were involved in any of the corruption, but enough | |
| ancillary information exists to question the objectiveness and | |
| credibility of the Security Council and the United Nations. | |
| Mr. Chairman, I appreciate your continued leadership on | |
| this important issue. I appreciate your continued leadership on | |
| the issue of our continuing involvement in Iraq and its | |
| transition to democracy. | |
| Thank you, Mr. Chairman. | |
| Mr. Shays. I thank the gentleman. | |
| At this time the Chair would recognize Mr. Tierney. | |
| Mr. Tierney. Mr. Chairman, thank you. I share your concern | |
| about the diversion of Iraqi oil proceeds through graft, | |
| kickbacks, and other schemes designed to line the pockets of | |
| corrupt Iraqi leaders. | |
| If I may, I would like to read an account about the | |
| corruption that occurred in Iraq under the management | |
| previously in charge. Mr. Said Abdul Kassam was the Iraqi | |
| official in charge of withdrawals at the Iraq central bank. He | |
| reported that there was no need to rob the bank in a daring | |
| heist with guns and masks, because the bank was robbed every | |
| day by the directors of the Iraqi ministries. | |
| According to Mr. Kassam, they use up all the money they | |
| want to withdraw. If it's a big amount they can get it in big | |
| bags. If it's a small amount they get it in a box. But the | |
| directors general are those people who are withdrawing the | |
| money. They can take the money immediately from the bank and | |
| put it in their pockets. | |
| Mr. Chairman, I regret to say that this didn't happen under | |
| the Oil-for-Food Program; it happened under the Development | |
| Fund for Iraq. When I mentioned the previous management, I was | |
| talking about this country, the U.S. administration. The | |
| account was from an NPR series called ``Spoils of War'' and it | |
| highlights just how dysfunctional the Bush administration's | |
| management of DFI funds actually was. There was virtually no | |
| monitoring of what happened to Iraqi funds once they left the | |
| hands of this administration's officials. | |
| Indeed, according to the Wall Street Journal article | |
| published on September 17, the Coalition Provisional | |
| Authority's own inspector general has now completed a report | |
| finding that the Bush administration, ``hasn't demonstrated it | |
| kept much control over any of the assets it seized following | |
| the war.'' | |
| In particular, the IG study reportedly concludes that the | |
| Bush administration failed to account for $8.8 billion in DFI | |
| funds that were transferred to Iraqi ministries. According to | |
| the general report, the occupation government was unable to say | |
| for sure whether the money it disbursed was spent properly, or | |
| even spent at all. | |
| It is amazing that we have held hearing after hearing about | |
| the United Nations; management of the Oil-for-Food Program, | |
| which I agree we should. I think you are on the right track, | |
| and that is necessary. But we have not held even one hearing on | |
| this administration's mismanagement of Iraqi oil proceeds, and | |
| I agree with Mr. Waxman that is equally as important to the | |
| credibility of this country if we are going to really look at | |
| the situation and have the respect of the world, knowing that | |
| we are trying to be transparent and get to the bottom of how | |
| these moneys were expended. | |
| How can we expect the rest of the world to follow this | |
| administration's example? How can we expect them to comply with | |
| Security Council resolutions when the Bush administration | |
| ignores them? | |
| Mr. Chairman, we do no service to the administration by | |
| allowing them to proceed in this manner. I urge the committee | |
| to immediately address these issues and exercise meaningful | |
| oversight as well as continue our hearing process on the U.N. | |
| Oil-for-Food Program, but we must be resolute about all of the | |
| improprieties or lapses. | |
| Thank you. I yield back. | |
| Mr. Shays. I thank the gentleman. | |
| At this time the Chair would recognize Mr. Duncan. | |
| Mr. Duncan. Thank you very much, Mr. Chairman. | |
| A few years ago, 60 Minutes did a report on the | |
| scandalously high level of waste, fraud, and abuse occurring at | |
| the United Nations, much of it with American money. But this | |
| Oil-for-Food Program scandal really takes the cake, and so I | |
| appreciate very much your continuing to look into this | |
| situation and hold these hearings. | |
| Through this program, Saddam Hussein obtained $10.1 billion | |
| in illegal revenues. I remember hearing a talk a few months ago | |
| by Charlie Cook, the very respected political analyst, and he | |
| said that people really can't comprehend a figure over $1 | |
| billion. And it is difficult to think of how much money $10.1 | |
| billion is. This money was mostly squandered on Hussein's | |
| palaces, luxury cars, and lavish lifestyle that he and his | |
| family were living. This theft was made possible, apparently, | |
| by surcharges, illegal kickbacks, and abuse by U.N. personnel | |
| and by the lackadaisical and inept attitude of--and greedy | |
| attitude, really, of some of the companies involved that we | |
| will hear from today. | |
| The Wall Street Journal reported in an editorial what a lot | |
| of business the U.N. did. Mr. Annan, Kofi Annan's Secretariat | |
| and his staff collected more than $1.4 billion in commissions | |
| on these sales. But during this time the U.N. was doing almost | |
| nothing to really push weapons inspections and other things | |
| that they should have been doing in Iraq. | |
| The U.N. Oil-for-Food Program was the largest humanitarian | |
| effort in U.N. history. Unfortunately, it has now become the | |
| shining example of everything that is wrong with this | |
| organization. The United States pays one-fourth of the | |
| operating expenses of the United Nations, one-third of the | |
| money to many of the other U.N. programs, and mostly as much as | |
| 90 or 95 percent on most of the U.N. peacekeeping operation. If | |
| the U.N. cannot provide any better oversight than what we see | |
| through this program, then surely our tax dollars can be spent | |
| better elsewhere, particularly at a time when we have a $7\1/2\ | |
| trillion national debt, and deficits running in the $400 to | |
| $500 billion range. | |
| Thank you, Mr. Chairman. | |
| Mr. Shays. Thank the gentleman. | |
| And the Chair at this time would recognize Ms. Watson. | |
| Ms. Watson. Mr. Chairman, thank you. I think it is critical | |
| for Congress to address the serious questions surrounding the | |
| Bush administration's deficit management of Iraqi oil proceeds | |
| and other funds in the Development Fund for Iraq. | |
| We made a commitment to the Iraqi people, a promise that we | |
| would spend their money for their benefit, and we do have to | |
| remember that it is their money. We also promised to spend it | |
| in a transparent manner so the entire world would know that we | |
| were managing their funds properly and are not allowing graft, | |
| corruption, and mismanagement to infiltrate our mission there. | |
| Unfortunately, Mr. Chairman, it appears that the Bush | |
| administration has failed to live up to those commitments. | |
| Auditors at the CPA's own Inspector General's Office have | |
| issued a report that is extremely critical of the | |
| administration's management of Iraqi funds in the Development | |
| Fund for Iraq. In particular, the inspector general's report | |
| criticizes actions by the administration's contracting | |
| activities office in Iraq. | |
| If I may, I would like to read just a short portion of the | |
| report. The CPA contracting activity had not issued standard | |
| operating procedures or developed an effective contract review | |
| tracking and monitoring system. In addition, contract files | |
| were missing or incomplete. Further, contracting officers did | |
| not always ensure that contract prices were fair and | |
| reasonable, contractors were capable of meeting delivery | |
| schedules, and payments were made in accordance with contract | |
| requirements. | |
| This occurred because the CPA contracting activity did not | |
| provide adequate administrative oversight and technical | |
| supervision over the contracting actions completed by procuring | |
| contracting officers as required. As a result, the CPA | |
| contracting activity was not accurately reporting the number of | |
| contracts actually awarded by the CPA contracting activity. | |
| This hindered the CPA contracting activity's ability to | |
| demonstrate the transparency required of the CPA when it | |
| awarded contracts using DFI funds. | |
| Mr. Chairman, this is an indictment of the administration's | |
| entire management approach to the funds of the Iraqi people. | |
| The inspector general went on to warn that because contract | |
| files were not adequately maintained, they cannot be relied | |
| upon to ensure compliance or to be used as a source for | |
| congressional reporting. | |
| How are we in Congress supposed to be able to conduct our | |
| oversight responsibilities when the information is not | |
| reliable? The inspector general's report found that of the | |
| contracts they analyzed, 67 percent had incomplete or missing | |
| documentation. Sixty-seven percent, Mr. Chairman. This is a | |
| horrendous record. | |
| Finally, the inspector general provided its fundamental | |
| conclusion about the administration's stewardship of these | |
| Iraqi funds. The inspector general reported we do not believe | |
| that transparency can be achieved when pertinent data is | |
| unavailable or inaccurate. | |
| Mr. Chairman, this is an embarrassment to our country. The | |
| Bush administration has failed to comply with Security Council | |
| Resolution 1483 and we need to take action. | |
| Thank you Mr. Chairman. | |
| Mr. Shays. I thank the gentlelady. | |
| [The prepared statement of Hon. Diane E. Watson follows:] | |
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| Mr. Shays. At this time the Chair would recognize Mr. | |
| Murphy. | |
| Mr. Murphy. Thank you, Mr. Chairman. | |
| The focus of today's hearing is really twofold. First, to | |
| investigate the structural weaknesses that made the Oil-for- | |
| Food Program vulnerable to diversion and exploitation; and | |
| second, to determine the steps Oil-for-Food Program manager and | |
| contractors took to prevent abuse. | |
| Now, we could spend all day just on point No. 1, but sadly | |
| I think the answer is staring us all in the face. The evidence | |
| uncovered over the last year by several different | |
| investigations cast little doubt that one of the fundamental | |
| problems with the U.N. Oil-for-Food Program was that the U.N. | |
| was running it, fueled by the greed and complicity of other | |
| countries. | |
| Despite repeated criticisms and questions of concern, U.N. | |
| member countries and U.N. personnel continually turned a blind | |
| eye to the corruption of a program designed to get humanitarian | |
| assistance to the people living under one of the most corrupt | |
| regimes in the world. We knew Saddam Hussein was corrupt, and | |
| his tactics of ruthless violence were a way of life. One would | |
| think the U.N. would be aware of this and structure the program | |
| in such a way so as to guard against it. One would think that | |
| attempts by Hussein to evade the sanctions through this program | |
| would be anticipated, and thus steps taken to counter his | |
| money-making scheme from the beginning, rather than trying to | |
| put out fires after the fact. | |
| Rather, it appears as if the Oil-for-Food Program went out | |
| of its way to encourage scandal and the illicit use of | |
| humanitarian contracts to line the pockets of Saddam Hussein | |
| and his cronies. | |
| Now, the United States gave millions in lives to France in | |
| World War I, World War II, and Vietnam. Yet they turned their | |
| backs on us when faced with Hussein's ever-increasing threat to | |
| the international community. | |
| France and Russia had two choices: Help us militarily, or | |
| intervene directly with Saddam Hussein to cooperate with | |
| weapons inspectors and stop his murderous regime. They did | |
| neither. Why didn't these countries step forward? Perhaps it | |
| had something to do with the fact that evidence suggests Russia | |
| was the recipient of 1.366 billion barrels of oil through | |
| Hussein's voucher scheme. And French companies close to | |
| President Chirac also benefited from Saddam's power. They were | |
| up to their ears in corruption, and the financial benefit of | |
| keeping Saddam Hussein in power weigh more heavily than their | |
| friendship with the United States. | |
| Corruption in the Oil-for-Food Program enriched Hussein to | |
| the tune of $10.1 billion, enough to buy and build more | |
| weapons, more clandestine activity and further undermine the | |
| entire U.N. sanctions program. | |
| There was one line in the subcommittee's background memo | |
| that really sums up the problem with the program, ``The Oil- | |
| for-Food Program was essentially run by Saddam Hussein.'' | |
| How is it that the U.N. could allow the terms of a program | |
| meant to punish a tyrannical leader, while offering assistance | |
| to the very people that suffered under him to be dictated by | |
| that very tyrant? It is because the current nature of the U.N. | |
| is to be soft on terrorism and the world leaders that support | |
| it. | |
| The spineless U.N. produced paper tigers in the form of | |
| resolutions that had no teeth. Time and again, the U.N. told | |
| Saddam Hussein and terrorists that the U.N. was all talk and no | |
| follow-through. And the world has reaped the grim harvest of | |
| that approach: more terrorists emboldened by the U.N.'s | |
| weaknesses. | |
| According to classified documents reviewed by the | |
| subcommittee, the U.N. created and encouraged an environment | |
| whereby Russia, France, China, and Syria, all nations standing | |
| to gain financially by the continued support of Saddam's | |
| government, continually blocked efforts by the United States | |
| and the United Kingdom to maintain the integrity of the Oil- | |
| for-Food Program. And all of those countries sat on the U.N. | |
| Security Council. | |
| The contractors responsible for inspecting shipments coming | |
| in and out of Iraq were also undermined by the U.N. Oil-for- | |
| Food Program policies. If the obstacles by Iraqi personnel were | |
| not enough, the U.N. denied the contractors the staff and the | |
| authority necessary to enforce inspection standards. One | |
| example given was an instance in which Saybolt was unable to | |
| prevent the transfer of oil onto a ship with expired letters of | |
| credit. If the inspectors had no enforcement powers, why have | |
| inspectors at all? | |
| Now, some may question why Congress is so interested in | |
| this issue. Our interest in the U.N.'s involvement in Iraq goes | |
| far beyond the Oil-for-Food Program. As the United States | |
| continues to fight terrorists in Iraq, our level of cooperation | |
| with the U.N. has been called into question. Yet, if France and | |
| Russia and the U.N. knowingly undermined the mission of the | |
| Oil-for-Food Program and knowingly undermined the efforts to | |
| stop Saddam Hussein, this Congress has a responsibility to ask | |
| who our allies are and who the U.N. is supporting. | |
| When some critics of the Iraq war claim our actions did not | |
| pass a global test, we must remember what interests the global | |
| community truly values. As I said before, we have given the | |
| French millions of our soldiers' lives, and they have given us | |
| the cold shoulder. France has repeatedly turned to us for help. | |
| In response, they have turned their back on us. The Oil-for- | |
| Food corruption scandal may be the answer of why. | |
| When the United States continues to foot the bill for U.N. | |
| peacekeeping missions, when the U.N. is unwilling to support us | |
| in our efforts to protect our own citizens, if winning the | |
| approval of the European countries of the U.N. for U.S. policy | |
| is the global test, maybe we should reconsider and question the | |
| reliability and supposed altruism of those sitting in judgment. | |
| I yield back my time, Mr. Chairman. | |
| Mr. Shays. Thank the gentleman. | |
| At this time, the Chair would recognize the distinguished | |
| gentleman from Vermont, Mr. Sanders. | |
| Mr. Sanders. Thank you very much, Mr. Chairman. | |
| I don't think there is any disagreement on this committee | |
| about the importance of investigating the U.N. Oil-for-Food | |
| Program. It is important to know how American dollars being | |
| contributed to the U.N. were spent and how the corrupt Saddam | |
| Hussein regime ended up stealing money that should have gone to | |
| hungry people in Iraq. So I have no objection about | |
| investigating that important issue. | |
| But I think it is equally important not only that we | |
| investigate what the U.N. does with American taxpayer money, it | |
| is equally important to investigate what the Bush | |
| administration and the U.S. Government does with American | |
| taxpayer moneys. | |
| You know, Mr. Chairman, I have been on this committee for | |
| more than a few years, and I can recall very clearly that | |
| during the Clinton administration this committee held dozens | |
| upon dozens of hearings to investigate every single allegation | |
| relating to the Clinton administration, no matter how off-the- | |
| wall those allegations were. We investigated the Vince Foster | |
| suicide. We investigate the Monica Lewinski, so-called | |
| Travelgate, Whitewater, ad infinitum, on and on and on. | |
| However, rather amazingly, during the Bush administration this | |
| committee has not held one substantive hearing to investigate | |
| any serious allegation against the Bush administration. And why | |
| is that important? It is important because we have a Republican | |
| administration. We have a Republican Senate. We have a | |
| Republican House. And it is the moral obligation under the | |
| Constitution of the United States that the Congress provide | |
| oversight to any administration; otherwise the government | |
| doesn't work. | |
| Yes, it is easy to beat up an administration from another | |
| party. We all know that. But we as Members of Congress have the | |
| responsibility to take a hard look at what any administration | |
| does, regardless of what party they are. And all over this | |
| country I think there is a growing concern, that the U.S. | |
| Congress has abdicated its oversight responsibility. | |
| All over America people are asking, why did we in fact go | |
| to war? And I know there are two sides to the issue. This | |
| committee hasn't looked at the rationale for going to war in | |
| Iraq. We haven't looked at the leak of the names of CIA agents. | |
| We haven't looked at the fact that the Medicare actuary was | |
| threatened with being fired if he actually told Members of | |
| Congress the truth about how much money the prescription drug | |
| program would cost. We haven't taken a look at the Cheney | |
| energy task force. | |
| Especially when we come to issues like Halliburton, we have | |
| a double responsibility. Everybody here knows that the Vice | |
| President of the United States used to be the CEO of | |
| Halliburton. Now, I am not casting any aspersions on what has | |
| happened. But all over this country people want to know, did | |
| Halliburton get a special deal? How come they got no bid | |
| contracts? How come billions of dollars went to Halliburton? | |
| Now, how come we are not looking at that issue? | |
| So, Mr. Chairman, what I would simply say is, yeah, let's | |
| take a hard look at what the U.N. did. And while I know it is | |
| easy to beat up on France and Germany, it might be a little bit | |
| more difficult but may be of more interest to the American | |
| people to take a hard look at what goes on at the Bush | |
| administration. | |
| I yield back. | |
| Mr. Shays. I thank the gentleman. | |
| At this time the Chair would recognize Mr. Lynch from | |
| Massachusetts. | |
| Mr. Lynch. Thank you, Mr. Chairman. | |
| I too believe that there is a very strong need to carry out | |
| a thorough investigation into the circumstances. I would like | |
| to focus on, however, with the Ambassador's cooperation, the | |
| facts that led us to this point. Now, here we have a situation | |
| where this Oil-for-Food Program was established back in 1995, | |
| after we had fought the first Gulf war, and it was established | |
| specifically because Saddam Hussein had run that country into | |
| the ground. He had failed to address the infrastructure needs | |
| and the humanitarian needs of his own people. He had used the | |
| country's natural resources as his own slush fund. He had used | |
| the basic funds that were in the treasury, the national | |
| treasury, at his own pleasure. He had ignored the basic health | |
| and welfare of his citizens in favor of a military buildup. | |
| Saddam Hussein waged wars against Iran and invaded Kuwait. | |
| He had fired SCUD missiles into the civilian populations of | |
| Israel. And we fought a war to remove him from power, to remove | |
| him from Kuwait initially. And even with the evidence of his | |
| own atrocities and the evidence of the corrupt activities | |
| between him and his son, squandering the wealth of that country | |
| and abusing its citizens, after the United States took a | |
| leadership role in establishing this fund, in deciding who | |
| would contract for the Iraqi people, with this fund of $20 | |
| billion, after that worldwide search for who would negotiate | |
| and who would control the terms for the Iraqi people, the | |
| responsibility was given to those same people: Saddam Hussein | |
| and his thugs, his family, the people that have been abusing | |
| that country for the previous 40 years. That was the colossal | |
| failure here, that we allowed Saddam Hussein to call the terms | |
| of that agreement, and he had the support of some of our | |
| international neighbors in getting the most favorable terms, | |
| having a private bank handle this. | |
| We could not get information under the arrangement that was | |
| agreed to between the United Nations, Kofi Annan, Secretary | |
| General, and Saddam Hussein and his regime. How did we ever | |
| allow ourselves to be put in this position? How did we allow | |
| the victims here--and there are three sets of victims--one, the | |
| Iraqi people. This was their national wealth. This was their | |
| country, their resources; the American taxpayer footing the | |
| bill again; and also the credibility of the United Nations. | |
| There are great misgivings here because of what has gone | |
| on. There is a definite--I haven't been on this committee that | |
| long. I have come to this committee recently. I have been here, | |
| this will be almost 3 years I have been on this committee. But | |
| I can tell you there is a definite reluctance on this committee | |
| to investigate anything. | |
| I am still waiting, after three meetings with the Defense | |
| Department, to get the names of some Halliburton individuals | |
| whom they have removed for bribery and corrupt practices with | |
| individuals in Iraq and in the Middle East. On an investigatory | |
| committee in the Congress, and we can't get the names of our | |
| own people when they have conceded that they were involved in | |
| bribery and corrupt practices in which the taxpayers' funds | |
| have disappeared in the millions. | |
| We need to do our job here, and I believe we will get to it | |
| eventually. But there has been tremendous wrongdoing here, and | |
| we have to step up to the plate and do what the American people | |
| have asked us to do: Get to the bottom of this. | |
| I yield back Mr. Chairman. Thank you. | |
| Mr. Shays. I thank the gentleman very much. | |
| And, Mrs. Maloney, you're next. | |
| Mrs. Maloney. Thank you. Thank you very much, Chairman | |
| Shays, and I thank also Ranking Member Waxman for your holding | |
| this important hearing. And welcome, Ambassador Kennedy. It's | |
| good to see you again. | |
| I think that we learned a great deal last April at our | |
| hearing, but since the appointment of Paul Volcker and the | |
| independent inquiry of the Oil-for-Food Program, there is much, | |
| much more to understand. I do believe that it is very important | |
| that we as an oversight body in Congress look at the U.N. and | |
| their financing, but we must also look at the finances and how | |
| we as a government handled the funds. We need to look at that | |
| equally. And I have some grave concerns that some of my | |
| colleagues have raised today in their testimony of the | |
| stewardship of the Iraqi oil proceeds and the successor to the | |
| Oil-for-Food Program, the Development Fund for Iraq which we | |
| created. | |
| As was mentioned, on May 22, 2003, after the United States | |
| took control of Iraq, the U.N. Security Council passed | |
| Resolution 1483, formally transferring the Oil-for-Food assets | |
| to a new Development Fund for Iraq, and placing them under the | |
| authority of the Coalition Provisional Authority which was | |
| headed by Bremer. Resolution 1483 directed the Bush | |
| administration to spend these funds on behalf of the Iraqi | |
| people. The Security Council also imposed other restrictions, | |
| and I think these restrictions are important. And in the | |
| testimony today, I want to know why we didn't follow them. | |
| And I will give several examples: | |
| The Security Council required the administration to deposit | |
| all oil-sale proceeds into the Development Fund for Iraq, which | |
| is held by the central bank of Iraq at the Federal Reserve Bank | |
| of New York. | |
| The Security Council required that all deposits to and | |
| spending from the Development Fund of Iraq be done, ``in a | |
| transparent manner.'' | |
| And the Security Council required that the administration | |
| ensure that the Development Fund for Iraq funds were used to | |
| meet the humanitarian needs of the Iraqi people, and for other | |
| purposes benefiting the people of Iraq. | |
| To ensure that the administration complied with these | |
| requirements, the Security Council created the International | |
| Advisory Monitoring Board to oversee these actions, the IAMB | |
| board. The Board was envisioned as the primary vehicle for | |
| guaranteeing the transparency of Iraqi funds. When the Bush | |
| administration assumed responsibility for these funds, it | |
| explicitly agreed to these terms. | |
| On August 19, 2003, Ambassador Bremer issued a memorandum | |
| stating as follows, ``As steward for the Iraqi people, the CPA | |
| will manage and spend Iraqi funds which belong to the Iraqi | |
| people for their benefit. They shall be managed in a | |
| transparent manner that fully comports with the CPA's | |
| obligations under international law, including Resolution 1483 | |
| of the United Nations.'' | |
| But, Mr. Chairman, the administration has not complied with | |
| the resolution and I do not believe that the requirements were | |
| very strict. The administration took in, as Mr. Waxman noted, a | |
| total of $20.6 billion while it controlled this Development | |
| Fund in Iraq. On July 15, 2004, the oversight board issued its | |
| first audit report on the administration's stewardship of Iraqi | |
| funds, and this report was conducted by KPMG, which happens to | |
| be headquartered in the district I represent, the same | |
| international certified public accounting firm reviewing the | |
| Oil-for-Food Program. So we had the same auditor for both | |
| programs. | |
| KPMG criticized the administration for, ``inadequate | |
| accounting systems, inadequate recordkeeping, inadequate | |
| controls over Iraqi oil proceeds. On the most basic level, KPMG | |
| found that the administration failed to follow its own policy, | |
| to hire a certified public accounting firm. According to the | |
| KPMG report, the CPA was required to obtain the services of an | |
| independent certified public accounting firm to assist in the | |
| accounting function of the Development Fund of Iraq. But our | |
| administration, the current administration never did so. In | |
| addition, the sum total of the accounting system used by the | |
| administration consisted of--this is directly out of the KPMG | |
| report, ``excel spread sheets and pivot tables maintained by | |
| one individual.'' | |
| The KPMG report concluded as follows: ``the CPA senior | |
| advisor to the Ministry of Finances, who is also chairman of | |
| the Program Review Board, was unable to acknowledge the fair | |
| presentation of the statement of cash receipts and payments, | |
| the completeness of significant contracts entered into by the | |
| DFI and his responsibilities for the implementation and | |
| operations of accounting and internal control systems designed | |
| to prevent detect fraud and error.'' | |
| I believe these are very serious findings. They basically | |
| say that the United States has failed to comply with the | |
| transparency and accountability requirements set forth by the | |
| United Nations in the Security Council Resolution 1483. | |
| So I look forward to the opportunity to question Ambassador | |
| Kennedy about these serious problems. Truly having accountable | |
| and transparency over money is a very important role of | |
| government. We try to do this in our own government, and we | |
| certainly should bring the same standards to moneys that we | |
| oversaw in Iraq. | |
| So, again, I thank the chairman and the ranking member for | |
| their continued oversight. It is important, and I look forward | |
| to the opportunity to question Mr. Kennedy. | |
| Mr. Shays. I thank the gentlelady. | |
| [The prepared statement of Hon. Carolyn B. Maloney | |
| follows:] | |
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| Mr. Shays. And at this time, the Chair would recognize Mr. | |
| Ruppersberger. | |
| Mr. Ruppersberger. Sure. Mr. Chairman, I come to this | |
| hearing today with many concerns. My first concern is about the | |
| allegations that have been made and the way they are being | |
| investigated. | |
| There are three main charges that have been levied: | |
| overpricing by the Saddam regime; kickbacks made by the | |
| companies contracting with Saddam through the program, and what | |
| Saddam used that money for; and three, corruption within the | |
| U.N. itself in running the Oil-for-Food Program. | |
| These are all very serious allegations, and if any or all | |
| of them are proven to be true, those individuals proven to be | |
| guilty of illegalities and wrongdoing should be brought to full | |
| and complete justice. On that I believe we can all agree. | |
| I have serious concerns about the number of investigations | |
| occurring, the leaks to the media, the potential of mishandling | |
| of valuable evidence, and the use of the court of public | |
| opinion, the media and others, rather than allowing the Paul | |
| Volcker investigation to complete its work. | |
| When we last met in April to discuss the same issue, | |
| Members of both sides of the aisle praised the unprecedented | |
| commissioning of an independent investigation by Kofi Annan and | |
| the appointment of Mr. Volcker. Since then, Mr. Volcker has had | |
| to assemble a staff, enter into the memorandums of agreement | |
| with multiple investigations, assemble and review a decade | |
| worth of documents, and all the while answer to U.N. member | |
| states, all with vested interests, including the United States. | |
| And that is no easy task. | |
| I am concerned that the current investigations are being | |
| politicized and the evidence submitted is being leaked before | |
| it is ever vetted, authenticated, or corroborated. | |
| I am concerned that this is turning out to be an inductive | |
| investigation rather than a deductive investigation. And I know | |
| that is the wrong way to conduct a credible investigation. | |
| I urge caution as we proceed further. Let's consider a few | |
| facts: The first, the Oil-for-Food Program is no longer in | |
| existence and therefore the rush to judgment may do more harm | |
| than good. | |
| Second, Mr. Volcker has promised a full and complete | |
| investigation report to member states by mid-2005, and we | |
| should allow that investigation to conclude before condemning a | |
| report that has yet to be written. | |
| Three, we are fighting a global war on terrorism that | |
| requires international involvement, including the U.N. damaging | |
| the reputation of any politician, national leader, ally, or | |
| international institution at this time, this delicate time, | |
| without a full vetting of the facts is simply premature and | |
| dangerous. We must follow the facts, and I am glad to see that | |
| the chairman has called these witnesses to deal with two of the | |
| three main allegations head on. | |
| I would hope that the same will be done with the | |
| allegations resting on the al-Mada, which is the Iraqi | |
| newspaper-published list, and all who possess or witnessed | |
| those documents at one time. And I would like to hear from the | |
| al-Mada editor-in-chief, from KPMG, Patton Boggs, Fresh Fields, | |
| Bucas Derringer, Paul Bremer, Claude Hankes-Drielsma, to | |
| address those documents which are the starting point of this | |
| scandal. | |
| I also think it would be useful to bring an | |
| authentification expert before this committee to discuss | |
| authentification and how it is done and what it means and why | |
| it is so important. Ultimately, I think we must allow Mr. | |
| Volcker to carry out this investigation, to look at the facts | |
| and evidence, to look at his conclusions, and then decide as a | |
| Nation what is our best interest to do next. | |
| Thank you, Mr. Chairman. | |
| Mr. Shays. I thank the gentleman. | |
| [The prepared statement of Hon. C.A. Dutch Ruppersberger | |
| follows:] | |
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| Mr. Shays. At this time I would like to make a unanimous | |
| consent that Doug Ose, a member of the full committee and | |
| chairman of the Regulatory Affairs Subcommittee be allowed to | |
| participate in this hearing. Without objection, so ordered, and | |
| at this time I would welcome any statement that Mr. Ose would | |
| like to make. | |
| Mr. Ose. Thank you, Mr. Chairman. I was listening with | |
| particular attention to Mr. Ruppersberger's remarks about this | |
| being an inductive investigation as opposed to a deductive | |
| investigation. It seems like we have had a lot of rhetoric | |
| today about, you, know who is guilty and who is not. | |
| I just want to go back to a couple of uncontested facts. | |
| The Oil-for-Food Program was established in April 1995 pursuant | |
| to U.N. Security Council Resolution 986. And the food actually | |
| started to flow in December 1996. So there was about a year- | |
| and-a-half drag between the time it was authorized and the time | |
| it was actually implemented. And interestingly enough, the | |
| first known request for any examination of the program in terms | |
| of fraud or lack of transparency occurred in the first few days | |
| of March 2001. | |
| So for 5 years, from December 1996--4\1/2\ years, from | |
| December 1996 to March 2001, this program just sailed along | |
| without oversight interest or monitoring. | |
| Pursuant to the request in early March 2001 that the 661 | |
| committee actually look at this issue, on March 7, 2001 Kofi | |
| Annan actually sent a notice to Iraq, saying they have to clean | |
| up their act. Again, from the time of December 1996 to March | |
| 2001, nobody paid any attention. The perpetrators of the scam | |
| set the rules. The U.N. signed off on it, and the | |
| administration turned a blind eye. | |
| However, in early March 2001 that changed. Finally somebody | |
| in the administration did something and brought to the | |
| attention of the 661 committee allegations that fraud and lack | |
| of transparency were occurring. I think the record needs to be | |
| very clear on this issue. But the only thing, this fraud that | |
| was taking place--excuse me--that's inductive. The only time | |
| that we finally got around to examining whether fraud was | |
| taking place was in March 2001. The people who approved the | |
| program in the mid-nineties turned a blind eye to it. The | |
| Security Council's 661 committee, they just said, just do it; | |
| don't bother us with the details. | |
| But in March 2001, somebody finally started asking the hard | |
| questions. What changed? I hope we examine that issue. What | |
| changed from the mid-nineties to March 2001, so that the | |
| questions finally started getting asked? I think that is a | |
| central question to this thing, because you cannot uncover | |
| fraud. You cannot reverse years and years of practice by | |
| snapping your fingers or standing up here beating your chest. | |
| This culture got set up, it got established, it got ignored. | |
| And in March 2001, we finally called them on it. | |
| Mr. Chairman, I hope we get to the bottom of this. | |
| Mr. Shays. Thank the gentleman. | |
| I ask unanimous consent that all members of the | |
| subcommittee be permitted to place an opening statement in the | |
| record and the record will remain open for 3 days for that | |
| purpose. And, without objection, so ordered. | |
| I would ask further unanimous consent that all Members be | |
| permitted to include their written statement in the record, | |
| and, without objection, so ordered. | |
| We have a representative of the French Embassy, but I think | |
| we will have to just make a statement and leave a document. But | |
| I think I will first ask Mr. Waxman to make his motion and then | |
| we will put that on the table. | |
| Mr. Waxman. Thank you, Mr. Chairman. I have two separate | |
| motions for subpoenas. The first one is a subpoena under House | |
| rule 11(2)(k)(6). On July 8 this committee issued a subpoena to | |
| the French bank, BNP Paribas, which was responsible for | |
| maintaining the Oil-for-Food escrow account controlled by the | |
| U.N. When the committee issued the subpoena, the argument by | |
| the chairman and others was that a subpoena was necessary | |
| because the bank could not legally cooperate with this | |
| committee's inquiries unless it had the legal protection | |
| afforded by a subpoena. In other words, they wanted to | |
| cooperate, we were told, but they needed to have the subpoena | |
| for legal reasons. | |
| Mr. Chairman, my subpoena is for the Federal Reserve Bank | |
| of New York. This is the bank that maintains the Development | |
| Fund for Iraq which was run by the Bush administration from May | |
| 2003 to June 2004. Just as you asked the French bank for | |
| documents relating to the inflow and outflow of funds under the | |
| Oil-for-Food Program, we ask for identical documents from the | |
| Federal Reserve Bank. | |
| In fact, the language of my subpoena tracks the broad | |
| language of your subpoena almost word for word, substituting | |
| references to the Oil-for-Food program with references to | |
| Development Fund for Iraq. | |
| In making this motion, I want the record to reflect that | |
| the Federal Reserve Bank has expressed the exact same policy as | |
| the French bank. With respect to cooperating with this | |
| committee, they cannot respond to a simple letter of request, | |
| but they are more than willing to respond to a friendly | |
| subpoena, and I want to submit for the record an e-mail | |
| received from the counsel and vice president of the Federal | |
| Reserve Bank dated October 4, 2004. | |
| It states as follows: ``with respect to providing DFI | |
| account information to the Congress, we concluded as long as we | |
| are acting pursuant to a subpoena, we can provide DFI account | |
| information for the period that the DFI was operated by | |
| Ambassador Bremer without violating our contractual obligation | |
| to the Central Bank of Iraq.'' | |
| Mr. Chairman, we have an exactly parallel situation. We are | |
| talking about the same funds, the Iraqi oil proceeds, which | |
| were supposed to be used for the humanitarian benefit of the | |
| Iraqi people. We are talking about the financial institutions | |
| responsible for maintaining these funds, and we are talking | |
| about serious allegations of mismanagement. The only difference | |
| is that the United Nations controlled one set of funds, and the | |
| Bush administration controlled the other. I believe this | |
| committee's legitimacy will be judged by how it treats these | |
| two cases. We can choose to treat them equally in an even- | |
| handed manner, properly exercising our congressional oversight | |
| responsibilities or Mr. Chairman, you and your colleagues can | |
| attempt once again to use procedural machinations to shield the | |
| Bush administration from embarrassment, and more importantly, | |
| from accountability. | |
| My first motion is for the committee to issue a subpoena to | |
| Mr. Timothy Geithner, the president of the Federal Reserve Bank | |
| of New York, to produce the documents relating to the | |
| development fund for Iraq. | |
| I ask unanimous consent that the e-mail be part of the | |
| record. | |
| Mr. Shays. Without objection, the e-mail will be part of | |
| the record. | |
| [The information referred to follows:] | |
| [GRAPHIC] [TIFF OMITTED] T0052.027 | |
| Mr. Shays. The motion offered by Mr. Waxman is in order | |
| under House rule 11, clause 2(k)(6). That rule states, ``The | |
| Chairman shall receive and the committee shall dispense with | |
| requests to subpoena additional evidence.'' Pursuant to that | |
| rule, the chairman may determine the timing of the | |
| consideration of such request. At this time the motion shall be | |
| considered as entered and the committee will consider the | |
| motion offered by the gentleman from California at 2:45 today. | |
| Would you like to make a separate---- | |
| Mr. Waxman. I offer them separately because I can see no | |
| opposition to the first one. | |
| Mr. Shays. Would you like me to comment on your motion? | |
| Mr. Waxman. If you would. | |
| Mr. Shays. The Chair reserves the time to speak, and I just | |
| say that conceptually I think, while I do not agree with the | |
| arguments on why this information is needed and that there is | |
| wrongdoing that requires it, I do think that there is merit in | |
| getting this information. So my interest is in getting this | |
| information. My inclination is always to write a letter first. | |
| In this instance a letter may not be required with the | |
| documentation that you have, and so I want to consider that. I | |
| will reserve judgment, frankly, on that motion. | |
| Mr. Waxman. Mr. Chairman, I think that is a reasonable | |
| position. As you think about it between now and 2:45, I hope | |
| you make the decision to support the subpoena. | |
| My second motion is for a subpoena under House rule 11, | |
| clause 2(k)(6). As I said in my opening statement, the Bush | |
| administration is grossly mismanaging Iraqi oil proceeds and | |
| other funds in the Development Fund for Iraq. There have been | |
| multiple reports about the administration failing to manage | |
| these funds in an open, transparent and accountable manner as | |
| required by the Security Council resolution 1483. In addition, | |
| the administration is now withholding documents from the | |
| international auditors charged by the U.N. Security Council to | |
| monitor its stewardship of these funds. I think a subpoena is | |
| necessary at this point because the administration has refused | |
| requests to voluntarily turn over this information. | |
| Indeed, Mr. Chairman, you issued a press release on June 23 | |
| of this year condemning the administration for failing to | |
| provide information to this subcommittee regarding both the | |
| Oil-for-Food Program and the Development Fund for Iraq. This is | |
| what you said about the administration's replay. ``the response | |
| is incomplete. There is still an insufficient accounting of | |
| relevant documents in custody. Several questions and requests | |
| are simply unanswered.'' | |
| The committee still has not received the information we | |
| requested on May 21. After the administration rejected the | |
| subcommittee's request for information, I wrote to Congressman | |
| Davis, the chairman of the full committee, on July 9 and asked | |
| that he subpoena the documents. In my request, I tracked | |
| exactly the language and format he used to subpoena the French | |
| bank handling the Oil-for-Food account. | |
| On July 12, Chairman Davis wrote back refusing to issue the | |
| subpoena. He said it was premature, that he preferred to send a | |
| letter requesting the information. Well, I wrote to him again | |
| on July 15 attaching a draft letter for him to sign and send | |
| out but he never did and he just ignored my request entirely. | |
| I wrote again on July 29 repeating my request. To this day | |
| he has failed to respond to my multiple requests to do so. Now | |
| that these voluntary efforts have failed, it is clear we have | |
| exhausted all our options. We have no choice but to issue an | |
| subpoena. In light of these numerous failures to provide | |
| information to the United Nations and the U.S. Congress, I move | |
| that the committee subpoena Defense Secretary Donald Rumsfeld | |
| to produce these specified documents, including records of | |
| receipts and disbursements, sole source contracts and other | |
| listed materials. | |
| I understand, Mr. Chairman, it is always preferable to send | |
| a letter requesting the information, but if we cannot even get | |
| the chairman of the committee requesting it, and we have no | |
| response to our letters requesting the information directly | |
| from DOD, it seems to me that we have no other course but to go | |
| ahead with the subpoena. To date, we still have not received | |
| these documents. It is clear that we need to move to a | |
| subpoena. I urge support for the subpoena. | |
| Mr. Shays. Thank you. We will take that up after we discuss | |
| the first one and I will reserve judgment as well on this, and | |
| we will have dialog before we have that vote. We will have a 5- | |
| minute dialog on each of those subpoenas on each side so there | |
| will be a 10 minute debate on each motion before we vote. | |
| Let me just say that I see Mr. Lantos is here. | |
| Mr. Lantos, would you like to make a statement on the Oil- | |
| for-Food Program, or we will get right to our hearing. | |
| Mr. Lantos. I will defer. | |
| Mr. Shays. The French embassy has asked a representative, | |
| Ms. Christine Grenier, to provide some information to the | |
| subcommittee. Without objection, I would like to recognize her | |
| for a brief statement. | |
| Mr. Ose. Mr. Chairman, I know it is our normal practice to | |
| swear in our witnesses. | |
| Mr. Shays. How brief is your statement? It is very short, a | |
| paragraph, so we are not swearing in this witness. | |
| Ms. Grenier. Thank you, Mr. Chairman, and distinguished | |
| members of the committee, my name is Christine Grenier. I am | |
| First Secretary in the Political Section at the French Embassy. | |
| Allegations have been voiced on the role of France in the Oil- | |
| for-Food Program. The French Embassy will prepare a written | |
| statement in response to these unjustified allegations, and I | |
| would appreciate your allowing this statement to be included in | |
| the hearing record. Thank you, Mr. Chairman. | |
| Mr. Shays. Thank you very much. We appreciate you honoring | |
| the committee with your presence. We will be happy to insert | |
| the statement into the record. Without objection that will | |
| happen. Thank you very much. | |
| [The information referred to follows:] | |
| [GRAPHIC] [TIFF OMITTED] T0052.028 | |
| [GRAPHIC] [TIFF OMITTED] T0052.029 | |
| [GRAPHIC] [TIFF OMITTED] T0052.030 | |
| [GRAPHIC] [TIFF OMITTED] T0052.031 | |
| [GRAPHIC] [TIFF OMITTED] T0052.032 | |
| [GRAPHIC] [TIFF OMITTED] T0052.033 | |
| Mr. Shays. At this time the Chair would note that we have | |
| Ambassador Patrick F. Kennedy, U.S. representative to the | |
| United Nations for U.N. management and reform, U.S. mission to | |
| the United Nations, U.S. Department of State. At this time the | |
| Chair will swear in the witness. | |
| [Witnesses sworn.] | |
| Mr. Shays. I note for the record our witness has responded | |
| in the affirmative. I thank the witness for his patience. | |
| Mr. Ambassador, I thank you for your presence and | |
| statement. You have the floor. | |
| STATEMENT OF AMBASSADOR PATRICK F. KENNEDY, U.S. REPRESENTATIVE | |
| TO THE UNITED NATIONS FOR U.N. MANAGEMENT AND REFORM, U.S. | |
| MISSION TO THE UNITED NATIONS, U.S. DEPARTMENT OF STATE | |
| Ambassador Kennedy. Mr. Chairman, distinguished members of | |
| the committee, I welcome the opportunity to appear before you | |
| again to discuss what is commonly known as the United Nations | |
| Oil-for-Food Program. | |
| Mr. Chairman, recent allegations of corruption and | |
| mismanagement under the Oil-for-Food Program have been targeted | |
| not only at the Saddam regime but also at companies and | |
| individuals doing business under the program and at U.N. | |
| personnel and contractors. We believe that every effort should | |
| be made to investigate these allegations seriously and to | |
| determine the facts in each case. | |
| As you are aware, there are currently several congressional | |
| investigations looking into the question of Oil-for-Food. The | |
| independent inquiry committee headed by Paul Volcker and the | |
| Iraqi board of Supreme Audit in Baghdad are also conducting | |
| their investigations. As these inquiries go forward, you have | |
| my assurance, and that of my staff, to cooperate fully with you | |
| and your colleagues on other committees and provide all | |
| possible additional information and assistance. I welcome the | |
| opportunity today to answer your questions relating to these | |
| investigations on how the program was created and operated. At | |
| the outset, Mr. Chairman, I want to reiterate several points I | |
| made here previously in April. | |
| First, I want to emphasize that the establishment of the | |
| Oil-for-Food Program was the result of difficult and arduous | |
| negotiations among 15 Security Council members, a number of | |
| whom advocated a complete lifting of sanctions against Iraq. | |
| The Oil-for-Food Program was in no way perfect, but it was, at | |
| the time, the best achievable compromise to address the ongoing | |
| humanitarian crisis in Iraq in the mid 1990's, while | |
| maintaining effective restrictions on Saddam's ability to | |
| rearm. Sanctions have always been an imperfect tool, but given | |
| the U.S. national goal of restricting Saddam's ability to | |
| obtain new materials of war, sanctions represented an important | |
| tool in our efforts. | |
| Mr. Chairman, given this general context, I would now like | |
| to outline some of the details of how the program worked, how | |
| it was created, by whom and how it was operated and was | |
| monitored. A comprehensive sanctions regime was established | |
| under U.S. Security Council resolution 661 in August 1990 after | |
| the Saddam Hussein regime invaded Kuwait. The council's | |
| unanimity on the issue of Iraq eroded as key council | |
| delegations became increasingly concerned over the negative | |
| impact of sanctions on the Iraqi population, the lack of food | |
| supplies and the increase in mortality rates were worldwide | |
| news. | |
| The concept of a humanitarian program to alleviate the | |
| suffering of the people of Iraq was initially considered in | |
| 1991 with U.N. Security Council resolutions 706 and 712, but | |
| the Saddam regime rejected those proposals. The counsel | |
| eventually adopted U.N. Security Council resolution 986 in | |
| 1995, which provided the legal basis for what became known as | |
| the Oil-for-Food Program. While council members were the | |
| drafters and negotiators of this text, the memorandum of | |
| understanding signed between the U.N. and the former government | |
| of Iraq was negotiated between Iraqi government officials and | |
| representatives of the Secretary General, in particular his | |
| legal counsel, on behalf and at the request of the Security | |
| Council. | |
| Under provisions of resolution 986 and the MOU, the Iraqi | |
| government, as a sovereign entity, retained the responsibility | |
| for contracting with buyers and sellers of Iraq's choosing and | |
| the responsibility to distribute humanitarian items to the | |
| Iraqi population. This retention of Iraqi authority was | |
| insisted upon by Saddam and was supported by a number of | |
| Security Council members, as well as other U.N. member states. | |
| The exception to this was for the three northern Governorates | |
| of Iraq where the U.N. agencies, at the request of the Council, | |
| served as the de facto administrative body that contracted for | |
| nonbulk goods and distributed the monthly food ration. | |
| The sanctions committee was established under resolution | |
| 661 in 1990, also known as the 661 committee, monitored member | |
| state implementation of the comprehensive sanctions on Iraq, | |
| and also was authorized to monitor the implementation of Oil- | |
| for-Food Program after its inception. | |
| The 661 committee, like all sanctions committees, operated | |
| as a subsidiary body of the Security Council and was comprised | |
| of representatives from the same 15 member nations as the | |
| council. The committee was chaired by the Ambassador of one of | |
| the rotating 10 elected members of the council. The committee, | |
| during its life span, was chaired by the Ambassadors of | |
| Finland, Austria, New Zealand, Portugal, Netherlands, Norway | |
| and Germany. | |
| Decisionmaking in the committee was accomplished on a | |
| consensus basis. All decisions taken by the committee required | |
| the agreement of all its members. This procedure is used in all | |
| subsidiary sanctions committees of the Security Council. | |
| In providing oversight and monitoring of the sanctions, the | |
| committee and each of its members, including the United States, | |
| was responsible for reviewing humanitarian contracts, oil spare | |
| parts contracts, and oil pricing submitted on a regular basis | |
| by Iraq to the U.N. for approval. The committee was also | |
| responsible for addressing issues related to noncompliance and | |
| sanctions busting. In my previous testimony and statement for | |
| the record, I have provided an explanation of what we knew | |
| about issues relating to noncompliance, what we did to address | |
| them and the degree of success we had in addressing these | |
| issues within the confines of the 661 committee. | |
| When the United States became aware of issue related to | |
| noncompliance or manipulation of the Oil-for-Food Program by | |
| the Saddam regime, we raised these concerns in the committee, | |
| often in concert with our U.K. counterparts. At our request, | |
| the committee held lengthy discussion and debate over for | |
| example allegations of oil pricing manipulation, kickbacks on | |
| contracts, illegal smuggling and misuse of ferry services. To | |
| provide the 661 committee with additional insight on issues | |
| related to noncompliance, we also organized outside briefings | |
| by the commander of the Multilateral Interception Force and | |
| other U.S. agencies. Our success in addressing issues of | |
| noncompliance was directly related to the willingness of other | |
| members of the committee to take action. | |
| Given the consensus rule for decisionmaking in the | |
| committee, the ability of the United States and the U.K. to | |
| take measures to counter or address noncompliance was often | |
| inhibited by other Members' desire to ease sanctions on Iraq. | |
| As reflected in many of the 661 committee records which have | |
| been shared with your committee, the atmosphere within the | |
| committee, particularly as the program evolved by the late | |
| 1990's was often contentious and polemic, given the fundamental | |
| political disagreement between member states over the Security | |
| Council's imposition and continuance of comprehensive | |
| sanctions, a debate exacerbated by the self-serving national | |
| economic objectives of certain key member states. | |
| Mr. Chairman, you have recently been to Baghdad and know | |
| that the voluminous Oil-for-Food documents are now being | |
| safeguarded for use by the board of supreme audit in their | |
| investigation. The American Embassy in Baghdad is currently | |
| working on a memorandum of understanding between the United | |
| States and the government of Iraq regarding access to these | |
| documents. We will keep this committee updated on the status of | |
| these negotiations. Mr. Chairman, as you and your fellow | |
| distinguished committee colleagues continue your review of the | |
| Oil-for-Food Program, key issues in your assessment likely will | |
| be whether the program achieved its overall objectives and | |
| whether the program could have been better designed at its | |
| inception to preclude what some have suggested were fundamental | |
| flaws in its design. | |
| In retrospect, had the program been constructed | |
| differently, perhaps by eliminating Iraqi contracting authority | |
| and the resulting large degree of autonomy afforded to Saddam | |
| to pick suppliers and buyers, then the allegations currently | |
| facing the program might not exist. One can postulate the | |
| elimination of this authority and the establishment of another | |
| entity to enter into contracts on behalf of the former | |
| government of Iraq, and this entity might have had tighter | |
| oversight of financial flows, thus inhibiting Saddam Hussein's | |
| ability to cheat the system through illegal transaction. | |
| The problem is, of course, that these specific decisions to | |
| allow the government of Iraq to continue to exercise authority, | |
| to let Saddam Hussein continue to determine who he could sell | |
| oil to and purchase goods from were all done in the larger | |
| context of a political debate on Iraq. It was reluctantly | |
| accepted to ensure that the significant sanctions program would | |
| remain in place, thus achieving a U.S. goal. | |
| Mr. Chairman, I want to reiterate a point that I made | |
| earlier on the issue of sovereignty. While we opposed the | |
| authoritarian leadership of the former Saddam Hussein regime, | |
| Iraq was, and is, a sovereign nation. Sovereign nations are | |
| generally free to determine to whom they will sell their | |
| national products, and from whom they purchase supplies. | |
| Members of the Security Council, as well as other member | |
| states, insisted on upholding this aspect of Iraq's sovereign | |
| authority. | |
| These were the arrangements that prevailed under the Oil- | |
| for-Food Program given this reality. Could alternate | |
| arrangements have been devised, such as authorizing the United | |
| Nations or some other entity to function as the contracting | |
| party representing the people of Iraq in oil sales, and | |
| humanitarian goods procurement? The answer, given that there | |
| was not the political will in the Security Council to use its | |
| authorities to take charge of Iraq's oil sales and humanitarian | |
| goods procurement depended on the Iraqi regime's agreeing. And | |
| it did not. | |
| Mr. Shays. Ambassador, I am going to have you summarize | |
| when we get back. We have a vote now, and I am going to go to | |
| that vote, so we are going to recess. | |
| [Recess.] | |
| Mr. Shays. Ambassador Kennedy, there is going to be another | |
| vote, but just complete your statement. We will put your | |
| statement on the record. | |
| Ambassador Kennedy. Thank you, Mr. Chairman. | |
| The Security Council's original scheme for the Oil-for-Food | |
| Program outlined in resolution 706 and 712 in 1991 were for a | |
| program that would utilize the revenue derived from the sale of | |
| Iraqi oil to finance the purchase of humanitarian supplies for | |
| use by the Iraqi people. It was repeatedly rejected by the | |
| Saddam government. Even after the council adopted resolution | |
| 986 on April 14, 1995, the resolution that established the Oil- | |
| for-Food Program, it took more than 13 months of protracted | |
| negotiations before Saddam Hussein finally agreed to proceed, a | |
| considerable delay given the ongoing and urgent needs of the | |
| Iraqi people. | |
| Mr. Chairman, any plan that would have denied the authority | |
| of the Iraqi government to select its own purchasers of Iraqi | |
| oil and suppliers of humanitarian products would have been | |
| rejected by a number of other key Security Council member | |
| states. You and your committee colleagues will recall that | |
| most, if not all, of the resolutions concerning Iraq adopted by | |
| the Security Council reaffirmed Iraq's sovereignty and | |
| territorial integrity. It would not have been possible | |
| politically to win support from various U.N. member states for | |
| any arrangement that denied Iraq its fundamental authorities as | |
| a sovereign nation and that would have endangered the | |
| durability of the sanctions regime that helped Saddam's access | |
| to war materials. | |
| Finally, Mr. Chairman, I want to underscore the obligations | |
| of all U.N. member states to implement and enforce the | |
| comprehensive multilateral sanctions imposed by the Security | |
| Council under resolution 661. It was not possible for the | |
| sanctions to be effective, nor to prevent Saddam Hussein from | |
| evading the sanctions through the smuggling of oil, and the | |
| purchase of prohibited goods without the full cooperation of | |
| other states. I appreciate that this committee is carefully | |
| reviewing this matter and I would encourage you to consider the | |
| actions of other states in the context of the Oil-for-Food | |
| Program. | |
| The United Nations, first and foremost, is a collective | |
| body comprised of its 191 members. A fundamental principle | |
| inherent in the U.N. charter is that member states will accept | |
| and carry out the decisions of the Security Council in | |
| accordance with the charter. In this regard, the effectiveness | |
| of the Oil-for-Food Program as well as the larger comprehensive | |
| sanctions regime against Iraq, largely depended on the ability | |
| and willingness of U.N. member states to implement and enforce | |
| sanctions. In the 661 committee, the subsidiary body of the | |
| Security Council tasked with monitoring sanctions compliance, | |
| sanctions violations could be addressed only if there was | |
| collective will and consensus to do so. | |
| As you review the effectiveness of the Oil-for-Food | |
| Program, and the sanctions against Iraq in general, I encourage | |
| you to keep in mind that a decision to take effective action to | |
| address noncompliance issues required consensus in the 661 | |
| committee, a consensus that repeatedly proved elusive. And in | |
| reviewing the effectiveness of the U.N. secretariat, it may be | |
| relevant to recall that the staff and contractors are hired to | |
| implement the decisions of the member states. They operate | |
| within the mandates given to them. | |
| In this regard, resolution 986 and the May 1996 memorandum | |
| of understanding between the United Nations and the former | |
| government of Iraq defined the mandate governing the work of | |
| the independent inspection agents, appointed by the Secretary | |
| General, who authenticated the arrival in Iraq of goods ordered | |
| under approved Oil-for-Food contracts. Lloyds Registry of the | |
| United Kingdom initially performed this function on behalf of | |
| the U.N. When the Lloyds contract expired, the Swiss firm | |
| Cotecna was hired by the U.N. to continue this authentication | |
| function. As defined in resolution 986 and the subsequent MOU, | |
| the independent inspection agents, Lloyds and then Cotecna, | |
| were tasked with inspecting only those shipments of | |
| humanitarian supplies ordered under the Oil-for-Food program. | |
| Lloyds Registry and Cotecna agents were not authorized by | |
| the Security Council to serve as Iraq's border guards or | |
| customs officials. They lacked authority to prevent the entry | |
| into Iraq of non-Oil-for-Food goods. That function and | |
| responsibility belonged solely to Iraqi border and Customs | |
| officers, given Iraq's sovereignty and to every U.N. member | |
| state given the sanctions in place. The United Nations and its | |
| agents Lloyds Registry, Cotecna and Saybolt were not | |
| responsible for enforcing sanctions compliance. In May 2001, | |
| the United States and U.K. delegations circulated a draft | |
| resolution to other Security Council members that would have | |
| tightened border monitoring by neighboring states as part of a | |
| smart sanctions approach to Iraq. Certain council members as | |
| well as representatives of Iraq's neighbors, strongly opposed | |
| the United States-U.K. text, and the draft resolution was never | |
| adopted. | |
| Resolution 986 and the May 1996 memorandum of understanding | |
| also called for monitoring by outside agents of Iraq's oil | |
| exports the Dutch firm Saybolt performed this function under | |
| the Oil-for-Food Program. Saybolt representatives oversaw oil | |
| loadings at the Mina al-Bakr loading platform and monitored the | |
| authorized outbound flow of oil from Iraq to Turkey. Saybolt | |
| monitors were not authorized by the Security Council to search | |
| out and prevent illegal oil shipments by the former Iraqi | |
| regime. This was the primary responsibility of each member | |
| state. The multi national maritime interception force operating | |
| in the Persian Gulf also was tasked with preventing Iraq's | |
| illegal oil smuggling. | |
| Mr. Chairman, now that the Oil-for-Food Program has ended, | |
| questions concerning the efficacy of the program have arisen in | |
| light of the appearance of the documents belonging to the | |
| former Iraqi regime. These documents were never publicly shared | |
| during Saddam Hussein's rule with the Security Council or the | |
| 661 committee. | |
| A fair question to pose is what might have happened had the | |
| Oil-for-Food Program never been established. While any response | |
| is purely conjecture. It is fair to assume that the | |
| humanitarian crisis besetting the people of Iraq in the mid | |
| 1990's would have only worsened over time, given the impact of | |
| the comprehensive sanctions on Iraq and Saddam Hussein's | |
| failure to provide for the needs of his own civilian | |
| population. | |
| A deteriorating humanitarian situation among the Iraqi | |
| people would have increased calls among more and more nations | |
| for a relaxation and/or removal of the comprehensive sanctions | |
| restrictions on Iraq, thereby undermining ongoing United States | |
| and U.K. efforts to limit Saddam's ability to rearm. While the | |
| United States and U.K. may have succeeded in formally retaining | |
| sanctions against Iraq, fewer and fewer nations would have | |
| abided by them in practice given the perceived harmful impact | |
| such measures were thought to be having on Iraqi civilians. | |
| This would have given Saddam even greater access to prohibited | |
| items with which to pose a renewed threat to Iraq's neighbors | |
| and to the region. | |
| Did the Oil-for-Food Program help to relieve the | |
| humanitarian crisis in Iraq and the suffering of the Iraqi | |
| people? Despite what might in the end be identified as inherent | |
| flaws, the Oil-for-Food Program did enjoy measurable success in | |
| meeting the day-to-day needs of Iraqi civilians. Could the | |
| program have been designed along lines more in keeping with the | |
| U.S. Government competitive bidding and procurement rules? Only | |
| if other council members and the former Iraqi government itself | |
| had supported such a proposal. In the end, the Oil-for-Food | |
| Program reflected three merged concepts: A collective | |
| international desire to assist and improve the lives of Iraq's | |
| civilian population; a desire by the United States and others | |
| to prevent Saddam from acquiring materials of war and from | |
| posing a renewed regional and international threat; and, | |
| efforts by commercial enterprises and a number of states to | |
| pursue their own national economic and financial interests | |
| despite the interests of the international community to contain | |
| the threat posed by Saddam's regime. | |
| Mr. Chairman, thank you for the opportunity to appear again | |
| before this committee. I now stand ready to answer whatever | |
| questions you or your fellow committee members may wish to | |
| post. | |
| [The prepared statement of Ambassador Kennedy follows:] | |
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| Mr. Shays. Thank you, what I will do since we have a vote, | |
| I will go back to the vote and then we will just start with | |
| questioning. The committee stands in recess. | |
| [Recess.] | |
| Mr. Shays. I call the hearing back to order. | |
| I thank you, Mr. Kennedy. I also want to apologize to the | |
| second panel for all of the delays. | |
| I would like to start by responding to your closing that | |
| suggests that, and let me be clear you accept this point, | |
| Ambassador Kennedy, basically you are saying because Saddam and | |
| Iraq were a sovereign nation, and because he was not willing to | |
| abide by a stricter Oil-for-Food Program, that we, the United | |
| Nations, conceded in allowing him to pretty much write his own | |
| ticket and that the alternative was, what? That is what I do | |
| not understand. In other words, are you suggesting that the | |
| sanctions worked? | |
| Ambassador Kennedy. Mr. Chairman, we do not believe that we | |
| permitted Saddam Hussein to write his own ticket. I think that | |
| is evident from the fact that it took almost 15 months between | |
| the time that resolution 986 was passed by the Security Council | |
| and the end of the negotiations to formulate the MOU. Saddam | |
| Hussein was obviously interested in achieving the maximum | |
| amount of flexibility that he could. The United States, the | |
| United Kingdom and others were interested in putting the | |
| maximum number of constraints on Saddam Hussein. We had a goal, | |
| Saddam Hussein had goals. All of these goals were in the | |
| context of other member states of the Security Council, and | |
| additionally, other member states of the United Nations, who | |
| have very different views on sanctions, some of them | |
| philosophical, some related to Saddam Hussein. The United | |
| States, United Kingdom and others pushed very, very hard to get | |
| the maximum amount of oversight of the sanctions regime. Those | |
| activities were resisted by others. | |
| What I am suggesting is that although the program certainly | |
| was not perfect, as the work that you and your committee | |
| members have done amply demonstrate, I am suggesting, though, | |
| that in the absence of these sanctions, we would have probably | |
| had a very, very less fulsome situation. | |
| I might note in 2002 the United States and the United | |
| Kingdom were holding, meaning denying permission, to over $5.4 | |
| billion in contracts that Saddam Hussein wished to execute. So | |
| it was a balance. The need to alleviate the horrible suffering | |
| of the Iraqi people, suffering brought on by Saddam Hussein, at | |
| the same time to put into effect the most rigorous sanctions | |
| regime that we could politically establish. | |
| Mr. Shays. I have to say you take my breath away. I feel | |
| like you are digging into a hole that I am sorry you are going | |
| into because it sounds to me like some critics' concern about | |
| the State Department's double speak. It sounds to me like | |
| double-speak, and let me explain why. | |
| The sanctions did not work, but we had this program to | |
| what, save face for the United States or whatever? We had a | |
| program that allowed Saddam to sell oil at a price below the | |
| market and get kickbacks and we had a program that allowed him | |
| to buy commodities above the price and get kickbacks. He had | |
| the capability to now take this illegal money in addition to | |
| the leakage that they had. We are looking at the Oil-for-Food | |
| Program as a $4.4 billion rip-off to the Iraqi people going to | |
| Saddam and then the $5.7 billion of illegal oil being sold | |
| through Jordan and Syria and Turkey. But let us just focus on | |
| the $4.4 billion. In addition within that Oil-for-Food Program, | |
| he had what was considered legitimate money that he could then | |
| pay for commodities and bought things that he was not what he | |
| was supposed to be purchasing. | |
| You need to tell me how those sanctions worked if he could | |
| do that. I don't know how you can tell me that they worked when | |
| that happened. | |
| Are you disputing that $4.4 billion was basically ripped | |
| off and ended up in his hands? | |
| Ambassador Kennedy. No, sir, I am not. | |
| Mr. Shays. Are you in agreement this is not the Oil-for- | |
| Food Program, but it was the sanctions, are you in disagreement | |
| that he did not filter about $5.7 billion of oil sales | |
| illegally through the neighboring states? | |
| Ambassador Kennedy. Saddam Hussein engaged in oil smuggling | |
| which was not part of the Oil-for-Food Program. I think we all | |
| agree that Saddam Hussein was an evil man who attempted to | |
| manipulate any opportunity. | |
| Mr. Shays. I don't want to go down whether he is evil or | |
| not. I want to go back over how you can defend these sanctions. | |
| Why did you go in that direction? | |
| Ambassador Kennedy. I think, Mr. Chairman, that the | |
| sanctions enabled Saddam Hussein to be deprived of weapons of | |
| war and dual-use items. | |
| Mr. Shays. Is it your testimony and your comfort level that | |
| $10.1 billion was not used to purchase weapons? | |
| Ambassador Kennedy. No, sir. I am saying that the sanctions | |
| regime assisted. I said in my testimony that it is not a | |
| perfect system. He attempted to purchase materials under the | |
| sanctions through the U.N. Oil-for-Food process. We put holds | |
| on those. We stopped his purchasing of materials overtly, such | |
| as dual-use items. He attempted to purchase for example dump | |
| trucks and heavy equipment transporters. Dump trucks are easily | |
| convertible into rocket launchers because of the hydraulic | |
| mechanisms on the back. And a heavy equipment transporter that | |
| can move a bulldozer or a crane is the same piece of equipment, | |
| essentially, that you use to move tanks. | |
| Mr. Shays. Is it your testimony that you know what he | |
| bought? Are you comfortable with the documents that came from | |
| Saybolt and Cotecna? Are you testifying that when they testify | |
| and basically come before us and say that he was not abiding by | |
| the sanctions, bought material he should not have, are you | |
| saying that he bought material that he should have? You can't | |
| be saying that. | |
| Ambassador Kennedy. No, sir. What I am saying is the | |
| contracts that ran through the Oil-for-Food Program ran through | |
| the 661 committee. When the United States, using the example of | |
| our own Nation, received those contract proposals, those | |
| contracts were vetted by any number of Washington agencies that | |
| were specialists in that regard. They vetted those contracts to | |
| make sure that none of the material included therein were | |
| weapons of war or potential dual-use items. | |
| Mr. Shays. Is it your testimony that you in fact believe | |
| those documents? | |
| Ambassador Kennedy. I believe that the United States | |
| reviewed contracts and held on contracts that would have been | |
| given Saddam Hussein weapons of war and dual-use materials, | |
| yes. | |
| Mr. Shays. I am not asking that. What I am asking is: So | |
| you stopped some transactions, but are you testifying as a | |
| representative of the United States that this system, which | |
| this subcommittee certainly believes is a paper tiger, was not | |
| a paper tiger. Do you believe that Cotecna and Saybolt had the | |
| power to properly monitor? | |
| I want to say it again. Representing the United States of | |
| America, you come before this committee under oath, are you | |
| telling us that this system worked and that both companies were | |
| able to verify and properly manage this program? That is the | |
| question I am asking you. I want you to think long and hard | |
| before you answer it. | |
| Ambassador Kennedy. I think, Mr. Chairman, that you are | |
| conducting an investigation, an investigation we welcome. If | |
| Saddam Hussein was moving materials into Iraq outside of those | |
| which were contracted for under the Oil-for-Food Program, he | |
| and someone else were engaged in smuggling sanctions. | |
| Mr. Shays. That is a no-brainer statement, but it is not | |
| answering my question. I want you to answer my question. I want | |
| you to think a second and answer the question. | |
| Is it your testimony representing the State Department, and | |
| representing the administration, that this program, that the | |
| way this program was set up, that these two companies were able | |
| to properly enforce the sanctions? That is the question. Were | |
| they given the power necessary? Were you given the cooperation | |
| necessary with the other members of the Security Council, the | |
| 661 committee? | |
| Ambassador Kennedy. Absolutely not. Absolutely not. | |
| Mr. Shays. Let us work with that. You are digging yourself | |
| out of a hole right now. The bottom line is they were not, | |
| correct? | |
| Ambassador Kennedy. That is correct. | |
| Mr. Shays. Tell me in your words what was the problem with | |
| the program? | |
| Ambassador Kennedy. The problem was in the negotiating | |
| process that takes place in the international arena all of the | |
| time, the ultimate resolution passed by the Security Council, | |
| which was a process of negotiation, did not authorize either | |
| Cotecna or Saybolt or X or Y or Z, or anyone, to become all | |
| encompassing sanctioned enforcement agents. | |
| Mr. Shays. That is the extreme they did not do. Tell me the | |
| minimum that they did? What power did these companies have? | |
| Ambassador Kennedy. They were empowered under the | |
| resolution to validate goods that were being shipped into Iraq | |
| that were declared to be part of the Oil-for-Food Program. | |
| Mr. Shays. You are familiar with this program? | |
| Ambassador Kennedy. Yes, sir. | |
| Mr. Shays. Were they able to do that? This is an | |
| investigation to know, and I want to know if my own government | |
| that is supposed to be overseeing this, that I frankly thought | |
| had problems with this program, I want to know if they were | |
| properly able to oversee this program? It is a simple and very | |
| clear answer. I want to make sure under oath you are stating it | |
| clearly, not something you want me to believe, but I want to | |
| know the truth and the committee wants to know the truth. I | |
| want to have some confidence that my government that was | |
| overseeing it knew what the heck was going on. | |
| Were they able to properly oversee this program? | |
| It is a simple answer. | |
| Ambassador Kennedy. Because of the efforts of Saddam | |
| Hussein, in that sense, no, sir, they were not. | |
| Mr. Shays. In any sense they were not able to. The reasons | |
| why we will explore later. But were they able to properly | |
| oversee this program? You do know they are testifying | |
| afterwards? | |
| Ambassador Kennedy. Yes, sir. | |
| Mr. Shays. And you are aware of the complaints they had, I | |
| hope? | |
| Ambassador Kennedy. Yes, sir. | |
| Mr. Shays. Even before this hearing, correct? | |
| Ambassador Kennedy. Absolutely. | |
| Mr. Shays. Were they properly able to fulfill their | |
| responsibilities and oversee this program? | |
| Ambassador Kennedy. Up to a point yes; and beyond that, no. | |
| Mr. Shays. You are going to have to tell me yes, up to what | |
| point and after what no. You tell me up to what point were they | |
| able to? | |
| Ambassador Kennedy. They were empowered by the resolution | |
| of the Security Council to authenticate materials that were | |
| arriving. They authenticated those materials. | |
| Mr. Shays. Wait a second. Are you saying that they | |
| authenticated these materials? Are you saying they had a | |
| theoretical power to do it or are you saying they actually were | |
| able to do it? There is a difference. | |
| Ambassador Kennedy. It was their mission---- | |
| Mr. Shays. I want to know if they were able to. | |
| Ambassador Kennedy. I was not at every border station, sir. | |
| They authenticated the materials and submitted documents to the | |
| United Nations saying they had authenticated material. | |
| Mr. Shays. Isn't it a fact that they said they didn't | |
| always have the people? Isn't it a fact that they said | |
| sometimes they couldn't even look, that is, in terms of | |
| Saybolt, sometimes they could not even be there, and when they | |
| left, isn't it a fact that they had suspicious? | |
| Ambassador Kennedy. Absolutely. And we have testified to | |
| that effect. | |
| Mr. Shays. That is what is frustrating me. And you are | |
| someone who was in Iraq, a friend, and someone I have awesome | |
| respect for. What concerns me is you are giving a party line | |
| that even you do not believe. I feel very awkward having this | |
| public dialog with you, but it is so logical it is almost | |
| frightening to me that we cannot at least have the truth and | |
| then work from that as to what. I don't want to know why they | |
| were not able to authenticate the fact that this happened. I | |
| want to know if they did. Then we will explore why they | |
| couldn't. | |
| Ambassador Kennedy. Mr. Chairman, I have tried to answer | |
| the question the best I can. And I appreciate the compliment | |
| you just paid me. I believe that Cotecna and Saybolt attempted | |
| to carry out the functions that they had. | |
| Mr. Shays. We agree. They attempted to do that. On one | |
| level we are in agreement. The question is could they? The | |
| answer is a simple one. | |
| Ambassador Kennedy. Absolutely. The results were not | |
| perfect. | |
| Mr. Shays. I did not say perfect. Perfect is too much | |
| discretion. Perfect may mean 99 percent, and I don't think it | |
| was even close to 50 percent. I don't think they had the power | |
| and I don't think anyone who has looked at this program | |
| believes they had the power, and I think they are going to | |
| testify they did not have the power. What concerns me is you | |
| were basically trying to give the impression they were not | |
| perfect but, and I think that is misleading to the committee. I | |
| think it does not do you credit. | |
| I don't want you to say anything you do not believe. I just | |
| do not want you to speak in words that do not frankly help us. | |
| I want you to be more precise. | |
| Were they able to make sure that oil sales were actually | |
| the oil sales they were and that commodities that were | |
| purchased were actually what was bought to the amounts that | |
| were bought, the quality and so on? Were they? Maybe you can | |
| look at that note and hopefully somebody else is telling you to | |
| say no. | |
| Ambassador Kennedy. It was the position of the United | |
| States and joined by the United Kingdom that we wanted a more | |
| robust inspection regime. We wanted more robust inspections. | |
| Obviously, I think I am trying to answer your point. I am | |
| saying yes, there were restraints inherent in the program that | |
| prevented Cotecna and Saybolt, and Lloyds before that. | |
| Mr. Shays. The problem with the word ``robust'' is like | |
| your word ``perfect.'' It was not robust, so to say that you | |
| wanted it to be more is almost meaningless in my judgment as I | |
| have looked at this. This was a program that was basically not | |
| working. I want you to start us off explaining why it was not | |
| working. You have given a justification as to why we basically | |
| allowed for this program to go forward even though it was not | |
| working. So you have given a lot of people cover, but you have | |
| not helped us understand whether you, the government, the State | |
| Department, this administration, felt this program worked. You | |
| are trying to give us the impression that it was working, but | |
| not perfect; that it was robust, but it could be more robust. | |
| That to me is misleading. That is what I am wrestling with, and | |
| I am trying to understand why. Why do you want me to have this | |
| impression? | |
| Ambassador Kennedy. Mr. Chairman, I grant you, and I am | |
| looking for another word other than ``perfect.'' | |
| Mr. Shays. Have you been instructed to say that this | |
| program worked when it did not work? | |
| Ambassador Kennedy. No, sir. | |
| Mr. Shays. Was there any meeting did you had before that | |
| said under no circumstances are you supposed to agree that the | |
| program did not work? | |
| Ambassador Kennedy. No, sir. | |
| Mr. Shays. Was the program working? | |
| Ambassador Kennedy. The program accomplished some of its | |
| goals, as I have said. | |
| Mr. Shays. What were the goals? | |
| Ambassador Kennedy. The goals of the Oil-for-Food Program | |
| were to relieve the humanitarian crisis of the Iraqi people and | |
| retain a sanctions regime on Saddam Hussein that would assist | |
| in restricting his desire to rearm. He had other means of | |
| attempting to rearm, as you rightly pointed out, sir. He | |
| attempted and he did utilize those means, but the program did | |
| deliver food and medicine and other supplies and equipment to | |
| the Iraqi people. | |
| Mr. Shays. That part we concede. I'm going to concede that | |
| part. Because we knew that Iraqis were starving and we knew | |
| they weren't getting medicine and we knew that Saddam Hussein | |
| was willing to starve and kill his people and deprive them of | |
| medicine, we decided to cave in and accept a program that | |
| simply on the face looked like we hadn't caved in, looked like | |
| there were sanctions, but in fact it was about as leaky as it | |
| could get. And I wanted to understand if you understood that it | |
| was very leaky. Instead you used words, I wanted it to be more | |
| robust and I want it to be perfect. | |
| But it wasn't perfect and it wasn't more robust. The bottom | |
| line was almost every transaction, it appears, may have been a | |
| rip-off, may have been a transaction that compromised the | |
| United Nations, compromised other people, and allowed Saddam | |
| Hussein to make money illegally without the world community | |
| having to agree that he was. That's the way I look at it. Tell | |
| me what's wrong with my picture. | |
| Ambassador Kennedy. Your picture is absolutely correct. | |
| Saddam Hussein--you mentioned earlier, sir, in our discussion | |
| that you take Saddam Hussein. He was sanction-busting from 1991 | |
| until the Oil-for-Food Program started in 1995--1996. He was | |
| sanction-busting. The Oil-for-Food Program was put into place. | |
| He attempted to get around the sanctions regime at every | |
| possible opportunity---- | |
| Mr. Shays. And the irony is---- | |
| Ambassador Kennedy. He priced---- | |
| Mr. Shays. Go on. | |
| Ambassador Kennedy. He attempted to write contracts for oil | |
| where he priced the oil below the market rate and attempted to | |
| pocket that premium. We discovered that, and the United States | |
| and the U.K. raised that in the 661 committee, and then halted | |
| all price-setting under the old scheme until we achieved | |
| putting a new system into place which set the oil price | |
| retroactively after the sale; in other words, stopping him from | |
| getting a surcharge. | |
| Having blocked him in that regard, he then moved to another | |
| aspect which was kickbacks after sales. We attempted to block | |
| that. So it was almost--and I hate to say this--a chess game. | |
| He attempted to maneuver and we attempted with certain allies, | |
| but not enough of them, to seize and block his activities. | |
| And so I am agreeing that sanctions are leaky. The | |
| sanctions regime did not work as it was intended; i.e., to have | |
| 100 percent effectiveness. | |
| Mr. Shays. No, don't say 100 percent, because I'm not even | |
| sure you had 50 percent. So don't say 100 percent. No, I mean, | |
| if the truth comes out, whatever the truth is, it may embarrass | |
| the United States. It may embarrass someone else. It may | |
| embarrass Congress. But it will be the truth. And from the | |
| truth we can learn from it. | |
| And my problem right now is what you are suggesting is that | |
| basically Saddam was willing to kill his people by not getting | |
| the food and not getting medicine and he wasn't willing to do | |
| an Oil-for-Food Program that we wanted, so ultimately we did a | |
| program that he wanted. He was able to buy or sell in euros. He | |
| was able to undersell his oil. He was able to overpay for | |
| commodities. He was able to get kickbacks. He was basically | |
| able to tell Cotecna and Saybolt basically they had no | |
| authority. He was basically able to ignore them. He was | |
| basically able to have more transactions than they could even | |
| handle so that they weren't even aware of some transactions. | |
| And he did this with the assistance of our allies. | |
| And it's not a bad thing that Americans and the world | |
| community have to contend with this because it suggests that | |
| even before a decision to go into Iraq, it suggests frankly to | |
| me that we didn't have the support of our allies, that | |
| President Clinton didn't have the support of our allies, and | |
| that it was somewhat of a joke. And that when you had a | |
| President finally trying to say, you know, we've got to make | |
| this program work and we also have to look at a regime change | |
| if he doesn't cooperate, and we still don't have the assistance | |
| of our allies, it says to me, well, what's new? What's new | |
| about it? | |
| Are you saying to us that the allies cooperated? No, your | |
| testimony was the reverse. Isn't it true that you said the | |
| allies did not cooperate and enable us to have a sanctions | |
| system that is working? Is that a fair statement? | |
| Ambassador Kennedy. I totally agree sir. As I testified, we | |
| sought a sanction regime and we were unable to get the sanction | |
| regime we wanted, yes, sir because of the lack of willingness | |
| on the part of other members of the Security Council and other | |
| nations to agree to that sanction regime. | |
| Mr. Shays. OK. And so they didn't agree with it. And then | |
| we had a sanction that Saddam basically could live with; and | |
| isn't it true that on occasion, the United States protested | |
| some of the transactions? | |
| Ambassador Kennedy. We contested many of the transactions. | |
| We were holding at one point, as I mentioned, sir, $5.4 billion | |
| worth of proposed transactions. | |
| Mr. Shays. Well, but isn't it true that there were actually | |
| transactions that happened that you objected to? | |
| Ambassador Kennedy. No, sir the system operated on the | |
| consensus basis, and if any member of the 661 committee | |
| representing the member states of the Security Council, if any | |
| member objected to a transaction, that transaction was held---- | |
| Mr. Shays. OK. Why didn't you object to the fact that | |
| Saybolt and Cotecna did not have enough manpower and were not | |
| given the authority they needed to make sure that they were | |
| actually documenting the actual transactions? Why didn't the | |
| United States protest their inability to accurately document | |
| transactions? | |
| Ambassador Kennedy. For example, sir, when we learned | |
| that--using the Essex case, the oil tanker in which--it was | |
| topped off after it had been loaded--we did raise that in the | |
| 661 committee. We insisted that additional personnel, | |
| additional technical matters, whatever, we demanded to the 661 | |
| committee. | |
| Mr. Shays. And it didn't happen. And why didn't it happen? | |
| Ambassador Kennedy. Some of it happened, some of it didn't, | |
| because it was resisted by other members of the 661 committee. | |
| Mr. Shays. Most of it didn't. Most of it did not happen. | |
| And it didn't happen because it just took one member to object, | |
| correct? | |
| Ambassador Kennedy. Correct. | |
| Mr. Shays. OK. So you could theoretically prevent a | |
| transaction from happening that you knew about, but you | |
| couldn't make sure that Cotecna and Saybolt had the authority, | |
| the personnel, to make sure that they were properly running | |
| this program. | |
| Ambassador Kennedy. The mandate to the companies came from | |
| Security Council resolution and from the 661 committee. | |
| Mr. Shays. Is that yes or a no? | |
| Ambassador Kennedy. The answer is that their mandate was | |
| governed by the consensus requirements. And, yes, a member | |
| state could hold on that consensus and that would have the | |
| effect that you outlined. | |
| Mr. Shays. Why can't you say that the bottom line to it was | |
| that because member states would object if you wanted Saybolt | |
| or Cotecna to have more authority, more personnel and so on, | |
| because they objected to it, they didn't get it; and because | |
| they didn't get it, they couldn't do their job properly? Why is | |
| that so hard to say? | |
| Ambassador Kennedy. Phrased that way, sir, I have no---- | |
| Mr. Shays. Well, why don't you say it? | |
| Ambassador Kennedy. The mandate to Cotecna, to Saybolt, was | |
| governed from the original Security Council resolution and then | |
| implemented in the memorandum of understanding and in the 661 | |
| committee. Efforts to achieve our goals on sanctions were | |
| blocked by other member states. | |
| Mr. Shays. That's not the same thing that I said, which you | |
| agreed with. What I wanted to know from you is whether you | |
| could say this. And if you can't, because you don't believe it, | |
| then tell me you don't believe it. But don't agree with my | |
| statement and then tell me something else in your answer. | |
| What I said was because a member state could block the | |
| United States or Great Britain from wanting Saybolt or Cotecna | |
| to have enough authority and enough personnel to properly | |
| document transactions because member states could veto that-- | |
| any one state, and did--that they did not have enough personnel | |
| and they did not and were not able to properly document | |
| transactions. | |
| What you said to me was you agree with that statement, but | |
| you can't say it in your own words, and I just don't understand | |
| why it's hard for you to say it in your own words that way. | |
| Ambassador Kennedy. I guess, sir, because I think--the only | |
| distinction I am trying to draw, if I might, is that there were | |
| transactions outside the scope of the Oil-for-Food Program. | |
| Mr. Shays. We have put those aside. We're just focused on | |
| the Oil-for-Food. | |
| Ambassador Kennedy. All right. Then, yes, Cotecna and | |
| Saybolt and their predecessor in one case did not always have | |
| the resources they needed to do their job, yes. | |
| Mr. Shays. Or the authority? | |
| Ambassador Kennedy. Yes. | |
| Mr. Shays. Yes, what? | |
| Ambassador Kennedy. Yes, they did not have the full | |
| authority to do their job because the mandate from the Security | |
| Council was not as broad as we wished it would have been. | |
| Mr. Shays. Wished it would have been. As it should have | |
| been; correct? | |
| Ambassador Kennedy. Should have been, yes. It was our goal, | |
| as I said, to have a more robust sanctions regime. That's---- | |
| Mr. Shays. Don't say more robust. It was not robust at all. | |
| It was a paper tiger, it was a leaky sieve, it enabled Saddam | |
| to get $4.4 billion. It was a joke. And you don't have to say | |
| it was a joke. I can say it was a joke. But you and I can | |
| certainly agree it wasn't robust. Was it a robust program? | |
| Ambassador Kennedy. No, sir, it was not a robust program. | |
| Mr. Shays. OK. Was it close to being a robust program? | |
| Ambassador Kennedy. I think I'm---- | |
| Mr. Shays. Was it close to being a robust program? | |
| Ambassador Kennedy. No, it was not close to being a robust | |
| program. | |
| Mr. Shays. OK. Well let's leave it right there. | |
| Mr. Waxman. | |
| Mr. Waxman. Mr. Chairman, earlier today at this hearing I | |
| moved for two subpoenas, and we held off any vote on them. As I | |
| understand it, you're willing to issue the first subpoena to | |
| the Federal Reserve Bank in New York to get the information | |
| that we have requested; and rather than issue a second | |
| subpoena, you've suggested that you and I write a letter to the | |
| Department of Defense requesting the information that we wanted | |
| and would have subpoenaed. | |
| I want to thank you for your suggestion of resolving these | |
| subpoena questions in that way. I think it will be very helpful | |
| for us to issue the letter to Secretary Rumsfeld, insisting he | |
| comply with this request. And, of course, I take you at your | |
| word that the committee will followup aggressively if the | |
| Pentagon fails to provide the documents we have requested. | |
| I think this is a reasonable way to proceed, and rather | |
| than have a vote on it, I would like to have this understanding | |
| memorialized at this point in the hearing so that we can go | |
| ahead with the one subpoena and issue a joint letter from the | |
| two of us in lieu of the second subpoena. | |
| Mr. Shays. Thank you. I appreciate the gentleman's, one, | |
| effort and interest in this issue. I think he is correct in | |
| wanting to get these documents. I do totally agree that the | |
| Bank needs a subpoena, and I also want to say to you that we've | |
| asked for 12 documents, records--more than 12--but we have made | |
| 12 specific requests that are quite extensive, and it is my | |
| expectation that the Secretary will provide these documents, | |
| and if he doesn't then we need to followup with the subpoena. | |
| Mr. Waxman. Well, I thank you very much. I certainly agree | |
| with you, and I think it's a reasonable way for us to proceed, | |
| to have all of the information which our committee ought to | |
| have as we do the investigation and in all respects. | |
| Mr. Shays. Thank you very much. | |
| Mr. Waxman. Thank you. | |
| Mr. Shays. Thank you. Thank you for being here. | |
| Mr. Shays. Thank you. Mr. Murphy, you have the floor. | |
| Mr. Murphy. Thank you, Mr. Chairman. I just have a couple | |
| of questions here that I--and I apologize if some of these were | |
| covered while I was on the floor of the House. | |
| But, Ambassador, I thank you for being here, and I wanted | |
| to know where do we stand with the status of gaining access to | |
| the United Nations Oil-for-Food Program documents for Congress | |
| now and--can you give me some background with where we stand | |
| right now? | |
| Ambassador Kennedy. The State Department has asked Chairman | |
| Volcker of the independent investigating committee for the | |
| release of the documents, and up to this point he has declined, | |
| saying that he is using the documents and he intends to conduct | |
| his investigation. And he has declined to release them, sir. | |
| Mr. Murphy. Those would just be documents, official U.N. | |
| documents; is that what you're saying? | |
| Ambassador Kennedy. Yes, sir. | |
| Mr. Murphy. Is anyone trying to pursue documents from any | |
| other country, too? Is there any attempt to do that? | |
| Ambassador Kennedy. Yes, sir. Before I left Baghdad in | |
| August, I had presented to the acting chair of the Board of | |
| Supreme Audit a proposed memorandum of understanding between | |
| the United States and Iraq to release for use of government of | |
| Iraqi documents. And I understand that work is continuing and | |
| we hope to have a resolution to that request in the very near | |
| future. I checked with Baghdad just the other day and I am | |
| expecting those---- | |
| Mr. Murphy. So those documents are being scanned now. | |
| Ambassador Kennedy. We are attempting to make an | |
| arrangement between various parties to scan those documents. | |
| Mr. Murphy. Now, how about the reverse? We have access to | |
| the Iraqi documents. Those will be released soon. | |
| Ambassador Kennedy. The request has been made, sir, yes. | |
| Mr. Murphy. The request has been made. How about the | |
| reverse? Is there any attempts to obtain documents from some of | |
| these other countries that are part of this scandal: Russia, | |
| France, China, Syria? | |
| Ambassador Kennedy. I believe that the request to other | |
| nations for their documents is within the jurisdiction of the | |
| independent investigating commission, Mr. Volcker's commission. | |
| Mr. Murphy. Are those nations cooperating? | |
| Ambassador Kennedy. That is a question that would have to | |
| be posed to the independent investigating commission, sir. | |
| Mr. Murphy. Let me ask about another area here. When it | |
| became apparent--and it was some years ago--that the issue, the | |
| question of some corruption in this Oil-for-Food scandal began | |
| to take some legs on it, what was the responsibility of the | |
| U.N. Office of Iraqi Programs to maintain the integrity of this | |
| program, and did they act within the scope of their | |
| responsibility at that time? | |
| Ambassador Kennedy. That is a question, sir, that is | |
| actually part of the investigation that is going on now by the | |
| Independent Investigations Commission. We are aware of | |
| information that did come to the attention of the United | |
| States, including some from the Office of Iraqi Programs; which | |
| then as a member state, as a member of the 661 committee, the | |
| United States, the United kingdom, did followup on. | |
| If there is other information that came into their | |
| possession that they should have followed up on that we are | |
| unaware of, of course we are unaware of that information, and | |
| that is one of the charges that was given to Chairman Volcker | |
| and his colleagues on the Independent Investigations | |
| Commission, to find out if there was any malfeasance, | |
| misfeasance. And I am not a lawyer, so I may not be using the | |
| appropriate words on the part of U.N. employees, but that is | |
| one of the mandates of the IIC, to look and see if U.N. | |
| employees conducted themselves as appropriate---- | |
| Mr. Murphy. But it appears that there is some lack of | |
| cooperation in releasing doubts that would help us know this. | |
| Ambassador Kennedy. Chairman Volcker has indicated to me | |
| that his investigation is ongoing and he intends to gets to the | |
| bottom of it and then file a full and complete report. I can | |
| only report, sir, what he has said to me. | |
| Mr. Murphy. Does he feel that he is getting cooperation | |
| from the member nations and from the U.N. itself, fully? | |
| Ambassador Kennedy. He has indicated he is getting full | |
| cooperation from the United Nations Secretariat. I have not | |
| posed the question about discussions with other nations. | |
| Mr. Murphy. Also in the historical time line of this, what | |
| was the year in which the concerns about corruption first began | |
| to surface? | |
| Ambassador Kennedy. First of all, corruption only within | |
| the Oil-for-Food Program itself, or issues about Saddam | |
| Hussein's sanctions-busting in general? I mean, the fact that | |
| he was engaged in oil smuggling came to our knowledge, you | |
| know, in 1991-1992. That's outside of the Oil-for-Food Program. | |
| And efforts were made then by the United States and others, and | |
| it led to the establishment of the multinational interdiction-- | |
| maritime interdiction force, which were United States and other | |
| nations' naval assets deployed in the Shatt al Arab and the | |
| Gulf to seize that. We first, I think, became aware of his | |
| schemes related to oil, the premium on oil pricing, in July | |
| 2000, which is where he was---- | |
| Mr. Murphy. Did the involvement of other countries and the | |
| Oil-for-Food corruption continue after July 2000? So even after | |
| the United States became aware, did it continue? | |
| Ambassador Kennedy. We began pushing for a system to bring | |
| this under control. It was resisted by other nations. We were | |
| challenged. We said, do you have hard evidence? Do you have---- | |
| Mr. Murphy. Wait. Who was asking for the hard evidence? | |
| Ambassador Kennedy. Other nations. | |
| Mr. Murphy. Which nations were they? | |
| Ambassador Kennedy. I would have to go back and read the | |
| exact text again. | |
| Mr. Murphy. France. | |
| Ambassador Kennedy. France. | |
| Mr. Murphy. Germany. | |
| Ambassador Kennedy. France, Russia, and China would be | |
| the---- | |
| Mr. Murphy. Syria. | |
| Ambassador Kennedy. Syria was on the committee at one | |
| point. I mean, over the course of the 13 years, there were many | |
| nations on the--and in 2000 when this first came to our | |
| attention---- | |
| Mr. Murphy. So the very nations that are---- | |
| Ambassador Kennedy. The nations changed every year. | |
| Mr. Murphy. I want to make sure I understand what you're | |
| saying. So the nations that the allegations are against now, at | |
| that time were saying you don't have any evidence on us? | |
| Ambassador Kennedy. Yes, sir. They were saying, do you have | |
| hard proof? And we said, we are getting these stories, its | |
| being reported in industry trade publications, it's being | |
| reported elsewhere. This must be addressed. | |
| We pushed and we pushed and met a lot of resistance, and | |
| since we were meeting this resistance, if I might for a moment, | |
| sir, the program then was to set the oil price at the beginning | |
| of the month. And then what Saddam was playing off of was the | |
| volatility of the oil market where the price would move 10, 15, | |
| 20, 50 cents a barrel over the course of the month, and then he | |
| would sell at one price and sell to a favored supplier and say, | |
| I'm going to sell to you at the peg price of $20.50, but now | |
| that the price for the rest of the month is $20.75, you keep | |
| the nickel and you kick me back 20 cents. When we saw that this | |
| is what he was doing, and then we met the resistance from | |
| others to our activities, what the United States and the United | |
| Kingdom then did was to refuse to set an oil price at the | |
| beginning of the month. So there was no oil price. Oil sales | |
| went on, but there was no price. | |
| We then agreed to an oil price at the end of the month that | |
| would then deprive Saddam Hussein of playing with the | |
| volatility of the market. And by setting a retroactive price, | |
| we believe that from the oil overseers--which were the | |
| professionals who had been engaged--that still he was | |
| potentially making something, but it might have been on the | |
| order of 3 to 5 cents a barrel as opposed to on the order of 25 | |
| to 50 cents a barrel simply because of the movements over the | |
| course of the month. | |
| Mr. Murphy. And what countries were involved with that | |
| after the United States has worked to deal with oil prices at | |
| the end of the month? What countries were still purchasing oil | |
| and giving him a kickback at that time? | |
| Ambassador Kennedy. We do not know which country. That is | |
| part of the investigation now. I do not have in front of me a | |
| confirmed list of what countries were engaged in that. I should | |
| say these were national--these were companies that were | |
| purchasing the oil and giving kickbacks, not nations | |
| themselves. | |
| Mr. Murphy. Well that's an important distinction. Was there | |
| any role or awareness, for example, of the French, the Russian, | |
| Chinese governments of these kickbacks going on? | |
| Ambassador Kennedy. We informed their members of the 661 | |
| committee. | |
| Mr. Murphy. So they were informed. Back in what year? Mid- | |
| nineties? | |
| Ambassador Kennedy. In 2000, sir, when it came to our | |
| attention. It was first raised, I believe, in the July 13, 2000 | |
| meeting of the 661 committee on oil price. | |
| Mr. Murphy. So that's the definite date by which we know | |
| that those member nations were notified. And I'm assuming that | |
| in the U.N. investigation we may find that those member nations | |
| knew something prior to that, but we don't know. | |
| Ambassador Kennedy. That would be speculation, sir, that I | |
| cannot comment on. | |
| Mr. Murphy. But they were notified at least in the year | |
| 2000, and yet the Oil-for-Food purchasing continued on after | |
| this. It didn't end in 2000. It continued on; am I correct? | |
| Ambassador Kennedy. We believe that because of the steps we | |
| took to put this retroactive pricing, that we drove the premium | |
| or surcharge down from, you know, multiple cents a barrel to 2 | |
| or 3 cents a barrel. But I cannot say that we ended it | |
| entirely, because Saddam Hussein was always looking for some | |
| way to get around the sanctions. | |
| Mr. Murphy. Mr. Chairman, I'm not sure. Could I have 2 more | |
| minutes or 1 more minute? | |
| Let me shift to a different line of questioning here. The | |
| total amount of money that I understand Saddam Hussein received | |
| from this Oil-for-Food corruption was of the nature of $10 | |
| billion, am I correct, $10.1 billion? In the whole package of | |
| things here. | |
| Ambassador Kennedy. He achieved much more than that if you | |
| count in the oil smuggling that took place outside the scope of | |
| the Oil-for-Food Program, and it is very difficult to get an | |
| exact estimate. But I'm in no position to challenge the figure | |
| that we are talking about that was provided by the Government | |
| Accountability Office. I have every reason to believe that | |
| figure is probably in the ball park. | |
| Mr. Murphy. So it's probably in the ball park. It may be | |
| more. | |
| Ambassador Kennedy. Could be a little more, a little less. | |
| Yes, sir. | |
| Mr. Murphy. OK. And what did he do with the money? | |
| Ambassador Kennedy. He did a wide variety of things, I'm | |
| sure. Some of the sumptuous palaces that are extant in Baghdad | |
| at this time are undoubtedly built with that money. And he may | |
| well have done other things, but I don't have direct and | |
| confirmed information about that. | |
| Mr. Murphy. Will we have information from these | |
| investigations with regard to what he spent that money on? For | |
| example, did he purchase weapons on a black market or directly | |
| with that money? | |
| Ambassador Kennedy. I do not believe that is going to be | |
| the subject of the Volcker or the IIC investigation. That may | |
| come out through other U.S. Government channels, sir. | |
| Mr. Murphy. As we connect the dots, the thing that worries | |
| me intensely on this is not only the oppression Saddam Hussein | |
| kept his people under, the tortures and the murders, the | |
| killing fields which continued on at that time, but also it | |
| kept his regime going, much of it in sumptuous palaces which I | |
| have seen in Iraq. But the third, it kept his military going. | |
| And I would hope that somebody would find in this--I'm | |
| sure, Mr. Chairman, this is some of your concerns as well--that | |
| if one penny of that was used to buy any bullets or bombs or | |
| grenade launchers or anything else, I suspect on the black | |
| market, because he's not permitted to purchase them overtly-- | |
| and this is where we have to also connect the dots to find if | |
| those companies within those member nations of the U.N. have | |
| blood on their hands against our soldiers. | |
| And I would hope that is part of what this investigation | |
| brings out; that those nations who acted holier than thou in | |
| saying, you don't have any evidence, you don't know anything | |
| about what's going on, but also saying stay away from Iraq, | |
| they're nice people, leave them alone, could very well be--and | |
| this is the crux of what we have to find out from this | |
| investigation--if they were sending the money to Saddam Hussein | |
| which he used to arm his soldiers against the world. | |
| Ambassador Kennedy. I agree. That is something that is | |
| absolutely abhorrent; absolutely, sir. | |
| Mr. Murphy. And I hope the world is paying attention to | |
| that, because all this time that people are looking at let's | |
| ask the United Nations, they're not an altruistic system. Let's | |
| ask other member nations to come out and somehow decide what is | |
| best for the United States. The fact is no Ambassador from | |
| another country is given a mission of deciding what's best for | |
| the United States. They're all supposed to represent their own | |
| nation. And I hope that people pay attention to this; that when | |
| you have this sort of absolute power to spend and to find that | |
| kind of money, that nations and the businesses that operate | |
| within them are not pure. And we may like to think about | |
| perhaps these other nations may have some pure motives, but | |
| quite frankly, there's too much in the negative column to | |
| suggest otherwise. | |
| And I would hope that the investigation of this committee, | |
| led by the chairman and by the United Nations, would give us | |
| that answer. I wish we could get that answer soon. But as it | |
| is, I go back to my opening statement, too, that it concerns me | |
| deeply that these nations which have been very quick to ask us | |
| for help when they needed it, when we ask them for help--if | |
| they knowingly participated, if it was active or passive | |
| participation in sending money to this murderer Saddam Hussein, | |
| which he then used to keep his military regime in power, which | |
| was then used against our own soldiers and citizens is | |
| disgusting. | |
| Thank you, Mr. Chairman. | |
| Mr. Shays. I'll allow counsel to ask a few questions, and | |
| then I'll have a few more, Ambassador, and then we'll be all | |
| set. | |
| Mr. Halloran. Thank you, Mr. Chairman. | |
| Ambassador Kennedy, two areas. First, much of the document, | |
| many of the documents the State Department has provided are | |
| marked sensitive or classified because of their foreign origin, | |
| I believe. In particular, there has been recent media reference | |
| to a document produced by the Iraqi Oil Ministry soon after the | |
| Governing Council and the CPA was in place, characterizing in | |
| detail the Oil-for-Food Program and abuses. That report is | |
| marked sensitive and classified and not for distribution. | |
| I'm wondering what the process is for the U.S. Government | |
| to request or accomplish the declassification and public | |
| release of such a report. | |
| Ambassador Kennedy. Let me find out those exact parameters | |
| and get back to the committee for the record. | |
| Mr. Halloran. Thank you. | |
| The other area I want to explore is this concept of | |
| sovereignty, and try to plumb the depths and the parameters of | |
| that concept. It struck me in your testimony that it is not an | |
| absolute, that I--if you could describe other situations in | |
| which sovereignty has been described or observed differently in | |
| other U.N. regimes; that it's struck us in the documents that | |
| Saddam simply waited out those who had the most expansive view | |
| of sovereignty possible, but that other formulations of this | |
| problem were possible within a plausible concept of sovereignty | |
| for a nation that was already under an oppressive sanctions | |
| regime, that had already been documented as trying to avoid | |
| that sanctions regime. So, in one sense, the sovereignty had | |
| already been severely mortgaged. | |
| Could you describe those negotiations a little more, | |
| please? | |
| Ambassador Kennedy. I will first plead that I am not an | |
| international lawyer and I am not qualified to provide you with | |
| a textbook definition of sovereignty. What I believe we are | |
| talking about here is, I will call it a political definition of | |
| sovereignty. The United States, the United Kingdom, other | |
| allies, sought to put into place, and did in 1990 after the | |
| invasion of Kuwait, a complete embargo on the movement of goods | |
| and services into Iraq. And then it was later amended to permit | |
| certain donations of food and medicines. | |
| But as we saw over the course of the years between 1991 and | |
| 1995, you know, the mortality rate; the ability of the Iraqis | |
| to get basic basic nutrition, was just simply collapsing | |
| because of Saddam Hussein's own unwillingness to treat his | |
| people in a humane sense. This built political pressure on | |
| those nations who were in favor of sanctions. And we did not | |
| wish to see that sanctions regime end, because of our goal of | |
| doing whatever possible to restrict the movement of materials | |
| of war to Saddam Hussein so he could re-arm. | |
| So taking the political aspect of trying to keep the | |
| sanctions in place, but seeing the resistance, a series of | |
| negotiations took place within and among member states at the | |
| United Nations to formulate a new regime that eventually led to | |
| the Security Council resolution that established the Iraq | |
| program. | |
| Did we want a program that had more teeth in it than that? | |
| Absolutely. Could we get other nations to agree to that fully | |
| and completely? Could we get Saddam Hussein to tell the other | |
| nations that he was willing to accept that? The answer was no. | |
| Why---- | |
| Mr. Halloran. So we can conclude there is another | |
| formulation of the Oil-for-Food arrangement that would give | |
| Saddam less control but still observe the concept of the | |
| sovereignty. | |
| Ambassador Kennedy. As I said in my testimony, yes, one | |
| could have had such another activity. However, in the | |
| negotiations that took place in the 661 committee and in the | |
| Security Council, we did not achieve that consensus on a regime | |
| with more teeth. | |
| Mr. Halloran. Thank you. | |
| Mr. Shays. Thank you, Ambassador. Let me ask you, how many | |
| months were you in Iraq? | |
| Ambassador Kennedy. I was in Iraq for 6 months in 2003 and | |
| then I went back again for another 3 months' assignment in | |
| 2004, sir. | |
| Mr. Shays. Was that a classified assignment, then, or can | |
| you tell us, bottom line, what you were involved in? | |
| Ambassador Kennedy. No, sir. I can tell you. For the first | |
| 6 months in 2003, I was the chief of staff of the Coalition | |
| Provisional Authority, and then when I went back in 2004, I was | |
| the chief of staff of a small unit that was working on the | |
| transition from CPA to American Embassy and the transition | |
| logistically from the Iraqi Governing Council to the Iraqi | |
| Interim Government. | |
| Mr. Shays. Well, we know those were not easy assignments, | |
| and we sincerely appreciate what you did during that time. I | |
| would like you to describe to me the Clovely incident, C-L-O-V- | |
| E-L-Y, the ship. Are you familiar with it? | |
| Ambassador Kennedy. No, sir. I am aware of the Essex | |
| incident that took place several years ago, but, Mr. Chairman, | |
| I will be glad to research that and provide you information for | |
| the record. I apologize. I am unaware of such. | |
| Mr. Shays. You don't need to. If you don't know of the | |
| incident, I'd just as soon you not respond to it. | |
| When I listened to your statement, and I really--you know, | |
| we don't usually allow someone to speak for more than 10 | |
| minutes. I wanted to hear your whole statement. I think why I | |
| get uneasy is certain things seem so simple to me, and then | |
| they are the hard things. And then I think you have a big | |
| dialog about the hard things. | |
| The easy things are that it's clear Saddam starved his | |
| people and deprived them of medicine and would have continued | |
| to do that unless we had some way to allow him to get food and | |
| medicine for his people. And we basically decided to let him | |
| determine, really, how the program should function. He decided | |
| it was in euros, not dollars. He decided who could buy oil. He | |
| decided who he would buy commodities from. He basically set the | |
| price of oil. He set the price of commodities. He undersold his | |
| oil. No reason to do that. He overpaid for commodities. No | |
| reason to do it, unless he did what he did. And that was, he | |
| got kickbacks in both ways. | |
| And it seems very evident to me that both Saybolt and | |
| Cotecna did not have the capability, either in personnel or | |
| authority, to prevent bad things from happening in this | |
| program. And so they happened routinely, not on occasion. It | |
| seemed to me we could have just had a quick dialog. What is of | |
| concern to me, is there anything that I just said that you | |
| would disagree with? | |
| Ambassador Kennedy. No, sir. If I do, is that one that | |
| neither Saybolt nor Cotecna set the price of oil or set the | |
| price of commodities. | |
| Mr. Shays. No, they didn't. | |
| Ambassador Kennedy. No, sir. | |
| Mr. Shays. So everything I said was pretty accurate from | |
| your standpoint. | |
| Ambassador Kennedy. Except, sir, that he proposed the price | |
| of oil. | |
| Mr. Shays. He being---- | |
| Ambassador Kennedy. Saddam Hussein. He proposed the price | |
| of oil, but the price of oil was then set by the 661 committee, | |
| not by Saddam Hussein. He---- | |
| Mr. Shays. And in some cases set it below market price. | |
| Ambassador Kennedy. When it was set at the beginning of the | |
| month, when the market moved, it ended up being below market | |
| price, which is why the United States and the United Kingdom | |
| moved to set the price at the end of the month so that he could | |
| not take advantage of the natural market shifts. Yes, sir. | |
| Mr. Shays. And so I'm getting to my point. What concerns me | |
| is that you basically have described to me the reality that our | |
| allies who didn't support the embargo were pretty much shaping | |
| it, and that was the reality of this program; and that it was | |
| more important to have the program happen, even though it | |
| wasn't working properly. In other words, having the program and | |
| not having it work properly was better than not having the | |
| program at all. I conclude from that, because you felt the only | |
| alternative was that we would continue to see Iraqis starve and | |
| they wouldn't get the medicine. And I guess that's the | |
| conclusion of the State Department. | |
| Ambassador Kennedy. I think, sir, if there had been massive | |
| starvation in Iraq, I think the belief at that time--and I was | |
| not there--was that the entire sanction regime totally would | |
| have collapsed, and then Saddam Hussein would have had no | |
| sanction regimes to have to deal with at all, and that free | |
| rein would have been not in the U.S. national interest. | |
| Mr. Shays. OK. But the bottom line is as a result, we had | |
| Saddam able to make a fortune in kickbacks. That was basically | |
| the compromise. And it is a fact that the United States knew | |
| this was happening. | |
| Ambassador Kennedy. Every time, sir, that we saw him move | |
| to abuse the system--pricing oil, kickbacks--we moved to try to | |
| counter that in the 661 committee; and, as you have rightly | |
| noted earlier, sir, met resistance from other member states. | |
| Mr. Shays. Who could veto. | |
| Ambassador Kennedy. Yes, sir. The way the Security Council | |
| procedures work, yes, sir. | |
| Mr. Shays. Ambassador, are you set to ask questions? Would | |
| you like to ask some questions? | |
| Ms. Watson. Yes. | |
| Mr. Shays. Thank you. We have two Ambassadors here. | |
| Ms. Watson. I am a bit confused--thank you, Mr. Chairman-- | |
| because I just heard you say that every time you saw something | |
| appeared abusive, that there would be some response. However, | |
| we have been told how Saddam Hussein had taken the money | |
| intended for the people and food, and built magnificent | |
| palaces. It seems to me that this would be the time that some | |
| action should have been taken. Can you respond, please? | |
| Ambassador Kennedy. There is no doubt, Madam Ambassador, | |
| that Saddam Hussein received kickbacks. That is a fact. We | |
| moved to counter those kickbacks, but during this period of | |
| time while he was making kickbacks, and as I testified before | |
| this committee several months ago, what he did was on very | |
| large quantities of goods, and he--remember, he was feeding a | |
| nation of some 23 to 25 million people--he would attempt to get | |
| very small kickbacks on very large sums. But the sums mount up | |
| over that kind of volume. He was receiving those funds. Yet the | |
| medicines and the foodstuffs were still going in. | |
| I am not defending what he was doing by any means. What he | |
| was doing is wrong. But the food and medicines were going in, | |
| and he was getting the kickbacks while we and our United | |
| Kingdom allies moved to cutoff either his attempt to manipulate | |
| oil prices or attempt to add surcharges or attempt to add | |
| after-sales service contracts. And so we took steps to block | |
| him as soon as we discovered it. And as we have discussed | |
| earlier, we were not successful in blocking all his activities. | |
| Ms. Watson. And I know, Mr. Ambassador how difficult this | |
| is. I have been there, too. However, I think you're the only | |
| one that can help our understanding of what went wrong so | |
| wrong. And so I understand that the Oil-for-Food Program helped | |
| provide food for 27 million Iraqi residents. It prevented | |
| malnutrition. It reduced communicable diseases. It eradicated | |
| polio, and was a major success for a period of time. We're | |
| focusing on $4.4 billion of a $67 billion humanitarian success | |
| story. | |
| So do you believe that this program met its objectives, and | |
| do you believe that we as the United States, and the monitors | |
| who were participating, were on the job? I need to know out in | |
| the field what it was that was lacking and how we lost so much | |
| of the fund to corruption. What was it that should have been | |
| done beyond what you've just described? | |
| Ambassador Kennedy. The Oil-for-Food Program had multiple | |
| objectives. One objective was to ensure that foods, medicine, | |
| and other essential human needs of the Iraqi people were met. | |
| And so to that extent, it met its objective by ensuring that | |
| the infant mortality rate and maternal mortality rate, which | |
| had gone up, went back down. | |
| The nutrition was achieved by the Iraqi people. So yes, it | |
| met that objective. But in terms of being a sanctioned regime | |
| that stopped any attempt by Saddam Hussein to bust the sanction | |
| regime and keep him from cheating on the sanctions regime, | |
| busting it and then potentially using those funds to get other | |
| materials, it was not a total success. But---- | |
| Mr. Shays. Would the gentlelady suspend for a second? | |
| Ms. Watson. Certainly. | |
| Mr. Shays. When you say ``any attempt'' and ``it was not a | |
| total success'' as it relates to that part of it, you seem to | |
| be going back and suggesting that the abuses were infrequent. | |
| Is it your testimony that the abuses were infrequent? | |
| We've already conceded that people are going to get aid. | |
| They are going to get money and medicine. But on the other side | |
| of the equation, is it your testimony that it was just any | |
| attempt, we didn't succeed in any attempt? Where the abuse is | |
| more frequent, happened more than less? I want to know which | |
| way you see it. | |
| Ambassador Kennedy. The abuses, Mr. Chairman, were | |
| continuous. But they were, if I might, sir, they were different | |
| abuses each time. I mean, he abused it with oil smuggling | |
| outside of program. He abused it with kickbacks. He abused it | |
| with premiums on oil. He took different steps, so continuous | |
| abuse, different tools that he used each time to cause the | |
| abuses, sir. | |
| Mr. Shays. Thank you. Thank you. | |
| Ms. Watson. If I might continue--and if you want to | |
| continue to respond to my last question, fine--but let me raise | |
| another issue. What other U.N. bilateral or multilateral | |
| mechanism besides the 661 committee could the United States | |
| have utilized to publicize and put an end to these practices? | |
| I'm concerned that too much of the oil moneys were diverted in | |
| other directions, and those who suffered were the Iraqi people. | |
| With the Coalition, what could have been done to end this | |
| misuse? | |
| Ambassador Kennedy. With Saddam Hussein as the figure here, | |
| I don't know that anything would have stopped Saddam Hussein | |
| from attempting to get around any activities. | |
| Ms. Watson. Well let me just ask you this, then. What would | |
| have stopped the flow of funds into the program Oil-for-Food? | |
| Ambassador Kennedy. The only thing that would have stopped | |
| it would have been if you had had a different sanctions regime. | |
| But the sanction regime that was put into place was the one | |
| that was the result of long, extensive, and arduous | |
| negotiations with other member states to achieve that sanctions | |
| regime. If you had had a regime in which, again, hypothetically | |
| a company had pumped all the oil, sold all the oil, and bought | |
| all the goods and sent them in, then there might not have been | |
| any leakage as you described. However, there was not the | |
| political will on the part of nations to impose that kind of a | |
| sanctions regime. | |
| Ms. Watson. What of our political will here? Did we make a | |
| strong enough effort, Security Council in the United Nations, | |
| to bring their attention and get a focus on possibly changing | |
| the kind of structure that we had? What was being done from | |
| within? | |
| Ambassador Kennedy. I only arrived at the U.S. mission to | |
| the United Nations in the fall of 2001. But my preparation for | |
| this, my reading of the very extensive record, indicate that | |
| the U.S. Government made extensive efforts to get the most | |
| teeth into sanctions that it could, and met resistance from | |
| other member states who are unwilling to accept that. | |
| Ms. Watson. I understand how difficult it is when you're | |
| coming in and programs like this have been running. That is the | |
| reason why we were concerned on this committee with our | |
| oversight, and we wanted to see what records, what documents, | |
| documentation, what facts there are held by other departments | |
| and branches. I understand that there were 60 staffers and five | |
| different U.S. agencies who reviewed each of the Oil-for-Food | |
| contracts. If we had that information, then my questions might | |
| be answered. | |
| And I want to thank you for your service, and I want to | |
| thank you for coming here and being on the hot seat. But I | |
| think there should be some others that are on the hot seat so | |
| we can find where we went wrong, where it went wrong. | |
| We know that Saddam Hussein was wrong. But that doesn't | |
| excuse this whole thing. And so we would just like to get to | |
| the bottom of it. I appreciate your service and I thank you so | |
| much for trying to explain what happened before your duties | |
| started. But we are trying to seek truth. | |
| Thank you, Mr. Chairman. | |
| Mr. Shays. Thank you. | |
| Just very briefly, Ambassador, do you feel this story | |
| should come out? | |
| Ambassador Kennedy. Absolutely. | |
| Mr. Shays. Do you feel this story should come out, even if | |
| it embarrasses our allies? | |
| Ambassador Kennedy. Absolutely. | |
| Mr. Shays. Do you believe it should come out, even if it | |
| embarrasses some allies and makes it more difficult to get | |
| their cooperation in Iraq? | |
| Ambassador Kennedy. Absolutely. | |
| Mr. Shays. Thank you. Thank you very much. | |
| We are going to go to our next panel. Thank you. | |
| Our next panel, our last panel, and many hours later, David | |
| Smith, director, Corporate Banking Operations, BNP Paribas; | |
| Peter W.G. Boks, managing director, Saybolt International B.V; | |
| and Andre Pruniaux, senior vice president, Africa and Middle | |
| East, Cotecna Inspection SA. | |
| If you would all stay standing, we will swear you in. If | |
| there is someone else who might respond to a question, I would | |
| like them to be able to be sworn in as well. | |
| So we have David Smith, Peter Boks, and Andre Pruniaux. | |
| Thank you. And we swear in all our witnesses. If you'd raise | |
| your right hands, please. | |
| [Witnesses sworn.] | |
| Mr. Shays. Note for the record, our witnesses have | |
| responded in the affirmative. Gentlemen, thank you so much for | |
| your patience. And also, thank you for your cooperation. You | |
| all have been very cooperative. You all have tried to be | |
| consistent with your obligations that enable us to do our job | |
| as well, and we thank you for that. | |
| David Smith, we are going to have you go first. I'll just | |
| go down and you'll need to bring that mic closer to you. Plese | |
| bring it down a little further. And the lights on means your | |
| mic is on. Do you want to just tap it just to see? Thank you. | |
| So what we'll do is, you have the floor for 5 minutes, and | |
| then we roll it over for another 5 minutes. After 10, I'd ask | |
| you to stop. | |
| Mr. Smith. Thank you Mr. Chairman. | |
| Mr. Shays. Thank you. | |
| STATEMENTS OF DAVID L. SMITH, DIRECTOR, CORPORATE BANKING | |
| OPERATIONS, BNP PARIBAS; PETER W.G. BOKS, MANAGING DIRECTOR, | |
| SAYBOLT INTERNATIONAL B.V; AND ANDRE E. PRUNIAUX, SENIOR VICE | |
| PRESIDENT, AFRICA AND MIDDLE EAST, COTECNA INSPECTION S.A | |
| Mr. Smith. Chairman Shays, members of the committee, I | |
| request that my written statement be submitted for the record. | |
| Mr. Shays. And it will, without objection. | |
| Mr. Smith. Thank you. Before responding to any particular | |
| inquiries members of this committee may have, I would like to | |
| make a brief statement which summarizes the key points of my | |
| written statement to the committee. | |
| My name is David Smith. Since September 2001, I have been | |
| employed by BNP Paribas, North America, where I serve as | |
| director of Corporate Banking Operations. In that capacity I | |
| have been responsible for overseeing the Bank's letter-of- | |
| credit processing operations, including those operations as | |
| they pertain to the Bank's agreement to provide banking | |
| services to the United Nations for the U.N. Oil-for-Food | |
| Program. | |
| First, as to the selection of BNP, according to a report of | |
| the General Secretary dated November 25, 1996, the selection | |
| process for the holder of the U.N. Iraq account began with the | |
| preparation of, ``a working list of major banks in all parts of | |
| the world with the necessary credit quality ratings, strong | |
| capital positions, and capabilities to provide the services | |
| necessary for the account.'' | |
| The report indicates that a short list of those banks, | |
| including BNP, were asked in June 1996 to submit written | |
| proposals to the U.N. for the provision of the required banking | |
| services. The U.N.'s request for proposals sought certain | |
| pricing information from each bank and inquired into each | |
| bank's capabilities to handle the business of the program's | |
| size. | |
| The Bank understands that four major international banks | |
| submitted formal offers in response to the RFP. The General | |
| Secretary reported in 1996 that, ``After careful consideration | |
| of the proposals received,'' BNP was selected on June 18, 1996 | |
| to be the holder of the U.N. Iraq account. Accordingly, a | |
| banking services agreement was executed by BNP and the United | |
| Nations after several weeks of negotiations. | |
| The Bank believes that several factors resulted in BNP's | |
| selection by the United Nations, including the following: one, | |
| its large international presence; two, its significant position | |
| in the commodities trade finance business; three, its high | |
| credit rating; four, its strong capital position; five, its | |
| willingness to assume the credit risk of other banks by | |
| confirming the oil letters of credit to be issued for the | |
| benefit of the program; six, its competitive pricing; and | |
| seven, its substantial trade finance support operation, located | |
| in New York City, where the U.N. is headquartered. | |
| Second, as to the services the Bank has provided to the | |
| United Nations, the role of the Bank under the banking services | |
| agreement has consisted of delivering nondiscretionary banking | |
| services to its customer, the United Nations. These services | |
| have related to both the oil and the humanitarian sides of the | |
| program. Generally on the oil side of the program, those | |
| services have involved the confirmation of letters of credit | |
| issued on behalf of U.N.-approved purchases of Iraq oil. Those | |
| letters of credit were issued by various banks for the benefit | |
| of the U.N. Iraq account. | |
| When a bank confirms a letter of credit, it takes upon | |
| itself the obligation to pay the beneficiary, here the U.N. The | |
| Bank's confirmation of the oil letters of credit was done at | |
| the request of the U.N. It was performed in accordance with | |
| standard banking practices, letters of credit practices, with | |
| several additional controls imposed by the United Nations, as | |
| described in my written statement. | |
| On the humanitarian side of the program, the Bank's | |
| services have involved the issuance of letters of credit at the | |
| direction of the U.N. for the benefit of U.N.-approved | |
| suppliers of goods to Iraq. Those letters of credit provided | |
| the necessary assurance to suppliers that they would receive | |
| payment for their goods once they had been delivered to Iraq in | |
| accordance with their contractual obligations. | |
| The processing by the Bank was performed in accordance with | |
| standard letter-of-credit practice, with a number of additional | |
| controls, again as detailed in my written statement. | |
| Significantly, the Bank has had no discretion over how | |
| money has been spent or invested under the program. The Bank | |
| did not select the buyers of the oil, sellers of the goods, or | |
| the goods to be supplied. | |
| Third, as to the Bank's legal and ethical obligations, the | |
| Banks provision of services pursuant to the banking services | |
| agreement was licensed by the U.S. Department of Treasury, | |
| Office of Foreign Asset Control [OFAC]. Moreover, all services | |
| provided by the Bank under the agreement were performed within | |
| a framework designed by the U.N. under the agreement, the | |
| United Nations, a universally known international organization | |
| of sovereign states, was the Bank's sole customer. | |
| As I have stated, all aspects of the transaction under the | |
| program, including the purchases of oil and the supplies of | |
| goods, as well as the nature, amount, and pricing of goods | |
| involved, were approved by the U.N. All letters of credit | |
| confirmed or issued by the Bank under the banking services | |
| agreement were governed by the Uniform Customs and Practices | |
| for Documentary Credits, a set of detailed procedures for | |
| letters of credit published by the International Chamber of | |
| Commerce. | |
| Program transactions were also subject to U.S. regulatory | |
| requirements, including in particular the screening of any | |
| program participants against lists of specially designated | |
| nationals published by OFAC. There also were, as described in | |
| my written statement, a number of additional controls imposed | |
| by the U.N. that were unique to the program. | |
| Notably, an article in Saturday's New York Times purports | |
| to quote from a briefing paper provided to members of this | |
| committee that suggests that the Bank was remiss because it | |
| ``never initiated a review of the program or the reputation of | |
| those involved.'' | |
| Any such suggestion misunderstands the nature of the Bank's | |
| role under its banking services agreement with the U.N. Under | |
| that agreement, the U.N. was the Bank's sole customer. The Bank | |
| reasonably relied upon the sanctions committee of the Security | |
| Council for its review and approval of both purchases of oil | |
| and the suppliers of goods. The Bank provided specified | |
| nondiscretionary services to the U.N. under the banking | |
| services agreement, and it was not the Bank's place to | |
| substitute its judgment for that of the sanctions committee | |
| regarding who would be approved by the U.N. to participate in | |
| the program. | |
| Fourth, as to the unique challenges of the program, from a | |
| banking perspective the program has represented an enormously | |
| challenging and unique undertaking involving the process of | |
| over 23,000 letters of credit and the disbursement of billions | |
| of dollars for investment purposes at the direction of the U.N. | |
| Those investments have generated in excess of $2.7 billion for | |
| the benefit of the program. | |
| With the exception of a temporary backlog in processing of | |
| humanitarian letters of credit in mid-2000, the Bank believes | |
| that it has done a good job in handling the highly demanding | |
| banking assignment under a program of unprecedented scope and | |
| magnitude. | |
| Finally, as to the design of the program, the Bank believes | |
| that the use of letters of credit provided the correct banking | |
| framework for the program. Although outside the scope of our | |
| responsibilities it appears, with the benefit of hindsight, | |
| that the program might have been better structured in other | |
| respects to minimize the risk of abuse. In this regard, a well- | |
| managed competitive bidding process, both for the purchase of | |
| oil and for the sale of goods, might have been substituted for | |
| what was essentially a sole-source procurement process. This | |
| would have eliminated the Government of Iraq in the selection | |
| of prospective counterparties for U.N. approved Oil-for-Food | |
| transactions, and would have provided greater transparency | |
| regarding program participants. It might also have reduced the | |
| possibility that the program might not always have received the | |
| most favorable pricing. | |
| On behalf of BNP Paribas, I thank the committee for this | |
| opportunity to provide this statement. I would be happy to | |
| respond to any questions members of the committee may have. | |
| Mr. Shays. Thank you, Mr. Smith. | |
| [The prepared statement of Mr. Smith follows:] | |
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| Mr. Shays. Mr. Boks. | |
| Mr. Boks. Mr. Chairman and distinguished members of the | |
| subcommittee, my name is Peter Boks. I am an executive of | |
| Saybolt International which is headquartered in The | |
| Netherlands, just outside of Rotterdam. Thank you for inviting | |
| me to discuss with the subcommittee today the role of Saybolt | |
| International in the administration of the United Nations Oil- | |
| for-Food Program. Having submitted a more complete statement | |
| for the record, I will discuss my brief oral remarks on our | |
| principal responsibilities; namely, the monitoring of oil | |
| exports under the Oil-for-Food Program. | |
| Mr. Chairman, please bear with me that English is not my | |
| native language. So excuse me if things are unclear. | |
| Mr. Shays. Let me assure you that we hear you very well, | |
| and we appreciate you are speaking in English. | |
| Mr. Boks. Thank you. Saybolt won its contract with the | |
| United Nations in 1996 through a competitive bid process. Under | |
| that contract and multiple extensions, Saybolt deployed teams | |
| of inspectors selected on the basis of their prior experience | |
| in the industry. Oil inspectors were screened by Saybolt, | |
| approved by the United Nations, trained and briefed for this | |
| assignment and required to certify compliance with Saybolt's | |
| code of conduct. | |
| Under its contract with the United Nations, Saybolt's | |
| responsibility was to monitor the quality and quantity of oil | |
| exports from the two authorized Oil-for-Food export points, the | |
| offshore platform in Al-Bakr and the port of Ceyhan in Turkey, | |
| along with the remote monitoring station on the Iraq-Turkey | |
| pipeline near Zakho, close to the northern border with Turkey. | |
| The monitoring procedures follow: First, the United Nations | |
| oil overseers would review and approve contracts and letters of | |
| credit negotiated between the Iraqi oil company SOMO and the | |
| buyers of Iraqi oil. Coordinating through a common data base | |
| shared by Saybolt and the United Nations, Saybolt would monitor | |
| the quantity and quality of oil, pursuant to the approved | |
| contracts at the two authorized export points and report | |
| confirming figures to the United Nations. | |
| Also important were the limits of Saybolt's | |
| responsibilities. Saybolt had no responsibility, for example, | |
| with respect to the underlying contracts which were negotiated | |
| directly between the seller and buyer and reviewed by the | |
| United Nations. Saybolt had no control over the moneys that | |
| were involved in the underlying transactions--that was a matter | |
| for the sellers, buyers, and the United Nations--nor did | |
| Saybolt itself buy or sell Iraqi oil. | |
| Finally, from time to time, we reported irregularities that | |
| we observed to the United Nations or the Multilateral | |
| Interception Force. Saybolt had no responsibility for | |
| monitoring oil exports from any locations other than the three | |
| locations specified in its contract. In performing their | |
| responsibilities, Saybolt inspectors typically operated in | |
| remote locations in inhospitable work environments. Some days, | |
| for example, the isolated Mina Al-Bakr platform was without | |
| electricity or water and sometimes during heat that exceeded | |
| 110 degrees. U.N. audits and reports confirmed the harsh | |
| working conditions and risk to personal safety. The entire | |
| program was also characterized by highly charged, political | |
| interests and sensitivities. | |
| The simultaneous operation of the humanitarian Oil-for-Food | |
| Program and a comprehensive U.N.-imposed sanctions regime | |
| created a variety of practical and logistical complications | |
| affecting everything from obtaining visas to paying for basic | |
| necessities. | |
| The job of monitoring authorized oil exports was also made | |
| more challenging by the poor state of the oil industry | |
| infrastructure and the deficiencies in equipment and technology | |
| in Iraq. Even before the program began, Saybolt informed the | |
| United Nations of problems with the metering equipment at each | |
| of the three sites. At Mina Al-Bakr, the Iraqi failure to | |
| install, repair, or calibrate metering equipment meant there | |
| were no counterpart measurements to cross-check against ship | |
| measurements at the point of loading on the Mina Al-Bakr | |
| platform. | |
| In the absence of calibrated metering equipment, Saybolt | |
| used the best alternative techniques accepted and widely used | |
| in the industry. Specifically, in the absence of metering, | |
| inspectors relied on calibration charts, vessel experience | |
| factors, and shipboard measurements to determine the quantity | |
| of oil loaded onto vessels, a methodology that the United | |
| Nations expressly accepted. | |
| Monitoring loadings without access to reliable meters is | |
| accepted industry practice but is less accurate than metering | |
| at loading points. Although falsification of calibration charts | |
| and VEF data is rarely an issue, the possibility exists. To | |
| avoid such a problem, Saybolt originally recommended that the | |
| volume of oil be measured at the foreign point offloadings, as | |
| well as at the loading points of Mina Al-Bakr and Ceyhan. For | |
| whatever reasons, his recommendation was not adopted. | |
| In January 1999 following discussions with the United | |
| Nations, Saybolt began requiring that each master sign a | |
| statement certifying the accuracy of the records provided to | |
| Saybolt. The United Nations was informed of this procedure and | |
| supported its recommendation. Over 7 years, Saybolt inspectors | |
| monitored more than 2,600 loadings involving a total of | |
| approximately 3.4 billion barrels of crude oil. Over that | |
| period of time, very few irregularities occurred. Two instances | |
| of loading excess quantities of oil, the unauthorized topping | |
| off, occurred in 2001, both involving the same vessel, the same | |
| vessel charter. Saybolt promptly investigated these incidents, | |
| made written and personal reports to the United Nations, and | |
| put in place additional safeguards to prevent any similar | |
| abuses in the future. Thereafter, Saybolt encountered no | |
| recurrences of the incidents experienced in 2001. | |
| Looking back on the program and the variety of challenges | |
| it faced, we can now identify the ways that the monitoring of | |
| oil exports under the Oil-for-Food Program might have been | |
| strengthened. These include requiring accurate metering | |
| equipment, the continued presence of at least one U.N. official | |
| at each loading location, incorporating from the outset various | |
| safeguards that Saybolt developed during the course of the | |
| program, and monitoring mechanisms for detecting unauthorized | |
| exports from other than the two U.N.-approved export points. | |
| More broadly, it now appears in hindsight that the ability for | |
| Iraq to contract directly with buyers of oil and sellers of | |
| goods introduced a significant opportunity for abuse. And to | |
| the extent that the member states of the United Nations | |
| disregarded or systematically violated the U.N. embargo against | |
| Iraq, that conduct obviously undercut fundamentally the | |
| objectives of the Oil-for-Food Program which was conceived to | |
| be an exception to the embargo. | |
| Saybolt and its professionals performed a difficult job | |
| under very difficult circumstances in Iraq. While not without | |
| blemishes, the monitoring of oil was done professionally over | |
| an extended period of time. I am happy to discuss that project | |
| with you today and to help extract from their experience any | |
| lessons which may be of value in conducting humanitarian | |
| programs in the future. | |
| Mr. Shays. Thank you, Mr. Boks. | |
| [The prepared statement of Mr. Boks follows:] | |
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| Mr. Shays. Mr. Pruniaux. | |
| Mr. Pruniaux. Mr. Chairman and distinguished members of the | |
| subcommittee, my name is Andre Pruniaux. Since 1998, I have | |
| been employed as Senior Vice President of Cotecna Inspection in | |
| Geneva, Switzerland, which has some 4,000 personnel in over 100 | |
| offices around the world. I appreciate the opportunity to | |
| appear before the subcommittee today to clearly establish for | |
| the public record the difficult task of Cotecna as a contractor | |
| of the U.N. Oil-for-Food Program. | |
| Mr. Chairman, my primary duties at Cotecna consisted of | |
| managing operations in Africa and the Middle East as summarized | |
| in my curriculum vitae included in my prepared statement. We | |
| hope to clarify Cotecna's responsibilities and authority under | |
| the Oil-for-Food Program in the United States and the CPA | |
| contracts. The documents we provided to the subcommittee | |
| clearly demonstrate our performance under the contracts has | |
| been fully consistent with our obligations. | |
| Since the inception of its contract in Iraq, Cotecna has | |
| authenticated the arrival of goods in Iraq worth a total of | |
| $29.2 billion, of which no single authentication has been | |
| proven to be erroneous. To fairly judge our performance, you | |
| must first understand what services Cotecna was and was not | |
| contracted to perform under the OFF program. Cotecna was not | |
| hired to perform inspection services in the traditional sense | |
| which would normally entail a broad range of tasks, in support | |
| of full customs inspection services, including, for instance, | |
| price analysis, quantity, quality inspection, and port-of- | |
| origin and/or port-of-destination. | |
| The 1992 request for proposal on which Cotecna was the | |
| successful bidder issued by the U.N. did incorporate broader, | |
| more traditional customs inspection mandates. That contract was | |
| never awarded, however, because the Iraqi Government would not | |
| give its consent. A subsequent contract was awarded in 1996 to | |
| Lloyds Register and included the narrower scope of | |
| responsibility and authority for authentication of goods under | |
| the 986 OFF program. The parameter of this contract were | |
| originally established by the Security Council working with the | |
| U.N. OIP and Lloyd's. In 1998 Cotecna presented the strongest | |
| technical proposal at the lowest price, and on that basis was | |
| awarded the contract succeeding Lloyds. | |
| Importantly, the term ``authentication'' in this context is | |
| unique to the U.N. OIP contract. In the world of customs | |
| inspection services, the term ``authentication'' does not | |
| appear. This reflects the limited role under the contract of | |
| authenticating the arrival of approved and permitted shipments | |
| in Iraq so suppliers could be paid. | |
| Under the narrow scope of the contract, Cotecna played a | |
| limited technical role in verifying that the goods entering | |
| Iraq matched the list of goods authorized for importation, and | |
| in the case of foodstuffs, assessing their fitness for human | |
| consumption. Our prepared testimony includes these details. | |
| Conversely, Cotecna was not involved in selecting the goods | |
| to be imported, establishing the specifications of such | |
| products, selecting the suppliers, negotiating the prices to be | |
| paid, nor designating any sales commissions. | |
| Further, Cotecna was not involved in handling any funds for | |
| the payment for any goods, but only with verifying that items | |
| that had been approved for import were delivered in Iraq. | |
| Mr. Chairman, it is important for this committee to | |
| understand that two types of goods were coming into Iraq under | |
| U.N. authority and approval. The first set of goods entered the | |
| country under the Oil-for-Food Program pursuant to Security | |
| Council Resolution 986. In addition, a separate volume of | |
| goods, valued by some to be worth double that of 986 goods, | |
| were imported under Security Council Resolution 661. These 661 | |
| goods were the subject of private contracting, were not | |
| financed by the OFF program and, therefore, Cotecna had no | |
| responsibility or authority to authenticate or inspect them. | |
| Under the contract, Cotecna authenticated the shipments | |
| entering Iraq under the 986 program, and was required to | |
| perform physical examination on up to 10 percent of them, with | |
| the exception of quality control testing of food basket items, | |
| as I have already mentioned. We consistently fulfilled each of | |
| these mandates. | |
| The company was operating in a difficult and challenging | |
| physical and political environment as detailed in part 4 of my | |
| prepared written statement. Relations with the U.N. officials, | |
| the Humanitarian Coordinator for Iraq, the UNOHCI-Baghdad, were | |
| sometimes difficult, because Cotecna was required to report | |
| directly to OIP only, while UNOHCI-Baghdad was assisting | |
| Cotecna activities and inspections for logistics, visas, | |
| transportation authorizations, and complaints from the Iraqi | |
| authorities related to Cotecna inspectors. Also the | |
| relationship with U.N. humanitarian agencies was delicate and a | |
| source of tension because these humanitarian agencies adopted a | |
| more sympathetic attitude toward Iraqi and Kurdish entities. | |
| UNOHCI, for example, presided over monthly coordination | |
| meetings in Baghdad between these humanitarian agencies and | |
| Cotecna. Congestion in the port of Umm Qasr became a very | |
| serious problem, and suppliers began to complain that the | |
| government was refusing to remove containers from the port | |
| unless suppliers paid a fee to the port authority, and the | |
| government continuously sought ways to influence the | |
| authentication and payment process for financial gain. | |
| In direct response to concerns raised by Cotecna to U.N. | |
| OIP, this process stopped and the congestion situation | |
| immediately eased. Iraq frequently exerted pressure on Cotecna | |
| to resolve or retract authentication. Cotecna was directed | |
| under the contract to refer all such matters to U.N. OIP New | |
| York, but this did not alleviate the pressure from the | |
| government, particularly in Umm Qasr. | |
| Mr. Chairman, Cotecna has consistently performed its | |
| limited technical role in the authentication of goods under the | |
| 986 OFF Program under difficult physical and political | |
| conditions. In so doing, the company fulfilled its contractual | |
| obligations as established by the U.N. Security Council. There | |
| were problems, and many. The company reported those problems. | |
| We have sought to cooperate with the subcommittee and have | |
| provided documentation of those communications to you. | |
| Mr. Chairman, this concludes my statement. I would be | |
| pleased to answer any questions members of the subcommittee | |
| might have. I would respectfully ask that my full statement be | |
| included in the record along with a letter I sent to you on | |
| October 1 regarding an article that appeared in the New York | |
| Post. | |
| Mr. Shays. Your letter and all of your statements will be | |
| in the record in their entirety. Without objection, that will | |
| happen. | |
| [The prepared statement of Mr. Pruniaux follows:] | |
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| Mr. Shays. Let me start with the counsel to ask some | |
| questions, and then I will have some questions. | |
| Mr. Halloran. Mr. Smith, in describing the factors that you | |
| say led the United Nations to select BNP as the provider of | |
| banking services, you said an established commercial trade | |
| operation in Europe. Did that include facilities for processing | |
| letters of credit of the kind that the program generated? | |
| Mr. Smith. The program in itself was unique. I don't think | |
| that any bank had facilities established to process the type of | |
| business that was created by the program itself. However, BNP | |
| had an existing trade finance operation which dealt with the | |
| issue of letters of credit in New York City. | |
| Mr. Shays. Could you just explain what made it unique? | |
| Mr. Smith. Potentially the size of the program, which was | |
| obviously a little bit unclear at the start of the actual | |
| program, but especially the additional controls that were | |
| included. The confirmations of arrival are unique. As far as I | |
| am aware, they are not used anywhere else as far as letters of | |
| credit are concerned. | |
| Normally a supplier of goods under a letter of credit would | |
| be paid as soon as they presented all of the required documents | |
| under the letter of credit, which is usually at the point they | |
| ship the goods. Under this program, no payment is possible | |
| until the goods have actually arrived in Iraq and been | |
| inspected and confirmed to be in accordance with the contract. | |
| Mr. Halloran. So that complicated the process both in terms | |
| of paper and time? | |
| Mr. Smith. It complicated the process. It gave us an | |
| additional amount of paper that we needed to check against the | |
| shipping documents and the letter of credit. | |
| Mr. Halloran. In that line of business with your client, | |
| the United Nations, when does the Bank get paid, based on what | |
| triggering event? | |
| Mr. Smith. The Bank basically gets paid for the issuance of | |
| the letter of credit. There are some associated fees relating | |
| to pure payments, to SWIFT messages, etc. But the actual fees | |
| charged under the program really related to the issuance of the | |
| letters of credit. | |
| Mr. Halloran. The Oil-for-Food Program was run in phases | |
| designated by the Office of the Iraqi Program? | |
| Mr. Smith. It was run in 6-month phases, yes. | |
| Mr. Halloran. Were there negotiations with the Iraqi | |
| Government and other entities from phase to phase as the | |
| program matured, and how did that change the Bank's operating? | |
| Mr. Smith. As far as the Bank was concerned, the banking | |
| service agreement was basically extended by the United Nations | |
| at each stage during the process. To the best of my knowledge, | |
| during the course of a series of extensions over what | |
| eventually were 13 phases of the program, there were some | |
| changes made to the way the business was conducted. | |
| Mr. Halloran. As the processing or the flow of business | |
| changed, what kind of capacity did the Bank have to discern | |
| trends or novelties in the business? For example, it has been | |
| suggested about phase 8, when Saddam got a little more | |
| sophisticated about oil vouchers as opposed to directly selling | |
| to end users, that the roster of those being paid would have | |
| changed both in quality and quantity, new people and a new | |
| number of people. Would that have been discernible by the Bank | |
| and would it have put a red light on the border anywhere for | |
| any reason? | |
| Mr. Smith. There was certainly an increase in the volume | |
| and the complexity of the business that the Bank was handling | |
| around about phase 8. As far as red flags are concerned, I | |
| would come back to my statement in that the United Nations was | |
| the Bank's customer. The United Nations was approving all of | |
| the counterparties on both the oil and the humanitarian | |
| contracts. In addition to that, I would remind you that all of | |
| this business was screened for OFAC purposes and reviewed | |
| against the various OFAC listings. | |
| Mr. Halloran. With those safeguards in place, the Bank felt | |
| confident that its business was being done according to the | |
| rules. But what can go wrong with a letter of credit? What | |
| would have sent a bell or red light off in a letter-of-credit | |
| transaction? | |
| Mr. Smith. Most of the immediate thoughts that come to mind | |
| regarding that question are purely from an operational point of | |
| view in how we check documents, etc., which would not really be | |
| caused under the program. | |
| Mr. Halloran. If the recipient of the shipment said this is | |
| not the quality or quantity of oil I ordered, and there is a | |
| rejection, the letter of credit is not claimed upon. | |
| Mr. Smith. The letter of credit is a written undertaking | |
| that a payment will be made on the presentation of documents | |
| that are specified within that letter of credit. So a letter of | |
| credit is constructed so that the buyer of the goods ensures | |
| that they have the necessary documents to give them the comfort | |
| that the goods are of the quality they want, of the quantity | |
| they want, and will be delivered in a timely manner. | |
| So, for instance, on the oil that was being lifted from | |
| Iraq, one of the documents that would need to be presented for | |
| payment would be a chemical analysis of the goods or the oil to | |
| prove it was of a specific quality. In addition, bills of | |
| lading confirming the shipment and the quantity of the shipment | |
| would also be presented, so the protection is in the documents | |
| which the Bank is dealing with. | |
| Mr. Halloran. In the course of these transactions, did BNP | |
| have occasion to be in contact with the Central Bank of Iraq? | |
| Mr. Smith. The Bank received the initial requests to issue | |
| letters of credit under the humanitarian program from the | |
| Central Bank of Iraq. Once those requests were received, they | |
| were referred to the United Nations, and the United Nations | |
| would give the approval to issue those letters of credit or | |
| not. | |
| As far as the inspection of the documents before payment is | |
| concerned, there would be no contact with the Central Bank of | |
| Iraq. The Bank would review those documents, check those | |
| documents in the same way that it would under any other | |
| commercial transaction, albeit with the additional documents | |
| and controls that are included in this program, and make a | |
| determination whether a payment should be made. If the Bank was | |
| comfortable that the documents were in order and a payment | |
| should be made, then we would approach the U.N. telling them | |
| that we had good documents and we were proposing to make a | |
| payment. They would confirm that payment. | |
| Mr. Halloran. The Central Bank of Iraq had no say as to who | |
| or how much got paid? | |
| Mr. Smith. That's correct. Once the letter of credit is | |
| issued, it governs the conditions of payment. As long as the | |
| correct documents are presented, payment should follow. | |
| Mr. Halloran. Thank you. | |
| Mr. Pruniaux, describe a little more, if you could, the | |
| distinction that is being made in your testimony between | |
| authentication and inspection. Our perception from both your | |
| testimony, and other documents, is that it was a process that | |
| compared paper to paper, sometimes it did not matter what was | |
| in the truck behind you, and if the documents said the truck | |
| should contain 50 barrels of something, your obligation was | |
| fulfilled and you never got to look in the truck; is that | |
| correct? | |
| Mr. Pruniaux. Authentication is really matching documents. | |
| You know that we were present at four sites. The fifth one was | |
| opened in 2002, but it never really operated. It was at the | |
| border between Iraq and Saudi Arabia. The documents were | |
| ordered by U.N. OIP-New York in such a way it provided very | |
| detailed information on the goods which had been approved and | |
| for which the letters of approval had been issued. So the | |
| suppliers would send the goods, the shipments, to Iraq, and we | |
| would know beforehand that the goods were going to arrive | |
| through the secure transmission of documents coming from the | |
| U.N. OIP addressed to each individual site. No one--let me | |
| phrase it differently. | |
| The information provided to a certain site was not | |
| available to the other sites to keep confidentiality. For | |
| instance, at Trebil where we had most of the traffic, the | |
| trucks would arrive with containers, and they had to stop. The | |
| supplier's and the transporter's duty was to come to us and | |
| tell us, this is the shipment so-and-so, these are the | |
| references, these are all of the documents; and we would look | |
| at all these documents and see that they matched the | |
| information we had received from U.N. OIP. | |
| Mr. Halloran. When they did not match? | |
| Mr. Pruniaux. There were three major reasons. Maybe the | |
| letter of approval had expired because it took more time for | |
| the goods to arrive in Iraq to be presented at the border. | |
| Sometimes--and very often the sites are changed, especially | |
| between Turkey--goods landed in Turkey or Jordan. Very often | |
| there was substitution in sites. Sometimes the documents were | |
| incomplete. That was mostly the case in Umm Qasr. So we would | |
| block in the sense that we would not authenticate, but we had | |
| no authority and no power to prevent the truck from crossing | |
| the border and entering into Iraq. The only thing, nobody would | |
| be paid because we had not authenticated. In such a case we | |
| would refer these problems to the U.N. OIP and it was up to | |
| U.N. OIP to discuss with the supplier and find the reason or | |
| maybe extend the validity of the approval. | |
| Mr. Shays. Did you know what the outcome was when you would | |
| disclose these transactions had taken place? Do you know how | |
| they were resolved? Or once they were passed on to the U.N. | |
| authorities, it kind of left your hands? | |
| Mr. Pruniaux. No, I would not know. We would get | |
| information from U.N. OIP, yes, the approval has been extended, | |
| it was acceptable that the site be changed and the supplier was | |
| requested to provide the missing documents. On that basis, on | |
| that very specific information, requests from U.N. OIP Cotecna | |
| would authenticate by electronic mail--that was in 2002, but | |
| before that it was faxed and signed by the team leader on each | |
| site and it was sent to U.N. OIP so the payment of the supplier | |
| could be processed. | |
| Mr. Halloran. In your testimony you say the Iraqi | |
| ministries complained continuously that the authentication | |
| process favored the supplier, often claiming they had received | |
| substandard goods or delivery shortfalls. Iraq frequently | |
| exerted firm pressure on Cotecna to withhold or retract | |
| authentication. OIP directed Cotecna to refer all such matters | |
| to the U.N. What does that mean? | |
| Mr. Pruniaux. To the U.N. Security Council. | |
| Mr. Halloran. Where did that get you? | |
| Mr. Pruniaux. Maybe I misunderstood. | |
| Mr. Shays. His question is what happened then? What was | |
| achieved by doing that? | |
| Mr. Pruniaux. The Iraqi authorities in Umm Qasr, that is | |
| the place they put us under pressure. The Iraqi authorities | |
| would complain that we were authenticating goods which were | |
| sub-quality. We would not get involved in those discussions, as | |
| long as foodstuffs were fit for human consumption. Now, the | |
| fact that the Iraqis considered goods were substandard or were | |
| not exactly what they had ordered was a matter of commercial | |
| dispute between the supplier and the receiver. In fact, being | |
| in the business, in the profession, we always told everyone | |
| that it is normal practice in this kind of business, in | |
| commercial transactions, to appoint an independent inspection | |
| company to verify that the goods which are being purchased | |
| matched the contract, the detailed contract specifications, and | |
| that was told by the U.N. OIP to the Iraqi authorities to | |
| implement these kinds of procedures. | |
| Mr. Halloran. But they chose not to? | |
| Mr. Pruniaux. They did that occasionally. I would like to | |
| mention, for instance, that one of the things that Cotecna was | |
| forbidden, we were forbidden from acting as a commercial | |
| inspection company providing our services to, of course, the | |
| Iraqi receivers and, of course, the suppliers. So there would | |
| be no conflict of interest between the independent inspection | |
| authentication that we were providing to the U.N. OIP and the | |
| commercial disputes between a receiver and the supplier. | |
| Mr. Halloran. That was a provision in your contract with | |
| the U.N.? | |
| Mr. Pruniaux. Yes. | |
| Mr. Halloran. Your testimony also says that one of the | |
| challenges you faced in executing this contract was that you | |
| had to navigate Cotecna's delicate web of contacts with U.N.'s | |
| Office of Humanitarian Coordinator for Iraq. Could you amplify | |
| on that? There are other references in testimony that | |
| particular office was a problem in terms of executing this | |
| program. | |
| Mr. Pruniaux. I would not say it was a problem. It was a | |
| delicate, diplomatic way of having to coordinate on a daily | |
| basis in Iraq because we had from 54 to 67 inspectors living | |
| and traveling and eating and sleeping in Iraq. You have to | |
| realize also, to get into Iraq you need a visa to enter the | |
| territory, and the visas were provided only at the Embassy of | |
| Iraq in Amman, in Jordan, and if for some reason the visa was | |
| not granted, the inspectors would be stranded and cannot reach | |
| their sites. The only way to get some support to clear visas or | |
| get transportation authorization to travel in Iraq, you needed | |
| a very specific authorization, and that was provided by the | |
| Iraqi authorities. The Iraqi authorities for all of these | |
| problems of logistics and transportation was handled by the | |
| Office of the Humanitarian Coordinator in UNOHCI in Baghdad. | |
| Also and more importantly, a lot of complaints came from | |
| the Iraqis, unjustified and justified, on the behavior of | |
| certain of our inspectors on things which could have happened | |
| on some of the sites which have been reported to the Iraqi | |
| officials, and also complaints on the performance of Cotecna, | |
| especially in Umm Qasr where we were put under extreme pressure | |
| to shorten some of the delays that they were experiencing. | |
| In such case I have to be frank. UNOHCI was adopting a | |
| rather friendly attitude toward the requests from the Iraqi | |
| authorities; and this is what I mean, ``problem'' is maybe not | |
| the right word, but rather a ``delicate.'' | |
| Mr. Halloran. Right. Sounds like a problem to me. | |
| You also say that you had to deal with direct pressure from | |
| the Iraqis. What kind of pressure? There is some e-mail traffic | |
| describing pressure to move things through and not be so | |
| careful about things. Where did that pressure come from? | |
| Mr. Pruniaux. From Iraqi officials. We have an example | |
| which I presented in the documents you have received where it | |
| was in 1999 there was a minister of I think of Kuwait, who came | |
| with armored guards to our site in Umm Qasr and told us that we | |
| would not be authorized to authenticate unless the goods had | |
| already been accepted in terms of quality by the Baghdad | |
| laboratories. As we brought in various correspondence which | |
| appear in the documents, the inspectors were very shaken on the | |
| ground. So we issued a formal complaint that came to my | |
| attention in Geneva, and I told the U.N. OIP-New York. But | |
| there was pressure of these kinds of things. | |
| Mr. Halloran. What would have been the problem of Baghdad | |
| checking off on the acceptance of goods? | |
| Mr. Pruniaux. They would have blocked all authentication. | |
| Mr. Halloran. Until they got paid first? | |
| Mr. Pruniaux. Yes, and create a bottleneck so someone would | |
| have to pay to get the goods cleared by financial gains to the | |
| Iraqi officials. | |
| Mr. Halloran. After the Minister of Trade shows up with 20 | |
| or more armed guards and intimidates your crew, how was that | |
| demand resolved? | |
| Mr. Pruniaux. Diplomatically or politically I cannot | |
| respond. I can say technically that problem was solved because | |
| that did not occur again. However, as I said before, there was | |
| constant pressure, especially in Umm Qasr, on Cotecna to | |
| authenticate, in a speedy or in a slow way, so the Iraqi | |
| officials could exercise some pressure on the suppliers. | |
| Mr. Halloran. Thank you. | |
| Mr. Boks, there was an allegation in the Wall Street | |
| Journal 2 days ago that in the course of one oil transaction a | |
| Saybolt employee had been bribed to allow a topping-off of the | |
| ship. The company's response was that it had been investigated | |
| before. Do you have anything more to say about that? | |
| Mr. Boks. We have investigated that incident at the time we | |
| learned of the incident which was in October 2001. At that time | |
| we conducted a thorough investigation. We went through the | |
| whole process. We looked at off-loadings. We interviewed the | |
| team leader. We virtually took all of the events and | |
| circumstances and we submitted that report of the investigation | |
| to the United Nations with a briefing also to the 661 | |
| committee. | |
| What we have now learned from the article in the Wall | |
| Street Journal actually is for us a new allegation. We had no | |
| knowledge of that before it was published. You can rest assured | |
| that we will investigate this further. We will get to the | |
| bottom of it. Actually, as a matter of fact, our board has | |
| already instructed our general counsel to get a team of lawyers | |
| to investigate this to the bottom. | |
| Mr. Halloran. If you can supply the subcommittee with | |
| whatever product your investigation produces, that would be | |
| helpful. | |
| Mr. Boks. Sure. We will share this with the investigating | |
| commission. | |
| Mr. Halloran. The incident of the Essex, which was detained | |
| and found to have oil loaded in excess of the Oil-for-Food | |
| Program contract, what changes were made in the Saybolt | |
| inspection process and the U.N. inspection process as a result | |
| of that? What confidence do you have that it was effective in | |
| preventing the practice of topping off? | |
| Mr. Boks. That evening I heard we took immediate actions | |
| for temporary reasons to have an inspector sitting 24 hours, 7 | |
| days a week, on board a vessel if it was alongside the | |
| terminal. Given the staff levels, that was not something that | |
| we could continue, so we implemented new instructions in terms | |
| of sealing the ship's manifold after the loading had been | |
| completed and the loading arms were disconnected. These seals | |
| would have unique numbers and would be also inserted on the | |
| notification letter. The notification letter was a letter which | |
| we put on board with the U.N.-authorized quantity loaded on | |
| board that specific vessel, actually a procedure that only was | |
| implemented earlier in 2001. | |
| In addition to that, we would check the seals prior to | |
| departure of a vessel because a vessel would not always depart | |
| immediately after it completed its loadings. So before | |
| departing, we would check the integrity of the seals. If not, | |
| we would then remeasure the vessel. | |
| Other instruction was we would look at the draft of the | |
| vessel after its completed loading. Draft is, I would say the | |
| surface of the water and the keel of the vessel. Maximum draft | |
| is, say, 21 meters, so if a vessel would load with less than | |
| that, we would take reference of that and also check it prior | |
| to departure. | |
| Basically we would also look at potential vessels that | |
| would still have space after it had loaded its U.N.-authorized | |
| volume. So if that were the case, special attention would be | |
| required. Those new instructions have been adopted by the 661 | |
| committee at some stage. | |
| Mr. Halloran. The calibration of the measuring methods you | |
| describe in your testimony, of the 2,600 loadings, of those, | |
| how many were validated by you based on less than the type of | |
| methods you would have preferred? | |
| Mr. Boks. You mean did we ever? | |
| Mr. Halloran. In your testimony you said you would prefer | |
| to have the calibration and use other indirect methods to | |
| determine the amount of oil. | |
| Mr. Boks. The consideration is as follows. When we first | |
| came to Iraq and we did our fact-finding mission, we came to | |
| the conclusion there were no properly calibrated metering | |
| facilities in place. Actually the border station in Zakho did | |
| not have a metering station so the Iraqis had to cannibalize on | |
| the Syrian pipeline and build it there within a couple of | |
| weeks. | |
| Generally speaking, the metering equipment has never, | |
| during the whole of the Oil-for-Food Program, became on a level | |
| which would be able to be used for fiscalisation purposes. So | |
| all 2,600 loadings have been done by utilizing the methods that | |
| I have described in my statement. | |
| Mr. Halloran. In your experience, what is the potential | |
| margin of error? | |
| Mr. Boks. That is a very good question. Actually what we | |
| did was we made a total comparison of all of the volumes we | |
| lifted from Turkey. In Turkey we had a cross-check possibility | |
| of measuring prior to loading and after loading, and then the | |
| volume could be calculated, derived from those two | |
| measurements. And we did also the ship, applying the vessel | |
| experience factor, and of the 1.3 billion barrels which were | |
| loaded from that port, actually we found a surplus even; a | |
| small surplus of 0.04 percent, which would lead us to believe | |
| that method was applied very accurately, and, I would say, very | |
| professionally. | |
| Mina Al-Bakr was a different story because we could not | |
| cross-check. We did not have any ability. We only could rely on | |
| the ship's figures by applying the vessel experience factor. I | |
| could not give any estimate as to the accuracy of those | |
| figures. Although I would have to say that the percentages | |
| would be probably around maximum 2 percent. | |
| Mr. Halloran. Two percent, OK. | |
| Finally, for all three of you, what kind of oversight did | |
| you get on this contract with the U.N. from the U.N.? Were you | |
| subject to an audit or an inquiry by the Office of Internal | |
| Oversight at the United Nations, and if so, how often and what | |
| was the outcome? | |
| Mr. Smith. The Bank provided daily statements of the U.N. | |
| Iraq account to the United Nations. They also had copies of all | |
| of the letters of credit that we were issuing and the | |
| amendments that were made to those letters of credit and | |
| details of the payments. | |
| From that, I understand that there were internal audits | |
| within the U.N. based on that information. As far as I am | |
| aware, there was never a physical audit of the Bank or the | |
| Bank's premises in our conducting of the business. | |
| Mr. Halloran. But certainly the Bank, through perhaps other | |
| regulatory channels, had lines of business audited that crossed | |
| Oil-for-Food transactions? | |
| Mr. Smith. The Bank in itself had internal audits and | |
| external audits which included the trade finance area that | |
| provided the support to the United Nations. Sorry, my answer | |
| was the United Nations. | |
| Mr. Halloran. Thank you. | |
| Mr. Boks. | |
| Mr. Boks. In terms of audits, from what I know, the U.N. | |
| has audited us three times in total. At least I have seen three | |
| times the report; or let me say in two instances we only got a | |
| requirement to answer a few questions which basically were for | |
| us very easy to answer. | |
| In one instance there was done a full audit report of | |
| which, let us say, there were quite a few comments and we had | |
| to go through them and answer them point by point, which we | |
| obviously did. | |
| Mr. Halloran. Thank you. | |
| Mr. Pruniaux. Because of the nature of our activities, we | |
| had almost 24-hour coordination with the U.N. OIP-New York, and | |
| U.N. OIP would call directly the sites to discuss technical or | |
| management matters on the sites. However, we were audited | |
| several times, maybe every 3 to 6 months. One of the senior | |
| customs officers from the U.N. OIP would go and visit the | |
| sites, with or without the Cotecna contract manager. We had an | |
| organization where we had a contract manager based in Amman and | |
| one working in Geneva working with me. We would go with them or | |
| without them. As a consequence, we would have meetings, regular | |
| meetings in New York every 3 months, and meetings also with the | |
| team leaders in Baghdad or Amman. That was an ongoing exercise | |
| that we conducted several times. | |
| Mr. Halloran. Thank you. | |
| Mr. Shays. I have a number of questions that I would like | |
| to go through. I don't think that they will take us long to | |
| answer. Some of them simply may not be relevant in the end, but | |
| since they are on my mind I want to ask and get them out of my | |
| brain if they were not relevant. | |
| Why were transactions carried out in euros instead of | |
| dollars? | |
| Mr. Smith. A decision was made part way through the program | |
| to change the pricing and the settlement of the oil sales from | |
| U.S. dollars to euros. That decision was made by the Security | |
| Council of the United Nations. | |
| Mr. Shays. So it was the Security Council and not Saddam | |
| Hussein? | |
| Mr. Smith. The decision was made by the Security Council, | |
| sir. | |
| Mr. Shays. What sort of challenges, if any, did this | |
| present? | |
| Mr. Smith. In banking terms, the additional challenges were | |
| minimal. Whatever currency we are dealing with, whether it is | |
| U.S. dollars or Euro's the process is basically the same. The | |
| physical payment process is slightly different. But again, it | |
| is a well-established process. | |
| Mr. Shays. And the charge that your Bank would make would | |
| be the standard charge made on every transaction? | |
| Mr. Smith. Yes. Pricing was agreed based on the | |
| transactions that were being undertaken on behalf of the United | |
| Nations. | |
| Mr. Shays. I am told the bank did not begin an internal | |
| investigation for the Oil-for-Food Program and allegations of | |
| the corruption began to emerge in 2001. One, is that true; and | |
| two, why not? | |
| Mr. Smith. The Bank undertakes regular reviews of the | |
| program. If your question relates to the rumors and the stories | |
| relating to overpricing---- | |
| Mr. Shays. They were rumors that turned out to be true. | |
| Mr. Smith. Right. From what the Bank could see from the | |
| details they had from the information that it had, from the | |
| letters of credit and the documents that were presented, there | |
| was no evidence that we could see that substantiated anything | |
| that was happening. We were dealing with documents presented | |
| under a letter of credit which determined what the amount of | |
| the payment was, and the payment was basically made to the | |
| beneficiary or their bankers. Anything that happened outside of | |
| the letter of credit arrangement, obviously, we had no | |
| knowledge of at all. | |
| Mr. Shays. So your company was not really in the field, | |
| this was more papers crossed your desk? | |
| Mr. Smith. We were dealing solely with paperwork, and we | |
| were dealing with it in Manhattan, in New York City. | |
| Mr. Shays. The bottom line is when there were rumors that | |
| ultimately turned out to be true, your bank pretty much decided | |
| that there was not sufficient knowledge to have you conduct | |
| your own internal investigation? | |
| Mr. Smith. We would certainly from an operational point of | |
| view look at whatever rumors were going around. Indeed, quite | |
| often we would discuss them at what were reasonably frequent | |
| operational communication meetings with the U.N. treasury, so I | |
| am aware that the U.N. was also aware of those rumors. At the | |
| end of the day, it was the Security Council that were | |
| sanctioning the various transactions. | |
| Mr. Shays. Did you have a sense, or lack thereof, of | |
| Saybolt and Cotecna's ability to verify transactions? | |
| Mr. Smith. We were obviously not on the ground in Iraq, so | |
| we did not see their operations at all. We were being provided | |
| with certificates that were required under the letters of | |
| credit. As far as the Cotecna certificates were concerned, they | |
| came to us directly from the United Nations, they did not come | |
| through any direct route. Again, the Saybolt inspections, all | |
| of the documentation for the payment of an LC relating to an | |
| oil shipment were presented to us by the United Nations. | |
| Mr. Shays. Mr. Boks, do you have any reaction, or did you | |
| have any reaction to the description in the Amman newspaper | |
| that said there was a Netherland company of SyBolt, S-Y, and | |
| then capital B-O-L-T, as receiving $3 million in oil? Did that | |
| get your attention? | |
| Mr. Boks. Sure. We looked at that. We were puzzled that our | |
| name appeared on that list because we had not received any | |
| allocation. That also would have been very unusual. I can say | |
| Saybolt did not buy or sell oil or vouchers. | |
| Mr. Shays. Being one in that list of 269, it would make us | |
| have to question some of the others on that list. In the Essex | |
| incident which was the illegal topping-off of oil, how were the | |
| Iraqis punished or censored for this obvious illegality? | |
| Mr. Boks. I'm sorry, I can't answer that question because | |
| that is beyond our mandate. | |
| Mr. Shays. So you don't know? | |
| Mr. Boks. I don't know. | |
| Mr. Shays. Your mandate, you basically reported the | |
| incident? | |
| Mr. Boks. Well, what happened is a letter was sent by the | |
| captain of that vessel with corresponding documents to the | |
| United Nations clearly stipulating what happened during the | |
| event, and actually said this all happened after the U.N. | |
| inspectors left the vessel, after they had completed. | |
| Mr. Shays. How did you respond? | |
| Mr. Boks. When we received that letter, we took immediate | |
| action. We changed immediately the working procedures and | |
| introduced the seals. | |
| Mr. Shays. Could you describe the Clovely incident? | |
| Mr. Boks. The Clovely incident was of a different | |
| magnitude. This vessel was nominated to load in February 2002, | |
| and when it arrived alongside the terminal, it was very close | |
| to the expiration of the letter of credit. | |
| Mr. Shays. I have no sense how long a letter of credit | |
| lasts. | |
| Mr. Boks. It was just a matter of days. | |
| Mr. Shays. Letters of credit give you a window of how much? | |
| Mr. Smith. It depends on the individual letter of credit. | |
| Normally the oil letters of credit--and they varied--but | |
| normally it would be a period of 4 to 6 weeks. | |
| Mr. Shays. Thank you. | |
| Mr. Boks. | |
| Mr. Boks. When the vessel arrived, we noticed, because we | |
| kept track and record of the expiration date of each individual | |
| letter of credit so we would make sure that the completion of | |
| the vessel would fall into that window; otherwise there would | |
| be problems by, I would say, drawing on the letter of credit to | |
| get payment for the oil lifting. | |
| So what we did was basically we instructed our team leader | |
| to notify SOMO of this event, and that loading would not be | |
| started until we had received from the U.N. oil overseers a | |
| revised date or window for the letter of credit. | |
| That took obviously some time, and irrespective of that, | |
| the loading master or the Iraqi people on the platform decided | |
| still irrespective of that problem to start loading the vessel. | |
| And luckily we were able to get the letter of credit arranged | |
| prior to the departure of the vessel. But on itself it was | |
| clearly, I would say, an abuse. | |
| Mr. Shays. This is for both Saybolt and Cotecna. How did | |
| the various U.N. offices that you work with coordinate their | |
| assistance and responses to your needs? | |
| Mr. Pruniaux. I'm sorry? | |
| Mr. Shays. Both of you have complained about confusion | |
| within the United Nations, sometimes a lack of cooperation from | |
| the U.N. Both of you have said that. I want to know how the | |
| various U.N. offices that you worked with coordinated their | |
| interaction with you. Let me ask you this way: How many | |
| different parts of the U.N. did you need to interact with? | |
| Mr. Pruniaux. On a daily basis and for technical matters, | |
| operational matters, it was only the U.N. OIP. However, when | |
| you negotiate a contract, or if you want to modify the content | |
| of the contracts---- | |
| Mr. Shays. You're talking about your own contract? | |
| Mr. Pruniaux. Yes. You have to deal with a completely | |
| different department or entities at the U.N. One of them is the | |
| Procurement Department, and, in fact, since I negotiated and I | |
| signed two contracts and several amendments, all the technical | |
| work was done with U.N. OIP. But all the rest, the negotiations | |
| on the financial conditions, that was done with the Procurement | |
| Department, and sometimes there was a lack of coordination | |
| between the two departments, which made it difficult for a | |
| company like Cotecna to fully and properly negotiate. And on | |
| top of that there was the Office of Legal Affairs. | |
| Mr. Shays. What affairs? | |
| Mr. Pruniaux. Office of Legal Affairs. | |
| Mr. Shays. Legal Affairs. | |
| Mr. Pruniaux. Yes, which was a very powerful department | |
| which included several very tough conditions, administrative | |
| contractual conditions, in our contracts. So, in fact, to | |
| operate under a contract, we had to work with U.N. OIP, but to | |
| implement the contract, we had to deal with three separate | |
| entities. That was in New York. | |
| Mr. Shays. Yes. Would that describe the same challenge for | |
| you, Mr. Boks? | |
| Mr. Boks. To a certain extent I underlined that we had | |
| similar problems with procurement. If our contract was up for | |
| renewal, you have--basically when they would not continue it, | |
| obviously you would need to have that information prior to the | |
| expiration of the contract. But sometimes the amendment was | |
| coming after the expiration date, which gave sometimes some | |
| problems with insurers, because obviously in Iraq, if you want | |
| to ensure yourself, then you need to make sure that there were | |
| reasons to be there in a certain country. | |
| With OIP I must say I haven't had any major difficulties | |
| other than that we have issues where we asked advice after | |
| irregularities were noted, and it took sometimes quite some | |
| time. The other contact points we had was with the U.N. | |
| overseers, with whom we basically on a daily basis had contact | |
| concerning the oil export, and here and there obviously delays | |
| were observed, but not to the extent that it was an unworkable | |
| situation. | |
| Mr. Shays. Both of you lacked power, and you lacked | |
| personnel. In other words, there are just certain things you | |
| couldn't tell the Iraqis to do. Did you try to get power, and | |
| did you have your contracts revised so that you could hire more | |
| people to do the job you needed to do? Mr. Boks. | |
| Mr. Boks. Shall I start? The staffing levels, the staffing | |
| levels in the oil program have to a certain extent always been | |
| sufficient. Where we faced major difficulties was in monitoring | |
| the spare parts and equipment, which were also purchased under | |
| the Oil-for-Food Program. When we started, we started with one | |
| inspector, very modest, because spare parts were ordered but | |
| came. | |
| Mr. Shays. You're talking about parts for the oil industry | |
| itself. | |
| Mr. Boks. Yes. Perhaps I should elaborate a bit on that. | |
| In 1998, the Secretary General had been to Iraq, and a | |
| proposal was made to change the cap of dollars that could be | |
| generated through a phase would be going up to five---- | |
| Mr. Shays. Greater production. | |
| Mr. Boks. Exactly. So at the same time, the oil prices were | |
| very low, and production was very low, so Iraq was not able to | |
| come up to those proceeds and to come up to that cap. And then | |
| the Secretary General appointed a group of experts to go to | |
| Iraq and, in consultation with the Government of Iraq, try to | |
| find ways of increasing production. We were that group of | |
| experts. And one of the conclusions as the industry was in an | |
| amendable state is that spare parts were needed and equipment | |
| was needed to bring the production up to the levels required. | |
| And for that purpose, the Security Council decided that they | |
| would allow Iraq to purchase spare parts and equipment, as long | |
| as there was a monitoring system that would keep track that | |
| those spare parts would also be used for their intended | |
| purpose. | |
| Mr. Shays. And so that's the area where you could have used | |
| more people. | |
| Mr. Boks. Absolutely. | |
| Mr. Shays. And did you request more people? | |
| Mr. Boks. Yes. That was on an ongoing basis because we were | |
| facing also difficulties in terms of the fact that the | |
| Government of Iraq insisted that our staff would be deployed | |
| only in Baghdad, and that we had to travel throughout the | |
| country to check all those sites, and we only had, let's say, | |
| at the top level, six, seven people. | |
| Mr. Shays. So the bottom line is you couldn't do the job | |
| properly with the staff you had. | |
| Mr. Boks. Well, we had to prioritize. | |
| Mr. Shays. OK. Did this mean that you then had to take | |
| people from one part of your program to put it in the other | |
| part, spare parts? Did you have to kind of cannibalize your | |
| program? | |
| Mr. Boks. Given the constraints in traveling, we have used | |
| mainly in the beginning some staff from Zakho to do in the | |
| northern part of Iraq also some checks on spare parts and | |
| equipment for a very short period of time, because his | |
| traveling was difficult as we were staying in a Kurdish area, | |
| so it was difficult to travel around. | |
| Mr. Shays. Let me ask you, Mr. Pruniaux, the whole issue of | |
| the lack of power, which you have described, and the lack of | |
| personnel, were both of these a serious problem at various | |
| times or not? | |
| Mr. Pruniaux. Mr. Chairman, respectfully, it was not really | |
| a question of having more power. The specifications of our | |
| mandate were clear enough for the authentication. There was no | |
| need to get further--in my opinion, further power, physical | |
| power, to implement and to do the work that we are doing on the | |
| sites. | |
| Mr. Shays. Yes, sir. | |
| Mr. Pruniaux. However, sometimes because of the | |
| fluctuations in the volume of goods entering Iraq, or the fact | |
| that it was that the transporters were moving from one site to | |
| the other, made the work at certain sites more difficult, | |
| because all of a sudden we would have almost thousands of | |
| trucks arriving at Trebil, which was the border between Jordan | |
| and Iraq, or--and especially Umm Qasr, we would have an | |
| accumulation of ships and loading and containers being stored | |
| in the port. In such a case we would immediately try to ask the | |
| U.N. OIP permission to move staff between sites. | |
| In that sense we did not have the power to move at our own | |
| will an inspector from one site to the other. The contract | |
| specified that we were requested to put a certain number of | |
| permanent inspectors on a daily basis per site, let's say 12 in | |
| Trebil. So if you want to move that and do that, you are in | |
| contradiction with the obligations of the contract. So we had | |
| to ask permission. And to move an inspector from one place to | |
| the other in Iraq could take a couple of days, so we would rush | |
| people to Umm Qasr because there was an accumulation of volume | |
| in Umm Qasr. | |
| I must say that in order to have between 54 and 67 | |
| permanent inspectors in Iraq, Cotecna had to hire up to 95 | |
| permanent inspectors because of the rotation and those that are | |
| sick or going on vacation and so on. And this would be | |
| illustrated by the statistics that are available at U.N. We had | |
| more, always more mandates of inspectors especially in places | |
| like Umm Qasr. For instance, we were requested to have between | |
| 17 and 22 permanent inspectors in Umm Qasr, but we would have | |
| always 25, 26 all paid by Cotecna. | |
| Mr. Shays. So sometimes you simply didn't have enough | |
| people. | |
| Mr. Pruniaux. Yes. | |
| Mr. Shays. But was the solution to get more, and did you | |
| request more, and did the U.N. say no or yes? | |
| Mr. Pruniaux. It was a question of the decisions and | |
| convincing the U.N. OIP that it was not to increase our | |
| invoice, but we were generally asking for more inspectors on | |
| the sites. | |
| Mr. Shays. The bottom line is you don't have to worry about | |
| the U.N. making money off of this. I mean, their 3 percent, I'm | |
| assuming, helped pay your costs; is that right? Does anyone | |
| know? In other words, who paid you? | |
| Mr. Pruniaux. The U.N. | |
| Mr. Shays. And they took a fee for---- | |
| Mr. Pruniaux. From the 2.2 percent. | |
| Mr. Shays. Right. There is nothing that we have seen so far | |
| that makes us think that they didn't cover their cost plus; in | |
| other words, they made money off of this. | |
| Would you say the U.N. sided more with your side when there | |
| was a dispute with the Iraqis or the Iraqis? Did they tend to | |
| dismiss--and I am asking both of you this. This isn't a trick | |
| question. At the end of the day, did you often feel that you | |
| lost more arguments with the United Nations, they just more or | |
| less sided with the Iraqis, or did they more or less side with | |
| you? I am asking both of you. Do you understand the question? | |
| Mr. Boks. Would you ask it---- | |
| Mr. Shays. In other words, when you had a dispute with some | |
| transaction, and you contacted the U.N. officials with some | |
| disappointment, did they tend more to dismiss it and just say, | |
| you know, don't worry about it, or did they take your complaint | |
| very seriously and try to deal with it? | |
| Mr. Pruniaux. As far as Cotecna is concerned, they took it | |
| very seriously, very seriously, because they had the permanent | |
| missions to the U.N. from all the countries exporting to Iraq | |
| and back, plus they had the suppliers coming there and so on. | |
| And there was until 2002 until there was---- | |
| Mr. Shays. Well, taking it seriously means they paid | |
| attention to. It doesn't mean they took your position though. I | |
| mean, in other words, they realized they had something they had | |
| to deal with, so they dealt with it seriously. I don't want to | |
| put words in your mouth. Did they basically say you all were | |
| right, and they were wrong, and what was your feeling? | |
| Mr. Pruniaux. Ultimately somebody had to make a decision, | |
| and they told us to do the job with the number of people that | |
| you have, and that's it. So we tried to work under these | |
| conditions. | |
| Mr. Shays. Mr. Boks. | |
| Mr. Boks. And in terms of disputes, the U.N. would take it | |
| serious if--we have hardly had any disputes, but we have had | |
| loadings where the off-takers were dissatisfied for one or | |
| another reason. And I must say that OIP did try to come to a | |
| solution; not always, I would say, in a quick way, but at the | |
| end of the day, they always tried to solve and to assist. | |
| Mr. Shays. The number that is thrown out in these two sides | |
| of the equation, the Oil-for-Food Program suspected that Saddam | |
| basically took out $4.4 billion, and the smuggling, which we | |
| looked at the numbers being more like $5.7 billion. Did your | |
| inspectors ever identify or observe any smuggling? | |
| Mr. Boks. Although we had not the authority to look for | |
| smuggling, and we also have to realize that our inspectors were | |
| at very remote locations, we have---- | |
| Mr. Shays. In other words, there were a lot of sites were | |
| you not at? | |
| Mr. Boks. Absolutely. More than that we were. But we have-- | |
| -- | |
| Mr. Shays. There were more sites that you weren't at than | |
| you were at. | |
| Mr. Boks. Absolutely. | |
| Mr. Shays. OK. Is that true for you, Mr. Pruniaux, as well? | |
| Mr. Pruniaux. Well, we operated on the four or five sites. | |
| As I explained before, we were told that the goods were | |
| presented to us. But there was a permanent flow of goods | |
| entering into Iraq which had nothing do with the Oil-for-Food | |
| Program. And I visited Iraq several times, Mr. Chairman, and it | |
| could be--it was easy to see that, you know, visiting Baghdad | |
| there was plenty of goods which shouldn't have been on the open | |
| market. | |
| Mr. Shays. OK. So in observing smuggling, if you saw it, | |
| did you report it, or did you figure that wasn't your | |
| responsibility? | |
| Mr. Boks. Well, basically I can say that we have had | |
| instances that I felt that we had to report it, and I realized | |
| that was outside our mandate, but still felt that it had to be | |
| brought to the attention. | |
| Mr. Shays. Right. Mr. Pruniaux, tell me the response to | |
| that question. | |
| Mr. Pruniaux. When you see goods entering Iraq outside of | |
| the Oil-for-Food Program, you do not know if these are the 661 | |
| goods or if these are smuggled. These were entirely left to the | |
| authority of the Iraqi Customs to check these goods entering | |
| Iraq. No, we would not report, because we did not know what | |
| kind of goods these were. | |
| Mr. Shays. What I see the difference is that in the Oil- | |
| for-Food Program, the oil part of the transaction, it seems to | |
| me, is a little easier to have policed. But if a ship came up | |
| and loaded up, that was something that you would simply step | |
| in. I mean, you weren't going to allow that kind of smuggling, | |
| correct? | |
| Mr. Boks. Well, it wasn't always ships, but at some states | |
| we also---- | |
| Mr. Shays. It could be a truck. | |
| Mr. Boks. We learned obviously there was traffic to Jordan, | |
| although that was more or less of an acceptable phenomena, and | |
| we have reported in our fact-finding missions that volumes were | |
| estimated at 80,000 barrels a day. But we also have seen the | |
| fact that had been used in early 2003, and we reported that to | |
| both the Multilateral Interception Force as well as the United | |
| Nations. | |
| Mr. Shays. So there would be some ships, though, that you | |
| would not have inspected, correct? | |
| Mr. Boks. Sure. But if they were loaded at a different | |
| terminal, we would not have staff available to do that. | |
| Mr. Shays. I mean, you know, that's kind of significant, | |
| how many terminals were you at versus how many terminals exist. | |
| Mr. Boks. Well, you had not only terminals. We have to make | |
| a distinction here. You have the pipeline to Syria. You have | |
| trucks to Turkey, trucks to Jordan. You had vessels in the | |
| Arabian Gulf, which were loaded at the Shatt al-Arab, which | |
| basically--and then we had also a terminal 10 kilometers north | |
| of Mina Al-Bakr called Khor al-Amaya. Those were, I would say, | |
| the points that activity has been observed, not by us, but by | |
| others. | |
| Mr. Shays. Why didn't Cotecna operate inspectionsites in | |
| neighboring countries as Saybolt did? Let me say it again. | |
| Saybolt had inspectionsites in neighboring countries; is that | |
| correct, Mr. Boks? | |
| Mr. Boks. We had one inspectionsite in Turkey. | |
| Mr. Shays. Right. And why were you in Turkey? | |
| Mr. Boks. Well, as a matter of fact, Iraq had from the | |
| beginning onwards two export points. One in the south we talked | |
| about. But the crude oil which was produced in the north was | |
| transshipped through the Iraq-Turkey pipeline to Ceyhan. And in | |
| Ceyhan there was a terminal, there is a terminal where that | |
| crude oil is stored and loaded subsequently in vessels which | |
| then proceed through the Mediterranean. | |
| Mr. Shays. Now, why wouldn't you have been in Syria then? | |
| If you were in Turkey, why wouldn't you have been in Syria? | |
| Mr. Boks. Well, that's an interesting question. I can't | |
| answer that. That is not up to me. It's beyond---- | |
| Mr. Shays. No. I understand it's not up to you, but the | |
| same logic that would apply that you should be in Turkey would | |
| apply, correct, that you should be in Syria as well, correct? | |
| Mr. Boks. Correct. We discussed that also at some states | |
| with OIP, that whether there could be coming a mandate to | |
| inspect also the Syrian part. But it was obviously up to the | |
| Security Council. | |
| Mr. Shays. And their response was? | |
| Mr. Boks. Well, again, that there was no mandate. Obviously | |
| Iraq has subsequently said that they were testing the pipeline. | |
| Mr. Shays. Well, I mean, that's absurd. I mean, what we are | |
| basically saying is that there was a very viable pipeline | |
| through Syria, very viable pipeline through Turkey. We were | |
| inspecting the pipeline through Turkey, and we were not | |
| inspecting the pipeline through Syria. And I just would like to | |
| have a sense of why. They had to give you some answer. | |
| Mr. Boks. It is an interesting subject. But having said | |
| that, if we would not have the authority, we couldn't do it, | |
| and the authority had to come from the Council. | |
| Mr. Shays. Let me just say this to you. You're cleared of | |
| all responsibility, so you can relax. But what you're doing is | |
| you're educating the subcommittee. I want to know what they | |
| would have said. I mean, it is a rather porous system that | |
| would--I mean, I have wondered how the smuggling could happen, | |
| and I didn't realize that we made it so easy. You must have had | |
| just general conversations with U.N. officials. Did they give | |
| you a logical reason as to why we wouldn't want you also to be | |
| in Syria? | |
| Mr. Boks. What I heard is that it has been discussed also | |
| merely during meetings of the 661 committee, and there was no | |
| agreement reached as to how to proceed on that. | |
| Mr. Shays. An agreement required a unanimous consent. It's | |
| kind of like the Senate in Washington, which doesn't give me | |
| any comfort. | |
| We're almost done here, gentlemen. And thank you very much. | |
| How often, Mr. Pruniaux, did goods avoid or ignore the | |
| authentication or inspection process? How often did you | |
| actually inspect goods? I get the feeling, given your mandate, | |
| given your personnel, that when ships lined up, when trucks | |
| lined up, you were more inspecting the paperwork than actually | |
| opening up the containers. | |
| Mr. Pruniaux. Yes. It mattered to match the documents and | |
| to authenticate. There are two things in your question. | |
| Mr. Shays. No, that is your mandate. The mandate was to | |
| match the papers, not verify that was what was in the container | |
| verified the papers. | |
| Mr. Pruniaux. It was left to our appreciation as a | |
| professional inspection company to inspect, which means to | |
| open, for instance, the containers, or to open the trucks, | |
| talking of the land border sites. Now, in such a case, normal | |
| practice is about 2 percent, sometimes 5, 6 percent, 5, 6 | |
| percent. What we did was on an average basis was about 10 | |
| percent of the number of trucks or containers being presented | |
| to us were opened, and I have provided some pictures to | |
| illustrate this. | |
| Mr. Shays. But candidly, when there was the queuing up and | |
| a backlog, there was more pressure on you. | |
| Mr. Pruniaux. Then the trucks would wait. No. | |
| Mr. Shays. The trucks would wait. | |
| Mr. Pruniaux. No. The trucks would wait. The drivers are | |
| educated. I mean, patience is a virtue in the Middle East, and | |
| they would just wait at the border. | |
| Mr. Shays. Patience is a virtue. So can I infer from that | |
| when there was pressure to--a backlog, that did not impact | |
| your--quality of the work. | |
| Mr. Pruniaux. No. | |
| Mr. Shays. Well, here's the general feeling I get from your | |
| testimony, and I want you to tell me whether you agree or | |
| disagree. Mr. Smith, I get the sense that BNP basically | |
| believed--and I'm not passing judgment on this, I'm just saying | |
| what I believe--that your responsibility was to check | |
| documents. You were basically Iraq's bank selected by the | |
| United Nations, correct? | |
| Mr. Smith. We were the U.N.'s bank, in our opinion, | |
| maintaining an account for the United Nations, which was styled | |
| the Iraq account. | |
| Mr. Shays. OK. And I'm happy you're correcting me. You were | |
| the U.N.'s bank for Iraq, for Iraqi transactions. | |
| Mr. Smith. That's right. | |
| Mr. Shays. Dollars came in from the sale of oil, and | |
| dollars flowed out for the purchase of commodities, and that | |
| your responsibility was to make sure that--and you were giving | |
| letters of credit to make sure that this would all happen. But | |
| ultimately, your responsibility was to make sure that the | |
| paperwork matched. Is that a fair assessment of what I've heard | |
| you say? | |
| Mr. Smith. Our responsibility was to ensure that all of the | |
| paperwork was in accordance with the letters of credit before | |
| we made any payments. | |
| The one additional point I would add in there, that not all | |
| of the funds that were received for the sale of the oil were | |
| retained at BNP Paribas. A minimum of 41 percent, as I | |
| explained in my opening statement, was transferred away to | |
| another bank, the U.N.'s main bank, Chase Manhattan, because | |
| BNP Paribas was only involved in the part of the humanitarian | |
| program that affected the central and southern provinces of | |
| Iraq. | |
| Mr. Shays. Oh, the Kurdish area was not. | |
| Mr. Smith. The Kurdish area was within the funds that we | |
| moved to Chase Manhattan. | |
| Mr. Shays. OK. As long as your paperwork matched, then the | |
| transactions took place. | |
| Mr. Smith. Yes. Basically we were making payment against | |
| the letter of credits that we had issued on the U.N.'s behalf. | |
| Mr. Shays. OK. And with you, Mr. Boks, and you, Mr. | |
| Pruniaux, what I sense is a different challenge. With you, Mr. | |
| Pruniaux, you had lots of different commodities to check. You | |
| had ports, plus you four transaction points there. You were | |
| inspecting trucks, you were inspecting ships, but you were | |
| primarily processing paper. You weren't taking a good look at | |
| every--you were not able to verify whether or not the paperwork | |
| matched what was actually potentially in a ship or in a truck; | |
| is that correct? | |
| Mr. Pruniaux. We were able to do that. Sometimes, as I | |
| mentioned before, there were pressures because of the volumes | |
| or for outside reasons, like the Iraqis trying to put pressure | |
| on us. But, no, we had IT technicians. The operations that we | |
| carried was a combination of physical inspections, as I said, | |
| 10 percent or systematic sampling of foodstuffs. | |
| Mr. Shays. It was sampling of the cargo. It was a sample of | |
| it. | |
| Mr. Pruniaux. Of the food basket only, and for which we had | |
| to do 100 percent laboratory analysis. But it was a | |
| combination, as I said, of physical inspections, matching | |
| documents, and receiving and keying data and processing these | |
| data on these documents and sending them to New York. So the | |
| sites were busy 24 hours per day. | |
| Mr. Shays. But your testimony before the subcommittee was | |
| you didn't have enough people to do your job. | |
| Mr. Pruniaux. On a case-by-case basis, not on a permanent | |
| basis. And that was especially, as I mentioned in my | |
| testimony--it was specially hard in 2001. And as a request | |
| there was an increase, I believe, when we were operating in Umm | |
| Qasr at--when there was this peak at the end of 2002, 2001, at | |
| the beginning of 2001, we had the total of 62--no, 57 permanent | |
| inspectors. And that was the following contract which was won | |
| again by us covered additional five inspectors for Umm Qasr. | |
| Mr. Shays. In both cases, neither of you were at all the | |
| sites that you needed to be in order to see all transactions, | |
| which enabled smuggling to take place. | |
| Mr. Pruniaux. That was not our duty. | |
| Mr. Shays. I'm not saying it's your duty. I'm just saying | |
| that you were not at all the potential sites of transaction, | |
| either for oil or for commodities; is that correct? | |
| Mr. Pruniaux. All the 986, all the Oil-for-Food | |
| transactions across the border, and we all authenticated them. | |
| Mr. Shays. What's that? | |
| Mr. Pruniaux. All transactions under the Oil-for-Food | |
| Program crossed the border. Those which crossed the border and | |
| we authenticated them. | |
| Mr. Shays. Right. | |
| Mr. Pruniaux. There was nothing else for us to do but just | |
| to look for the---- | |
| Mr. Shays. You only looked for the Oil-for-Food | |
| transactions. | |
| Mr. Pruniaux. Yes. Absolutely. | |
| Mr. Shays. All the other transactions you did not look at. | |
| Mr. Pruniaux. No. We did not know. | |
| Mr. Shays. And that's the case with you, Mr. Boks? | |
| Mr. Boks. That's correct. We were at the authorized export | |
| points, and, yes, that was about it. | |
| Mr. Shays. I'm sorry to keep you a little longer, but I | |
| just need to ask you this one other area. When he undersold his | |
| oil, did you have any responsibilities to deal with that issue? | |
| In other words, were there questions raised when he would sell | |
| oil for below market price because the U.N. approved it, that | |
| was good enough? In other words, I mean, any thinking person | |
| would wonder why would he undersell for oil. Did that raise | |
| questions in your mind? He undersold his oil. He sold it for a | |
| price below market. | |
| Mr. Boks. Well, obviously we didn't have anything to do | |
| with the transfers of money. Pricing was not---- | |
| Mr. Shays. A factor. You just looked at buying. When he | |
| offered to pay for commodities, you didn't look at pricing | |
| either. | |
| Mr. Pruniaux. No, not at all. | |
| Mr. Shays. OK. Let me conclude by asking you, each of you, | |
| which is the weakness of the program? What was the greatest | |
| weakness of the program? Tell me, each of you, what you think | |
| the greatest weakness in the program from your perspective? I | |
| will start with you, Mr. Smith. If you were designing the | |
| program, what would you have designed differently to make sure | |
| there weren't the rip-offs that we know took place? | |
| Mr. Smith. As I said in my opening statement, from a | |
| banking perspective, I think the structure was right. From the | |
| program as a whole, more control was required over the | |
| procurement process and the pricing process. | |
| Mr. Shays. Mr. Boks. | |
| Mr. Boks. Yes. That is something I can't comment on, but I | |
| would say that the unauthorized export points, Syria came on | |
| line obviously in a much later stage than the inception of the | |
| programsm. But I think that is obviously a shame that it | |
| happened. | |
| Mr. Shays. Thank you. | |
| Mr. Pruniaux. | |
| Mr. Pruniaux. Well, Cotecna has contracts worldwide for the | |
| control of borders and especially provide services to the | |
| Customs of various countries in the world. When I say provide, | |
| it means really sometimes we replace the Customs or we control | |
| the Customs. | |
| Now, the Oil-for-Food Program and the authentication was | |
| something totally different, as I mentioned at the very | |
| beginning. If a comprehensive program had been designed even | |
| for the Oil-for-Food Program, it should have covered or it | |
| could have covered the various sectors of a complete control of | |
| imports, which is the price verification, the quality, quantity | |
| and so on. But that was not written. That was not requested in | |
| our mandate. | |
| Mr. Shays. You all have been extraordinarily patient, and I | |
| think you have changed your schedules, and you have had to stay | |
| later than even I thought would happen. And you have been very | |
| cooperative with us. You have tried to be, I think, | |
| extraordinarily helpful, which is a credit to all three of you | |
| and to your companies, and I thank you for that. | |
| Is there anything that you want to put on the record before | |
| we adjourn? Anything that you think needs to be on the record | |
| before we adjourn? | |
| Gentlemen, thank you very much. This hearing is adjourned. | |
| [Whereupon, at 4:45 p.m., the subcommittee was adjourned.] | |
| [Additional information submitted for the hearing record | |
| follows:] | |
| [GRAPHIC] [TIFF OMITTED] T0052.412 | |
| [GRAPHIC] [TIFF OMITTED] T0052.413 | |
| [GRAPHIC] [TIFF OMITTED] T0052.414 | |
| <all> | |
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