Annan’s #2 Blocks Oil-for-Food Scrutiny

Co-authored by: George Russell.

With U.N. Secretary-General Kofi Annan (search) next up for review by Paul Volcker’s inquiry into the Oil-for-Food scandal, a crucial question is whether Volcker will expand upon information tying the scandal directly to the U.N. chief’s office — by way of Annan’s second-in command, Louise Frechette.

Four years into the seven-year Oil-for-Food program, with graft and mismanagement by then rampant, Frechette intervened directly by telephone to stop United Nations auditors from forwarding their investigations to the U.N. Security Council. This detail was buried on page 186 of the 219-page interim report Volcker's Independent Inquiry Committee released Feb. 3.

This decision from within Annan's office left only the Secretariat privy to the specifics of the waste, bungling and contractual breaches detailed by U.N. internal auditors in dozens of damning reports. The extent of what Annan's office knew was not available either to the Security Council or the public until Congress finally forced the issue and the United Nations produced the reports in conjunction with a Volcker “briefing paper” in January.

Frechette, 58, came to the United Nations following a long career as a Canadian civil servant. The first Deputy Secretary-General in U.N. history, she has served since 1998 as Annan's chief administrator. She also chairs the steering committee on U.N. Reform and Management Policy.

Frechette's actions stand in sharp contrast to the assertions of Annan and his public relations staff that the Security Council – and not the Secretariat – supervised the $110 billion Oil-for-Food program. Her decision, as documented by Volcker, also places responsibility squarely in the secretary-general's office for obscuring mismanagement of the program from the Security Council.

The cover-up did not stop with Benon Sevan, the now-disgraced Oil-for-Food executive director, who reportedly blocked audits that originated lower in the chain of command. The obstruction went all the way up to Annan's office on the 38th floor.

Frechette's intervention was disclosed by the Volcker committee as the result of an interview with Dileep Nair, head of the U.N.'s Office of Internal Oversight Services (OIOS), the organization's internal watchdog. In the year 2000, Nair's audit department repeatedly urged that audits of Oil-for-Food be sent to the Security Council.

On Nov. 30, 2000, Nair's top auditor sent a memo to Sevan informing him that despite his objections, the auditors planned to start sending reports on Oil-for-Food to the Security Council. By Nair's account, what settled the issue was a telephone call from Frechette, who came down on the side of Sevan. After that, reports Volcker, Nair “abandoned the effort to report directly to the Security Council on [Oil-for-Food] matters.”

When questioned about the telephone call at a recent press conference, Frechette said she had no recollection of it. “But I'm quite prepared to accept Mr. Nair's recalling the conversation,” she told reporters.

Volcker investigators interviewed Frechette but did not publish the results. Indeed, the Volcker committee seems to have gone to some lengths to keep Frechette's name out of its report entirely. While Frechette is mentioned 12 times by way of her title, “Deputy Secretary-General,” her name appears nowhere, including in a glossary of individuals mentioned that is appended to the document.

Frechette had connections to a number of Oil-for-Food figures. She had direct oversight of both U.N. watchdog Nair and Oil-for-Food director Sevan, although both reported to the Secretary-General. She also has an interesting tie to an important member of the Volcker committee's 65-member staff. When Frechette served as Canada's ambassador to the United Nations from 1992 to 1995, her boss during most of that time was Canadian Deputy Minister Reid Morden, who is now executive director of the Volcker team.

Asked why Frechette was mentioned only by title, not by name, Morden refused to comment.

For its part, the United Nations declared through a spokesman that “the Deputy Secretary-General, like every other U.N. employee from the Secretary-General on down, has been cooperating fully with the Independent Inquiry Committee and will continue to do so.”

Frechette's role in keeping the audits under wraps emerges in a series of exchanges with Nair, whose office conducted 55 audits and three summary reports related to Oil for Food.

Bland on the surface, the exchange of notes with Nair's office suggests a sharp difference of opinion on oversight of Oil-for-Food, with the U.N. watchdogs willing to take the case all the way to the Security Council — until they were stopped by Frechette. The exact nature of the differences has been blurred by the Volcker committee's own presentation of the memoranda involved. But the sequence is as follows:

On Aug. 30, 2000, just over halfway through the Oil-for-Food program, Nair proposed in a letter to Frechette that full-scale audits of the program should be conducted, starting with the program's management division. Nair's note expressed concern on the part of the auditors that Oil-for-Food was a “high-risk activity” needing thorough examination on a high-priority basis.

In the same letter, Nair also urged that his auditors report directly to the Security Council on anything related to Oil-for-Food. This would, he said, “ensure adequate coverage and visibility of OIOS' audit activities.”

The Volcker committee does not disclose any immediate reply from Frechette's office. But a few weeks later, Sevan weighed in, rejecting the idea of full-scale auditing on the grounds that it was not worth spending the money on a program with an uncertain future. Volcker committee members have since highlighted Sevan's reply as evidence that he may have been trying to steer investigators away from further audits of his program.

Sevan, however, did not have the final say. That authority lay with Kofi Annan. And as Frechette recently confirmed at a U.N. press conference, Sevan reported to the secretary-general “through me.”

So, after a brief pause, Nair's audit department again raised the issue. In a Nov. 30, 2000, memo, the chief auditor for Oil-for-Food, Esther Stern, told Sevan that despite his objections the audit department intended to send reports to the Security Council starting Jan. 1, 2001.

That never happened. As Nair told it to the Volcker committee, Frechette herself intervened with a telephone call to him “denying this proposal.”

According to the Volcker committee's terse summary of the exchange, “Mr. Nair then abandoned the effort to report directly to the Security Council on [Oil-for-Food]-related matters.”

The Oil-for-Food program continued until November 2003, overseeing more than $100 billion worth of Iraqi oil sales and relief purchases, from which Saddam Hussein embezzled billions. For almost the entire duration of the program, according to the Volcker committee, Sevan was involved in a “grave conflict of interest” involving oil sales and Saddam.

At the time of Frechette's intervention, Sevan had been running the Oil-for-Food program about four years. The Volcker report said that for more than three of those years, Sevan had been soliciting oil vouchers worth millions of dollars on behalf of an obscure Egyptian-owned oil company – vouchers that were registered on Iraqi oil ministry records in Sevan's name. Only days before Frechette's intervention, for example, Shell Oil had taken a delivery of 1 million barrels of Iraqi oil that netted the Egyptian firm more than $180,000 in profits.

While Sevan was rebuffing auditors on the grounds that a full-scale examination of his program was a waste of money, and around the time Annan's office — via Frechette —was scotching any direct channels between the auditors and the Security Council, Sevan moved the Oil-for-Food program's administration into new offices that cost more than $3 million to rent and renovate.

Volcker's overall analysis of the program shows that during 2001, Oil-for-Food administrative expenses more than tripled to $13.1 million, from $3.8 million the previous year. Sevan was not reluctant, it appears, to spend money on a program that was itself growing at a tremendous pace, measured in billions, as long as the money did not go to auditors. Apparently, rather than trying to fix this disparity, Annan's office condoned it.

What happened? Pressed by FOX News, Frechette declared that if her phone call quashing the audit department's initiative did take place — which she said she could not recall — the reason was that “internal audits were considered a management tool that were to be used only by internal managers of the United Nations system.”

That was exactly what Nair was proposing to change.

As it happens, the United Nations now agrees with Nair. Last December, with Congress pressing for access to the U.N. Oil-for-Food internal audits, the Volcker committee finally agreed the records should be made public. The U.N. changed its rules to comply.

Among those audits, finally released this past January, was one similar in focus to what Nair had proposed back in 2000. It was finally carried out from February to May 2003 — as Saddam Hussein was being overthrown.

Among other things, that audit found that Sevan had failed to hold any management meetings of his Oil-for-Food team for the previous two years. It remains to be explained how that fact had escaped the attention of Sevan's direct supervisor, Deputy Secretary-General Louise Frechette, or that of Kofi Annan himself.

– George Russell is Executive Editor of FOX News. Claudia Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies.