Another Trail to Follow; Did Saddam Hussein Loot a Fund to Compensate Victims of the 1990 Invasion?

Let's be honest. Along with United Nations secrecy, Saddam Hussein's perfidy, and the general coyness of the bribed, one of the big obstacles to getting to the bottom of the Oil for Food scandal is the sheer horror of actually having to read the reams of U.N. documents tied to the program–on the occasions when documents do turn up. It's a step forward that on Sunday Paul Volcker's U.N.-approved inquiry finally released the program's 55 secret internal audits, which Congress and others had been requesting for months.

But among those who have been asking, in some cases for years, to see such documents and are now slogging across the acres of bureaucratese therein, I dare say there's a certain feeling of “be careful what you wish for.” Beyond the highlights already reported, including waste, abuse and maladministration costing hundreds of millions, maybe billions, in money that belonged to the people of Iraq, it may take a while before the ramifications have been fully explored.

Let us pluck from the stack, however, one item that deserves especially urgent attention, because it involves an $18.8 billion flow consisting largely of Oil for Food funding, which until now, in all its opaque complexity, has too much escaped notice. Among the audits just released by Mr. Volcker are 19 that shed some light on yet another troubling trail in the labyrinth that was the Oil for Food program.

That trail belongs to the U.N. Compensation Commission. Based in Geneva and set up in 1991 to channel some of Iraq's money into compensation for the victims of Saddam's 1990 invasion of Kuwait, the UNCC was folded into Oil for Food when that relief program swung into operation in late 1996. Under Oil for Food, Saddam was allowed, under U.N. supervision, to sell oil in order to buy humanitarian aid for Iraqis. A percentage of those oil earnings was hived off for the UNCC. It was Oil for Food, with oil sales totaling some $65 billion, that produced the bulk of the money disbursed to date by the UNCC, which got 30% of Saddam's U.N.-approved oil revenues through 2000; and 25% thereafter, until the fall of Saddam in March, 2003 put an end to the bonanza.

That's how it happened that the UNCC to date has dispensed $18.8 billion. To give some sense of scale, that's more than three times the donations pledged so far to help tsunami victims. In dealing with the tsunami money, the U.N. has been promising careful and open handling, though it is not obvious that there has yet been any alteration to the U.N. system deep enough to ensure even that will happen.

But in the UNCC's case, there was no such pledge of transparent handling. The commission followed the usual Oil for Food practice of keeping confidential many of the details of its decisions, as well as the names of many of those receiving the money.

Now, with the release of the U.N.'s previously secret internal audits, we learn that there was considerable concern within the Secretariat's auditing department over some aspects of UNCC performance–which, according to the auditors, may have resulted in overpayments of perhaps as much as $4 billion.

For example, the auditors objected that in paying out claims at old, instead of current, exchange rates, the UNCC overpaid by $2.2 billion. Or there's the notation on a March 6, 2002, audit report that a UNCC payment of $58.9 million for a refugee camp in Jordan had overstated the camp's population by a factor of three, and “the UNCC was unable to provide an adequate explanation for the difference.”

This was hardly the picture conveyed by Secretary-General Kofi Annan in the little the public glimpsed of the internal audits, via reports he forwarded to the U.N. General Assembly. In a public report dated April 4, 2002, Mr. Annan vaguely mentioned that auditors had cited a number of problems, including lack of compliance with claim procedures and lack of response to “two critical audit recommendations”–which he did not describe. But his only mention of any specific sum of money was a reference to $486,130, which he said the auditors had questioned and the UNCC had nonetheless decided was “appropriate.”

Currently the UNCC has posted on its Web site this plaintive note: “It has come to the attention of the United Nations Compensation Commission (UNCC) that, for reasons unknown to the UNCC, the Office of Internal Oversight Services (OIOS) has made available to the Independent Inquiry Committee (IIC) internal audits dated between 1997 and 2005.” The UNCC then invites readers to peruse many pages of UNCC objections to the criticisms made in these audits.
Some poor soul of an investigator, preferably with access to U.N. personnel, needs to wade through all this–and then some. Even beyond the specific details included in the audits, there are warning flags here. The UNCC suffered from some of the same major flaws as the graft-plagued “humanitarian” portion of Oil for Food. The UNCC money was generated as a direct percentage of Saddam's official oil sales. That meant there was no need for those directly administering it, or for their boss, Mr. Annan, to justify to donors the demand for billions. In the already secretive confines of the U.N., that removed yet one more layer of protection against fraud.

The rotating panels of commissioners who awarded the $18.8 billion were chosen via in-house evaluation of their credentials by the U.N. Secretariat, nominated by the UNCC and approved by Mr. Annan; but little detail about them or their decisions was disclosed to the public. The records made publicly available by the UNCC do not in some cases disclose who the end-recipients were. Some of the funds were channeled to end-users via governments, including those of such terrorist-sponsoring states as Syria and Iran, as well as Yasser Arafat's Palestinian Authority.

The question for investigators should be not simply whether money was wasted by or bilked from the UNCC, but where that money went. These payments were funded out of the same Iraqi oil money, produced and sold under the same U.N. stamp of approval that brought us the Oil for Food scams from which Saddam skimmed billions. Saddam spent that money not just on palaces and scotch, but on arms smuggling, political-influence buying and quite possibly terrorist funding, even beyond payments to the families of Palestinian suicide bombers.

Among other concerns, it is by now clear that Saddam & Sons saw themselves as entitled to all they could steal from the Iraqi people–the intended beneficiaries-via Oil for Food. Both the U.S. Treasury and the head of the Iraq Survey Group, Charles Duelfer, have documented the use by Saddam and his cronies of front companies, as well as corrupt business partners, to filch billions via kickbacks on other aspects of the program.

It is possible that Saddam simply overlooked the UNCC pot into which many billions of Iraq's oil flowed–and that he did not send any of his agents or cronies calling with claims for compensation, alongside genuine victims. It is possible that Security Council members Russia, China and France, as well as such rotating members as Syria, did their best to keep spotless this lone (if large) pocket of the program. It is possible that from the roster of quietly selected commissioners came nothing but crisp, clean decisions.

But given that Saddam's illicit gains may be funding murder today, especially in such vital theaters as Iraq; and given the dark seams that ran through Oil for Food–of dirty money, secret arms deals and links to terrorist networks–the United Nations Compensation Commission seems a good place for investigators to log some serious time, and soon.

– Ms. Rosett is a journalist-in-residence with the Foundation for the Defense of Democracies. Her column appears here and in The Wall Street Journal Europe on alternate Wednesdays.