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[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

THE UNITED NATIONS OIL-FOR-FOOD PROGRAM: A REVIEW OF THE 661 SANCTIONS 
                               COMMITTEE

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 21, 2005

                               __________

                           Serial No. 109-30

                               __________

       Printed for the use of the Committee on Energy and Commerce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

                    ED WHITFIELD, Kentucky, Chairman

CLIFF STEARNS, Florida               BART STUPAK, Michigan
CHARLES W. ``CHIP'' PICKERING,         Ranking Member
Mississippi                          DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire       JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  JAY INSLEE, Washington
MIKE FERGUSON, New Jersey            TAMMY BALDWIN, Wisconsin
MICHAEL C. BURGESS, Texas            HENRY A. WAXMAN, California
MARSHA BLACKBURN, Tennessee          JOHN D. DINGELL, Michigan,
JOE BARTON, Texas,                     (Ex Officio)
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Schweich, Thomas A., Chief of Staff, United States Mission to 
      the United Nations, U.S. Department of State; accompanied 
      by Andrew S. Hillman, Director of the Sanctions Unit, 
      United States Mission to the United Nations, U.S. 
      Department of State; and Eugene S. Young, U.S. Department 
      of State...................................................    12
Additional material submitted for the record:
    Hillman, Andrew S., Director of the Sanctions Unit, United 
      States Mission to the United Nations, U.S. Department of 
      State, response for the record.............................    47
    Schweich, Thomas A., Chief of Staff, United States Mission to 
      the United Nations, U.S. Department of State, response for 
      the record.................................................    49

                                 (iii)

  

 
THE UNITED NATIONS OIL-FOR-FOOD PROGRAM: A REVIEW OF THE 661 SANCTIONS 
                               COMMITTEE

                              ----------                              

                         TUESDAY, JUNE 21, 2005

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Ed Whitfield 
(chairman) presiding.
    Members present: Representatives Whitfield, Stearns, Bass, 
Walden, Burgess, Blackburn, Barton (ex officio), Stupak, and 
Inslee.
    Staff present: Mark Paoletta, chief counsel; Andrew 
Snowden, majority counsel; Tom Feddo, majority counsel; Michael 
Abraham, legislative clerk; Edith Holleman, minority counsel; 
Chris Knauer, minority counsel; and Voncille Hines, minority 
assistant.
    Mr. Whitfield. This morning the subject of our hearing is 
the United Nations Oil-for-Food Program, a review of the 661 
Sanctions Committee. I want to thank the witnesses for being 
here this morning: Mr. Tom Schweich, who is Chief of Staff, 
United States Mission to the United Nations at the Department 
of State, and he is accompanied by Andrew Hillman, who is the 
Director of the Sanctions Unit, United States Mission to the 
United Nations, and Eugene S. Young with the U.S. Department of 
State.
    At this time, I will give my opening statement, and we will 
do the opening statements and then we will get to the 
testimony.
    The United Nations Oil-for-Food Program has been described 
as both a tremendous success and a dismal failure. While the 
program did improve the humanitarian situation in Iraq, it also 
permitted Saddam Hussein to steal from his own people billions 
of dollars that were desperately needed. If sanctions are to 
remain a viable tool for promoting freedom and human decency 
around the world, we need to scrutinize the Oil-for-Food 
Program and learn from its mistakes.
    On May 16, this subcommittee held a hearing that examined 
through a variety of recently translated documents how the 
former Iraqi regime of Saddam Hussein attempted to undermine 
sanctions by exploiting divisions among the various permanent 
members of the United Nations Security Council. Today's hearing 
will focus on how these divisions may have adversely impacted 
the program and permitted Saddam to skim billions of dollars 
that would rightfully have gone to the Iraqi people.
    We will hear from several individuals who were involved in 
the day-to-day inner workings of the 661 Sanctions Committee, 
and we will review among other documents the minutes of 
numerous meetings of the 661 Committee. Unfortunately, the 
story of the Sanctions Committee at least as it relates to the 
Oil-for-Food Program is somewhat a paradox. Because of the 661 
Committee's economic consensus requirement, political and 
economic agendas often carry the day.
    Member states who were profiting from Saddam's 
manipulations were unwilling to support reforms that could have 
tightened sanctions and reduced much of the graft and 
corruption. Perhaps the most egregious example of this blatant 
national self-interest is the oil surcharges. Confronted with 
substantial evidence that shady oil purchasers under the 
program were reaping premiums of 5, 10 even 20 times what is 
typical in the industry, monies that should have been flowing 
into the program, these nations opted for a ``see no evil, hear 
no evil'' approach.
    When the United States and Great Britain ultimately 
eliminated excessive premiums by imposing a retroactive pricing 
system, these nations claimed that the reforms rather than the 
illegal surcharges were hurting the Iraqi people by reducing 
oil exports. This is like having someone set your house on fire 
and then blaming the fire department for water damage after 
they put out the blaze.
    I would like to thank all three of the State Department 
witnesses who will be testifying here today. I look forward to 
hearing your experiences and impressions. The committee 
appreciates the work you have done for this country and the 
time you have devoted to this important issue.
    Finally, I would like to express my disappointment with the 
United Nations and the independent inquiry committee chaired by 
Paul Volcker, a man with whom we had profound respect. We had 
intended to have a former United Nations oil overseer here 
today to testify about the interactions with the 661 Committee 
and his efforts to eliminate the oil surcharges. Unfortunately, 
the United Nations, at the request of Mr. Volcker, has refused 
to allow this individual to appear before the committee. The 
fact that the United Nations authorized committee staff to 
interview this witness approximately 2 months ago made this 
decision particularly inexplicable. For an organization that 
has pledged itself to greater transparency in the wake of the 
oil-for-food scandal, the United Nations clearly appears to 
have a long way to go.
    I might also add, when we finish this public portion of the 
hearing today, we will go into executive session because of 
some confidential minutes that we will be looking into. At this 
time, I would like to recognize our ranking member, Mr. Bart 
Stupak of Michigan.
    [The prepared statement of Hon. Ed Whitfield follows:]

  Prepared Statement of Hon. Ed Whitfield, Chairman, Subcommittee on 
                      Oversight and Investigations

    The United Nations Oil-for-Food Program has been described as both 
a tremendous success and a dismal failure. I tend to think that the 
truth is probably somewhere in between: while the Program did improve 
the humanitarian situation in Iraq, it also permitted Saddam Hussein to 
steal from his own people billions of dollars that were desperately 
needed. If sanctions are to remain a viable tool for promoting freedom 
and human decency around the world, we need to scrutinize the Oil-for-
Food Program carefully, warts and all, and learn from its mistakes.
    On May 16, this Subcommittee held a hearing that examined, through 
a variety of recently translated documents, how the former Iraqi Regime 
of Saddam Hussein attempted to undermine sanctions by exploiting 
divisions among the various Permanent Members of the United Nations 
Security Council. Today's hearing will focus on how these divisions may 
have adversely impacted the Program and permitted Saddam to skim 
billions of dollars that should rightfully have gone to the Iraqi 
people. We will hear from several individuals who were involved in the 
day-to-day inner workings of the 661 Sanctions Committee, and we will 
review, among other documents, the minutes from numerous meetings of 
the 661 Committee.
    Unfortunately, the story of the 661 Sanctions Committee, at least 
as it relates to the Oil-for-Food Program, is neither pretty, nor 
promising. Because of the 661 Committee's consensus requirement, 
political and economic agendas often carried the day. Member States 
whose companies were profiting from Saddam's manipulations were 
unwilling to support reforms that could have tightened sanctions and 
reduced much of the graft and corruption.
    Perhaps the most egregious example of this blatant national self-
interest is the oil surcharges. Confronted with substantial evidence 
that shady oil purchasers under the Program were reaping premiums of 5, 
10, even 20 times what is typical in the industry--monies that should 
have been flowing into the Program--these nations opted for a ``see no 
evil, hear no evil'' approach. And when the United States and Great 
Britain ultimately eliminated these excessive premiums by imposing a 
retroactive pricing system, these nations claimed that the reforms, 
rather than the illegal surcharges, were hurting the Iraqi people by 
reducing oil exports. This is rather like having someone set your house 
on fire and then blaming the fire department for water damage after 
they put out the blaze.
    I would like to thank all three of the State Department witnesses 
who will be testifying here today: Thomas Schweik (pronounced Schwike); 
Andrew Hillman, and Eugene Young. I look forward to hearing your 
experiences and impressions. The Committee appreciates the work that 
you have done for this country and the time that you have devoted to 
this important issue.
    Finally, I would like to express my disappointment with the United 
Nations and the Independent Inquiry Committee chaired by Paul Volcker, 
a man for whom I have profound respect. We had intended to have a 
former United Nations Oil Overseer here today to testify about his 
interactions with the 661 Committee and his efforts to eliminate the 
oil surcharges.
    Unfortunately, the United Nations, at the behest of Mr. Volcker, 
has refused to allow this individual to appear before the Committee. 
The fact that the United Nations authorized Committee staff to 
interview this witness approximately two months ago makes this decision 
particularly inexplicable. For an organization that has pledged itself 
to greater transparency in the wake of the Oil-for-Food scandal, the 
United Nations clearly appears to have a long way to go.

    Mr. Stupak. Thank you, Mr. Chairman, over the past year 
numerous allegations have been made in Congress and elsewhere 
about improper action by officials at the United Nations in 
administering the Oil-for-Food Program. Much outrage has been 
expressed by many in Congress about the illegal smuggling of 
oil by Saddam Hussein, mostly through Jordan and Turkey, even 
though two congressional committees officially acknowledged the 
smuggling every year. It was also discussed in the media more 
than 4 years ago.
    How could this have occurred under the sanctions program 
established by the Security Council of which the U.S. is a 
member? There has been a mysterious lack of public discussion 
about the extremely cumbersome structure established for this 
program by the Security Council and lack of effective member 
oversight. There also has been no attention paid to the U.S. 
role in refusing to stop the smuggling of Iraqi oil by its 
allies, oil which often ended up in the United States.
    I want to thank you, Mr. Chairman, for opening up at least 
some of that discussion today by looking at the U.N. 661 
Sanctions Committee which was charged with enforcing the 
sanctions against Iraq and also administering the Oil-for-Food 
Program. The 661 Committee was established in 1990 after Iraq 
invaded Kuwait. All of the members were keenly aware of the 
attempts by Saddam Hussein and others to get around the 
sanctions. They knew about the smuggling, surcharges and all 
types of kickbacks.
    In 1997, the committee was told that Iraq was using money 
from oil smuggling to obtain prohibited goods. In March 2000, 
the committee was told Iraq could take in as much as $500 
million in illegal revenue in that year alone. The committee, 
which was composed of permanent and nonpermanent members of the 
Security Council, was hamstrung by its consensus rule. When the 
United States wanted to write a letter to Syria about reopening 
of the oil pipeline from Iraq, other members refused, pointing 
out that the U.S. will not even discuss the openly illegal 
trade between Iraq, Jordan and Turkey.
    Additionally, international sanctions imposed by the United 
Nations are only as effective as the member states want them to 
be. As one of the members of the Security Council stated in 
1996, it is a fundamental principle that the Security Council 
adopt resolutions, but that member states had responsibility 
for their implementation.
    Some neighboring countries such as Jordan and Turkey openly 
negotiated trade memoranda of understanding with Iraq every 
year. Iran traded in oil in full view of the Multinational 
Inception Force, or the MIF. The MIF also gave the committee 
regular reports on smuggling in the Persian Gulf. Others more 
quietly just conducted trade. Allegations that a particular 
country was violating the sanctions were followed up by a 
letter to that country asking for an explanation. It could take 
months to get a credible answer.
    Last week Chairman Barton added to the United Nations 
Reform Act a provision establishing a formal review of the 
Volcker commission's report on the Oil-for-Food Program. During 
that debate, the chairman said, ``any investigation of the Oil-
for-Food Program with even the appearance of bias or inadequacy 
will result in, at best, unanswered questions or, at worst, 
unresolved problems. Allowing either to fester in the U.N. can 
only serve to degrade the organization's already strained 
credibility and threaten its ability to function properly.''
    I want to point out potential bias and inadequacy shown by 
this committee in this investigation. Petroleum Intelligence 
Weekly reported in March 2002 that, ``Russian firms holding 
crude oil contracts under the U.N. Oil-for-Food Program are 
currently the largest sellers of Iraqi crude while U.S. 
refineries are the largest buyers, both sharing some 50 percent 
of the volumes.'' Chevron, Texaco and other refiners couldn't 
get enough of the Basra Blend, the newsletter reported. What do 
these U.S. companies know about the smuggling and illegal 
surcharges that were part of Iraqi's oil route?
    Also over 1,000 U.S. companies were certified to provide 
humanitarian goods to Iraq. Did they pay kickbacks to Saddam 
Hussein to get the business? We have been told that the 
chairman has no interest of looking at the role U.S. companies 
played in the illegal smuggling and payment of surcharges to 
Iraq. Why this committee would self-impose strategic limits on 
its ability to find the truth is without precedent and is 
rather bizarre. Are we afraid of the answers? Have we decided, 
Mr. Chairman, if we are going to do a credible investigation or 
a me-too pseudo investigation that conveniently leaves our 
friends alone in exchange for wild goose chases?
    After our last meeting our staff went to France to see if 
we could uncover illegal profiting by French politicians. The 
purpose of that visit was to interview Charles Pasqua, a 
prominent French politician who was named in a recent Senate 
report and in a letter that Chairman Barton sent to President 
Chirac as being closely affiliated with the Oil-for-Food 
scandal. Mr. Pasqua was named in the Chalabi produced list as 
having been granted oil allocations by Saddam Hussein. Yet in 
two recent letters sent to this committee by Mr. Pasqua and in 
a transcript of his interview with the staff which are attached 
to my opening statement, Mr. Pasqua emphatically denied that he 
ever traded in oil, was never the beneficiary of allocations 
from Iraq or received any remuneration from Iraqi crude oil 
trades.
    So what we have here is an unanswered question and 
unresolved problem, Mr. Chairman. The list of oil allocations 
which cannot be verified suggests Mr. Pasqua's involvement in 
this matter, but Mr. Pasqua flatly denies involvement. Mr. 
Pasqua encouraged this committee to explore fully the facts and 
agreed to open his financial records to the committee. Mr. 
Pasqua is either untruthful or his name has been unfairly 
tarnished as a result of this matter. We can attempt to dig 
more deeply into the Pasqua case to determine who actually 
benefited from some of these transactions and how they were 
structured, who were the middlemen trading companies, such as 
Jenmar that apparently lifted the crude oil in Mr. Pasqua's 
name. Can any of these employees associated with Jenmar be 
located and interviewed? Where did the proceeds go? Do we have 
a money trail?
    We can follow the Pasqua allegations from France, Iraq and 
Switzerland and to wherever the oil went in and hope to get 
enough credible evidence to come to reasonable conclusions. It 
would take a long time and a great deal of resources. It may be 
important to learn the facts about how these transactions 
occurred and who benefited from them. It might be easier and 
useful to this Nation to determine how U.S. refiners and other 
companies participated and benefited from the sordid schemes of 
Saddam Hussein. I would suggest once again that this committee 
concentrate its efforts here.
    Thank you, Mr. Chairman.
    Mr. Whitfield. I recognize the gentleman from Texas, Mr. 
Burgess.
    Mr. Burgess. Thank you, Mr. Chairman, and thank you for 
holding yet again another important hearing on the oil-for-food 
situation. It is well known that the United Nations originally 
established Oil-for-Food for the noble cause of aiding and 
providing for the humanitarian needs for the Iraqi people 
trapped under Saddam Hussein's regime. This program was quickly 
morphed into a financial scandal of epic proportions. It has 
now turned into an international crisis, and I sincerely hope 
this committee will continue its oversight regarding this 
serious matter.
    At our last hearing, we focused on Saddam Hussein's regime 
use of oil allocations to accentuate diversions or divisions 
within the United Nations Security Council as a means of 
undermining sanctions. I look forward to examining these 
divisions from the perspective of individuals who have actually 
worked within the 661 Committee. Particularly I would like to 
discuss if there were divisions among the permanent member 
states within the 661 Committee concerning the Oil-for-Food 
Program. Also, I would like to examine whether certain 
permanent member states resisted remedial efforts to eliminate 
many of the abuses of the Oil-for-Food Program perpetrated by 
the regime.
    I realize that these concerns may have to be further 
addressed in the closed session, but I do look forward to 
getting to the bottom of this grave issue.
    Mr. Chairman, I would just add to what you already said 
about this committee not having receiving permission from the 
Volcker commission to interview the U.N. oil overseer during 
this investigation as well. I think that was unfortunate, and I 
hope you will continue to apply the pressure that you can to 
bring all of the concerned people before this committee, and I 
yield back.
    Mr. Whitfield. Thank you, Dr. Burgess. At this time, I 
recognize Mr. Inslee of Washington.
    Mr. Inslee. Thank you, Mr. Chair. This may be a bit of an 
unusual comment, but I want to express comments about our 
hearing today and what I think my neighbors would say. I live 
in the Holly neighborhood on Bainbridge Island in Washington 
State, and one of our sons we have watched grow up in Little 
League is going to Baghdad in January. And he is a single 
parent of a 10-month old son. And he is shipping out with the 
U.S. Army to Baghdad and he is in training now. And I just kind 
of think my neighbors might ask some very serious questions 
about why we are here today when we are sending my neighbor's 
son to war in Baghdad.
    I have to question whether the reason we went to war is 
because of Saddam's fooling around with the Oil-for-Food 
Program. I don't think that is why he is being sent to war. He 
is being sent to war because an administration used false 
information to start a war that is sending my neighbor's 
children to a potential demise in the sand of Iraq. I would be 
pleased and I think my neighbors would be more interested as to 
how the Federal Government of the United States started a war 
based on materially false information, sending our children to 
war, than fiddling around with how Saddam stole some oil from 
United Nations or Exxon or anybody else.
    We ought to be investigating what we now learn from the 
Downing Street memos that, according to the British review of 
our intelligence, our intelligence was fixed around our policy 
rather than the other way around and that our intelligence was 
folded, spindled and mutilated leading to a war in which we 
have lost 1,700 of our children. And we read in the Downing 
Street memos that the President of the United States made a 
decision to take this country to war well before, well before 
there was any material effort to resolve this matter other than 
through armed conflict.
    Those are matters worthy of the U.S. Congress 
investigating, and I don't blame the chairman for this because 
this may not be within his jurisdiction, and I respect the 
Chair and whatever decision he makes about this hearing. But 
those are the things that the U.S. Congress ought to be 
investigating. Our children are not dying because of any 
scandal from the Oil-for-Food Program. They are dying because 
of materially false information used to invade another 
sovereign country.
    This is something that we ought to get to the bottom of, 
and the only people that had a discussion has been down in the 
basement in a nonsanctioned hearing by the U.S. Congress to 
find out what happened here. And my neighbors in the Holly 
neighborhood would prefer us focusing on a different place. And 
I just have to tell you that perhaps I am influenced by the 
personal mourning of these people going to war, but I just 
think we are looking at the wrong place that the U.S. Congress 
ought to be working on.
    Mr. Whitfield. Recognize the gentleman from Florida, Mr. 
Stearns.
    Mr. Stearns. Thank you, Mr. Chairman, and I want to thank 
you for holding this hearing. I think this is more than the 
gentleman from Washington indicates. This is not just some oil 
that was stolen. I think it should be a much investigated 
thing. It has relevance here. The war on Iraq does not have 
relevance on this oversight subcommittee, it is International 
Affairs, and as the gentleman knows, there is no jurisdiction 
here with that and it is a separate issue.
    The issue of the Oil-for-Food Program has come to the 
forefront, and I think it is because of some congressional 
investigations, of which this is one in which we have 
jurisdiction. Numerous reports have been released, and even as 
we speak more investigations are going on. And of course as we 
dig deeper and deeper into this scandal, we find it fraught 
with fraud and abuse and it is much more widespread than we 
thought. Documents released by our full committee demonstrate 
the more we know, the worse it gets. And yet we may be just 
scratching the surface even with all the information we know, 
this wider web of corruption.
    The abuse of the Oil-for-Food Program has become 
symptomatic of the overall mismanagement at the United Nations. 
The United Nations, I believe, needs to be reformed. They once 
was a relevant organization. Now I think it has more or less 
just become a debating society and it appeases terrorists. 
Proliferations of weapons of mass destructions are never looked 
at. They are excused almost under the table. They are enabled. 
And of course the Oil-for-Food scandal becomes part of that 
whole problem with the United Nations.
    According to CRS, the Oil-for-Food Program terminated 
following the fall of the Saddam Hussein regime. Unless we 
stopped Saddam Hussein that Oil-for-Food Program would 
continue. However, since the fall of the regime there has been 
numerous allegations of mismanagement and abuse and we all know 
that Saddam Hussein has manipulated the program to influence 
all of these United Nations officials, not only officials but 
contractors and politicians, and businessmen in numerous 
countries.
    So new attention has been focused on Iraq's oil for sale to 
neighboring countries that are even outside the control of the 
monitoring program itself. Now some of the things the 
investigation had revealed, corruption and mismanagement and 
contractors who were intimately involved with the program, and 
it really calls into question the lack of action on the part of 
the United Nations.
    Sanction committee members, including the United States, 
were to halt Iraq's profitable oil for sales outside of the 
program over its 10-year period. According to investigations 
conducted by the United States, U.N. and Iraqi officials, the 
regime of Saddam Hussein used two distinct illicit methods to 
generate funds following the imposition of sanctions on Iraq by 
the United Nations Security Council. Iraq illicitly sold oil to 
some neighboring countries from 1990 to 2003 in violation of 
the U.N. sanctions that predated and remained outside of the 
auspices or control of the program. And second, Iraq exploited 
loopholes and program regulations to impose a surcharge on 
buyers purchasing approved oil shipments and to solicit 
kickbacks from suppliers of humanitarian and other civilian 
goods purchased with funds from the program's escrow account.
    Now some of these illicit funds were used to procure 
military supplies and commodities that again were banned under 
the U.N. sanctions in the first place. The primary concern of 
U.S. officials prior to the fall of Saddam Hussein was that 
Iraq was reportedly using illicit revenues to buy prohibited 
military and weapons of mass destruction technology. Following 
the regime's fall in 2003, allegations have emerged concerning 
Saddam Hussein's purported use of his control over oil and 
humanitarian goods contracts to simply influence foreign 
officials, parties and companies and then go back and reward 
individuals and entities perceived to be supportive of Iraq's 
position.
    As we can see, Mr. Chairman, the U.N. Oil-for-Food Program 
lacked proper accountability at the U.N. oversight and thus 
caused this massive corruption and fraud. I look forward to our 
panel and look forward to hearing your thoughts on what can be 
done to ensure other U.N. programs do not suffer the same fate.
    Mr. Whitfield. I recognize the gentlelady from Tennessee, 
Mrs. Blackburn, for her opening statement.
    Mrs. Blackburn. Thank you, Mr. Chairman, and I would like 
to thank the chairman for holding this hearing today and I 
would like to thank the full committee chairman for allowing us 
to have this hearing today.
    As this subcommittee goes about and continues its 
investigation into the Oil-for-Food Program, I hope that we are 
going to be able to expose all the parties who have 
contributed, participated and instituted the illegal and 
questionable activities conducted as a part of this program. I 
think that for many of us we worry that it is symptomatic of 
other programs there at the U.N. The Oil-for-Food Program is 
just one example of why this body, the House, passed the U.N. 
Reform Act last week and why we think it is so important to 
require programs to become accountable, to have financial 
disclosures, to ask the U.N. to look at the way they manage 
their operations and their programs, and we will be watching. 
We will be watching very closely. We hope that there is 
progress made.
    We must hold the U.N. and its employees and members 
accountable for past mismanagement and confiscation and the use 
of our dues. You know, the U.S. contributes more than $400 
million in dues and then spends billions on voluntary aid and 
military aid peacekeeping. My constituents are quite concerned 
about this. They are very concerned. They are very concerned 
about the conduct. They are very concerned about the lack of 
desire, apparent desire, for financial accountability, and I 
hope that this hearing is another positive step toward holding 
these employees accountable.
    I want to welcome and thank our witness, and Mr. Chairman, 
again I thank you for agreeing to hold the hearing and I yield 
back.
    Mr. Whitfield. Thank you very much. At this time I 
recognize the chairman of the full committee, Mr. Barton of 
Texas.
    Chairman Barton. Thank you, Mr. Chairman. I want to say 
several things in this opening statement and I may take a 
little bit longer than the 5 minutes. First of all, I want to 
respond to my good friend Mr. Inslee's opening statement about 
why we are doing this hearing.
    The Energy and Commerce Committee doesn't have total 
jurisdiction over the Federal Government nor even the United 
Nations, but it does have some jurisdiction over energy policy, 
and it is my clear belief that Saddam Hussein used the oil, 
which is the energy of the Iraqi people, to keep himself in 
power. It is my clear belief that Saddam Hussein used the 
auspices of the United Nations to abuse the humanitarian intent 
of the Oil-for-Food Program, which all U.S. citizens support 
that we should provide food and clothing and medicines to 
alleviate suffering not only in Iraq but anywhere in the world. 
Saddam Hussein used our humanitarian instinct in a positive way 
from our behalf, in a very negative way for his behalf. And as 
chairman of the full committee, if I have any authority and any 
ability to bring that corruption to the surface and, at a 
minimum, prevent it from being done in the future, I am going 
to do that, and I make no apologies for it.
    I think these hearings--and I would tell my friends on the 
minority side, this is the committee that did the first hearing 
on the Oil-for-Food scandal, not in the Bush administration but 
back in the Clinton administration when the Clinton 
administration strongly defended the program. We are the first 
committee that brought the corruption in the program to light, 
you know, 6 years ago.
    These hearings might result in some of the money that has 
been ripped off being actually recovered and used for good 
purposes for the Iraqi people today. These hearings might 
result in some reforms at the United Nations today. These 
hearings should definitely result in future humanitarian 
programs done under the auspices of the United Nations being 
run properly and not misused as the Oil-for-Food Program was 
misused or in some cases used for illegal or contrary purposes.
    So that is why we are doing these hearings. That is the job 
of the U.S. Congress, to be an oversight watchdog for the 
American people. And unfortunately in today's world, sometimes 
it is the American people that almost unilaterally have to 
stand for truth and justice. I wish that weren't the case, but 
sometimes it appears it is the case.
    The United Nations has become a forum for anti-Americanism. 
The United Nations is not the United Nations that was intended 
in 1945 when Eleanor Roosevelt was the delegate from the United 
States that went to the initial meeting in San Francisco where 
the United Nations was created. Her United Nations is a far cry 
from the United Nations of today. And what little jurisdiction 
that the Energy and Commerce Committee has over these kinds of 
programs that can be used to fund the public good, so be it. I 
am for that.
    And I want to speak specifically to this hearing. This 
hearing today is to focus on the aspects of the 661 Committee, 
which was the oversight committee or the management committee 
of the Oil-for-Food Program. The United States is a member of 
the 661 Committee, and United States representatives, in my 
opinion, generally tried to actually use the 661 Committee to 
operate the Oil-for-Food Program in an appropriate way. 
Unfortunately, they were not allowed to do that because some 
members of the 661 Committee felt it was the job of that 
committee to be a coverup for Saddam Hussein.
    Now we have one specific member who was a staff member on 
the 661 Committee, a gentleman by the name of Michel Tellings. 
He is a United States citizen. He was interviewed by committee 
staff on two occasions, once by telephone and once in person, 
and he wanted to come and testify before this committee hearing 
today. But he had to sign a confidentiality agreement because 
he is also working for the Volcker commission. So my Staff 
Director, Bud Albright, called Paul Volcker and said would you 
let Mr. Tellings waive his confidentiality agreement? Would you 
let him testify before this subcommittee today? And Mr. Volcker 
said no. Wouldn't let him. So he is not here.
    Now we could subpoena Mr. Tellings because he is a United 
States citizen, or I am told he is. We have chosen not to do 
that because we use the subpoena authority of the Congress very 
sparingly. I don't want to be a committee chairman who coerces 
testimony when it has been the tradition by Mr. Dingell before 
me and Mr. Tauzin and Mr. Bliley and I would assume Staggers 
that we only use the subpoena authority when it was absolutely 
necessary. But we have a U.S. citizen who could come before us 
today and he has not been allowed to because Paul Volcker 
doesn't want him to, and I say shame on you, Paul Volcker. If 
you are really trying to get truth and justice, you should 
allow everybody who can provide information to this committee, 
to come and do so.
    I have just been told that Mr. Tellings is not a U.S. 
citizen. So we could not subpoena him. We would have to have 
the permission of Mr. Volcker to have him come. We are not 
going to have a full hearing today as we would have otherwise. 
But when we get into the question period, I am told it is 
appropriate to put in the testimony some of the information 
that we got from Mr. Tellings in the staff interviews.
    Mr. Chairman, I appreciate you holding this hearing. We are 
going to try to get the ball moving forward, and what we are 
doing and the other committees are doing and with the U.N. 
reform bill that passed the House last week, we may yet get a 
U.N. that does cooperate and does stand for the ideals we hoped 
it would stand for when we created it at the end of World War 
II.
    With that, I yield back.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you Chairman Whitfield. This morning our Committee continues 
its careful scrutiny of the United Nations Oil-for-Food Program.
    During last month's Committee oversight hearing on the Program, I 
mentioned that the U.N.'s ``661 Committee'' was paralyzed by 
bureaucratic infighting while Saddam Hussein's deception unfolded, thus 
crippling the Program and ensuring that it ended in disgrace.
    Today, we will hear testimony and examine documents which 
demonstrate that even when the U.N.'s own ``oil overseers'' identified 
illicit activities, and even when the United States provided the 661 
Committee with clear evidence of abuse and manipulation, the 661 
Committee could not or would not act. When the United States or the 
United Kingdom pressed for action based upon this convincing evidence, 
other members would demand more proof or more time to consider the 
issue, or would only agree to issue ambivalent and toothless public 
statements.
    The failure of the 661 Committee to stop Iraq's deceit gave Saddam 
tacit approval to rebuild the police state that allowed him to 
intimidate patriots inside Iraq and to threaten his neighbors.
    The 661 Committee's infighting and the self-interested delay 
tactics by member nations expose a critical weakness in today's United 
Nations. That is why the House passed legislation last week that will 
demand meaningful reform, and will withhold a substantial portion of 
this nation's dues until that reform occurs. I enthusiastically support 
that bill, and added an amendment specifically dealing with the Oil-
For-Food tragedy. I only wish the underlying bill and, therefore, my 
amendment, were stronger.
    My amendment will require an investigation of the Oil for Food 
Program from top to bottom. Not only will that investigation be 
required to examine every aspect of Saddam's abuse of the Program, but 
also: every aspect of the U.N.'s involvement with and management of the 
Program, every aspect of the Volcker Commission's investigation, and 
finally, the extent to which the U.N. has cooperated with Congress--or 
perhaps more accurately, failed to cooperate.
    On the failure to cooperate, this very hearing is a perfect 
example. We invited a U.N. oil overseer to today's hearing. He was 
available and wanted to testify. Yet the U.N. and the Volcker 
Commission refused to waive his confidentiality agreement and allow him 
to appear before us today. My Staff Director contacted Mr. Volcker 
directly and asked him to reconsider, and he refused. Let me just say 
that this is unacceptable, and does not support the U.N.'s claims that 
its operations are transparent or that it wants to get the bottom of 
this scandal.
    This is why the U.N. must be reformed, and I hope the Hyde bill 
will jar the UN bureaucracy and begin to facilitate honest reform. 
Without change, the American people will never trust the United 
Nations.
    Thank you, Mr. Chairman. I yield back the remainder of my time.

    Mr. Whitfield. At this time, I recognize the gentleman from 
New Hampshire.
    Mr. Bass. I waive.
    Mr. Whitfield. At this point, we will swear in our witness 
for the morning. Mr. Schweich, you are aware that the committee 
is holding an investigative hearing and when doing so we have 
the practice of taking under oath. And do you have any 
objection to testifying under oath this morning?
    Mr. Schweich. No objection.
    Mr. Whitfield. Now, it is my understanding that you have 
with you today Mr. Hillman and Mr. Young. And while the 
majority of the questions are going to be asked of you, I do 
know that there has been some interest in asking some questions 
of Mr. Hillman and Mr. Young. Do you mind if we bring them up 
and ask them to be sworn in at this time as well? I assume you 
don't want to be represented by counsel.
    [Witnesses sworn.]
    Mr. Whitfield. You are now sworn in and you have 5 minutes 
for your opening statement.

TESTIMONY OF THOMAS A. SCHWEICH, CHIEF OF STAFF, UNITED STATES 
   MISSION TO THE UNITED NATIONS, U.S. DEPARTMENT OF STATE; 
  ACCOMPANIED BY ANDREW S. HILLMAN, DIRECTOR OF THE SANCTIONS 
    UNIT, UNITED STATES MISSION TO THE UNITED NATIONS, U.S. 
 DEPARTMENT OF STATE; AND EUGENE S. YOUNG, U.S. DEPARTMENT OF 
                             STATE

    Mr. Schweich. Mr. Chairman and distinguished members of the 
committee, I am pleased to appear before you today to assist in 
your ongoing assessment of the multilateral sanctions regime 
previously imposed on the Iraqi Government from 1990 to 2003 
and your focus on the U.N. Oil-for-Food Program which was 
established by the U.N. Security Council to alleviate the 
humanitarian consequences of these sanctions on the people of 
Iraq.
    My oral statement is intended to complement and amplify the 
testimony presented before this committee on May 16 by my 
Department of State colleague. I have tried to focus my remarks 
on the works of Iraq's 661 Committee, problems associated with 
the pricing of Iraqi oil exports, oil smuggling, flights, ferry 
service and multiple efforts in which we and the British 
engaged during the life of the sanctions regime on Iraq to 
compel member state compliance. In addition, I stand ready to 
respond to questions that you and other committee members may 
pose on these and other related issues concerning sanctions on 
Iraq and the Oil-for-Food Program.
    Mr. Chairman, you and the committee members will recall the 
Security Council, through the adoption of Resolution 661, acted 
to impose comprehensive trade and financial sanctions against 
the former Iraqi regime 4 days after Iraq invaded Kuwait in 
August 1990. The U.S. Government supported this measure as part 
of a larger strategy to force Iraq to cease hostilities and to 
withdraw its forces from Kuwait.
    At the end of the Gulf War in 1991, the Security Council 
adopted Resolution 687 that extended comprehensive sanctions on 
Iraq to ensure that Saddam Hussein complied with major 
provisions of the cease-fire. By retaining the sanctions, the 
Council also sought to deny Iraq the capability of rearming or 
reconstituting its weapons of mass destruction and other 
military programs.
    Mr. Chairman, the sanctions were not anticipated to remain 
in place for more than a year or 2 before Saddam complied. 
However, we now know that Saddam chose not to comply. By 1995, 
in the wake of deteriorating humanitarian conditions in Iraq, 
many in the international community called for an end to the 
restrictions, reflecting concern that the impact of sanctions 
was being borne by innocent Iraqi people.
    As my colleague Mr. Anderson noted in his testimony on May 
16, it was against this backdrop that the Security Council 
adopted Resolution 986 in April 1995, thereby establishing the 
Oil-for-Food Program. The program was intended to alleviate the 
serious humanitarian crisis under way in Iraq while maintaining 
comprehensive restrictive measures to deny Saddam access to 
items that he could then use to pose a threat to the 
international community. The Sanctions Committee that was 
established under Resolution 661, known as the 661 Committee, 
was tasked by the Council with monitoring implementation of the 
overall sanctions regime on Iraq and after the Council's 
adoption of Resolution 986 with monitoring implementation of 
the Oil-for-Food Program.
    In addition, the 661 Committee, through each of its 
members, also was responsible for reviewing humanitarian 
contracts, oil spare parts contracts and oil pricing submitted 
on a regular basis by Iraq's State Oil Marketing Organization 
for approval. The United States delegation was an active 
participant in all such reviews.
    Mr. Chairman, the 661 Committee, like all Security Council 
sanctions committees, operated as a subsidiary body of the 
Security Council. However, unlike the Council, decisions were 
made on a consensus basis, requiring agreement of all parties 
and all members. The efforts of the U.S. and United Kingdom to 
counter or address noncompliance often were negated by other 
members' desires to ease sanctions on Iraq. The fundamental 
political disagreements between members over the Council's 
imposition of comprehensive sanctions often was exacerbated by 
the actions of key member states in advancing self-serving 
national economic objectives. The atmosphere in the committee, 
particularly the program involved in the late 1990's, became 
increasingly contentious.
    In retrospect, although a consensus rule often stymied 
progress in the committee, that same consensus rule helped the 
U.S. Achieve its objectives in a number of critical ways.
    In previous testimony before other congressional committees 
investigating Oil-for-Food matters, I have tried to delineate 
the various ways in which Saddam Hussein attempted to undermine 
and subvert the comprehensive sanctions regime imposed under 
Resolution 661. Specifically, I referred to what I describe as 
a pull-down menu of manipulative mechanisms that Saddam 
employed to circumvent the sanctions. They included surcharges, 
topping off of oil loadings, influence peddling, product 
substitution, product diversions, phony service contracts, 
phantom spare parts, shell corporations, illusory performance 
bonds, hidden bank accounts and plain old-fashioned bribery and 
kickbacks to the tune of millions of dollars.
    Saddam cleverly exploited these avenues for noncompliance 
by granting oil and humanitarian supply contracts to those 
willing to bend the rules in Iraq's favor. So when the United 
States and United Kingdom attempted to institute an oil pricing 
policy in the 661 Committee, a policy which came to be known as 
retroactive pricing, that was aimed at reducing or eliminating 
unauthorized excess charges being imposed by the Iraqi 
Government on oil exports contracts, certain 661 Committee 
members then strongly resisted our efforts. In that instance, 
we were able to use the consensus rule to our advantage to 
withhold our consent to oil prices proposed at the beginning of 
each month by Iraq's State Oil Marketing Organization until we 
were able at the end of the month to determine whether the 
proposed prices reflected fair market value in comparison with 
other comparable crude oils. By all accounts, our strategy 
succeeded in greatly reducing oil premiums from 50 cents per 
barrel to about 5 cents per barrel, thereby reducing the 
involvement of oil middlemen who, according to the overseers, 
contributed nothing to Iraq's oil export efforts under the Oil-
for-Food Program.
    Mr. Chairman, 661 Committee members with strong economic 
interests in Iraq used numerous tactics, both procedural and 
substantive, to delay or oppose our attempts in coordination 
with the British to achieve widespread compliance with the 
sanctions.
    The combined efforts of Saddam to evade sanctions coupled 
with the willing acquiescence of certain governments to permit 
unauthorized deviation from the measures made it increasingly 
difficult for the United States and United Kingdom to maintain 
the effectiveness of the restrictions despite our best efforts. 
Much of what the U.S. could and could not achieve with regard 
to monitoring the Oil-for-Food Program and implementing the 
sanctions was directly related to the political situation 
surrounding the contentious issue of Iraq and the Security 
Council and the 661 Committee. Our efforts to keep the 
comprehensive sanctions regime in place for as long as we did 
from August 1990 until May 2003, despite its inevitable 
weakening, far exceeded the expectations of policymakers at the 
time the restrictions were first imposed.
    In the time remaining, I would like to cite three examples 
of the types of problems we and the British faced in our 
dealings with the 661 Committee. One situation we attempted to 
correct, only to be met with stiff resistance from other 
committee members, involved the unauthorized flow of oil 
through the Iraq-Syria pipeline, a violation we repeatedly 
criticized both in our public statements and in our discussions 
with other Security Council and 661 Committee members. During 
an October 2002 meeting of the 661 Committee, we requested an 
explanation as to the apparent discrepancies between the amount 
of oil Syria produced domestically, the amount consumed 
domestically, and the total annual volume of oil that Syria 
exported. The Syrian representative, a member at the time of 
the 661 Committee, supported from other delegations, questioned 
the reliability of the figures we quoted, which we had drawn 
from publicly available oil industry publications. Another 
delegation seeking to deflect focus from Syria suggested the 
committee's work would be more effective if alleged sanctions 
violations were not considered singularly and in isolation but 
were viewed in the relative context of other reports of 
noncompliance.
    A second example to which I would draw your attention 
involved the use of ferries traveling from the United Arab 
Emirates to and from Iraq, ostensibly authorized only to 
transport passengers and their immediate possessions and not 
commercial goods. In a series of 661 Committee meetings, we and 
the British objected to giving permission to the governments of 
Bahrain, Oman and Qatar to initiate their own ferry service to 
Iraq unless and until the illegal practices of the ferries 
operating from UAE first were stopped. We specifically took 
such action because several successive briefings to the 
committee by the Commander of the multinational Maritime 
Interception Force, which I will refer to as the MIF, operating 
in the Gulf, confirmed with photographic evidence that 
commercial goods and supplies were being loaded onto ferries in 
the UAE in direct violation of previously agreed committee 
rules governing ferry service. Other 661 Committee members 
severely criticized the U.S. and British for linking our 
decision to block committee approval of ferry service from 
other Gulf states to the ongoing problems associated with ferry 
service from the UAE to Iraq. However, we maintained our 
opposition to the new ferry service and required that steps be 
taken to compel the government of the UAE to exercise greater 
control over ferries departing from its ports to Iraq.
    A third issue that merits your consideration, Mr. Chairman, 
on which I would offer brief comments, concerns flights to Iraq 
during the time the multilateral sanctions were in force. It 
was the consistent position of the United States, with support 
from the United Kingdom, that Resolution 661 prohibited flights 
to and from Iraq unless they were carrying food, medicine or 
other essential humanitarian needs and that, as per paragraph 4 
of Resolution 670, which the Security Council adopted on 
September 25, 1990, the 661 Committee authorized each specific 
flight on a case-by-case basis.
    A number of Security Council and 661 Committee members, 
among them France, China and Russia, took the position that 
member states only were obligated to provide 661 Committee 
members with prior written notification. Unlike other 661 
Committee members, with the exception of the British, the 
United States delegation reviewed each flight request, 
including cargo lists and flight manifests, before granting its 
approval. Our aim was to prevent Saddam from getting access to 
possible dual use and weapons of mass destruction items.
    Finally, Mr. Chairman, concerning the oil voucher program 
established by Saddam allegedly to award individual groups and 
entities who helped the Iraqi regime, I would like to offer two 
brief observations: First, knowing now of the existence of such 
a program, in retrospect, possibly helps to explain why certain 
members of the Security Council and the 661 Committee fought so 
strenuously with the U.S. and British to abandon our 
retroactive oil pricing policy to release our holds on what 
amounted in the spring of 2002 to $5.4 billion in humanitarian 
goods contracts and generally to ease the restrictive measures 
against Iraq; and had we and the British known at the time of 
Saddam's effort to influence individual groups and other 
governments by means of an institutionalized secret oil 
allocation program, we likely would have considered other 
strategies to address sanctions, noncompliance and the apparent 
influence peddling in which Saddam was extensively engaged.
    I have limited the length of my formal statement in order 
to permit additional time for questions for you and the other 
committee members. I know you are aware there are some 
limitations as to what I can say in an open briefing. I will 
attempt to answer all of your questions within the confines of 
U.S. Law limiting public dissemination of classified material. 
Should you and the other committee members seek additional 
information pertaining to classified material that might 
require a closed session, I stand ready to provide you whatever 
details in whatever form you may desire.
    Mr. Chairman, I thank you for the opportunity to appear 
before you today, and I am happy to answer any questions.
    [The prepared statement of Thomas A. Schweich follows:]

Prepared Statement of Thomas A. Schweich, Chief of Staff, U.S. Mission 
            to the United Nations, U.S. Department of State

    Mr. Chairman, distinguished members of the Committee, I am pleased 
to appear before you today to assist in your ongoing assessment of the 
multilateral sanctions regime previously imposed on the former Iraqi 
Government from 1990 to 2003, and, specifically, your focus on the UN 
Oil-for-Food (OFF) Program which was established by the UN Security 
Council to alleviate the humanitarian consequences of these sanctions 
on the people of Iraq.
    Mr. Chairman, my brief oral statement is intended to complement and 
amplify the testimony presented before this Committee on May 16 by my 
Department of State colleague, Gerald Anderson. I have tried to focus 
my remarks on the work of the Iraq Sanctions ``661'' Committee, 
problems associated with the pricing of Iraqi oil exports, oil 
smuggling, flights, ferry service, and the multiple efforts in which we 
and the British engaged during the life of the sanctions regime on Iraq 
to compel Member State compliance. In addition, Mr. Chairman, I stand 
ready to respond to questions that you and other Committee members may 
pose on these and other related issues concerning sanctions on Iraq and 
the Oil-for-Food Program.
    Mr. Chairman, you and the other Committee members will recall that 
the Security Council, through the adoption of Resolution 661, acted to 
impose comprehensive trade and financial sanctions against the former 
Iraqi regime four days after Iraq invaded Kuwait in early August 1990. 
The United States government supported this measure as part of a larger 
strategy to force Iraq to cease hostilities and to withdraw its forces 
from Kuwait.
    At the end of the Gulf War in 1991, the Security Council adopted 
Resolution 687 that extended comprehensive sanctions on Iraq to ensure 
that Saddam Hussein complied with the major provisions of the 
ceasefire. By retaining the sanctions, the Council also sought to deny 
Iraq the capability of rearming or constituting its weapons of mass 
destruction and other military programs.
    Mr. Chairman, the sanctions were not anticipated to remain in place 
for more than a year or two before Saddam complied. However, we now 
know that Saddam chose not to comply. By 1995, in the wake of 
deteriorating humanitarian conditions in Iraq, many in the 
international community called for an end to the restrictions, 
reflecting concern that the impact of the sanctions was being borne 
primarily by the innocent Iraqi civilian population.
    As my colleague, Mr. Anderson, noted in his testimony on May 16, it 
was against this backdrop that the Security Council adopted Resolution 
986 in April 1995, thereby establishing the Oil-for-Food (OFF) Program. 
The Program was intended to alleviate the serious humanitarian crisis 
underway in Iraq while maintaining comprehensive restrictive measures 
to deny Saddam access to items that he could use to again pose a threat 
to the international community.
    The sanctions committee that was established under Resolution 661, 
known as the ``661 Committee,'' was tasked by the Council with 
monitoring implementation of the overall sanctions regime on Iraq, and, 
after the Council's adoption of Resolution 986, with monitoring 
implementation of the Oil-for-Food Program.
    In addition, the 661 Committee, through each of its members, also 
was responsible for reviewing humanitarian contracts, oil spare parts 
contracts, and oil pricing submitted on a regular basis by Iraq's State 
Oil Marketing Organization (SOMO) for approval. The United States 
delegation was an active participant in all such reviews.
    Mr. Chairman, the 661 Committee, like all Security Council 
sanctions committees, operated as a subsidiary body of the Security 
Council. However, unlike the Council, decisions were made on a 
consensus basis, requiring the agreement of all parties and members. 
The efforts of the U.S. and the United Kingdom to counter or address 
non-compliance often were negated by other members' desires to ease 
sanctions on Iraq. The fundamental political disagreement between 
members over the Council's imposition of comprehensive sanctions often 
was exacerbated by the actions of certain key Member States in 
advancing self-serving national economic objectives. The atmosphere in 
the Committee, particularly as the Program evolved during the late 
1990s, became increasingly contentious.
    In retrospect, although the consensus rule often stymied progress 
in the Committee, that same consensus rule helped the U.S. achieve its 
objectives in a number of critical ways.
    In previous testimony before other Congressional committees 
investigating Oil-for-Food matters, I have tried to delineate the 
various ways in which Saddam Hussein attempted to undermine and subvert 
the comprehensive sanctions imposed under Resolution 661 (1990). 
Specifically, I referred to what I described as a ``pull-down menu'' of 
manipulative mechanisms that Saddam employed to circumvent the 
sanctions. These included surcharges, the topping off of oil loadings, 
influence peddling, product substitution, product diversion, phony 
service contracts, phantom spare parts, shell corporations, illusory 
performance bonds, hidden bank accounts, and plain old-fashioned 
bribery and kickbacks involving millions of dollars.
    Saddam cleverly exploited these avenues for non-compliance by 
granting oil and humanitarian supply contracts to those willing to bend 
the rules in Iraq's favor. So when, for example the United States and 
the United Kingdom attempted to institute an oil pricing policy in the 
661 Committee, a policy which became known as ``retroactive pricing,'' 
that was aimed at reducing or eliminating unauthorized excess charges 
being imposed by the Iraqi Government on oil export contracts, certain 
661 Committee members strongly resisted our efforts. In that instance, 
we were able to use the consensus rule of the 661 Committee to our 
advantage to withhold our consent to oil prices proposed at the 
beginning of each month by Iraq's State Oil Marketing Organization 
(SOMO), until we were able at the end of the month to determine whether 
the proposed prices reflected ``fair market value'' in comparison with 
other comparable crude oils. By all accounts, our strategy succeeded in 
greatly reducing oil surcharges from fifty cents per barrel to about 
five cents per barrel, thereby reducing the involvement of oil 
middlemen who, according to the UN Oil Overseers, contributed nothing 
to Iraq's oil export efforts under the Oil-for-Food Program.
    Mr. Chairman, 661 Committee members with strong economic interests 
in Iraq used numerous tactics, both procedural and substantive, to 
delay or oppose our attempts, in coordination with the British, to 
achieve widespread compliance with the sanctions.
    The combined efforts by Saddam to evade sanctions, coupled with the 
willing acquiescence of certain governments to permit unauthorized 
deviation from the measures, made it increasingly difficult for the 
United States and the United Kingdom to maintain the effectiveness of 
the restrictions, despite our best efforts. Much of what the U.S. could 
and could not achieve with regard to monitoring the Oil-for-Food 
Program and implementing the sanctions was directly related to the 
political situation surrounding the contentious issue of Iraq in the 
Security Council and in the 661 Committee. Our efforts to keep the 
comprehensive sanctions regime in place for as long as we did, from 
August 1990 until May 2003, despite its inevitable weakening, far 
exceeded the expectations of policymakers at the time the restrictions 
first were imposed.
    Mr. Chairman, in the time remaining for my prepared testimony, I 
would like to cite three examples of the types of problems we and the 
British faced in our dealings in the 661 Committee. One situation we 
attempted to correct, only to be met with stiff resistance from other 
Committee members, involved the unauthorized flow of oil through the 
Iraq-Syria pipeline, a violation we repeatedly criticized both in our 
public statements and in our discussions with other Security Council 
and 661 Committee members. During an October 2002 meeting of the 661 
Committee, we requested an explanation as to the apparent discrepancies 
between the amount of oil Syria produced domestically, the amount it 
consumed domestically, and the total annual volume of oil that Syria 
exported. The Syrian representative, a member at the time of the 661 
Committee, with support from other delegations, questioned the 
reliability of the figures we quoted, which we had drawn from publicly 
available oil industry publications. Another delegation, seeking to 
deflect the focus on Syria, suggested the Committee's work would be 
more effective if alleged sanctions violations were not considered 
singularly and in isolation, but rather were viewed in the relative 
context of other reports of non-compliance.
    A second example to which I would draw your attention involved the 
use of ferries traveling from the United Arab Emirates to and from 
Iraq, ostensibly authorized only to transport passengers and their 
immediate possessions, not commercial goods. In a series of 661 
Committee meetings, we and the British repeatedly objected to giving 
permission to the governments of Bahrain, Oman and Qatar to initiate 
their own ferry service to Iraq unless and until the illegal practices 
of the ferries operating from the UAE first were stopped. We 
specifically took such action because several successive briefings to 
Committee members by the Commander of the Multinational Maritime 
Interception Force (MIF), operating in the Persian Gulf, confirmed with 
photographic evidence that commercial goods and supplies were being 
loaded onto ferries in the UAE in direct violation of previously agreed 
Committee rules governing ferry service. Other 661 Committee members 
severely criticized us and the British for linking our decision to 
block Committee approval of ferry service from other Gulf States to the 
ongoing problems associated with ferry service from the UAE to Iraq. 
However, we maintained our opposition to new ferry service and 
requested that steps be taken to compel the government of the UAE to 
exercise greater control over ferries departing from its ports to Iraq.
    A third issue that merits your consideration, and on which I would 
offer brief comments, concerns flights to Iraq during the time 
multilateral sanctions were in force. It was the consistent position of 
the United States, with support from the United Kingdom, that 
Resolution 661 prohibited flights to and from Iraq, unless they were 
carrying food, medicine, or other essential humanitarian needs, and 
that, as per paragraph 4 of Resolution 670, which the Security Council 
adopted on September 25, 1990, the 661 Committee authorized each 
specific flight on a case-by-case basis.
    A number of Security Council and 661 Committee members, among them 
France, Russia and China, took the position that Member States only 
were obligated to provide the 661 Committee with prior written 
notification. Unlike other 661 Committee members, with the exception of 
the British, the United States delegation reviewed each flight request, 
including cargo lists and flight manifests, before granting its 
approval. Our aim was to prevent Saddam from gaining access to possible 
dual-use and WMD items.
    Finally, Mr. Chairman, concerning the oil voucher program 
established by Saddam allegedly to reward those individuals, groups, 
and entities who had helped the Iraqi regime, I would like to offer two 
observations:
    a) knowing now of the existence of such a program, in retrospect, 
possibly helps to explain why certain members of the Security Council 
and the 661 Committee fought so strenuously with us and the British to 
abandon our retroactive oil pricing policy, to release our holds on 
what amounted by the Spring of 2002 to 5.4 billion dollars in 
humanitarian goods contracts, and generally to ease the restrictive 
measures against Iraq; and,
    b) had we and the British known at the time of Saddam's efforts to 
influence individuals, groups, and other governments by means of an 
institutionalized, secret oil allocation program, we likely would have 
considered other strategies to address sanctions non-compliance and the 
apparent influence-peddling in which Saddam was extensively engaged.
    Mr. Chairman, I have intentionally limited the length of my formal 
statement in order to permit additional time for questions from you and 
the other Committee members. I know you are aware that there are some 
limitations as to what I can say in an open briefing. I will attempt to 
answer all your questions within the confines of U.S. law limiting 
public dissemination of classified material. Should you and other 
Committee members seek additional information pertaining to classified 
material that might require a closed hearing, I stand ready to provide 
you with whatever details you may desire.
    Mr. Chairman, thank you for the opportunity of appearing before the 
Committee today. I am happy to answer your questions.

    Mr. Whitfield. Thank you. It is our intention to go into 
executive session after everyone has had an opportunity to ask 
questions.
    First of all, how long have you been the U.N. Chief of 
Staff?
    Mr. Schweich. Mr. Chairman, 1 year.
    Mr. Whitfield. And Resolution 986 was passed in April 1995 
and that established the Oil-for-Food Program, is that correct?
    Mr. Schweich. That's correct, Mr. Chairman.
    Mr. Whitfield. When did the U.S. first become aware that 
Iraq was generating illegal surcharges on oil contracts under 
the program?
    Mr. Schweich. There were rumors in the summer of 2000, but 
they gained a critical mass around November of 2000.
    Mr. Whitfield. At that time how much of a premium were the 
purchasers making on each barrel of Iraqi oil sold under the 
program?
    Mr. Schweich. It varied substantially but the premium 
varied from 20 to 70 cents per barrel, with the average being 
closer to 35 to 55 cents per barrel.
    Mr. Whitfield. What was typical in the oil industry?
    Mr. Schweich. 5 cents per barrel.
    Mr. Whitfield. So that is quite a spread there. Did the 
U.N. oil overseers consider these premiums to be excessive?
    Mr. Schweich. Yes, they did.
    Mr. Whitfield. And how were these oil purchasers under the 
program able to obtain such huge premiums?
    Mr. Schweich. The arrangement for pricing was made with the 
oil overseers in connection with the oil organization in Iraq 
and they would try to set prices very low so that there would 
be an excessive premium and charge a kickback or a surcharge.
    Mr. Whitfield. So we are clear, these excessive premiums 
are monies that should have gone into the Oil-for-Food Program 
to assist the Iraqi people, is that right?
    Mr. Schweich. Yes.
    Mr. Whitfield. When the U.S. first learned of these 
excessive programs, what steps did it take to put a stop to the 
premiums and when did it take these initials steps?
    Mr. Schweich. I have put together a brief chronology. In 
December of 2000, very soon after we first became aware of the 
excessive premium and the surcharges in particular, at the 
United States' request and with the support of the United 
Kingdom, we requested that the oil overseers issue a letter 
saying they should not pay a surcharge and they should be very 
careful and that it was illegal and contrary to U.N. 
resolutions.
    That was the first step. There was some resistance from 
some countries, but we did get that letter out. At the same 
time, the Office of Foreign Assets Control in the Treasury 
Department issued a similar letter saying they should not pay a 
surcharge. That was the first activity that occurred.
    Then in February of 2001, the United States sent a letter 
to the 661 Committee Chair, I think it was Ambassador Colby at 
the time, asking for action against the surcharges and for the 
oil overseers to issue a report on the surcharges. They had 
gone out to the field and already verified that the surcharges 
existed.
    In March 2001, the U.S. proposed a very specific set of 
measures to the 661 Committee to combat the surcharges. They 
included more frequent pricing, mandatory lifting requirements, 
registration fees, contract clauses against the surcharge and 
related certifications to individual oil purchasers to not pay 
the surcharge and then a review by all the countries that were 
providing lists of companies that were authorized to lift oil 
of those companies, including proof of their creditworthiness, 
proof of previous involvement in oil trading, involvement in 
trade organizations, other things to establish the bona fides 
of the companies that they were legitimate oil companies.
    From March to October 2001, there were over 35 661 
Committee meetings and Security council meetings in which the 
United States aggressively asked the 661 Committee and the 
Security Council to take action against surcharges. So there 
was a very aggressive pattern in the United States and United 
Kingdom saying that we cannot allow these surcharges to 
continue, that is money right out of the pockets of the Iraqi 
people and going right to Saddam Hussein's palaces. There was 
tremendous resistance by other countries that I'm happy to 
discuss with you at any time.
    Finally, because of the lack of progress and success in 
getting any sort of revision to the pricing policy or any sort 
of activity to increase the quality of the people or companies 
that were lifting the oil, we finally said that we ought to 
implement a policy of pricing the oil, first every 10 or 15 
days and, when no one agreed to that, just retroactively.
    By the fall of 2001, the United States and U.K. Were using 
the consensus rule to our advantage. Instead of having the oil 
priced at the beginning of the month, we waited until the end 
of the month to approve the pricing so it could be established 
very close to the market rate, and that prevented excessive 
premium, which meant that no one had the money to pay a 
surcharge. And that was a very effective mechanism, strongly 
resisted by other Security Council members because it was 
effectively unilateral action by the U.S. and U.K. And there 
was nothing else that any other country could do about it 
because of the consensus rule. And that had a positive effect 
on reducing the premium.
    At the same time, the State Department also met with U.S. 
oil lifters, reminding them not to pay surcharges and insisting 
the contract clauses were put in their contracts indicating no 
surcharge had been paid. That is a quick summary.
    Mr. Whitfield. Did the U.S. communicate to its principal 
oil companies that these surcharges were illegal as well?
    Mr. Schweich. Yes, in at least two letters and also in 
individual meetings with those companies.
    Mr. Whitfield. You submitted a formal letter to the 661 
Committee saying that this was taking place and steps needed to 
be taken to stop it?
    Mr. Schweich. That's correct. It was done several times.
    Mr. Whitfield. You said more than 40 attempts or somewhere 
in that neighborhood, attempts were made to correct the 
situation, and was Great Britain the only country that joined 
the U.S. in that effort?
    Mr. Schweich. No. I think the Netherlands sometimes 
supported us and a couple of the oil overseers actually 
supported us as well. But by and large it was the U.S. and U.K.
    Mr. Whitfield. But you were able to make some significant 
progress by going to the end of the month review of the 
pricing, is that correct?
    Mr. Schweich. That's correct. It drastically reduced the 
ability of companies to take advantage of the disparity between 
the oil price and the--the market price and the contract price. 
Therefore there was less money available to pay the surcharge 
that Saddam Hussein was demanding.
    Mr. Whitfield. Do you know whether other countries on the 
661 Committee took similar steps that the U.S. took in 
notifying various entities about the illegality of what was 
going on?
    Mr. Whitfield. Other countries initially acquiesced in the 
oil overseers sending letters to all the companies that were 
authorized to lift oil saying they shouldn't pay a surcharge. I 
don't know of any direct efforts that were made by other 
countries, but they did permit the overseers to send the letter 
early in the process.
    Mr. Whitfield. What was the primary argument for those 
countries that were not cooperating with Great Britain and the 
U.S.? What was their primary argument as to why they were not 
concerned about this?
    Mr. Schweich. They had a variety of tactics that they used. 
The principal one was lack of proof of the surcharges. That was 
a common statement that the Russians made. You have interviewed 
a few people, but how do we know anybody is paying these 
surcharges?
    Mr. Whitfield. Was there adequate proof of surcharges?
    Mr. Schweich. There was substantial proof. The oil 
overseers interviewed many lifters of oil who didn't want to 
pay the surcharge who were saying look, they are trying to make 
us pay the surcharge and we don't want to do it. We felt there 
was very, very strong evidence, and in retrospect we were 
correct about that.
    Mr. Whitfield. But Russia was one country that specifically 
said there was no proof?
    Mr. Schweich. They said there was inadequate proof. They 
said it was up to individual countries to determine how this 
should be done. They claimed it was outside the scope or 
authority of the 661 Committee to get involved in the oil 
pricing market. They said coming up with standards of conduct 
would be very difficult and they denied that the middlemen--or 
middlemen said these were legitimate companies when they were 
proved not to be.
    Mr. Whitfield. Did the oil overseers subsequently make any 
recommendation as to how the 661 Committee could reduce these 
excessive oil premiums?
    Mr. Schweich. They listened very attentively and came 
around to our side. In March 2002, they issued a report. They 
recommended two basic things, which is consistent with what I 
just said, more stringent selection of contract holders and 
measures to set the price closer to market value. And that's 
pretty much what we have been advocating.
    Mr. Whitfield. But it did require unanimous agreement of 
all members to take action?
    Mr. Schweich. We simply withheld our consent to the price 
that had been set by the oil overseers until we had a chance to 
see it was a good price.
    Mr. Whitfield. I have heard some critics of the U.S. say 
that the U.S. delayed a lot of so-called dual use contracts but 
they did nothing as far as stopping any other kinds of 
contracts. How would you respond to that?
    Mr. Schweich. This is an argument I heard with respect to 
the humanitarian goods, not the oil but the food and the other 
humanitarian goods, that we put a hold on about $5.4 billion 
worth of humanitarian contracts because we were concerned that 
they might be concerned to reconstitute programs of weapons of 
mass destruction. And the criticism I have heard is that we 
didn't look at the pricing so that he could obtain a kickback 
and we didn't do much about it. And we reviewed that 
allegation. And first of all, there were a couple of contracts 
that we did reject because of pricing and there were several 
where we sought dual use potential but also noted that the 
price was way too high and could be subject to a kickback.
    The problem with the 661 Committee, basically a group of 
people reviewing contracts paper in New York to identify an 
excessive price was very, very difficult. DCAA did an audit of 
several thousand of these contracts in 2003 and they concluded 
the same thing. When you look at the paper, it's hard to tell 
that something's overpriced, especially since Saddam Hussein 
often didn't just overprice the goods. He had other ways to get 
his kickback. For example, he would have performance bonds 
issued by the selling company. Normally the selling company 
issues a performance bond 10 percent of the value of the 
contract. Then when they perform, the money is returned to the 
seller. Well, he would have the money returned to him.
    So that wouldn't even be evident from the face of the 
contract. So he had a series of ways in which he could extract 
his kickback that were not evident from the paper that was 
being reviewed by the 661 Committee.
    Mr. Whitfield. What percent of the total humanitarian 
contracts did the U.S. and Great Britain put a hold on?
    Mr. Schweich. You know, I have seen different numbers on 
that, Mr. Chairman. I have seen the French accused us of as 
high two-thirds. But if you look at the total volume, we put 
holds on $5.4 billion. And there was $40.6 billion worth of 
contracts actually that were submitted. I don't have a 
calculator here. But $5 billion out of $46 billion is what I 
would say the percentage would be.
    Mr. Whitfield. Okay. Well, my time is about to expire, so 
at this point I would recognize the gentleman from Michigan Mr. 
Stupak.
    Mr. Stupak. Thank you, and thank you for appearing here 
today.
    In your statement you indicated that political disagreement 
and self-serving national economic objectives made it difficult 
to address noncompliance of the sanctions by the member states. 
I assume you are pointing your finger at some of the countries. 
But didn't the U.S. also refuse to enforce sanctions against 
Jordan and Turkey for illegal trade with Iraq?
    Mr. Schweich. Congressman, I am glad you asked the 
question. It is true that there were substantial amounts of 
revenue obtained by Jordan by Saddam Hussein through Jordanian 
and Turkish contracts. But I would like to, if I can have a 
couple of minutes to walk you through how that process evolved.
    Mr. Stupak. I don't want to lose a couple of minutes. The 
question is really simple. Did the U.S. refuse to do the 
enforcement against Turkey and Jordan?
    Mr. Schweich. I wouldn't say that is an accurate 
characterization, Congressman.
    Mr. Stupak. What would you call it?
    Mr. Schweich. In 1990, Jordan asked for an exception under 
Article 50 of the U.N. Charter pointing out a severe hardship. 
The Secretary General said we should give them exceptional 
relief. Everyone on the 661 Committee pretty much acquiesced in 
that. They issued a note to Jordan when Jordan indicated it was 
resuming importation of oil--this was 5 years before the Oil-
for-Food program--saying that we understand you have severe 
hardship here, we understand that you are in a unique situation 
with respect to Iraq, and so we will take note of the fact that 
you are continuing to import Iraqi oil, and just report to us 
on how much you are importing, which they did.
    So I would consider this much more akin to--I don't know if 
you call it an exception, but an approved activity by the 
entire 661 Committee committee, not just the U.S. and the U.K., 
and something that would actually have been recommended by the 
United Nations. It was a geopolitical balance that had to be 
made.
    Mr. Stupak. But the fact is outside the program, Jordan and 
Turkey were allowed to trade with Iraq, which was money outside 
the program, and, therefore, money for Hussein. That is 
correct, but----
    Mr. Schweich. The balance was to allow the Jordanian 
economy to tank, and that, we thought, would create greater 
instability in the Middle East. And most other countries agreed 
with us on that.
    Mr. Stupak. What about Turkey? Did you think that would 
tank if you didn't allow them to have the oil?
    Mr. Schweich. They came in with a very good case for 
hardship also--that was about 5 years later--and again asked 
the 661 Committee for permission. In fact, under Resolution986 
they were allowed to import directly Iraqi oil.
    Mr. Stupak. But isn't it fair to say if the U.S. is going 
to look the other way when it comes to Jordan and Turkey for 
geopolitical reasons, won't that really lead to refusals by 
other members of the sanction committee to approve letters to 
such countries such as Syria, which is also engaged in 
illegal----
    Mr. Schweich. Well, Congressman, it is a totally different 
situation with Syria. First of all, their economy did not 
depend on Iraqi----
    Mr. Stupak. Wait a minute. How can it be totally different? 
You also said in your opening statement that if we would go in 
and aggressively enforce these, probably in a year or 2, you 
said, we could force Saddam to his knees.
    Mr. Schweich. Right.
    Mr. Stupak. We are going to start making exceptions, a year 
or two, go a little longer, right.
    Mr. Schweich. Actually the Jordanian protocol started in 
1990, and from 1990 to 1995 Saddam experienced great hardship. 
And that is why the Oil-for-Food program occurred. So the 
exception proved to be a pretty good balance between keeping 
the heat on Saddam and not allowing Jordan to go under.
    With respect to Syria, it was a totally different 
situation. They didn't come and say, we have hardship, we need 
the Iraqi oil. They denied the whole time that they were 
importing any Iraqi oil. They said they were testing the 
pipeline. It was a situation of total corruption, whereas 
Jordan came to us totally honestly, got an authorized exception 
from the entire Security Council.
    Mr. Stupak. But look at your exhibit book there, number 25 
J, which is the second to last article in the book.
    Kuwait complained to the United States in 1998 about 
massive smuggling. And it is--going to go to the last tab, 25, 
second to last article. And if you look at that on the second 
page, Kuwait was upset about this, and this is December 11, 
1998. Top paragraph says, along with increased airstrikes, that 
is what Kuwait was asking us to do, he called for retooling of 
the oil-for-aid program that would put food distribution 
squarely in the hands of U.N. Officials through independent 
distribution centers. He also wanted stronger enforcement by 
the U.S. with or without the U.N. To limit oil smuggling 
between Iraq and Iran, Turkey and Jordan. I mean, there was--we 
moved some sales, but over and above that there was illegal 
activity going on that we knew about back in 1998, and no one 
did anything about it.
    Mr. Schweich. Well, I would agree with you that independent 
of the actual contractual protocols between the government, 
there was smuggling by private organizations that we objected 
to. And, in fact, in Resolution 1284 and with our smart 
sanctions resolution, which was blocked, we did attempt to 
reduce that.
    Mr. Stupak. Well, if you take a look at it, Mr. Duelfer in 
his report found that this illegal trade with Jordan was the 
key to Saddam's financial survival until the Oil-for-Food 
program was implemented; isn't that correct?
    Mr. Schweich. He made a comment that smuggling in general 
did help Saddam Hussein, that is correct.
    Mr. Stupak. If we were to vigorously enforce these 
sanctions, why did it take the Security Council so long to take 
steps to legalize this trade with Turkey I am talking about? 
You know, why didn't the Security Council take steps to 
legalize this trade and bring them within the program?
    I would think with Turkey, Syria, Iran, Jordan, if you got 
illegal smuggling going on, you know it. You have approved 
contracts going on for geopolitical reasons, as you said. Why 
not bring all of that transaction within the Oil-for-Food 
program where you could have some control over it?
    Mr. Schweich. That is a very good question. This was 
something that was discussed extensively within the U.S. 
Government at the time. The perception was, I think, that the 
program was stretched so thin with resources, people, and that 
basically since everyone had pretty much agreed that Jordan and 
Turkey could constitute exceptions, there simply wasn't an 
appetite among the 661 Committee members to add that 
significant additional responsibility because they felt it was 
working adequately well the way it was.
    I know that is not a perfect answer, but these people were 
stretched very thin. They were viewing 36,000 oil contracts--
36,000 food contracts, 2,000 oil contracts, and adding the 
entire Jordanian and Turkish protocols on would be very, very 
difficult.
    Mr. Stupak. So seriously and basically that the members of 
661 Committee went through and decided, well, even though we 
know they are trading illegally, we are not going to enforce it 
because it would be too much of a burden on trying to get it 
done.
    Mr. Schweich. Well, Congressman----
    Mr. Stupak. I went all the way through these minutes, and 
we didn't see anything like that at all.
    Mr. Schweich. Well, Congressman, I would characterize it a 
little bit differently. I would say that people didn't want to 
address it because they felt that the exception that was 
granted in 1990 to Jordan was adequate, and the same situation 
roughly occurred with Turkey. I wouldn't say it was discussed 
in the 661 Committee so much as within the governments that 
were very concerned about it.
    Mr. Stupak. I don't disagree in 1990, if you want to make 
an exception for geopolitical reasons, fine. But over and above 
there was illegal smuggling, I think Jordan was like $4.3 
billion alone, why didn't you bring that under the program to 
get some control?
    Mr. Schweich. Will with--if we are going to distinguish 
between the protocols, government-to-government protocols, that 
is where most of the $4.4 billion came from. The smuggling that 
you are talking about, I think, was about $1.5 billion, 
according to Duelfer. We did make extensive efforts to try to 
stop that. The whole smart sanctions regime that was rejected 
by the Security Council, 661 Committee, was an attempt to have 
more stringent border controls and more stringent efforts to 
stop individual or private smuggling that went on, and we were 
unable to get that pushed through.
    Mr. Stupak. I think you answered this, but let me ask it 
again. Did you find in the Duelfer report that this illegal 
trade with Jordan was the key to Saddam's financial survival 
until the Oil-for-Food program was implemented?
    Mr. Schweich. Congressman, I believe that is the way Mr. 
Duelfer characterized that.
    Mr. Stupak. Do you believe that?
    Mr. Schweich. I don't, no.
    Mr. Stupak. You know?
    Mr. Schweich. No.
    Mr. Stupak. When we talk about enforcing these sanctions, 
you mentioned at the end--and you are summarizing, the oil 
through Syria, you said the ferry service was a concern; 
flights to Iraq, you are trying to control that. How then does 
like the CEO of Coastal Oil Company get on an airplane and fly 
to Iraq during the time that you are trying to enforce these 
flights? I mean, couldn't the U.S. even stop that?
    Mr. Schweich. Well, that was a very difficult situation. 
Resolution 670 specifically says there needs to be approval for 
flights to go into Iraq and not noticed. But several of the 
other 661 Committee members, including the French, the Russians 
and the Chinese, said no, it was simply a notification rule. So 
as long as we notify you, there is no way to stop it. You can 
go in.
    Our position was we really did need to look at who was on 
the flight and what the purpose was. There was a tremendous 
conflict that spanned several years over that issue.
    Mr. Stupak. Well, how about--during this time, you know, 
most of that oil, illegally traded oil that had surcharge, 
ended up at U.S. refineries, right?
    Mr. Schweich. That is correct.
    Mr. Schweich. What did the U.S. do to crack down on U.S. 
refineries to not accept illegally traded oil from Iraq?
    Mr. Schweich. Well, it was a very difficult process, 
because these were not companies generally that lifted the oil 
directly from Iraq and paid the surcharge. These were companies 
that bought them in resale, second- or third- or fourth-
generation resale.
    Mr. Stupak. You knew--when the oil came to refinery, you 
knew where it came from if it was Basra light; correct?
    Mr. Schweich. That is correct.
    Mr. Stupak. Is this Iranian oil? They would say no, no, no; 
this is Basra light crude. They knew that when it came to the 
U.S.
    Mr. Schweich. Yes.
    Mr. Stupak. Why didn't the U.S. turn back the shipments?
    Mr. Schweich. Well, there weren't surcharges. A lot of 
companies refused to pay surcharges. It was a mixed bag. There 
was not a surcharge on every barrel of oil. One of the reports, 
I don't remember if it was Duelfer or one of the ones we 
referred to, said about a third of their contracts had 
surcharges paid on them.
    So what the U.S. did was insist there were contract clauses 
and notifications saying there was no surplus paid on oil that 
came in from Iraq. We know now, at least if we believe what is 
in the indictment thatthe Justice Department recently issued, 
that Bay Oil was paying surcharges, if that is correct. And I 
believe in innocence until proven guilty, but they have built a 
pretty good case laid out in that indictment. So we know of one 
U.S. company was paying surcharges, but we really don't know of 
any other.
    Mr. Stupak. Well, we know of a couple more, because we 
realized two ships that the MIF force had taken and held up, 
that was part U.S., Soviet and other companies all involved in 
that ship; isn't that correct?
    Mr. Schweich. I am not sure which one you are referring to, 
Congressman.
    Mr. Stupak. I will get it for you.
    Mr. Whitfield. The gentleman's time has expired. We will 
have a second round.
    At this time, I recognize the chairman of the committee, 
Mr. Barton of Texas.
    Chairman Barton. Thank you. Thank you, Mr. Whitfield. If 
Mr. Stupak needs some of my time, I will be happy to yield it 
to him when he gets the information he was just asking about.
    My first question to you, sir, does the name Michel 
Tellings ring a bell with you?
    Mr. Schweich. Yes, Mr. Chairman.
    Chairman Barton. Do you have an opinion as to why the U.N. 
And Paul Volcker doesn't want him to testify before our 
committee?
    Mr. Schweich. Yes, Mr. Chairman, I have extensive interface 
with the Volcker people. I am sort of the main guy they go to--
at the U.S. mission they go to when they have questions and 
things.
    I think the position they have taken, and I am not 
endorsing it or not endorsing it, is that they have been given 
a grant of immunity by the United Nations so that they can 
conduct a thorough investigation without any outside 
interference; that it is better for them to get to the bottom 
of issues without exposing their witnesses and the issues they 
are investigating until it is over so they don't tip off 
witnesses and the like; and that they would be happy probably 
to make people available after they are done, but not during 
the course of their investigation. I think that is the position 
they have given to me.
    Chairman Barton. It is my understanding that Mr. Tellings 
is willing to testify. He is not asking to be shielded from 
this committee.
    Mr. Schweich. Yes. That same issue came up with Mr. Parton, 
who, as you know, has given documents to Chairman Hyde in his 
investigation. And the position that the united Nations has 
taken is that immunity that is enjoyed is not by an individual, 
but by the organization, and that can only be asserted or 
relinquished by that organization.
    Chairman Barton. Well, I take umbrage at that. I believe 
that the House of Representatives and the U.S. Senate is a co-
equal branch of government under the Constitution, and that 
since it is the House and the Senate that are appropriating the 
funds that we send to the United Nations, that when we have a 
legitimate need for information, that our--I understand that 
Mr. Volcker is not representing the United States, that he has 
been appointed by the U.N. To chair this committee, but at 
least the intent of that committee is to get the facts on the 
table, and that it is my opinion that Mr. Volcker's committee 
should cooperate with the committees of the House and the 
Senate that are conducting the investigations.
    And it just is beyond me why we have a witness who has been 
interviewed by committee staff and is willing--I won't say he 
is volunteering to testify, but he is willing to testify--he is 
not a U.S. citizen, he is a Dutch citizen, as it turns out--is 
not allowed to. That tells me that Mr. Volcker is engaged in a 
cover-up and that there is something that this witness has that 
he could tell in public that the Volcker Commission and the 
U.N. Doesn't want to be made public.
    Mr. Schweich. Well, Mr. Chairman, as you know, both 
legislation in the House of Representatives and in our own 
reform package that we are advocating at the U.S. mission and 
at the State Department, we are advocating that if there are 
allegations of misconduct, that waiver of immunity ought to be 
virtually automatic. So we are fairly sympathetic to your 
position, and they want those enforced, but at this point the 
U.N. Has asserted it has confidentiality agreements, and they 
want those enforced.
    I may--I might add that when I first took over this job a 
year ago as Jack Danforth's Chief of Staff--when he was the 
U.N. Ambassador, he met with Chairman Volcker and Secretary 
General Annan and said, you know, when they are in a situation 
like this, when there are allegations flying everywhere, being 
open is always the best possible route.
    So I can't dispute what you are saying at the same time our 
argument--I do understand their argument that we want to get 
our investigation done without tipping out witnesses as to what 
people might be saying and the like, and, therefore, we would 
rather wait until it is over to make public statements. I think 
that is the balancing that has to be done.
    Chairman Barton. I think it is a fair statement that--
again, I am not putting Mr. Volcker in this camp--but the 
leadership of the United Nations would rather this 
investigation by the U.S. Congress just go away. They would 
rather it not be going on at all. Isn't that a fair statement?
    Mr. Schweich. I can't speak for them, Mr. Chairman, but I 
also wouldn't dispute what you are saying.
    Chairman Barton. Well, had Mr. Tellings been allowed to 
testify, it is my understanding, based on staff notes from the 
interviews that he did have on two occasions, once by telephone 
and once in person, that he tried to bring to the attention of 
the 661 Committee that many of these oil traders that were 
being picked to trade the oil, the Iraqi oil, had no previous 
background in oil trading, that they appeared to be politically 
motivated, or Iraqi foreign policy motivated contacts. Would 
you dispute that?
    Mr. Schweich. I think that, Mr. Chairman, is exactly 
correct. The U.S. had that view. I think that oil overseers had 
that view. One of the principal proposals, before we had to go 
to retroactive pricing, was to squeeze out some of the 
middlemen and the people who did not have any experience in 
that oil industry.
    Chairman Barton. It is also my understanding that had Mr. 
Volcker allowed Mr. Tellings to testify, that he would have 
testified under oath in public that when he, Mr. Tellings, 
brought some of his concerns to Mr. Benon Sevan's attention--
and he was the individual charged with running the program, 
who, as it turns out, appeared on a list of Hussein's as a 
person getting personal vouchers--that when he brought this to 
Benon Sevan's attention, Mr. Sevan told him to not rock the 
boat, that things were going along swimmingly, and he should 
just leave it alone.
    Would you dispute that?
    Mr. Schweich. Mr. Chairman, I am not aware of any 
communications that occurred between Mr. Sevan and Mr. 
Tellings.
    Chairman Barton. Are you aware that this Mr. Sevan has 
since been suspended by the United Nations, and that there is 
shock and amazement that has been expressed that Mr. Sevan may 
have been involved in some of these trades, although Mr. Sevan 
publicly says that he hasn't been?
    Mr. Schweich. Yes, Mr. Chairman. I believe in the first 
Volcker report they outline in quite a bit of detail what they 
believe to be the factual situation regarding the allocations 
that he received.
    Chairman Barton. Okay. You may have said this in your 
opening statement, but just for the record, once again, which 
members of the 661 Committee--and my understanding is the 661 
Committee was made up of representatives of the permanent 
members of this U.N. Security Council; is that correct?
    Mr. Schweich. The permanent members and also 
representatives of the 10 nonpermanent members. So there were 
15 members, yes.
    Chairman Barton. So whoever happened to be on the U.N. 
Security Council had a representative on this committee.
    Mr. Schweich. That's correct, Mr. Chairman.
    Chairman Barton. Which one of those members routinely tried 
to thwart the intent of the program?
    Mr. Schweich. I would say--and I would like to caveat this 
briefly by saying that it's a delicate situation I am in 
because I negotiate with these countries every day on these 
issues, including U.N. Reform, and I wanted to put on the 
record that they have been much more cooperative with us lately 
on a reform efforts. But if we go back a few years, it was 
pretty much Russia, China and France.
    Chairman Barton. Russia, China and France.
    Mr. Schweich. That's correct.
    Chairman Barton. So staff information is that the United 
States representative and Great Britain's representatives, as 
the program was implemented, would invariably point out flaws 
in the implementation of the program, and that the French and 
the Russians and the Chinese would try to stall or divert these 
inquiries to make the program in the way in which the U.S. and 
the British thought it should be run. Is that a fair statement?
    Mr. Schweich. Mr. Chairman, it wouldn't be true of all 
three of those countries we were discussing, but as a general 
matter I wouldn't dispute the characterization.
    Chairman Barton. Did at any point, either in the past or 
currently, U.S. officials have a reason to believe that some of 
these other national representatives or officials of other 
nations were somehow given improper incentives or bribes or in 
some way bought off to prevent the proper implementation of the 
Oil-for-Food program?
    Mr. Schweich. I will defer to my experts who were on the 
661 Committee, but my understanding, Mr. Chairman, is that 
until 2003 when an article appeared in the Alameda newspaper 
indicating that there was a secret oil voucher allocation 
program, the United States was not aware of this influence 
peddling that had been going on.
    Chairman Barton. So even during the implementation, when 
representatives of the United States and Great Britain would 
see flaws in the program and would try to rectify them or try 
to make the program run properly, and the French or the 
Russians or the Chinese or all or some subset of that would try 
to stop it, there was never any information that they were 
somehow improperly tainted so that they had a personal or at 
least a national interest in preventing the proper 
implementation of the program?
    Mr. Schweich. Mr. Chairman, the United States was aware 
that these countries, prior to the first Iraqi War, had 
significant economic interest in Iraq and had a lot of 
incentive to work with Iraq on economic issues. What they were 
not aware of was the secret oil allocation program where 
specific individuals were targeted and then asked to influence 
governments to reduce the sanctions or alleviate the sanctions 
on Iraq.
    Chairman Barton. My time has just expired, so my final 
question--in hindsight, what should the U.S. or what could the 
U.S. have done to insist that the program run properly as the 
original intent was?
    Mr. Schweich. Well, I think that it's more of a question--
the way the program was set up, it was almost inevitable that 
certain things happened. When you have somebody as determined 
as Saddam Hussein, somebody as corrupt as he is in such a 
broad-based sanctions program, in retrospect it is probably too 
broad of a sanctions program.
    What we have tried to do in subsequent sanctions programs 
is be much more targeted, go after specific companies or 
individuals or entities or geographic areas that are involved 
in a given country, not have something so broad and sweeping; 
targeted sanctions, greater use of experts. There were no 
humanitarian good experts, for example, to evaluate the 
possibility of kickbacks.
    There have been a series of events that we have implemented 
on future sanctions programs, more streamlined, more focused, 
with more accountability, more oversight, too. There was 
inadequate auditing of the Oil-for-Food program, and we have 
advocated in our reform package that we are pushing now at the 
U.N. Much greater auditing of sanctions regimes.
    Chairman Barton. One thing that definitely should be a part 
of any future program is you shouldn't let the country that is 
being sanctioned to pick the contractors it does business with.
    Mr. Schweich. That's exactly right, Mr. Chairman. As you 
know, the reason that occurred, we tried--in 1991, we tried to 
set up an Oil-for-Food Program under Resolution 706 and 712 
that didn't allow that. And Saddam Hussein was willing to 
exploit his own people, have them suffer for 4 more years so 
that he could get we he needed out of that program, which was 
control of the contracts.
    So we tried very hard not to allow that to happen. But he 
didn't care how many people died. He wanted to get control over 
them. And if it meant 4 years and thousands more years--and 
thousands of more deaths, that was okay with him.
    Chairman Barton. I understand.
    Thank you very much, Mr. Chairman.
    Mr. Whitfield. The gentleman from Washington is recognized 
for 10 minutes.
    Mr. Inslee. Thank you, Mr. Schweich. My name is Jay Inslee. 
I am from Seattle. From my questions, I wanted you to note 
several of the presumptions I have before we start.
    No. 1, the chairs of the subcommittee and the committee are 
both honorable people and have the best intentions on this and 
other hearings.
    Second, Saddam Hussein was a despicable monster.
    Third, the U.N. Is an imperfect organization that failed to 
fully enforce the Oil-for-Food program; that multiple nations 
participated in that; and that the United States, I believe, 
was not sufficiently aggressive in multiple ways that I will 
talk about in a minute.
    Now, with that said, I want to focus on the relative 
success or failure of the United Nations oil sanction policy on 
Iraq relative to other successes or failures in our government. 
We have found that the goal, obviously, of this sanction policy 
was to prevent Saddam Hussein from obtaining weapons of mass 
destruction to threaten our security. That was the goal of the 
program.
    We have learned that Saddam Hussein, on the date we started 
hostilities, did not have, repeat, after multiple millions of 
dollars of looking for them, did not have weapons of mass 
destruction. It appears then that the United Nations program 
for its goal was successful. The second program that we had is 
that I presume that the President had a goal of telling the 
American people the truth about whether or not Saddam Hussein 
had weapons of mass destruction.
    From this, can we conclude that the United Nations sanction 
policy was successful in its major goal of depriving Saddam 
Hussein of his desires of weapons of mass destruction, and that 
the administration's goal--and that it was therefore 
successful; that the administration's goal of telling the 
American people the truth as to whether or not he had weapons 
of mass destruction failed? In other words, did the U.N. Meet 
its goal and the administration fail in those two issues?
    Mr. Schweich. Congressman, I would say yes, in terms of the 
question of did the Oil-for-Food at least have some success, it 
did stop Saddam Hussein from getting weapons of mass 
destruction. And it had another success, which was the 
malnutrition rate for Iraqi children went down dramatically, 
and it did help feed the people. So it had two successes.
    I would have to say with respect to the administration's 
policy on weapons of mass destruction disclosure--I am a 
diplomat in New York and just completely unqualified to talk 
about that.
    Mr. Inslee. Well, we will leave that to the conclusion of 
American people.
    Now, is it also fair to say that the United States 
Government--you know, I like--we are the best country in the 
world, gave the world democracy, freedom of speech, freedom of 
religion, you know. It's a great country, but I find it a 
little bit difficult for us to chastise and chide, scold the 
rest of the world when the conclusion I have reached, just 
sitting in this hearing and looking at this briefing material, 
is that the U.S. Government, for, I would assume, legitimate 
reasons, on occasion turned a blind eye to known violations of 
the Oil-for-Food program for reasons we thought were important; 
for instance, allowing Jordan to buildup some oil preparatory 
to war, for instance, for a variety of reasons that we thought 
made sense to us.
    But isn't it, when we do that, a little bit hard to turn 
around and be the scold to the rest of the world when they made 
decisions to violate these sanctions? Don't you think that's a 
little bit difficult for the United States to do?
    Mr. Schweich. I understand the point you are making, 
Congressman, but I would take two small issues with what you 
said. First of all, with respect to the exceptions that we 
allowed, they were generally agreed on by everybody that they 
should be allowed, not just the United States.
    I am a little bit concerned about characterizing the other 
exceptions that other people wanted as equivalent to an open 
decision to allow Jordan and Turkey to import oil. We are 
talking about some of the things we were objecting to were 
kickbacks, bribes, people gaining personally, personal 
profiteering, not political reasons for granting an exception.
    Mr. Inslee. Are you saying that the rest of the world 
agreed when we let this smuggling go on in Turkey and Jordan? 
In fact, Kuwait complained to us and asked us to be more 
aggressive, didn't they?
    Mr. Schweich. That was over-the-border smuggling, I 
believe.
    Mr. Inslee. I want to make sure you understand the 
question. Kuwait complained to the U.S. Government that we were 
not sufficiently aggressive stopping cross-border transfers to 
Jordan and Turkey, and we failed to meet their demands; isn't 
that true?
    Mr. Schweich. I really--I don't know. I just read the 
Kuwait document for the first time this morning.
    Mr. Inslee. Isn't it true from 1997 when the U.S. was 
taking only 13 percent of the oil, being the end user, by 1999 
the U.S. portion climbed to 35 percent of Iraqi oil, and by 
September 11th we were purchasing well over 50 percent--I think 
it was something like 65 percent during the Bush 
administration--of all the oil that came out of Iraq came to 
refineries in the United States; isn't that right?
    Mr. Schweich. That's correct. But, of course, there was 
nothing illegal about importing Iraqi oil. That was the purpose 
of the Oil-for-Food.
    Mr. Inslee. I understand that. But for this administration, 
the President, to sanction Iraq, if he wanted to really get 
serious about this in light of this fraud that you have talked 
about with multiple nations, could a sanction of Iraq--saying, 
we are cutting off oil imports to our oil refineries, period, 
is a sanction; I am not going to tolerate this anymore in 
Turkey, Jordan, Russia or the United States. He could have done 
that. He didn't do that. Couldn't he have?
    Mr. Schweich. He could have, but I would have to say I 
would have thought--I think that would have been the wrong 
decision.
    Mr. Inslee. Well, it would have been perhaps the wrong 
decision because, you know, we are addicted to oil in this 
country, and, frankly, we are not doing anything to beat that 
problem. But that is not--that is outside of your jurisdiction.
    I want to ask you about the conclusion from Paul Volcker--I 
want to read a quote to you. It's an article dated January 13, 
2005, from the Financial Times of London: ``Although the 
financial beneficiaries, Iraqis and Jordanians, the fact 
remains that the U.S. Government participated in a major 
conspiracy that violated sanctions and enriched Saddam's 
crony,'' a former U.N. Official said. ``That is exactly what 
many in the U.S. are now accusing other countries of having 
done. I think it's pretty ironic.''
    Then Paul Volcker goes on to say--confirmed--excuse me. 
Last week Paul Volcker, head of the independent commission 
created by the U.N. To investigate failures in the Oil-for-Food 
Program, confirmed that Washington allowed violations of the 
oil sanctions by Jordan in recognition of its national 
interests.
    Is that accurate?
    Mr. Schweich. I would dispute one statement that you made, 
which is that we were engaged in the conspiracy. Congressman, a 
conspiracy is something that is secret. That is the stuff we 
were objecting to, secret, private deals, under the table, 
where people are enriching themselves. The Jordanian protocol 
was approved--noted by the Security Council with no objection.
    They even sent a report to us on how it is going, which 
they did. And it was done for geopolitical reasons, as I said, 
that were concurred on by everybody at the time. I don't think 
you can equate that or call that a conspiracy. When there were 
conspiracies going on for influence peddling, kickbacks, 
bribery, things that really are criminal acts, this was a 
decision made by the Security Council, made at the 
recommendation of the Secretary General--by the way, which is 
surprising that U.N. Officials are saying this--to allow--I 
don't know if you call it an exception, but to note that Jordan 
was doing this, recognizing it was necessary to keep the Middle 
East stable. And it was done for valid reasons and reasons of--
that you can't call corrupt.
    I mean, you might object to how it was implemented. I can't 
say that Jordan always followed the rules as we understood them 
to be, but what I would say is the overall intent of the United 
States, the U.K., and all the other Security Council members in 
allowing Jordan to import this oil was honorable and was not a 
conspiracy at all. It was totally open.
    In fact, under the Foreign Operations Assistance Act, under 
three administrations, Bush 1, 8 years of Clinton 
Administration, and Bush 2, they--the President issued a waiver 
for Jordan, sent it off to Congress, published in the Federal 
Register. To me that is not a conspiracy.
    Mr. Inslee. But at least one country was complaining. We 
know Kuwait. Was anyone else complaining?
    Mr. Schweich. I am not aware of that.
    Mr. Inslee. Well, let me suggest to you that maybe there 
was reason for it, because it appears that while all this was 
going on, the U.S., under Bush administration policies, 
continued to increase its imports of Iraqi oil. I will read a 
quote to you, March 27, 2002:
    Despite the war fever engendered by U.S. rhetoric in recent 
weeks, lifting of Iraqi crude by U.S. refineries have averaged 
some 800,000 barrels per day so far this year, and even higher 
in the second half of last year. While some such as Exxon Mobil 
have moderated their Iraqi intake, Chevron, Texaco, top 
independent Valero and others seemingly can't get enough of 
Basra blend. As Chevron doubled its intake of 172,000 BD from 
the first to the second half of last year when prices were low, 
Valero doubled its imports from 187,000 BD.
    So, the fact of the matter is, there are two things I want 
to make sure that you think are correct. No. 1, while these 
concerns are being raised, we continued to substantially import 
more Iraqi oil, leading up to this war, and give money to 
Saddam Hussein.
    No. 2, whatever you want to say about the United Nations 
Oil-for-Food program, it is not the reason that our children 
are dying in Iraq.
    Would you agree with both of those statements?
    Mr. Schweich. I really can't comment on the last statement. 
It's way beyond, again, my area of expertise. But with respect 
to the increase in Iraqi oil imports, the objective of the Oil-
for-Food program was to provide money for Iraqi children and 
for food. There was nothing inherently wrong, I think, with 
importing Iraqi oil. The problem was if people were importing 
it while they were paying illegal surcharges, kickbacks. I 
think I outlined to you the numerous actions we took to 
eliminate that.
    Mr. Inslee. Apparently those failures did not prevent the 
U.N. sanctions from working of preventing this scoundrel from 
getting WMD; is that true?
    Mr. Schweich. Well, that is because--there are two aspects 
to this program. There was the oil part of it, and then there 
was the importation of humanitarian goods.
    What you are talking about is the second piece. We were 
successful about putting the holds on items of dual use in 
keeping weapons of mass destruction from coming in. But that's 
a little different from the issue you have, the oil imports.
    Mr. Inslee. Thank you.
    Mr. Schweich. Thank you.
    Mr. Whitfield. The gentleman from Texas is recognized for 
10 minutes.
    Mr. Burgess. Thank you, Mr. Chairman, I thank the witness 
for being here this morning and enduring this.
    At some length we have discussed the surcharges under the 
Oil-for-Food and how efforts to eliminate the surcharges were 
resisted by various countries within the 661 Committee. Can you 
tell us whether this was an isolated example, or was it part of 
a larger pattern?
    Mr. Schweich. It was a larger pattern. I have outlined--and 
just preparing for this hearing--7 or 8 methods that these 
countries that were obstructing us used. They did it for a 
period of 2 or 3 years when it came to our attention in 2001, 
all the way up to 2003, 2002. I would be happy to go through 
them with you if you like.
    They raised process objections, saying that things were not 
properly before the committee or beyond the mandate of the 661 
Committee, like activities relative to the Multinational 
Maritime Interception Force, which they said we shouldn't be 
involved in. They said there wasn't enough evidence to take 
action with respect to the Syria pipeline, Iranian violation of 
surcharges, kickbacks.
    They indicated what is being proposed in retroactive 
pricing would increase the suffering of the Iraqi people, so we 
shouldn't do it. Same thing with holds on humanitarian goods 
and the sanctions generally. They said the committee wasn't 
qualified to take action. We shouldn't be looking at oil 
pricing because we are not oil experts. They said that the 
actions would provoke Saddam to expel arms inspectors or 
increase smuggling. If you crack down on him, he will get even 
more violent, more nasty, so we shouldn't crack down on him.
    They claimed that the plans wouldn't work. We heard over 
and over again that retroactive pricing would not be 
successful; it would simply reduce the amount of Iraqi oil 
being lifted without eliminating the surcharge. It did reduce 
the amount of Iraqi oil being lifted for a while, but it did 
help stop the surcharge.
    Then we also heard what I call the ``trust the bad guys'' 
theory. We repeatedly heard people saying, well, you know, 
Syria says it is not doing anything wrong; we have to trust 
them. If the Iranians say they are not violating the sanctions, 
well, we ought to listen to what they have to say. I think it 
was a concerted lengthy process with a lot of tactics over a 
long period of time.
    Mr. Burgess. You have provided to us, under--what is 
recorded as Exhibit 17 is an e-mail. Do you have that available 
to you?
    Mr. Schweich. Yes.
    Mr. Burgess. Does this e-mail that we have been provided 
reflect some of these issues over which there were divisions in 
the 661 Committee concerning the Oil-for-Food program?
    Mr. Schweich. Congressman, let me just take 1 minute to 
look it over again.
    Mr. Burgess. Sure.
    Mr. Schweich. This reflects some of the issues, 
particularly with respect to the air flights that I mentioned 
in my initial statement.
    Mr. Burgess. Well, on the issue of the Syrian pipeline that 
you mentioned just a moment ago, what exactly was a discrepancy 
noted regarding Syrian oil production and exports?
    Mr. Schweich. Let me refer to something I wrote up here 
over the weekend. I think I have the statistics here one 
moment, if you will just give me a minute.
    There was a briefing given by the U.S., which determined 
that based on public sources, Syria produced at that time 
520,000 barrels per day of oil, domestically consumed 260,000, 
but its exports for that particular month had been 500,000. So 
if you do some simple math, 520 minus 260 are for consumption, 
would leave 260,000 barrels left over for export. Their actual 
exports were 500,000, so there was a discrepancy of 240,000 
barrels.
    So we asked where was that coming from. We knew it was 
coming from Iraq, but they repeatedly denied it. That's in 
marked contrast to Jordan and Turkey, which said, we are 
getting this, and we need it, we have problems. They just 
denied it. They said, well, we are testing the pipeline, we 
don't know what you are talking about. We comply with all 
Security Council resolutions. We were saying, well, where do 
you get this 240,000 barrels extra you are exporting over what 
you use and produce?
    Mr. Burgess. Well, could other delegations question 
publicly available industry data with straight faces?
    Mr. Schweich. They did, yes. The Russians said the figures 
aren't accurate. The only reliable source of information is 
that which comes from the Government of Syria.
    Mr. Burgess. That's how they attacked the data?
    Mr. Schweich. Yes.
    Mr. Burgess. With regard to the illegal ferry service for 
the United Arab Emirates, did the United States ever have any 
luck in stopping that traffic?
    Mr. Schweich. I don't know about the UAE. I will defer to 
some of my experts if you would like to talk to them in the 
closed session. I know that we were successful in keeping other 
ferries from opening with other countries. That was our 
principal objective.
    Mr. Burgess. Even though if we were to provide photographic 
evidence of something going on, it was difficult to rein that 
in?
    Mr. Schweich. Yes.
    Mr. Burgess. Was any other agency or body able to interdict 
any of the ferry traffic during that time?
    Mr. Schweich. Not that I am aware of.
    Mr. Burgess. Mr. Chairman, thank you for your indulgence. I 
will yield back the balance of my time.
    Mr. Whitfield. Thank you very much.
    At this time I will recognize the gentlelady from Tennessee 
Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    Thank you for your patience. We appreciate you being here 
today.
    I want to step back into the book we have got. We have 
mentioned a couple of times, if we can, section 25, some of the 
communications there. Looking at this first e-mail or the first 
headline is November 16, 2,000. We were talking about Iraq 
requiring the $050 per barrel premium.
    One of the things that is, I guess, kind of puzzling to me 
is looking at the leadership that was in charge of--more or 
less being certain that the U.N. Was abiding by the rules of 
the 661 Committee, was working within the framework of the 
resolution that put them in place. Let's see, we had Secretary 
Albright as Secretary of State at that point; correct?
    Mr. Schweich. Correct.
    Mrs. Blackburn. So Secretary Albright was at the helm, and 
this was--who did we have over as our U.N. Representative at 
that time?
    Mr. Schweich. Richard Holbrooke.
    Mrs. Blackburn. Mr. Holbrooke. All right. So we had 
Secretary Albright and Mr. Holbrooke that were supposed to be 
guiding the ship for us, more or less. How in the world could 
we continue to have the volume that's just in front of us today 
of communications that was coming back in to us from the U.N.? 
And looking at articles like the November 16th and the November 
21st, 2000, December 4, 2000, December 17, 2000, you know, what 
were these folks--what was their focus? Why were they not 
questioning or raising this issue? Why did it take us until 
2003, 2004, 2005 to begin to realize that there was a problem 
here that we could not trust what we were being told by some of 
the members of the 661 Committee? Do you have a thought on 
that?
    Mr. Schweich. Madam Congressman, I certainly can't speak 
for Richard Holbrooke or Madeleine Albright, but I would note 
that during the time period of these articles, when the issue 
of the surcharge first came up, we did succeed in getting the 
661 Committee to issue letters to companies and tried to stop 
it.
    It took another 10 or 11 months before the retroactive 
pricing regime went in place that actually did stop it, but I 
would attribute most of that to the resistance we met from 
other countries. But I really don't know the communications 
that were going on at the levels that you are talking about.
    Mrs. Blackburn. Okay. It looks like the first of those 
pieces of information addressing these situations where we 
realized we had a problem with that goes back to 1996 or 1997. 
So looks like they gave them plenty of time to decide they had 
a problem, right?
    Mr. Schweich. Which article are you referring to, ma'am?
    Mrs. Blackburn. Let's see. We were going--let's see. There 
is one, 3/10/97.
    Mr. Schweich. Is that under----
    Mrs. Blackburn. Under section 25. That is where I was 
looking. 3/10/97. So we have got--we have given them plenty--we 
gave our--Mr. Holbrooke and the State Department plenty of time 
to realize that there was a problem.
    I do have a couple of other questions that I want to ask 
you about also. Go ahead and respond to that, if you would like 
to. Then I do have a couple of other questions.
    Mr. Schweich. The issue of the surcharges, I don't think, 
was known until 2000, but, yes, there were a lot of problems 
with the program from its inception that we were quite aware 
of, yes.
    Mr. Schweich. Let's go back for just a moment and talk 
about Mr. Sevan. You know, this is--we have had a hearing--we 
had a hearing back May 16th, and it seemed as if his name came 
up quite a bit, and questions about conduct and activities came 
up quite a bit. How much contact did he have with members of 
the 661 Committee and especially those that were resisting our 
U.S. efforts to--in Iraq's manipulation of the Oil-for-Food?
    Mr. Schweich. Well, again, I would defer to my experts, who 
are actually on the 661 Committee, but my understanding, Madam 
Congresswoman, is that since he was the head of the Office of 
Iraq Programs, it was his job to interface frequently with all 
members of the 661 Committee, and he did so.
    Mrs. Blackburn. Okay. And we have talked a little bit about 
the U.K. And the Netherlands supporting the U.S., and then the 
opposition--you mentioned Russia, China and France pretty much 
led the opposition.
    Mr. Schweich. At various times, yes.
    Mrs. Blackburn. At various times, okay.
    Did that seem to be orchestrated, or is there anything that 
would lead us to believe that if they were orchestrated in 
those efforts?
    Mr. Schweich. I don't know of any specific orchestration 
efforts, but the general dynamic of the Security Council and 
the committees of the Security Council is different delegations 
consult with one another to determine their positions.
    Mrs. Blackburn. Okay.
    Mr. Schweich. And there was sort of a pattern after a 1997 
Resolution 34 where the United States was concerned about 
obstruction of the weapons inspectors, where a pattern seemed 
to emerge--sort of two against three of the permanent five, 
U.S., U.K. Versus Russia, France, and it wasn't true in every 
resolution in every case, but it was a fairly consistent 
pattern after 1997.
    Mrs. Blackburn. What type tactics were used primarily by 
those to try to delay or oppose our attempts to achieve 
compliance?
    Mr. Schweich. It was raising procedural issues, things that 
are outside the mandate. It was also saying that action we are 
taking is going to lead to more suffering of the Iraqi people; 
some of the other issues that I discussed in a slightly 
different context with Congressman Burgess a few minutes ago.
    Mrs. Blackburn. All right. Thank you, Mr. Chairman. I think 
I will yield back.
    Mr. Whitfield. Thank you.
    At this time I will recognize the gentleman Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman. I appreciate 
your work on this very important topic.
    I would like our witness to turn to tab 22 in the book. I 
am wondering, the exhibits 22, 23 and 24 describe an incident 
involving the United Nations Development Program and a Swedish 
company, and you are nodding as if you are familiar with these 
cables and the incident. And so I assume you are.
    Mr. Schweich. Yes, Congressman.
    Mr. Walden. Can you explain what happened?
    Mr. Schweich. I would actually defer to my colleague, 
Andrew Hillman, who was directly involved, but I can go over it 
generally here.
    Mr. Walden. If Mr. Hillman wants to come up, that's fine. I 
believe he is sworn in, right?
    Mr. Schweich. If that's okay.
    Mr. Walden. It is fine by me, if it is okay with the 
chairman. As I understand, he was sworn in earlier.
    Mr. Whitfield. Yes, he was sworn in.
    Mr. Walden. Mr. Hillman, maybe you could explain what this 
is all about, because it is quite disturbing, frankly.
    Mr. Hillman. Congressman, we received notification from the 
State Department in early June of 2002 that there had been a 
discussion that occurred in--at our embassy in Yugoslavia, in 
the former Yugoslavia, in Serbia, in Belgrade.
    Mr. Walden. Could you pull that mike a little closer?
    Mr. Hillman. And a Swedish Ambassador to the former 
Yugoslavia accompanied by a representative of a Swedish company 
told our Ambassador in Belgrade that when they applied for a 
contract that was under consideration for an electrical project 
in northern Iraq, that they had been told by a representative 
of the U.N. Development Program, the U.N. Agency that was 
letting out the contract for consideration by various bidders, 
that they would have to bypass or work around U.S. export laws 
concerning items that may have been produced in the United 
States and that were prohibited from reexport.
    Secondarily, it was alleged by this representative of the 
Swedish company that the UNDP official had advised them that 
they would have to pay the additional fee that the Government 
of Iraq had requested at roughly a 10 percent surcharge.
    Mr. Walden. Who was this person at UNDP that allegedly made 
these comments?
    Mr. Hillman. We subsequently learned that he was their 
representative who oversaw UNDP's work on the Iraq program.
    Mr. Walden. And who would that be?
    Mr. Hillman. His name is Michel Gotier, G-O-T-I-E-R.
    Mr. Walden. G-O-T-I-E-R. He was with the U.N. Development 
Program.
    Mr. Hillman. He worked for the U.N. Development 
Program,correct.
    Mr. Walden. He was the one who alleged--what nationality is 
he?
    Mr. Hillman. I am not sure I am familiar with his 
nationality, Congressman.
    Mr. Walden. But he was the one who basically told the 
Swedish company basically ignore the U.S. exportation laws.
    Mr. Hillman. Right.
    Mr. Walden. Computers, right.
    Mr. Hillman. Yes. Computers that were going to be used for 
this electrical project in northern Iraq.
    Mr. Walden. Do you know the issues involving those 
computers and that law? Why would that be an issue?
    Mr. Hillman. Congressman, I am not sure that I was fully 
briefed on this, other than what I was given in the instruction 
cable from the State Department, which, in essence, said that 
there were prohibitions on the reexport of these items by any 
company that may have been in receipt of them, based on U.S. 
existing legislation.
    Mr. Walden. Because my understanding is that there is a 
concern that these computers are some of the higher-speed 
computers and could facilitate computing processes that could, 
in effect, not be done elsewhere or by other computers, that, 
in effect, could be used against us then in some terrorist way 
or some other way.
    Mr. Hillman. Congressman, I am familiar that the 
legislation concerned possible use of items such as the ones 
you just described by potential terrorists, yes.
    Mr. Walden. Now, in the cable under tab 22, number 22, and 
some of it seems to be redacted, but it says that an ABB--that 
ABB excluded the computer system because it was not authorized 
for reexport by the Office of Foreign Asset Control of the U.S. 
Department of Treasury for antiterrorism reasons. However, the 
ABB representative said that in early September of 2001, the 
UNDP representative in New York--is it Michel Gotier?
    Mr. Hillman. Yes, Congressman.
    Mr. Walden. Challenged the legality of the U.S. reexport 
law. Why would that occur?
    Mr. Hillman. Well, I think what was challenged was the 
desire on the part of the--the concern on the part of ABB not 
to be in violation of an existing U.S. legislation concerning 
reexport. They were, I believe, considering the use of U.S.-
produced minicomputers for this project and knew that there 
were these restrictions in place.
    Mr. Walden. But why; is there any other information 
regarding Mr. Gotier's feelings about our reexportation law? 
Because it sounds like he the one who is saying that you don't 
have to follow this law.
    Mr. Hillman. When we raised this issue with him, and I went 
to meet first with his supervisor and then subsequently with 
him directly, he denied that he had made any of these 
statements to the representativefrom UNDP.
    Mr. Walden. So, is that right?
    Mr. Hillman. Yes, Congressman.
    Mr. Walden. What was your reaction to that?
    Mr. Hillman. I heard--I first met with the supervisor, 
subsequently met with the two of them, and my sense was that I 
wasn't convinced that I was hearing the absolute truth on the 
issue.
    Mr. Walden. Do we have any evidence, or have you had any 
other information, to indicate that he might have made these 
same comments to anyone else?
    Mr. Hillman. No, Congressman, not that I am aware of.
    Mr. Walden. Who was his supervisor; do you recall?
    Mr. Walden. Only by, again, consulting the document, a 
gentleman by the name of Oscar Fernandez-Taranco, who also was 
a U.N. Development official.
    Mr. Walden. But you didn't necessarily believe you are 
getting the straight story?
    Mr. Hillman. I had some concerns and reported back----
    Mr. Walden. Did you follow up then with the Swedish 
contacts?
    Mr. Hillman. I did not. We deferred back to the State 
Department for further guidance and further instructions.
    Mr. Walden. Did they follow up?
    Mr. Hillman. I am not sure I am aware of that, Congressman. 
I don't have the answer.
    Mr. Walden. You just don't know.
    Mr. Hillman. Yes.
    Mr. Walden. All right. Did Mr. Gotier say anything else 
during this meeting that you had with him and his supervisor?
    Mr. Hillman. Well, as I say, he denied that he had 
encouraged ABB to circumvent our U.S. export laws, reexport 
laws. And he also denied that he had, in any way, shape or 
form, encouraged ABB to pay a surcharge, a 10 percent 
additional fee, to the Government of Iraq.
    Mr. Walden. Did he ever suggest that not every company 
doing business under the OFF program had to abide by U.S. 
export laws?
    Mr. Hillman. I believe our reporting cable makes note of 
this, that he alluded to the fact that not everyone was 
required to use U.S.-produced goods for shipment into Iraq 
under the Oil-for-Food program. You could go to other suppliers 
from other countries to obtain some goods, if they were 
available.
    Mr. Walden. So, what you are saying is he was saying they 
could find a different way to get in, not that they could avoid 
the U.S. export laws?
    Mr. Hillman. Yes. Thank you. Thank you for clarifying that.
    Mr. Walden. Now, why would ABB raise this as an issue and 
then say they weren't going to do that because they were 
concerned about their own contacts in the U.S. and other 
business that they were doing?
    Mr. Hillman. Congressman, I can only go by the information 
that was provided to us in our instruction cable from the State 
Department. I am not sure that that was made evident to us. 
That is my only source of information on this issue.
    Mr. Walden. Mr. Schweich, there are two other questions I 
would like to ask you. In your opening statement you said that 
661 Committee members with strong economic interest used both 
substantive and procedural tactics to oppose U.S. Efforts to 
maintain sanctions. Can you explain the substantive and the 
procedural tactics that these countries used?
    Mr. Schweich. Yes. When I say procedural, I meant raising 
process objections; rolling things over to the next meeting; 
saying, we don't have time for this, let's deal with it the 
next meeting, the next meeting; those types of things which 
would be more parliamentary maneuvers to stop our activities.
    When I would say substantive, they would introduce 
competing resolutions to defeat our resolutions to get their 
allies on their side. And then they would also make very 
specific arguments about the effect of what we wanted to do on 
the Iraqi people, starving them, or that it might provoke 
Saddam to do something. That's what I meant by that 
distinction.
    Mr. Walden. I mean, were there circumstances where we had, 
for example, where we had photos of equipment going in 
violation, and countries said, that's not good enough?
    Mr. Schweich. Yes. I mean, I recall one situation where we 
showed some pictures of illegal activity going on. One of the 
other countries, which I will not mention right now, said, 
where did you get that camera lens, it is really quite good, 
and then dismissed totally what we had to say about it.
    Mr. Walden. More concerned about the camera than----
    Mr. Schweich. They were interested in how good our spy 
techniques were and not really so interested in what we were 
saying about what they had uncovered.
    Mr. Walden. Was that sort of a standard view?
    Mr. Schweich. It was--that was the only time that 
particular comment was made, but it was not atypical to have 
that sort of attitude in the 661 Committee.
    Mr. Walden. I appreciate your testimony today.
    Thank you, Mr. Chairman.
    Mr. Whitfield. The gentleman from Florida Mr. Stearns is 
recognized for 10 minutes.
    Mr. Stearns. Thank you, Mr. Chairman.
    You indicated in your opening statement that had the U.S. 
been aware of Saddam's secret oil allocation program at the 
time, it would have considered any additional measures to 
combat this abuse. What additional steps do you think could 
have been taken?
    Mr. Schweich. I think the main additional step that could 
have been taken--Congressman, that's a very good question--kind 
of what the U.S. is doing now--we are practically the only 
country now--is urge prosecution of criminals whoare accepting 
bribes, kickbacks and doing all of these illegal things.
    As you know the United States Department of Justice, even 
though I think that the U.S. was a minimal player in any of the 
corruption, has already indicted two Americans on this issue. I 
believe there are investigations going on in Italy and also in 
France also that haven't led to any sort of indictments.
    I think what we would have done is push for judicial and 
prosecutorial action against the perpetrators.
    Mr. Stearns. Do you think Russia or France or China would 
have done anything?
    Mr. Schweich. I don't know the answer to whether they would 
have done anything. I think they certainly could be put in a 
very difficult position publicly.
    Mr. Stearns. In his opening statement, Mr. Stupak stated 
that Iraq smuggled oil to Iran in full view of the Multi 
Interception Force, MIF. Was there a reason that the MIF did 
stop all smuggling to Iran?
    Mr. Schweich. It did try to stop it repeatedly. It boarded 
a lot of boats and actually uncovered pretty substantial 
evidence that the corruption that was going on--they found 
falsified passports, falsified documents that appeared to have 
been generated in Iran. They also interviewed witnesses who 
said that the Iranian Republican Guard, or the equivalent of 
that, was exacting fees for protection. That was all brought to 
the attention of the 661 Committee.
    Mr. Stearns. Did the MIF provide regular briefings to the 
661 Committee committee concerning the smuggling to Iran?
    Mr. Schweich. Congressman, I believe twice yearly they 
provided briefings, which included that and other issues, yes.
    Mr. Stearns. Did the U.S. actively support measures to 
limit this smuggling to Iran?
    Mr. Schweich. Yes.
    Mr. Stearns. What were they?
    Mr. Schweich. One, I think we just repeatedly asked for 
letters to be written to the Iranian Government asking them to 
cease their illegal activities. In fact, I have to say, you 
have to give a little bit of credit where credit is due. Toward 
the end of the program, the Iranians, they initially said yes--
they were very clever. They initially said, yes, we know there 
is smuggling going on, but it isn't the government; it is all 
private entities.
    As we built up the evidence against them, they actually did 
reduce the amount of smuggling that went on there. We actually, 
I think, in a couple of 661 Committee meetings--I am not sure 
if it was there or elsewhere--complimented them for finally 
agreeing to comply. So they were no big friends of Iraq anyway. 
Ultimately they were somewhat helpful toward the end of the 
program.
    Mr. Stearns. I think you answered this. Were other member 
states supportive of these measures?
    Mr. Schweich. Not initially, no. They basically said the 
same thing. The Iranians were saying, well, we all knew this 
was going on, but this has nothing to do with the Iranian 
Government.
    Mr. Stearns. Perhaps this question has not been asked. The 
Secretary General, Kofi Annan, how much do you think he knew of 
a lot of what we talked about this morning?
    Mr. Schweich. You know, I hesitate to speculate on that, 
because we have talked about----
    Mr. Stearns. Well, I will ask the questions, you just 
answer them then.
    Mr. Schweich. Okay.
    Mr. Stearns. Do you think Mr. Annan was keeping up to speed 
with what was happening in the 661 Committee?
    Mr. Schweich. I would say no. He delegated most of that to 
Mr. Sevan, who was in charge of the program.
    Mr. Stearns. Did Mr. Sevan ever brief him on what was 
happening?
    Mr. Schweich. I don't know.
    Mr. Stearns. Would you speculate yes or no? I mean, you 
would think he would brief him.
    Mr. Schweich. You would think so.
    Mr. Stearns. And Mr. Sevan is his name.
    Mr. Schweich. Benan Sevan.
    Mr. Stearns. How much of what we've talked about this 
morning was he aware of?
    Mr. Schweich. He was involved. The contracts, for example, 
for the oil and the food went from the contract holders and the 
deals that were arranged by Saddam Hussein to his office and 
then to the 661 Committee. So he was actually responsible for 
transmitting the documentation to the 661 Committee. So he 
would be involved in everything.
    Mr. Stearns. He knew pretty much intimately what was 
happening?
    Mr. Schweich. I would defer to my experts, but I would say 
the answer is most likely ``yes.''
    Mr. Hillman. He was the executive director of the office of 
the Iraq program, and in that capacity it was his job and 
responsibility to oversee the ongoing implementation of the 
program in its entirety.
    Mr. Stearns. So if you have somebody who is intimately 
involved and knows all the details and it turns out there is a 
great deal of corruption, most likely he knew about? Wouldn't 
you speculate that he must have known some of this corruption, 
just ``yes'' or ``no.''
    Mr. Schweich. Congressman, I spent 20 years as a trial 
lawyer, and I always told my witnesses not to speculate. I am 
sympathetic to what you are saying.
    Mr. Stearns. Okay, so he knew about the corruption. I am 
going to move a little further.
    You have indicated he knew intimately all the details of 
the 661 Committee. He had oversight and was intimately involved 
and so he must have known about the corruption and abuse.
    The next question is, did he ever brief the Secretary 
General? And in a normal procedure, wouldn't you think he would 
brief the Secretary?
    Mr. Schweich. I know the Secretary General has solid 
reporting lines throughout his organization.
    Mr. Stearns. Isn't there a line that runs from him to Sevan 
on this matter?
    Mr. Schweich. I would suspect so.
    Mr. Stearns. So there is an organizational hierarchy that 
goes from Sevan to Kofi Annan?
    Mr. Hillman. I have not looked at a U.N. Organizational 
chart, but I know Mr. Sevan had held the title of Under 
Secretary General in his capacity.
    Mr. Stearns. My impression is, he would be speaking to the 
Secretary General on a regular basis. And if he was intimately 
involved and knew about the corruption, he had a moral 
responsibility to tell the Secretary that there are problems 
there.
    Mr. Schweich. First of all, Congressman, Under Secretary 
Generals generally report to the Secretary General. As a 
general rule, he would be the kind of person that would report 
to the Secretary General. Volcker has claimed that he actually 
got oil allocations, so that not only was he aware of things, 
he was participating in them. That is certainly the allegation.
    Mr. Stearns. Sevan was participating in it? So it seems 
inconceivable that he had not briefed Kofi Annan about some of 
this or that Kofi Annan tacitly knew what was going on. He was 
the Under Secretary and reports to Kofi Annan. I think we can 
assume a certain amount of this information was available to 
the Secretary General.
    Mr. Schweich. The Secretary General had available to him 
the information you have, which describes the issues that are 
going on. I wouldn't make the jump to say that he condoned or 
approved of any corruption.
    Mr. Stearns. Let's say it was presented to him in a matter-
of-fact way that these are circumstances I don't quite 
understand. At this point, don't you think the Secretary 
General should at some point fire some people and clean house 
and do something?
    Mr. Schweich. At the time or now?
    Mr. Stearns. At the time.
    Mr. Schweich. I can't----
    Mr. Stearns. How about now?
    Mr. Schweich. He is disciplining one person already.
    Mr. Stearns. Disciplining is different than firing 
somebody.
    Mr. Schweich. I think he actually did terminate him.
    Mr. Stearns. Is Sevan still employed?
    Mr. Schweich. He is. There are some disciplinary 
proceedings pending with him.
    Mr. Stearns. If you find a scandal of this magnitude and 
you still keep the person involved on the payroll and you don't 
fire them, it doesn't seem like you are doing too much to make 
the program be in repair.
    Mr. Schweich. Well, Congressman, I am not here to defend 
the Secretary General. The reason he appointed Paul Volcker was 
to look into these issues.
    Mr. Stearns. Were many of the problems of the 661 Committee 
ever discussed with the Security Council?
    Mr. Schweich. Yes. There were meetings of the general 
Security Council in which these issues were discussed, several 
of them.
    Mr. Stearns. So all during this time from 1995, and only 
one or two times they talked with the Security Council?
    Mr. Schweich. I think it was several.
    Mr. Stearns. Do you know anything about those presentations 
and who gave them? Did Sevan give those presentations?
    Mr. Schweich. I will defer to Mr. Hillman on that.
    Mr. Hillman. Mr. Sevan would brief the Security Council 
approximately every 6 months. That tied into the phases of the 
program of which there were 13 phases. And it was toward the 
end of each phase that he would update the council.
    And with regard to the question you asked Mr. Schweich 
concerning the number of times that the Security Council may 
have dealt with issues similar to those discussed in the 
committee, frequently, when we reached an impasse in our 
discussions in the committee, they were brought to the 
Ambassador level, to the attention of the Ambassadors within 
the Security Council, for example, oil pricing and the dispute 
that occurred.
    Mr. Stearns. But even if you brief the Security Council 
about the 661 program, you need a unanimous consent to do 
anything; so nothing could be done, right? If Sevan came 
forward and said, These are the problems and these are the 
discrepancies, the Security council would say, We want to do X, 
Y, Z, United States and United Kingdom, but nothing could be 
done because you needed unanimous consent.
    Mr. Schweich. In the Security Council you don't need 
unanimous consent. You need nine votes without a veto. In the 
661 Committee, you did need consensus.
    Mr. Stearns. In the Security Council, if a problem of this 
magnitude was brought before them, could they have acted or 
done anything? Were there votes there to start moving out and 
change this program? The Security Council is at fault here, 
too.
    Mr. Schweich. They could have acted. The P5 all had vetoes. 
The countries we have been talking about, that have hindered 
our efforts, all had a veto, but I don't think it ever got to 
that point.
    Mr. Stearns. Never got to the point where you had a vote 
where the nine votes were needed or France could veto.
    I guess the question is, did the Security Council ever have 
this presented to them and was there a veto by any member of 
the Security Council as a result of the presentation of 
possible corruption in the Oil-for-Food program.
    Mr. Schweich. I am aware that when we proposed the Smart 
Sanctions Resolution in early 2001 to really refine the 
process, get the goods that needed to get in, that Russia 
threatened a veto. And as a result, the whole thing fell apart.
    Mr. Stearns. What year was that?
    Mr. Schweich. July 2001.
    Mr. Stearns. Just 30 seconds, unanimous consent. And that 
resulted because somebody presented to the Security Council 
activities on the 661 Committee which created such a donnybrook 
that Russia threatened a veto?
    Mr. Schweich. I think that's correct.
    Mr. Stearns. The information that was presented was what?
    Mr. Schweich. There had been criticism that the sanctions 
regime was falling apart and the new administration wanted to 
upgrade it by making it easier for certain goods to come into 
the country, but more difficult for other ones, just to be 
refined in the overall approach, and the Russians were against 
it. We ended up getting France and China on our side. It was 
the Russians that threatened the veto.
    Mr. Stearns. Mr. Volcker's commission, do you think it can 
get to the bottom of this without what appears to be--some of 
this staff leaking documents? What is your test here? Can he 
get to the bottom of this?
    Mr. Schweich. The test will be when he issues his big 
report in August or September.
    I work a lot with the Volcker people. It is a very 
dedicated, talented and experienced group of people, but they 
are having problems with internal dissension. And how that is 
going to cut, I am not sure.
    Mr. Stearns. Why did Russia oppose Smart Sanctions?
    Mr. Schweich. We don't know exactly why they opposed the 
Smart Sanctions. They claimed, at that point, they wanted 
sanctions lifted entirely. That would probably be the reason we 
tried to refine them and make them work better, and that went 
against their overall objective.
    Mr. Whitfield. The gentleman's time has expired.
    At this time, I am going to recognize the gentleman from 
Michigan for 5 minutes to follow up on the information he was 
trying to find earlier. While you are trying to find that, I am 
going to ask unanimous consent that we introduce into the 
record this evidence binder. Without objection, so ordered.
    I would also say that after consultation with the minority, 
after Mr. Stupak asks his 5 minutes of questions, we are going 
to offer a motion that the subcommittee move into executive 
session.
    So, at this time, I recognize you, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman.
    Sir, I was telling you about the two tankers that the U.S. 
had seized, an MIF force had seized. Looking at the document we 
had in the last hearing, it said that a tanker named Volganeft-
147 was owned by Soviet-Finnish-American trans company, a joint 
venture among the Russian ministries and American company, 
Transcisco, and financed by European Bank for Reconstruction 
and Development.
    Were you aware of these tankers being seized that the U.S. 
Had an interest in?
    Mr. Schweich. This is not an incident I am familiar with, 
but I would be willing to take the question and provide you a 
written answer if you like.
    Mr. Stupak. Of the 77 ships--Mr. Stearns had some questions 
about MIF. Of the 77 ships that were seized, cargo seized, it 
is our understanding only two of the 77, proceeds from those 
cargoes being sold, was put back into the U.N. Oil-for-Food 
program. What happened to the revenue from the other 75 ships?
    Mr. Hillman. Congressman, when a ship was seized by the MIF 
and then diverted to a port in a neighboring country, that 
neighboring state was allowed, under the Security Council 
resolutions, to deduct costs associated with the off-loading, 
for example, of the oil that may have been on that vessel, and 
perhaps the disposal of that vessel or the return of that 
vessel to its rightful owners. And it was understood that the 
receiving state could deduct expenses, so a number of states, 
after deducting expenses, didn't have much left to put into the 
778 account.
    Mr. Stupak. Was that program ever audited? I would think 
that a whole ship full of Basra light crude there would be some 
profit on that when you would sell it on the world market.
    Mr. Hillman. Congressman, I am not aware of the quantities 
involved when you make reference to the seizure of the ships 
and how much oil had been seized by the MIF.
    Mr. Stupak. Was the program ever audited?
    Mr. Hillman. Frequently. The U.N. Oil-for-Food program was 
officially audited every 6 months to correspond with the 
phases.
    Mr. Stupak. Of the 77 ships, 75 we received no money on. 
Was that program ever audited?
    Mr. Hillman. I am not sure, but we would be happy to find 
out the answer for you.
    Mr. Stupak. Mr. Chairman, I had other areas to go into. I 
just wanted to clarify that point that I made earlier. Let me 
ask you this question then. Did the subsequent Security Council 
resolutions--the committee was encouraged to clarify its 
working procedures and develop expedited procedures; did the 
committee ever do this? Did the Security Council ever force any 
changes in the way the committee operated?
    Mr. Schweich. Not that I am aware of.
    Mr. Stupak. When you went to the so-called Smart 
Sanctions--that was on May 14, 2002, U.N. Resolution 1409--
Smart Sanctions really just opened up smuggling even greater 
than what it was before; did it not?
    Mr. Hillman. That might be a bit of an unfair 
characterization.
    What we tried to do, as Mr. Schweich suggested, was to 
reinforce the sanctions regime as it then existed and to focus 
on those goods that might present the greatest possible threat 
for dual use.
    Mr. Stupak. We did away with the distribution plan of oil 
and we focused more on what items had dual use?
    Mr. Hillman. What we tried to do was to have an actual 
list, as it suggested, the goods review list, of items that 
would need careful security by the U.N. Office of Iraq program, 
by the International Atomic Energy Agency.
    Mr. Stupak. It really allowed Iraq to produce and sell as 
much oil as it wished and spend the money on what it saw fit. I 
mean, we actually lost--weakened international control when it 
went to the Smart Sanctions under 1409.
    Mr. Hillman. Resolution 1409, my memory of it and my 
reading of it is, we didn't adjust or change in any way Iraq's 
oil exports and its ability to export oil.
    Mr. Stupak. Well, what we saw was, as you said, more of a 
dual use. We looked more at what was being purchased with the 
money, not necessarily how much oil was going where, what was 
the distribution or what was the cost.
    Mr. Hillman. Resolution 1409 did not address the exports, 
but the imports.
    Mr. Stupak. On the export of oil, it did nothing to make it 
a smarter program?
    Mr. Hillman. With that comment, I concur with that.
    Mr. Stupak. Mr. Hillman, let me ask you this. Are you 
familiar with the incident in February 2003 when Odom Marine 
lifted oil from an unauthorized port in Iraq that went to 
Jordan?
    Mr. Hillman. I have certain familiarity. I know the 
chairman has suggested that there will be some issues in 
executive session that might be more appropriate for executive 
session.
    Mr. Stupak. The Financial Times--so it has been in the 
papers. It wouldn't be that confidential because even the 
Financial Times described this one to Odom Marine as the single 
largest and boldest smuggling operation in the Oil-for-Food 
program. Fourteen tankers were involved in this operation.
    Mr. Hillman. I can only comment on what I read in the 
newspaper.
    Mr. Stupak. He said 14 tankers were involved. My 
understanding is that Michael Tellings, one of the oil 
overseers, told you that he was receiving calls from other 
companies, legitimately lifting oil, whose captains had 
witnessed this illegal oil lifting.
    What did you do with that information?
    Mr. Schweich. This whole issue, even though there have been 
some public leaks, it still contains a significant amount of 
classified information. We would like to discuss it in 
executive session, but we don't think we should do it here.
    Mr. Stupak. Well, let me just ask this for the record. Will 
you submit then to the committee classified information on this 
program, this Odom Marine, so at least the committee would have 
it?
    I am not talking about making it public. We have no 
information. We have been trying to put it together. I want to 
make sure we get the information we are asking.
    Mr. Schweich. We would like to discuss that with you in 
executive session.
    Mr. Whitfield. Okay. At this time, I will make this motion 
pursuant to clause 2(g) of rule 11 of the Rules of the House, 
the remainder of the hearing will be conducted in executive 
session to protect information that might endanger national 
security.
    Any discussion on the motion?
    Those in favor will say aye.
    The ayes have it and the motion is agreed to. We will 
reconvene at 1 in room 2218. And that will give you plenty of 
opportunity to go to one of our fine eating establishments in 
the building.
    See you at 1 in 2218. And thank you very much for your 
time.
    [Whereupon, at 12:20 p.m., the subcommittee recessed and 
subsequently proceeded to other business in closed session.]
    [Additional material submitted for the record follows:]

Questions for the Record Submitted to Andrew Hillman by Representative 
                              John Dingell

    Question: In February of 2003, Odin Marine, a U.S. company working 
for a Jordanian company, lifted oil from an unauthorized port in Iraq 
that went to Jordan. The Financial Times described it as the ``single 
largest and boldest smuggling operation'' in the Oil-for-Food program. 
Fourteen tankers were involved. (``US Ignored Warning on Iraqi Oil 
Smuggling,'' Financial Times, Jan. 13,2005)
    Our staff has received information that Michel Tellings, one of the 
oil overseers, received information from other shippers who observed 
the smuggling activities, and told you about it, but received no 
response. Did Mr. Tellings contact you? What did you do?
    Saybolt, the company hired to oversee oil-loading operations in 
Iraq, also reported the smuggling. Please describe in detail your 
actions and the actions or lack of actions taken by the U.S. Mission to 
the United Nations, its representative on the 661 Committee, the State 
Department, or any other Government agency in response to this 
information from Mr. Tellings and Saybolt.
    Answer: On February 18, 2003, UN Office of the Iraq Program's (OIP) 
then-Executive Director Benon Sevan contacted officials at the U.S. 
Mission to the UN to inform them of reports received from the Persian 
Gulf concerning alleged illegal oil loadings at the Iraqi port of Khor 
Al Amayah that the Multinational Maritime Interception Force (MIF) 
might want to investigate. Sevan indicated he had obtained this 
information from local sources in Iraq. Also in the same timeframe, one 
of the UN Oil Overseers, Michel Tellings, passed similar information to 
USUN officials.
    USUN promptly conveyed this information through appropriate 
channels to officials at the State Department in Washington, seeking 
guidance. Department officials, in turn, reported this information, 
again through appropriate channels, to the Department of Defense, who 
had operational responsibility for the MIF. Our records do not indicate 
what further actions were taken by the recipients of this information.
PROVISION OF REQUESTED DOCUMENTS
    The U.S. Department of State is assembling and reviewing the 
relevant documents that reference this matter. Given the classified and 
sensitive nature of these items, State Department officials are 
determining how best to convey this information to the Committee 
without violating existing national domestic laws governing the 
handling and dissemination of classified documents.
    Question: The Washington Post subsequently reported that an 
official in the Office of Foreign Assets Control at the Treasury 
Department informed an attorney for Odin Marine that Treasury would not 
take action against Odin Marine. Please describe your knowledge of the 
role of the Treasury Department in this incident as it was related to 
you.
    Answer: I do not recall learning of any Department of Treasury role 
involving communications with representative of Odin Marine. I was 
unaware until I read this question that an official in Treasury's 
Office of Foreign Assets Control had spoken with an attorney for Odin 
Marine.
    Question: Do you agree with the statements in the Duelfer Report 
and elsewhere that illegal trade with Jordan, Turkey, Egypt, Syria and 
other countries provided the major source of income for Saddam Hussein 
from 1991 through 2003 (Duelfer Report, pp. 22-24.)
    Answer: From the moment the UN Security Council first imposed 
comprehensive sanctions on Iraq under Resolution 661 adopted August 6, 
1990, former Iraqi leader Saddam Hussein and members of his regime 
sought to avoid compliance with the measures and to garner revenue 
illegally. Their efforts included unauthorized trade with compliant 
partners, smuggling, and a wide range of strategies designed to 
undermine the effectiveness of the multilateral sanctions regime 
imposed by the international community.
    One method of non-compliance was smuggling, both through the 
unauthorized export of Iraqi crude oil, and through the illegal import 
of goods not first approved by the Iraq Sanctions 661 Committee. Oil 
smuggling, which reached an estimated peak level of $2 billion in 2002, 
totaled approximately $5.7 billion over the life of the UN Oil-for-Food 
(OFF) Program (Dec 1996-Nov 2003). This figure does not include oil 
illicitly exported from Iraq prior to the establishment of the OFF 
Program.
    As U.S Mission to the United Nations Chief-of-Staff Thomas A. 
Schweich testified on June 21, 2005, before the House Energy and 
Commerce Committee, Subcommittee on Investigations and Oversight, 
Saddam Hussein also attempted to undermine and subvert the 
comprehensive sanctions regime imposed under Resolution 661 (1990) 
through other manipulative mechanisms, including surcharges, topping 
off of oil loadings, influence peddling, product substitution, product 
diversion, phony service contracts, phantom spare parts, shell 
corporations, illusory performance bonds, hidden bank accounts and 
straight bribery.
    Therefore, there were multiple ways by which Saddam acquired 
illegal revenue. Concerning Iraq's ``illegal'' trade with its 
neighbors, a clear distinction needs to be made between the unique 
cases of Jordan and Turkey, and other states in the region. Shortly 
after the Security Council imposed comprehensive sanctions against Iraq 
in 1990, the Government of Jordan sent a formal request for relief 
under Article 50 of the UN Charter to the Secretary-General, indicating 
that Jordan was being negatively impacted by the restrictive economic 
measures authorized by the Council against Iraq. A UN mission was sent 
to Jordan by the Secretary-General to investigate Jordan's claims of 
economic loss.
    In May 1991, the Jordanian Government wrote to the Iraq Sanctions 
661 Committee to inform Committee members that Jordan had resumed its 
importation of oil from Iraq given its unique dependence on Iraqi oil 
to meet its essential domestic needs. In response, the 661 Committee 
``took note'' of Jordan's decision. The Jordanian Government thus 
indicated to the 661 Committee, and thereby, the Security Council, that 
it wished to comply with the sanctions, but that it was necessary to 
continue importing the oil to ensure its national economic survival and 
to prevent a domestic economic catastrophe.
    The Jordanian Government did not act secretively, and the State 
Department, as per Section 531 of the Foreign Operations Appropriations 
Act, successively, over three separate Administrations, sought a waiver 
on behalf of Jordan of the U.S. restrictions that prevented the 
provision of assistance to countries that were violating the 661 
sanctions. Congress was notified on each occasion that such a waiver 
was granted, and this information was published in the Federal 
Register.
    In the case of Turkey, paragraph 2 of Resolution 986 (1995), the 
resolution that established the ``Oil-for-Food'' (OFF) Program, 
authorized the Turkish Government to import sufficient quantities of 
Iraqi oil ``to meet the pipeline tariff charges, verified as reasonable 
by the independent inspection agents referred to in paragraph 6 [of 
resolution 986], for the transport of Iraqi petroleum and petroleum 
products through the Kirkuk-Yumurtalik pipeline in Turkey.''
    The Security Council and the international community were aware of 
Jordan's and Turkey's commercial interaction with the former Iraqi 
regime. However, Iraq's unauthorized trade with its neighbors and other 
states, such as Syria, was conducted in secrecy and denial, and was in 
total violation of the comprehensive measures imposed by the Security 
Council under Resolution 661 (1990) and subsequent resolutions.
    Question: You testified that it was your ``sense'' that Michel 
Gotier, a UN employee, was not telling the ``absolute truth'' 
concerning his discussions with ABB? Please state for the record the 
factual basis for that statement.
    Answer: My observations, as reflected in a ``comment'' section of 
my reporting cable to the Department of State dated August 2, 2002, 
concerning what I perceived to be Michel Gotier's less than total 
candor when I met with him, were prompted by what I felt was the 
combative and argumentative posture Mr. Gotier adopted during our 
discussion, and my assessment that he very likely had advised a 
representative of ABB-Sweden to seek a non-U.S. source for computer 
hardware and software not subject to U.S. re-export restrictions. I 
also suspected, without clear evidence, that Mr. Gotier, in his 
discussions with ABB-Sweden representatives, probably referred to the 
rumored Iraqi practice of demanding a kickback on UN Oil-for-Food 
humanitarian supply contracts as the requisite cost for doing business 
in Iraq.
    I intentionally separated such observations in the cable from my 
otherwise purely factual recounting of my August 2, 2002 discussion 
with Mr. Gotier, and his superviser, UNDP Deputy Assistant 
Administrator and Deputy Regional Director for Arab States, Oscar 
Fernandez-Taranco. My comments were placed in a separate paragraph to 
clarify that they represented my personal views and, thus, needed to be 
evaluated as opinion.

Question for the Record Submitted to Chief of Staff Thomas Schweich by 
                      Representative John Dingell

    Question: You stated in your testimony that it was very, very 
difficult for the persons from the 661 Committee to determine that 
humanitarian goods contracts were overpriced. What actions could the 
661 Committee have taken to uncover and eliminate the kickbacks on 
these contracts?
    Answer: Under the arrangements governing the UN Oil-for-Food (OFF) 
Program, the former Iraqi regime was, in general, free to select to 
whom it would sell Iraqi oil, and from whom it would purchase 
humanitarian goods using the revenue derived from its oil exports. 
Resolution 986 (1995), which established the OFF Program, did not 
require Saddam Hussein to purchase the best valued products or the 
least expensive ones. The focus was on enabling Iraq to acquire goods 
to provide for the nutritional and health needs of its people. The 
Security Council placed primary emphasis on denying the Iraqi regime 
access to arms, including WMD, and related war materiel with which it 
might again pose a threat to regional and international peace.
    There were earlier attempts, under Resolutions 706 (1991) and 712 
(1991), to establish a UN-administered program to use Iraqi oil revenue 
to provide for the humanitarian needs of the Iraqi people. These 
original proposals were based on the premise that the UN would serve as 
contracting agent on behalf of the Iraqi people in procuring 
humanitarian supplies, but the former Iraqi regime repeatedly rejected 
such plans. Our request for humanitarian goods overseers also was 
deemed unacceptable. Short of forcefully imposing such a program on 
Iraq in the face of Saddam's defiance, having the UN purchase 
humanitarian supplies for Iraq was not politically achievable.
    Therefore, having the UN, rather than the former Iraqi regime, 
enter into humanitarian supply contracts was not an option for the 661 
Committee to pursue as a means of uncovering and eliminating kickbacks 
on supply contracts. If UN officials who were tasked with administering 
the OFF Program at the Office of the Iraq Program (OIP) had spent more 
time evaluating whether prices on specific items in OFF contracts were 
similar to those being charged for comparable merchandise found in 
other markets, it would have further delayed the processing and 
approval of OFF humanitarian contracts at a time when the Iraqi people 
desperately needed supplies to survive. In retrospect, perhaps OIP 
officials could have conducted more random assessments of various 
contracts that contained different types of products to determine if 
there was deliberate over-pricing, but the main focus remained to 
prevent Saddam from rearming. It is clear having the subject of the 
sanctions enter into contractual relationships with those who sought to 
buy its products (i.e., oil) and to sell it humanitarian supplies was 
not a desirable arrangement, but that was the only approach the Iraqis, 
as well as several key Security Council members, found acceptable. Had 
the former Iraqi regime been more accommodating, the UN could have 
sought the assistance of professionals to administer the Oil-for-Food 
(OFF) Program.
    Question: Did the United States ever withhold approval of a 
humanitarian goods contract because it was overpriced?
    Answer: The United States did place holds on UN Oil-for-Food (OFF) 
contracts based on pricing concerns. Although such holds only involved 
a relatively small number of contracts, the U.S. did in other instances 
assess the price of specific items when deciding whether to approve or 
place on hold individual OFF humanitarian contracts.
    One example was Comm #730859, submitted during the 7th Phase of the 
OFF Program (12/12/99-06/08/00), in which the U.S. Delegation, in 
placing a ``hold'' on the contract, advised the UN Office of the Iraq 
Program (OIP) that ``prices for delivery and handling services and the 
after-sale services are considered to be significantly higher than what 
is considered reasonable.''
    A second example of a contract placed on hold by the U.S. 
Delegation because of pricing concerns involved Comm #930167, 
originally submitted during the 9th Phase of the OFF Program (12/16/00-
06/03/01). Our records indicate that the U.S. initially placed Comm 
#930167 on hold because of suspicions that certain items might be dual-
use, but we also noted, ``even if the supplier were able to address 
this objection, another objection is that the price charged seems 
excessive for the normal cost of these goods.''
    Question: In your testimony, you stated that the sanctions were not 
anticipated to remain in place for more than a year or two because 
Saddam was expected to comply with the provisions of the cease-fire. 
You also stated that the illegal export of Iraqi oil to Jordan, which 
began in 1990, was an ``approved activity by the entire 661 
Committee.'' The Duelfer Report, however, in referring to the open, but 
``illegal,'' export of oil from Iraq to Jordan, found that ``Jordan was 
the key to Iraq's financial survival from the imposition of UN 
sanctions in August 1990 until the implementation of the UN's OFF 
program.'' (Duelfer Report, p. 24.) Do you agree with this statement? 
If not, please explain.
    Answer: As was discussed during the June 21, 2005 House Energy and 
Commerce Committee, Subcommittee on Investigations and Oversight 
hearing, the comprehensive sanctions imposed on Iraq by the Security 
Council under Resolution 661 (1990), following Iraq's invasion of 
Kuwait, had an initially profound impact not only on Iraq but also on 
its neighbors, particularly Jordan, given Jordan's historically 
extensive trading relationship with Iraq. It therefore was understood 
by Security Council members that an ongoing arrangement for Jordan 
would be necessary to counteract the negative impact of the sanctions 
on Iraq, to prevent a potential economic catastrophe in Jordan.
    Shortly after the Security Council imposed sanctions on Iraq in 
1990, the Government of Jordan sent a formal request to the Secretary-
General for relief under Article 50 of the UN Charter, indicating that 
Jordan was being severely negatively impacted by the restrictive 
economic measures authorized by the Council against Iraq. The 
Secretary-General sent a mission to Jordan to investigate Jordan's 
claims of economic loss and demanded that the UN Security Council take 
measures to alleviate the hardship on Jordan.
    In May 1991, the Jordanian Government wrote to the Iraq Sanctions 
661 Committee to inform Committee members that Jordan had resumed its 
importation of oil from Iraq, given its unique dependence on Iraqi oil 
to meet its essential domestic needs. The Jordanian Government thus 
indicated to the 661 Committee of the Security Council, that it 
recognized and wished to comply with the sanctions, but that it was 
necessary to continue importing Iraqi oil to ensure its national 
economic survival.
    The Jordanian Government made the 661 Committee aware of the 
ongoing trading relationship between Jordan and Iraq, and the Committee 
agreed to take note of such an arrangement, for geopolitical reasons. 
The 661 Committee's correspondence with the Jordanian Government read 
as follows:
        ``I have the honour to inform you that, given the unique 
        position of Jordan in regard to Iraq, as the Committee has 
        previously acknowledged, the Committee at its 41st meeting, 
        held on 21 May 1991, took note of Jordan's resumption of the 
        import of Iraqi oil and oil derivatives as described in your 
        note vebale, pending any arrangements that can be made to 
        obtain supplies from other sources, and on the understanding 
        that such Iraq oil exports are subject to the provisions of the 
        Security Council resolution 692 (1991).''
The Committee acknowledged the serious economic impact that the 
sanctions on Iraq were having on Jordan, and requested that the 
Jordanian Government report to the Committee on the quantities, value, 
and date of import of each oil shipment it received from Iraq. This 
arrangement was done to alleviate economic hardship and to avoid the 
severe consequences that a failing Jordanian economy might have on the 
world. It was done transparently and openly, with the knowledge of the 
entire 661 Committee, and the international community.
    The U.S., a member of the 661 Committee, over three successive 
Administrations, acknowledged such trade, determining that the national 
security priority of preventing Saddam from rearming and again posing a 
threat to his neighbors did not simultaneously necessitate weakening 
Jordan's economy to such an extent that the future stability of the 
Jordanian Government would be put at risk. The State Department, as per 
Section 531 of the Foreign Operations Appropriations Act, successively, 
over three separate Administrations, sought on behalf of Jordan a 
waiver of U.S. restrictions that prevented the provision of assistance 
to countries that were violating the 661 sanctions. Such a waiver was 
granted, Congress was notified on each occasion, and this information 
was published in the Federal Register. To our knowledge, no member of 
Congress voiced objections to this arrangement.
    Cooperation by the 661 Committee, the Security Council, and 
successive U.S Administrations with Jordan to ensure its survival 
should not be equated with Saddam Hussein's outright efforts from the 
moment the Security Council first imposed multilateral sanctions on 
Iraq to evade compliance with the measures. I testified on June 21, 
2005 that there was a distinction between the government-to-government 
protocol that existed between Jordan and Iraq, and the pure smuggling 
in which the former Iraqi regime engaged to generate revenue. The U.S. 
took extensive steps to curtail and arrest such smuggling. As I noted 
at the June 21 hearing, U.S. and UK efforts to establish a ``smart'' 
sanctions regime for Iraq, by establishing more rigorous border 
controls and more stringent restrictions designed to curtail smuggling, 
was rejected by other key Security Council members, particularly the 
Russian Federation.
    In my view, U.S. and UN Security Council acknowledgement of 
Jordan's special situation is not analogous to the bribery, corruption, 
kickbacks, and other actions that Saddam Hussein and members of the 
former Iraqi regime took to evade and undermine the effectiveness of 
the multilateral sanctions regime that was imposed on Iraq.
    Question: The 661 Committee minutes indicate that it never approved 
the request by Jordan to import oil from Iraq or to sell goods to Iraq. 
In fact, in 1997, the U.S. representative to the 661 Committee stated 
that taking ``note'' of the Jordanian trade did not imply approval and 
questioned whether the 661 Committee even had the authority to approve 
such export. The British representative agreed with this 
interpretation. Do you disagree with this position?
    Answer: While the 661 Committee did not formally approve Jordan's 
ongoing trade with Iraq, the decision by the Committee in May 1991 ``to 
take note of'' Jordan's resumption of its importation of oil from Iraq, 
despite comprehensive sanctions against Iraq, was considered tacit 
acknowledgement of the situation, including by the United States, that 
Jordan's ongoing stability should not be undermined as a result of the 
sanctions on Iraq. The objective of containing the former Iraqi regime, 
and of preventing Saddam from rearming and acquiring WMD with which to 
pose a threat to regional and international stability, was not seen as 
requiring the simultaneous weakening and destruction of Jordan. Just as 
keeping Saddam in check was determined to be a U.S. national security 
priority, so, too, was it determined to be in the best interests of the 
U.S. and the international community to avoid irreparably harming 
Jordan's economy and society by eliminating the close cross-border 
trading relationship between Jordan and Iraq that had developed over 
centuries, and on which continued Jordanian stability depended.
    This was a calculated geopolitical decision taken by all Council 
members. No delegation recommended follow-up action. However, this 
acknowledgement did not condone abuse of such a special relationship, 
and it was for this reason that the U.S. and UK jointly attempted in 
the Spring of 2001 to seek Security Council adoption of a draft 
resolution that would have tightened border controls on Iraq and that 
would have sought to regularize cross-border traffic between Iraq and 
its neighbors. A number of key Council partners opposed the U.S. and UK 
efforts, in particular, the Russian Federation, thereby preventing 
adoption of the draft resolution.
    Question: You have stated that allowing Jordan to import oil and 
pay billions of dollars to Saddam Hussein was ``honorable.'' What do 
you mean by that? Are you saying that it was honorable to provide 
Saddam Hussein with the financial resources to continue in power?
    Answer: First, I note that what I specifically said during my 
testimony on June 21, 2005 before the Committee was that even though 
Jordan may not always have followed the rules as we understood them to 
be, ``the overall intent of the United States, the UK, and the other 
Security Council members in allowing Jordan to import this oil was 
honorable and not a conspiracy at all. It was totally out in the 
open.'' I also noted that under requirements of the Foreign Operations 
Assistance Act, the President, under three separate administrations, 
issued a waiver for Jordan that allowed U.S. assistance to continue, 
and that copies of such waivers were provided on an annual basis to 
Congress and they were published in the Federal Register. Also for the 
record, I note that I did not characterize Jordan's actions as 
honorable or dishonorable. What I said specifically was:
        ``I can't say Jordan always followed the rules as we understood 
        them to be. But what I would say is the overall intent of the 
        United States, the U.K. and all the other Security Council 
        members in allowing Jordan to import this oil was honorable and 
        not a conspiracy at all. It was totally out in the open. In 
        fact, under the Foreign Operations Assistance Act, under three 
        administrations, Bush I, eight years of the Clinton 
        administration, and Bush II,--the president issued a waiver for 
        Jordan, sent it off to Congress, published it in the Federal 
        Register. To me that is not a conspiracy.''
    My comment did not imply that it was honorable or desirable to 
provide Saddam with sufficient financial resources to continue in 
power. Rather, it was a reference to the thoughtful, open, and 
geopolitically wise decision taken by three successive U.S. 
Administrations, with Congressional notice to allow Jordan to import 
oil from Iraq. It was meant to underscore the critical importance to 
U.S. and regional security that a stable Jordan represented.
    Question: Did the United States ever bring its concerns about the 
difficulties and limitations of the 661 Committee or the way it was 
managed to the UN Security Council? If so, what was the result of those 
discussions?
    Answer: There were numerous occasions where lack of agreement among 
661 Committee members prompted discussions among members of the 
Security Council at ambassadorial level on a wide range of issues, 
including: oil pricing, flights to/from Iraq, the need for stricter 
border controls, the former Iraqi regime's arbitrary and abrupt 
termination of its oil exports, contract holds, insufficient funding 
for the Oil-for-Food (OFF) Program, and many other contentious matters. 
Most key issues concerning management and implementation of the OFF 
Program, in particular non-compliance, were the subject of discussion 
among Security Council members.
    Separately, the U.S. Mission to the UN held a number of informal 
briefings for other Security Council members, usually with the presence 
of experts from Washington, to inform the Council of problems the U.S. 
perceived in the management of the OFF Program, and in the workings of 
the 661 Committee. The contentious atmosphere that pervaded 661 
Committee and Security Council consideration of issues concerning Iraq 
limited our ability to implement the types of changes we sought. It 
should be pointed out, however, that the working methods of the 
Committee enabled the U.S. to block importation of dual-use goods to 
Iraq on many occasions. Such working methods also allowed the U.S. to 
use Committee rules to our advantage in implementing a system of 
``retroactive'' oil pricing that allowed us and the British to assess 
the relative price of comparable crude oils at the end of each month 
before we agreed to prices proposed for Iraqi oil exports submitted by 
the Iraq State Oil Marketing Organization (SOMO).
    Question: Please describe the involvement of the U.S. Department of 
State in the lifting of Iraqi oil by Odin Marine in February of 2003 
for Millennium, a Jordanian company.
    Answer: The first the U.S. Mission to the United Nations (USUN) 
learned of the lifting of Iraqi oil by Odin Marine in February 2003, 
for the Jordanian company Millennium, was when, on February 18, 2003, 
then UN Office of the Iraq Program's (OIP) Executive Director Benon 
Sevan contacted USUN officials to inform them of reports received from 
the Persian Gulf concerning alleged illegal oil loadings at the Iraqi 
port of Khor Al Amayah, reports that the Multinational Maritime 
Interception Force (MIF) might want to investigate. Sevan indicated he 
had obtained this information from local sources in Iraq. Also in the 
same timeframe, one of the UN Oil Overseers, Michel Tellings, passed 
similar information to USUN officials.
    USUN promptly conveyed this information through appropriate 
channels to officials at the State Department in Washington, seeking 
guidance. Department officials, in turn, reported this information, 
again through appropriate channels, to the Department of Defense, which 
had operational responsibility for the MIF. Our records do not indicate 
what further actions were taken by the recipients of this information.
Provision of Requested Documents
    The U.S. Department of State is assembling and reviewing the 
relevant documents that reference this matter. Given the classified and 
sensitive nature of these items, State Department officials are 
determining how best to convey this information to the Committee 
without violating existing national domestic laws governing the 
handling and dissemination of classified documents.

                                 
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```