THE UNITED NATIONS OIL-FOR-FOOD PROGRAM:

SADDAM HUSSEIN’S USE OF OIL ALLOCATIONS

TO UNDERMINE SANCTIONS AND THE UNITED

NATIONS SECURITY COUNCIL

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 16, 2005

Serial No. 109–29

Printed for the use of the Committee on Energy and Commerce

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

THE UNITED NATIONS OIL-FOR-FOOD PROGRAM: SADDAM HUSSEIN’S USE OF OIL

COUNCILALLOCATIONS TO UNDERMINE SANCTIONS AND THE UNITED NATIONS SECURITY

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THE UNITED NATIONS OIL-FOR-FOOD PROGRAM:

SADDAM HUSSEIN’S USE OF OIL ALLOCATIONS

TO UNDERMINE SANCTIONS AND THE UNITED

NATIONS SECURITY COUNCIL

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 16, 2005

Serial No. 109–29

Printed for the use of the Committee on Energy and Commerce

(

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

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

Vice Chairman

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

ROY BLUNT, Missouri

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

C.L. ‘‘BUTCH’’ OTTER, Idaho

SUE MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

TOM ALLEN, Maine

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

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

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

MIKE FERGUSON, New Jersey

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas,

(Ex Officio)

BART STUPAK, Michigan

Ranking Member

DIANA DEGETTE, Colorado

JAN SCHAKOWSKY, Illinois

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

HENRY A. WAXMAN, California

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Anderson, Gerald C., Director, Office of Peacekeeping, Sanctions and

Counterterrorism, U.S. Department of State ............................................. 62

Fawcett, John, Author, Report for Sources of Revenue for Saddam and

Sons ................................................................................................................ 11

Gordon, Joy, Professor of Philosophy, Fairfield University .......................... 17

Smego, D. Robert, Arabic Linguist, one of the authors of the Duelfer

Report ............................................................................................................ 16

Additional material submitted for the record:

Fawcett, John, Author, Report for Sources of Revenue for Saddam and

Sons, response for the record ....................................................................... 84

(III)

(1)

THE UNITED NATIONS OIL-FOR-FOOD PROGRAM: SADDAM HUSSEIN’S USE OF OIL ALLOCATIONS TO UNDERMINE SANCTIONS

AND THE UNITED NATIONS SECURITY

COUNCIL

MONDAY, MAY 16, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Washington, DC.

The subcommittee met, pursuant to notice, at 2:04 p.m., in room

2123, Rayburn House Office Building, Hon. Ed Whitfield (chairman) presiding.

Members present: Representatives Whitfield, Stearns, Burgess,

Blackburn, Barton (ex officio), Stupak, Inslee, and Waxman.

Also present: Representative Norwood.

Staff present: Mark Paoletta, chief counsel; Andrew Snowdon,

majority counsel; Tom Feddo, majority counsel; Chad Grant, clerk;

Edith Holleman, minority counsel; Voncille Hines, research assistant; and Alec Gerlach, minority staff assistant.

Mr. WHITFIELD. At this time the committee will come to order.

Today’s hearing for the Subcommittee on Oversight and Investigation of the Energy and Commerce Committee is the United Nations’ Oil for Food program, Saddam Hussein’s use of oil allocations

to undermine sanctions, and the United Nations Security Council.

At this time I would like to ask unanimous consent to move documents contained in the binder into the record. And, without objection, so ordered.

I will begin the hearing with an opening statement, and then we

will proceed with opening statements.

The United Nations Oil-for-Food program was initiated to ease

the suffering of the Iraqi people. As we have learned in recent

months from various reports, this program became a mechanism

for the former Iraqi regime of Saddam Hussein to siphon off billions of dollars in illicit revenues, money that rightfully should

have gone to the citizens of Iraq. Saddam’s regime used oil contracts to influence foreign officials and well-connected individuals

in an effort to undermine international economic sanctions, thereby

keeping him in power.

These allegations are not new, but the picture of how this could

have happened under the oversight of the United Nations Security

Council has been murky. Today the subcommittee will hear testimony and examine a variety of documents, many of which have

2

been recently translated for the committee, to better understand

the abuses of the Oil-for-Food program. The hearing will allow

members to see how Hussein used oil allocations to undermine

U.N. sanctions and manipulate political divisions within the Security Council and better understand the weaknesses in the U.N.

Oversight of the program.

The hearing will also serve the committee’s longstanding interest

in the workings of the United Nations. We will learn more today

about the inner workings of the U.N.’s operation, and how France,

Russia, and China in the 661 Committee supported the Hussein regime to the detriment of the Iraqi people. Saddam Hussein and his

supporters found ways to exploit loopholes in the Oil-for-Food program to enrich themselves and to strengthen Iraq’s military capabilities.

Surcharges and kickbacks, both on oil and humanitarian goods

contracts soon became the norm under the program. For instance,

the committee has uncovered a handwritten form agreement signed

by Iraq’s former oil minister which shows that, beginning sometime

after June 2000, each oil purchaser in the program had to agree

to pay kickbacks to the regime, either in cash or by wire, into an

Iraqi bank account outside of the program. Equally troubling are

the allegations that Saddam Hussein may have been able to use

the Oil-for-Food program to exploit divisions within the U.S. Security Council.

We will hear today from Dr. Robert Smego, an outside consultant

retained by the committee to review and translate numerous documents, including documents from the Iraqi Intelligence Service and

State Oil Marketing Organization. Mr. Smego will present a series

of documents that suggests a calculated strategy on the part of the

regime to target influential businessmen, companies, and government officials who could advance Iraq’s interests.

When the names of many prominent political figures, most notably those of Russia and France, appeared in the Duelfer Report last

fall, there were cries of outrage and denial. However, the documents presented here today appear to confirm that some of these

individuals were indeed using the Oil-for-Food program for their

own purposes. I can think of no legitimate reason for any politician

or government official of any nation to receive oil from Saddam

Hussein.

Ironically, every dollar that these people took out of the program

was money that should have gone to help the Iraqi people.

Could these abuses have been prevented? Perhaps not entirely,

but there’s little doubt that lax oversight on the part of the U.N.

Secretariat and internal divisions within the so-called 661 Committee permitted them to continue.

Let me note here that I can only imagine the political and

logistical difficulties involved in running such a massive program.

However, these difficulties do not justify the failures in oversight

responsibilities.

We will also hear today from John Fawcett who, for the past decade, has been tracking the financial assets of major human rights

abusers, such as Slobodan Milosevic, Saddam Hussein, and the al

Qaeda network.

3

Finally, we will hear from Mr. Gerald Anderson of the U.S. State

Department who will provide some insights into the inner workings

of the 661 Sanctions Committee, the committee within the U.N.

That ran the Oil-for-Food program.

Let me welcome all the witnesses, and thank them for what

promises to be a most informative hearing.

[The prepared statement of Hon. Ed Whitfield follows:]

PREPARED STATEMENT OF HON. ED WHITFIELD, CHAIRMAN, SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

The United Nations (U.N.) Oil-for-Food Program (Program) was set up to ease the

suffering of the Iraqi people. But unfortunately, it also may have prolonged their

suffering. As we’ve learned in recent months from various reports, this Program became a mechanism for the former Iraqi regime of Saddam Hussein to siphon off billions of dollars in illicit revenues—money that rightfully should have gone to the

citizens of Iraq. Saddam’s Regime also used oil contracts to influence foreign officials

and well-connected individuals in an effort to undermine international economic

sanctions, thereby keeping him in power.

None of these allegations are new, but the picture of how this could have happened under the oversight of the United Nations Security Council has been murky.

Today, the Subcommittee will take testimony and examine a variety of documents—

many of which have been recently translated for the Committee—to gain a clearer

view into the abuses of the Oil for Food Program. The hearing will allow members

to examine how Hussein used oil allocations to undermine U.N. sanctions and manipulate political divisions within the Security Council and apparent weaknesses in

U.N. oversight of the Program.

The hearing will also serve the Committee’s long-standing interest in the workings of the United Nations—particularly at the intersection of national security and

world energy markets and trade. We will learn more today about the inner workings

of the U.N.’s operations, and how actions there might have prevented such abuses.

There is no doubt at this point that Saddam Hussein and his cronies found ways

to exploit loopholes in the Oil-for-Food Program to enrich themselves and to

strengthen the Iraq’s military capabilities. Surcharges and kickbacks, both on oil

and humanitarian goods contracts, soon became the norm under the Program. For

instance, the Committee has uncovered a handwritten form agreement, signed by

Iraq’s former Oil Minister, which shows that, beginning sometime after June 2000,

each oil purchaser in the Program had to agree to pay kickbacks to the Regime, either in cash or by wire into an Iraqi bank account outside of the Program.

Equally troubling are the allegations that Saddam Hussein may have been able

to use the Oil-for-Food Program to exploit divisions within the U.N. Security Council. We will hear today from D. Robert Smego, an outside consultant retained by the

Committee to review and translate numerous documents gathered from various

Iraqi sources, including documents from the Iraqi Intelligence Service and State Oil

Marketing Organization, or SOMO. Mr. Smego will present a series of documents

that suggest a calculated strategy on the part of the Regime to target influential

businessmen, companies, and government officials who could advance Iraq’s interests—particularly within the Security Council.

When the names of many prominent political figures, most notably those of

France and Russia, appeared in the Duelfer Report last Fall, there were cries of outrage and denial. However, the documents presented here today appear to confirm

that some of these individuals were indeed using the Oil-for-Food Program for their

own purposes. I can think of no legitimate reason for any politician or government

official—of any nation—to get oil from Saddam Hussein. Ironically, every dollar that

these people took out of the Program was money that should have gone to help the

Iraqi people—the very people that they claimed to be helping.

Could these abuses have been prevented? Perhaps not entirely, but there is little

doubt that lax oversight on the part of the U.N. Secretariat, and internal divisions

within the so-called 661 Committee, permitted them to continue. Let me note here

that I can only imagine the political and logistical difficulties involved in running

such a massive Program. However, these difficulties do not justify the failures in

oversight responsibilities.

We will hear today from John Fawcett, who, for the past decade, has been tracking the financial assets of major human rights abusers, such as Slobodan Milosevic,

Saddam Hussein, and the al Qaeda network. Mr. Fawcett will provide some perspective how these problems could have been avoided, including (1) vetting all contracts

4

for price and quality, and (2) performing due diligence on the parties that Saddam

was contracting with, and (3) increasing transparency in the hiring of inspectors.

Finally, we will hear from Mr. Gerald Anderson of the U.S. State Department,

who will provide some insights into the inner workings of the 661 Sanctions Committee, the Committee within the U.N. that ran the Oil-for-Food Program. Let me

welcome all of the witnesses and thank them for what promises to be a most informative hearing.

Much of the dispute today involves a lack of transparency in the oversight deployed by the United Nations. If we are going to restore some trust in that institution as it delves into other matters affecting our international energy markets, public health, and welfare, the United States—and indeed the entire international community—deserves a clearer picture of precisely how those important matters are

being handled. Today’s hearing should help us understand how some trust might

be restored.

Mr. WHITFIELD. At this time I will call on the ranking minority

member, Mr. Stupak, for his opening statement.

Mr. STUPAK. Well, thank you, Mr. Chairman. This is an unusual

hearing for an investigative subcommittee. In fact, it seems to me

that this is a hearing in search of an investigation. If you take a

look at this morning’s Washington Post, the lead article gave an astounding level of detail from documents collected by the Senate

Committee on Saddam Hussein’s use of oil allocations to influence

Russian politicians. This story is not new. In September 2002, The

New York Times stated, ‘‘Baghdad owes Moscow $8 billion in debt

incurred before the Gulf War, and has used trade under the Oilfor-Food program to curry Moscow’s favor.’’ Last year, the Duelfer

Report gave the names of Russian politicians who received oil allocations. But the level of detail about these deals obtained after

months of investigation is new, and that is what was intriguing

about this Washington Post story. It involves weeks of overseas

travel, interviews with former Iraqi officials, and international

businessmen, and a review of U.S. Government investigative documents.

Frankly, Mr. Chairman, this committee has done—has not done

anywhere near that level of work and has very little to add. There

are four other congressional committees focused on the United Nations and the Oil-for-Food program. They are all far ahead of this

committee in their level of investigation and knowledge. But there

are areas that this committee can investigate and no one else

seems to want to look at. No one seems to want to talk about the

United Nations’ sanctions and oil trading regime which was approved by the Security Council of which the United States is a

member, or the role of the Sanctions Committee, another committee the U.S. was part of that oversaw the program and what it

knew about the manner in which the oil allocations were used by

Iraq.

No one seems to want to know about the relationship of U.S. oil

companies to the shady middlemen and the oil traders who actually

lifted oil from Iraq.

This is not a simple criminal or ethical matter as it is often portrayed. It was a system built by geopolitical realities that everyone

was aware of and either condoned or chose to ignore at the time.

Seventy-five percent of Iraqi oil, regardless of who initially purchased it and whether or not they paid illegal surcharges, ended

up in the United States at U.S. refineries. How did it get there?

What did the U.S. companies know about the illegal surcharges

5

and when did they know it? Some small U.S. oil dealers have been

indicted. But despite this requests from this side of the minority

to subpoena documents from those companies, it has not been done.

Some bigger U.S. Oil companies are also being investigated, but

once again, this committee hasn’t even talked to them despite staff

requests from the minority. No one seems to want to talk about the

massive smuggling of oil through Jordan, Turkey, Syria, and Egypt

that was going on. Both the Volcker and the Duelfer reports found

that the largest sum of the illegal revenue obtained by Saddam

Hussein came through these well-known illegal oil purchases.

These oil purchases were openly discussed in the press at the time.

The Sanctions Committee—again, the U.S. was a member of that

committee—discussed it frequently but refused to stop it.

The International Relations Committee of both the House and

the Senate received notice every year stating that it was in the national interest of the United States to continue foreign aid to Jordan and Turkey, even though they were in violation of the U.N.

Sanctions. Why hasn’t the committee looked at the United States’

role in this massive violation of U.N. Sanctions?

It seems that many in Congress are comfortable with just calling

this foreign aid and bashing the U.N. But are not interested in

holding those in the U.S. who may have violated these sanctions

accountable. Press reports in January of this year indicated that

the office of foreign assets in the United States Treasury actually

promised that they would not prosecute a U.S. company for breaking the sanctions in early 2003 to provide oil to a Jordanian company. Minority staff drafted letters to the U.S. Company in February requesting documents and interviews, but again, we couldn’t

get a signature or approval from the majority.

I would ask, Mr. Chairman, instead of joining in the chorus of

the committees howling at the United Nations to obtain diplomatically protected documents, that we head in a different direction.

This subcommittee should investigate the U.S. oil companies who

allegedly and knowingly worked around the U.N. Sanctions to supply oil to certain countries with the apparent knowledge and consent of the U.S. Government.

Mr. Chairman, we have a choice. We can waste taxpayer dollars

by duplicating the work of other committees in Congress that they

have already done by investigating foreign sources, or we can be

leaders and investigate and expose the domestic abuses of the Oilfor-Food program here at home. It is my hope that, under your

leadership, we will do the latter. With that, Mr. Chairman, I would

yield back the balance of my time.

Mr. WHITFIELD. At this time, the Chair will recognize the chairman of the full committee, the full energy and commerce committee, Mr. Barton of Texas.

Chairman BARTON. Thank you, Mr. Chairman. I want to commend you for holding this hearing. I think we need to put in the

record that this is the first subcommittee to hold a hearing on the

U.N. Oil-for-Food scandal, and we did it when I was subcommittee

chairman back in the Clinton Administration. We were also the

first subcommittee to hold a hearing in this go-around, and we

have been at the full committee level investigating this for the last

several years and will continue to do so.

6

In the last year, we have learned much about the program’s mismanagement and its manipulation. We know today, for example,

that Saddam Hussein’s officials deliberately underpriced Iraq oil so

that the middleman and oil traders could kick back profits into

Saddam’s personal bank accounts. We also know the regime would

overpay merchants for humanitarian goods so that the excess

money could be diverted to those bank accounts. This is something

that we learned on a trip that I personally led to Iraq last fall and

met with some of the Iraqi officials in person that were responsible

for those particular bank accounts.

We now know that the U.N. Oil overseers identified these activities, brought them to the attention of the program’s leadership, and

even proposed mechanisms to prevent the illicit activity. Yet nothing was done. Finally, we know that the regime perverted the program to influence politicians around the world and leaders inside

the United Nations by giving them personally valuable oil vouchers.

Today’s hearing will examine new documents that illuminate influence peddling. Undoubtedly, Saddam’s regime hoped that these

bribes would erode and eliminate the sanctions. I would not be surprised if we eventually uncover evidence of quid pro quos directly

related to these vouchers.

It seems clear that under Saddam, Oil-for-Food became oil for influence. This mismanagement mess, if you will, is a stain on the

United Nations and its current leaders. If the U.N. Leadership had

its way, this mess would have been swept under the rug. But the

U.N. Is not going to have its way today. The U.S. Government

funds most of the U.N.’s operating budget. We are the largest contributor to the U.N. Operating budget. And at this moment, our

soldiers are risking and giving their lives to defend the fledgling

democracy in Iraq.

We must not forget that, if the U.N. Had had its way, Saddam

Hussein would still be in power, Saddam Hussein would still be

dispensing bribes, Saddam Hussein would still be controlling his

Army, Saddam Hussein would still be threatening his people, and

Saddam Hussein would still be threatening to invade his neighbors

in the Middle East. But before Iraq was liberated, the only program that was meant to bring relief to the Iraqi people instead

brought Saddam Hussein the key to unlocking the greatest threat

to his power, economic sanctions.

We will hear today how the Oil-for-Food program allowed Saddam Hussein to enrich his regime, bribe world leaders, and begin

to build an infrastructure that could 1 day be used to reconstruct

an arsenal for intimidation and aggression.

In the meantime, the suffering of the average Iraqi family continued. The U.N. 661 Committee watched this scam unfold but was

paralyzed by bureaucratic infighting. In the end, the Oil-for-Food

program was a profound and dangerous failure.

I look forward to hearing from our witnesses today. I wish to

thank them for their attendance. This committee—and I want to

reiterate. This committee, the Energy and Commerce Committee, is

not opposed to anything that the other committees of the House

and Senate are doing. I think collectively all the efforts of this committee and the other committees in both bodies will get to the botVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
7

tom of this scandal, but this committee is going to be a part of that

and in many ways is going to lead that effort.

I also want to begin to investigate the possibility of recovering

as much of the billions and billions of dollars that was looted from

the Oil-for-Food program and use that money to reinvest in the

Iraq of today to try to help the Iraqi people today as they fight for

their freedoms.

Thank you again, Mr. Chairman, for your leadership on this

issue. I look forward to working with you and others of this subcommittee to continue this investigation.

[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 afternoon we continue this Committee’s examination of the United Nations Oil-for-Food Program.

Since last year, we have learned much about both the program’s mismanagement

and manipulation. We know, for example, that Saddam Hussein’s officials deliberately under-priced Iraqi oil so that middlemen and oil traders could kick back

profits into Saddam’s bank accounts. Also, the regime would overpay merchants for

humanitarian goods so that the excess money could be diverted to those bank accounts, outside UN scrutiny. We now know that UN ‘‘oil overseers’’ identified these

activities, brought them to the attention of the program’s leadership, and even proposed mechanisms to prevent this illicit activity. And yet nothing was done.

Finally, the regime perverted the program to influence politicians around the

world and leaders inside the United Nations by giving them valuable oil vouchers.

Today’s hearing will examine new documents that illuminate influence peddling.

Undoubtedly, Saddam’s regime hoped these bribes would erode and eliminate the

sanctions. I would not be surprised if we eventually uncover evidence of quid pro

quos directly related to these vouchers. It seems clear that under Saddam, oil-forfood became oil-for-influence.

This mismanagement—this mess—is a stain on the United Nations and on its

leaders. If the UN leadership had its way, this mess would have been swept under

the rug, but the UN is not going to have its way today. Americans fund most of

the UN’s operating budget, and at this moment, America’s warriors are risking and

giving their lives to defend the fledgling democracy in Iraq. We must not forget that

if the UN had its way, Saddam would still be dispensing bribes, building his army,

threatening his people, and invading his neighbors.

But before Iraq was liberated, the only program that was meant to bring relief

to the Iraqi people instead brought Saddam Hussein the key to unlocking the

gravest threat to his power—economic sanctions. We will hear today how the Oilfor-Food Program allowed Saddam Hussein to enrich his regime, bribe world leaders, and begin to build an infrastructure that could one day be used to reconstruct

an arsenal for intimidation and aggression. In the meantime, the suffering of the

average Iraqi family continued. The UN’s 661 Committee watched the scam unfold,

but was paralyzed by bureaucratic infighting. In the end, the Oil for Food Program

was a profound and dangerous failure.

I look forward to hearing from our witnesses today, and thank them for their attendance. We intend to get to the bottom of this scandal.

Thank you, Mr. Chairman. I yield back the remainder of my time.

Mr. WHITFIELD. Thank you, Mr. Chairman.

At this time, I will recognize Mr. Waxman of California.

Mr. WAXMAN. Thank you very much, Mr. Chairman. And I appreciate you calling the hearing today. I support the committee’s

investigation and believe Congress should determine the full extent

of Saddam Hussein’s efforts to divert humanitarian Oil-for-Food

funds that were intended for the benefit of the Iraqi people. Although I support the committee’s goal, I do have a concern with its

approach. Today’s hearing is the 13th congressional hearing about

the Oil-for-Food program.

8

Tomorrow’s hearing by Senator Coleman will be the 14th. My

concern is that while Congress is actively investigating the Oil-forFood program, we are ignoring our Nation’s own actions on the development fund for Iraq, the successor to the Oil-for-Food program

run by the Bush administration. The administration has failed to

properly manage and account for billions of dollars in the Iraqi

funds, and the committee is doing nothing to investigate this.

I would like to have in the record two charts. The first one shows

the finding of our own auditors and investigators looking into the

DFI. First, in January, the special inspector general for Iraqi reconstruction, a U.S. Government official, concluded that the Bush

administration failed to properly account for $8.8 billion of Iraqi oil

proceeds in the DFI. The inspector general concluded that the administration did not implement adequate managerial controls, did

not implement adequate financial controls, and did not adequately

control DFI contracting actions.

Second. Just 2 weeks ago the inspector general found that the administration failed to account for $96.6 million in cash from the

Iraqi funds that were supposed to go to local reconstruction

projects. The IG found that, instead of helping the Iraqi people,

U.S. officials tried to launder these funds. The IG referred these officials for criminal prosecution.

And, third. The defense contract audit agency, the Pentagon’s

own auditors, concluded that Halliburton has overcharged by at

least $212 million under its oil contract in Iraq. The Bush administration awarded Halliburton’s no bid monopoly oil contract in secret, and then funded it with Iraqi oil proceeds from the DFI.

My other chart shows findings by U.S. Government officials and

other independent auditors who conclude that the administration

has not complied with U.N. Security Council Resolution 1483,

which requires the administration to use Iraqi funds in a transparent manner for the benefit of the Iraqi people. On January 30,

2005, the special inspector general for Iraq reconstruction concluded that the administration violated Resolution 1483 requirement to use DFI funds in a transparent manner.

On April 29, 2005, the international advisory and monitoring

board, which is charged with monitoring the administration’s compliance under the resolution, concluded that, ‘‘use of DFI resources

that is not for the benefit of the Iraqi people is in conflict with U.N.

Security Council Resolution 1483.’’ and members can also review a

series of official Pentagon audits that the administration submitted

to the United Nations after blacking out more than 460 references

to overcharges to the DFI.

Mr. Chairman, Congress should investigate allegations about the

Oil-for-Food program, but we should also investigate our own administration’s failure to properly account for Iraqi funds. Our commitment in both cases is the same: To ensure that the Iraqi people

who have been oppressed for decades receive the full benefit of

their own Nation’s funds. Thank you, Mr. Chairman.

Mr. WHITFIELD. Mr. Waxman, were you asking unanimous consent that those documents be entered into the record?

Mr. WAXMAN. Yes, I would like to ask unanimous consent.

Mr. WHITFIELD. I asked a minute ago to enter some documents

into the record that were made available to your side last WednesVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
9

day, about 6, 7 days ago. I have not had an opportunity to see that.

Could I see this document that you are referring to?

Mr. WAXMAN. Sure. If you prefer, Mr. Chairman, why don’t I

withhold that unanimous request consent until later in the hearing

so you would be able to see it.

Mr. WHITFIELD. And I would also like to ask, was this a study

conducted by the Federal Government? Who conducted this study?

Mr. WAXMAN. We are talking about six reports that are all cited

in my statement.

Mr. WHITFIELD. And who conducted those studies?

Mr. WAXMAN. Let me go through. The special inspector general

for Iraq reconstruction is one. The International Advisory and Monitoring Board, two. The Defense Contract Audit Agency, which is

the Pentagon’s own auditors. And there are multiple reports by

each of them.

Mr. WHITFIELD. If you would give me a copy of that. And I would

just like to reserve a point of order. But, in the meantime, I am

going to go on and call on——

Chairman BARTON. Mr. Chairman, could you yield to me on that

point?

Mr. WHITFIELD. Yes.

Chairman BARTON. This subcommittee always works in a bipartisan fashion. And if the gentleman from California shared the documents so that we know before the fact what is in them, we are

almost always willing to put them into the record. My understanding is they have not been shared with the staff. And I am

sure he is willing to share those so we can look at them.

Mr. WAXMAN. Well, let me point out, these are not hidden documents. They were furnished to all the committees by the Inspector

General. But I would be happy to have you look at them. I wasn’t

trying to withhold any documents from you. These are documents

that have been submitted to the Congress, and they have been out

in the public domain. And so we would like to have them as part

of the record after you feel comfortable enough to admit them into

the record.

Mr. WHITFIELD. Well, I think that this would probably be fine.

But what I think we ought to do is just submit the entire report,

reports in their entirety.

Mr. WAXMAN. I have no problem with that. There are multiple

reports. I think there are six separate reports. If you want to have

all of them in their entirety, then that is certainly fine.

Mr. WHITFIELD. I would prefer that we just submit the entire report rather than just excerpts from the reports. So, if there is no

objection to having the entire reports placed into the record, that

would be fine.

[The material referred to is retained in subcommittee files.]

Mr. WAXMAN. Okay.

Mr. WHITFIELD. At this point I would call on Mr. Norwood of

Georgia for his opening statement. I am sorry. Mr. Burgess, you

are on the subcommittee. Go ahead.

Mr. BURGESS. Mr. Chairman, I have an opening statement I will

just submit for the record in the interest of time so we can get on

to examining the witnesses.

10

Mr. WHITFIELD. Thank you. Ms. Blackburn, do you have an opening statement? Mr. Norwood?

Mr. NORWOOD. Thank you very much, Mr. Chairman.

I must admit that this stuff that has just been handed out, it

looks to me like they are headlines out of The New York Times

rather than any report that anybody has produced. But I think it

equally important we find out exactly who produced it and consider

the source.

I thank you today for allowing me to join you. I sincerely appreciate the courtesy. I have been very concerned about this issue of

corruption at the United Nations, and that as I understand is what

this hearing is about. Though there are those who would divert it

to another subject, I think today is about the corruption at the

U.N., and with the Oil-for-Food program in Iraq. I wanted to be

here simply to learn more.

I would like to start by commending you for continuing to focus

some attention on the corruption at the U.N. Oil-for-Food program.

There is plenty to discuss and scrutinize as we have seen, and

there is plenty being discussed back home in all of our districts. I

think the American people want to have an understanding of this.

It is no secret that during my tenure in Congress, I have not particularly been a fan of the U.N. I think there are some pretty good

reasons for that. And this committee needs no reminder that for a

decade the U.N. allowed Saddam Hussein to blatantly defy 18 U.N.

Resolutions. The United States spends millions, if not billions, of

dollars a year on U.N. programs and policies that are often totally

contrary to the principles of freedom that most Americans hold

dear. That is why people back home where I am from want to know

what is going on.

It is truly unfortunate that we do not have the opportunity today

to question a representative of the U.N. Perhaps that opportunity

will present itself in the future, Mr. Chairman. Regardless, the

U.N. is not the topic of the hearing today; the U.N. Oil-for-Food

program is. As we all know, the Oil-for-Food program was established in 1995, April, to strike a balance between enforcing compliance of all relevant U.N. Security Council resolutions, and alleviating hunger, suffering, human suffering in Iraq. Unfortunately,

what we all now know is that the program was riddled with corruption in many ways.

What should have been a humanitarian program ended up funding Saddam Hussein’s dictatorship and possibly terrorist groups.

The GAO estimates that from 1997 through 2002, the former Iraqi

regime acquired $10.1 billion in illegal revenues. This includes $5.7

billion from oil smuggling and $4.4 billion from illicit surcharges on

oil sales and after-sale charges on suppliers. Numerous United Nations, independent, and Iraqi investigations have been directed into

these illicitly diverted funds. As has been pointed out earlier, major

doubts exist about the U.N.’s ability to investigate this level of

fraud, and I am highly suspicious of their resistance to the facts.

After all, it was under their watch that their own program was

abused.

I look forward to the hearing. I look forward to hearing the testimony of the witnesses today. And, again, I thank you for the opportunity to join you.

11

Mr. WHITFIELD. Thank you. Is there anyone else wishing to give

an opening statement at this time? If not, then we will call panel

one, the witness Mr. John Fawcett, Mr. Robert Smego, and Dr. Joy

Gordon.

I want to thank the three of you for being with us this morning.

We look forward to your testimony. You are aware that the committee is holding an investigative hearing, and, when doing so, has

had the practice of taking testimony under oath. Do any of you this

morning or this afternoon have any objection to testifying under

oath? Okay. The Chair then advises you that, under the rules of

the House and the rules of the committee, you are also entitled to

be advised by counsel. Do you desire to be advised by counsel during your testimony today? In that case, if you would please rise and

raise your right hand, I will swear you in.

[Witnesses sworn.]

Mr. WHITFIELD. You are now under oath, and you may give your

5-minute summary of your written statement. And, Mr. Fawcett,

we will begin with you.

TESTIMONY OF JOHN FAWCETT, AUTHOR, REPORT FOR

SOURCES OF REVENUE FOR SADDAM AND SONS; D. ROBERT

SMEGO, ARABIC LINGUIST, ONE OF THE AUTHORS OF THE

DUELFER REPORT; AND JOY GORDON, PROFESSOR OF PHILOSOPHY, FAIRFIELD UNIVERSITY

Mr. FAWCETT. Thank you for inviting me here before the committee in today’s hearing. I have worked internationally——

Mr. WHITFIELD. Would you turn your microphone on, please.

Mr. FAWCETT. Okay. I have worked internationally for the past

25 years, I spent 10 years in oil exploration in the Middle East and

Africa, after which I spent the next 10 years involved in humanitarian and human rights work largely in the Balkans and Iraq.

Over the last 5 years I have been tracking the financial assets of

major human rights abusers, including Slobodan Milosevic, Saddam Hussein, and al Qaeda. I began looking at the Oil-for-Food

program in 1998 and was a co-author with Susan Blaustein of

Sources of Revenue for Saddam & Sons. The paper was published

in 2002 by the Coalition for International Justice, and they graciously agreed to sponsor my appearance today.

The Oil-for-Food program cannot be viewed separately from the

history of corruption under Saddam Hussein. Saddam Hussein

began his financial rip-offs in the late 1960’s with the establishment of his first shell companies in Milan and Lugano, and continued until he was toppled in 2003. My written statement goes into

more detail on this topic.

When the U.N. Began negotiating with Iraq in 1991 to establish

the Oil-for-Food program, and the first negotiations were led by

then Assistant Secretary General Kofi Annan, no one dealing with

Iraq could credibly say they were not aware of the potential for corruption. U.N. Secretary General Perez de Cuellar knew. His successor Boutros Boutros Ghali knew. Kofi Annan knew. The members of the Security Council certainly knew. All the permanent

members, with the exception of China, had been active participants

in arms embargo busting with Saddam throughout the previous

decade, that is, the 1980’s.

12

By the time the program began in late 1996, the U.N. Had ceded

to Saddam the authority to choose his business partners from both

the sale of Iraqi oil and the purchase of humanitarian supplies.

This crucial decision laid the groundwork for the ensuing corruption.

There were two major methods of illicit profiting: Oil vouchers

were given to favored individuals or organizations that provided

Iraq with political support. The vouchers were then sold to official

U.N. Approved contractors. The illicit profit in this scheme amounted to up to $1 million per tanker load.

Two Oil-for-Food contractors who were very adept at this were

the shady Swiss Liechtenstein firms of Alcon and Fenar. These

companies were created in the haven of corporate secrecy, Liechtenstein, for the sole purpose of doing illicit business with Saddam

Hussein’s Iraq. Aside from kickbacks, the political services they

provided to Saddam are as yet unknown.

To this point, the Swiss and Liechtenstein authorities have failed

to publicize the beneficial owners of either company despite these

firms having been identified as suspicious as early as January

2001. Between them, Alcon and Fenar did nearly $2.5 billion worth

of business under the program, of which some $400 million was

done in the last few months of Saddam’s reign. One wonders

whether this money is funding the car bombs that are tearing

apart men, women, and children in Iraq on a daily basis.

The other major scam in the Oil-for-Food program involved overcharging or invoice padding for goods sold to Iraq. One commodity

in which this practice took place was baby formula. It normally

sells for about $2,000 per ton, but a corrupt supplier under the Oilfor-Food program would charge the U.N. On behalf of Iraq 2,500.

The difference was, again, split with Iraqi officials.

While the U.N. Children’s agency UNICEF and others mounted

public campaigns decrying the suffering and deaths of Iraqi children due to sanctions, price gouging was taking place on the very

product that could help these children. If there is anything that

UNICEF knows how to do, it is to procure, transport, and distribute baby formula. They do so in war zones and disasters worldwide. While UNICEF continually published Iraq government statistics on child mortality related to sanctions, not once did they raise

a voice about the baby formula rip-off.

The inspection procedures for oil exports as well as for humanitarian imports were toothless from the beginning. The inspectors

had no mandate to prevent smuggling of oil out of Iraq or smuggling of goods into Iraq. The inspectors have no mandate to check

the quality of food or medicines entering Iraq, and usually failed

to check even the quantity of goods being imported. At the Jordanian, Syrian, and Turkish border crossings, hundreds of trucks

entered Iraq daily with sanctions-busting goods and left Iraq carrying sanctions-busting oil. The inspectors could do nothing more

than tip their hat and wave their clip board, and literally that is

what they did.

Knowing the nature both in cruelty and corruption of the regime

they were dealing with, why would international officials allow

such a system to come into place? First, there is a certain antiAmerican predisposition that has built up over decades within the

13

U.N. Second, there was a perception that it was a catastrophic humanitarian situation in Iraq, and that the population was on the

verge of starvation. Third, international officials also stood to gain

financially. Officials of over 100 countries either profited illicitly

from the Oil-for-Food program, failed in their oversight duties to

prevent corruption, or both.

What made the graft under the Oil-for-Food program different

from other international financial scandals was the use of the illicit

gains by Saddam Hussein. He did not just fatten the Jordanian

and Swiss bank accounts of his family and cronies, though there

was plenty of that; the illicit funds were also used to create a political slush fund of global proportions. He bought presidents, prime

ministers, legislators, Ambassadors, media, and NGO officials, and

actively funded the anti sanctions campaign.

Mr. WHITFIELD. Mr. Fawcett, you are about a minute and 30 seconds over.

Mr. FAWCETT. All right. Maybe in the questioning I could go in,

then, to what I think the U.N. Could have done in the midst of all

of these problems. Though I would like to say, the primary importance for the U.N. To act was that it had to be led by honest and

courageous officials. And I will leave it at that.

[The prepared statement of John Fawcett follows:]

PREPARED STATEMENT OF JOHN FAWCETT

INTRODUCTION

Thank you for inviting me to appear before the committee at today’s hearing. I

have worked internationally for the past 25 years. I spent ten years in oil exploration in the Middle East and Africa. The following ten years I was involved in humanitarian and human rights work largely in the Balkans and Iraq. Over the last

five years I have been tracking the financial assets of major human rights abusers,

including Slobodan Milosevic, Saddam Hussein, and al Qaeda. I have contracted to

a variety of governmental, non-governmental, and for profit organizations. I began

looking at the Oil for Food program in 1998, and was a co-author with Susan

Blaustein of Sources of Revenue for Saddam and Sons. The paper was published in

2002 by the Coalition for International Justice and they have graciously agreed to

sponsor my appearance today.

HISTORY OF SADDAM’S CORRUPTION

The Oil for Food program can not be viewed separately from the history of corruption under Saddam Hussein. Saddam began his financial rip-offs in the late 1960s

with the establishment of his first shell companies in Milan and Lugano. In the mid

70s he instituted a 5% rake-off on all Iraqi oil exports, with the proceeds being sent

to Swiss bank accounts via major US banks in New York City. Shortly after seizing

the Iraqi presidency in 1979 he invaded Iran and an arms embargo was imposed.

He actively violated the embargo with the assistance of many countries in what

came to be known as Iraqgate. Within days of his invasion of Kuwait in August

1990, comprehensive international sanctions were imposed. Within hours an energetic campaign of sanctions busting began. After surviving the first Gulf War, he

directed that the sanctions busting be greatly expanded.

When the UN began negotiating with Iraq in 1991 to establish the oil for food

program, (and the first negotiations were led by then Assistant Secretary General

Kofi Annan) no one dealing with Iraq could credibly say they were not aware of the

potential for corruption. UN Secretary General Perez de Cuellar knew. His successor Boutros Boutros Ghali knew. Kofi Annan knew. The members of the Security

Council certainly knew. All the permanent members, with the exception of China,

had been active participants in embargo busting with Saddam throughout the previous decade. The embargo busting involved both kickbacks to Saddam as well as

invoice padding, two methods of illicit activity that were later widely used during

the Oil for Food Program.

14

TWO TYPES OF RIP-OFFS

By the time the program began in late 1996, the UN had ceded to Saddam the

authority to choose his business partners for both the sale of Iraqi oil and the purchase of humanitarian supplies. This crucial decision laid the groundwork for the

ensuing corruption. There were two major methods of illicit profiting by the regime

and a host of minor schemes.

Oil vouchers were given to favored individuals or organizations that provided Iraq

with political support. The vouchers were then sold to an official UN approved contractor. This contractor received the oil at a discount and then sold it on to other

traders and eventually to major refiners. The illicit profit in this scheme amounted

to up to $1 million per tanker load. Two oil for food contractors who were very adept

at this were the shady Swiss-Liechtenstein firms Alcon and Fenar. These companies

were created in the haven of corporate secrecy, Liechtenstein, for the sole purpose

of doing illicit business with Saddam Hussein’s Iraq. Alcon and Fenar were official

UN contractors as well as voucher recipients. Aside from kickbacks the political

services they provided to Saddam are as yet unknown. To this point the Swiss and

Liechtenstein authorities have failed to publicize the beneficial owners of either

company, despite these firms having been identified as suspicious as early as January 2001. The Liechtensteiners, who for a fee, put their names to the corporate registry documents were; for Alcon, Rainer Marxer and Martin Batliner; for Fenar, Patrick Hilty and Horst Buchel. Between them, Alcon and Fenar did nearly $2.5 billion

worth of business under the program, of which some $400 million was done in the

last few months of Saddam’s reign. One wonders whether this money is funding the

car bombs that are tearing apart men, women and children in Iraq on a daily basis.

The other major scam in the oil for food program involved over charging or invoice

padding for goods sold to Iraq. One commodity in which this practice took place was

baby formula. It normally sold for about $2000 per ton, but a corrupt supplier would

charge the UN on behalf of Iraq, $2500. The difference was again split with the

Iraqi officials. While the UN and others mounted public campaigns decrying the suffering and deaths of Iraqi children, price gouging was taking place on the very product that could help these children. If there is anything that UNICEF knows how

to do, it is to procure, transport and distribute baby formula. They do so in war

zones and disasters worldwide. While UNICEF continually published Iraqi government statistics on child mortality related to sanctions, not once did they raise a

voice about the baby formula rip-off.

SHAM INSPECTIONS

The inspection procedures for oil exports as well as for humanitarian imports

were toothless from the beginning. The inspectors had no mandate to prevent smuggling of oil out of Iraq, or smuggling of goods into Iraq. The inspectors had no mandate to check the quality of food or medicines entering Iraq and usually failed to

check even the quantity of goods being imported. At the Jordanian, Syrian and

Turkish border crossings, hundreds of trucks entered Iraq daily with sanctions busting goods and left Iraq carrying sanctions busting oil. The inspectors could do nothing more than tip their hat and wave their clipboard. This was an exercise in futility and many inspectors sunk into frustration or inebriation.

After studying and thinking about this program for several years, I have come to

the conclusion that the inspections regime established by the UN was window dressing only. To be clear, I believe that UN officials set up the procurement as well as

the inspection regime of the Oil for Food program in such a manner as to allow Saddam Hussein to personally profit from it. The Security Council was fully aware of

the potential for corruption under the program at every step of the negotiations.

WHY WAS IT ALLOWED TO HAPPEN?

Knowing the nature, both in cruelty and corruption of the regime they were dealing with, why would these international officials allow such a system to come into

place? First there is a certain anti-American predisposition that has built up over

decades within the UN. This tends to look skeptically at US positions on issues and

more sympathetically at US opponents. This is not an unhealthy posture by itself.

Second, there was a perception that there was a catastrophic humanitarian situation in Iraq and that the population was on the verge of starvation. All of the data

upon which the assessments of the humanitarian situation in Iraq were made was

generated by the Iraqi government. It was also in the financial interest of the UN

humanitarian agencies to increase the amounts of funds allocated to Iraq. These factors contributed towards fostering an international public perception of impending

disaster. The third reason why international officials would agree to a system that

15

profited Saddam Hussein is that they also stood to gain financially. Officials of over

100 countries, either profited illicitly from the Oil for Food program, failed in their

oversight duties to prevent corruption, or both.

What made the graft under the oil for food program different from other international financial scandals was the use of the illicit gains by Saddam Hussein. He

did not just fatten the Jordanian and Swiss bank accounts of his family and cronies,

though there was plenty of that. The illicit funds were also used to create a political

slush fund of global proportions. He bought presidents, prime ministers, legislators,

ambassadors, media and NGO officials, and actively funded the anti-sanctions campaign.

COULD THE UN HAVE DONE ANYTHING?

With an Iraqi regime very experienced in corruption, a weak Security Council,

and officials and businessmen from dozens of countries eager to put their hands into

Saddam’s pockets, was it possible for the United Nations to do anything except acquiesce to corruption? The answer is yes. In the face of all these cards stacked

against it, there was one essential ingredient to assist the Iraqi people as well as

battle corruption. The UN had to be lead by honest and courageous officials.

From 1996 to the end of the program in 2003, had the UN been led by honest

and courageous officials, they would have done the following.

• Instead of awarding the first major monitoring and banking contracts via a secretive back-door process, senior UN officials would have insisted on adhering to

their own competitive bidding regulations and opened the process to public scrutiny. Had they done so the weak monitoring effort would have been exposed before the program began and the allegations of conflict of interest by the Secretary General and his son would have been addressed.

• An aggressive effort would have been made to vet all contracts for price and quality. The Security Council had instructed the UN to do so, but they made token

efforts at best. Even the few contracts which UN officials found to be overpriced

were never acted upon by the Security Council. However, UN officials did not

have to be satisfied with just passing the buck to the Security Council. There

was nothing stopping them from releasing all contract data publicly. There

would have been some embarrassed businesses and member states, but the

practice of invoice padding would have been nipped in the bud.

• The whole process of selecting oil buyers should have been exposed to the light

of scrutiny with the public release of oil contract information and an insistence

by the UN that all oil purchasers publish shareholder or beneficiary lists. UN

officials again excused themselves by claiming that Iraq could choose its own

customers as long as those customers were also approved by the relevant member state. As a result the UN found itself involved in financial transactions with

weapons dealers, money launderers, organized crime and terrorists. This was

inexcusable.

• UN monitors should have acted like the weapons inspectors and been far more

aggressive. UN personnel had the right and obligation to monitor any distribution of goods inside Iraq. The great majority of them never left their office and

relied exclusively on the government of Saddam Hussein to tell them where and

to whom the goods were distributed.

WE WILL BE PAYING FOR THIS FOR A LONG TIME

Even though the oil for food program was shut down nearly two years ago, the

scandal is not receding into history. The oil for food program took place during the

former Soviet Bloc’s transition from a command to a competitive economy. It took

place during a generational change in many of the ruling families in the Middle

East. It took place during the emergence of new economic powerhouses China and

India. During times of political and economic ferment, these countries were major

players in the oil for food scandal. Officials from all of these countries, who may

be in power for decades to come, took away a clear lesson. The ground rules of the

new global economy have not yet been written in stone. While some argue for transparency, accountability and a level playing field, others maneuver for insider advantage and see bribery and corruption as acceptable business tools. The oil for food

program gave a tremendous boost towards the institutionalization of corruption

within the global economy, the repercussions of which have barely begun to emerge.

Mr. WHITFIELD. Thank you very much.

Mr. Smego.

16

TESTIMONY OF D. ROBERT SMEGO

Mr. SMEGO. Good afternoon, Mr. Chairman. My name is D. Robert Smego. I was retained by the House Energy and Commerce

Committee earlier this year to review, identify, and translate documents it provided to me. I am an Arabic linguist knowledgeable—

excuse me. I’m a linguist knowledgeable in the Arabic language.

The House Energy and Commerce Committee’s majority counsel

asked me to identify by topic and translate documents regarding

Oil-for-Food, in particular, Iraqi State Oil Marketing Organization

documents that had been scanned on to DVDs and memoranda prepared by the Iraqi Intelligence Service.

With the assistance of a native Iraqi linguist, I translated 49 documents from more than 23,000 pages that I have reviewed for this

committee. The translated documents presented today accurately

reflect the original text. I have not corrected the English translations of grammatical errors such as run-on sentences, indefinite

pronouns, and sentence fragments that result from the melodious

flow and verbose nature of Arabic. I avoided summarizing, paraphrasing, or making analytic substitutions for the original language. Any redactions in the original documents were maintained

in the translations.

I was asked to translate and interpret specific documents; I was

not tasked to perform any broader analysis or develop a professional judgment about the broader context of these documents. The

guidance of the majority counsel was to sift through large volumes

of material looking for references to particular topics and to translate the documents selected for presentation to the committee. The

documents presented here today provide useful insight into the activities of the former Iraqi regime.

Thank you, Mr. Chairman. I am pleased to appear before this

subcommittee, and will be glad to address the questions within the

scope of the work I performed for the committee. This concludes my

opening statement.

[The prepared statement of D. Robert Smego follows:]

PREPARED STATEMENT OF D. ROBERT SMEGO

Good afternoon, Mr. Chairman. My name is D. Robert Smego. I was retained by

the House Energy and Commerce Committee earlier this year to review, identify

and translate documents it provided to me. I am a linguist knowledgeable in the

Arabic language.

The House Energy and Commerce Committee’s Majority Counsel asked me to

identify by topic and translate documents regarding Oil-For-Food, in particular Iraqi

State Oil Marketing Organization documents that had been scanned onto DVDs and

memoranda prepared by the Iraqi Intelligence Service. With the assistance of a native Iraqi linguist, I translated 49 documents from more than 23,000 pages that I

reviewed for this Committee.

The translated documents presented today accurately reflect the original text. I

have not corrected the English translations of grammatical errors, such as run-on

sentences, indefinite pronouns, and sentence fragments that result from the melodious flow and verbose nature of Arabic. I avoided summarizing, paraphrasing, or

making analytic substitutions for the original language. Any redactions in the original documents were maintained in the translations.

I was asked to translate and interpret specific documents. I was not tasked to perform any broader analysis or to develop a professional judgment about the broader

context of these documents. The guidance of the Majority Counsel was to sift

through large volumes of material looking for references to particular topics and to

translate the documents selected by the Majority Counsel for presentation to the

17

Committee. The documents presented here today provide useful insight into the activities of the former Iraqi regime.

Thank you, Mr. Chairman. This concludes my opening statement. I am pleased

to appear before this Subcommittee and will be glad to address questions within the

scope of the work I performed for the Committee.

Mr. WHITFIELD. Thank you, Mr. Smego.

Dr. Gordon, you are recognized for 5 minutes.

TESTIMONY OF JOY GORDON

Ms. GORDON. I appreciate the opportunity to speak before this

committee. My background is in political philosophy and law. I

have been doing research on economic sanctions for 7 years. Over

the last 5 years, I have published on the Iraq sanctions in the Yield

Journal of International Human Rights Law, Ethics and International Affairs, Middle East report, Le Monde Diplomatique, and

Harper’s Magazine. I am currently completing a book on the Iraq

sanctions regime for Harvard University Press.

I would like to begin by mentioning a crucial distinction between

the U.N. Taken broadly and the Security Council. Many of the accusations that have been lobbied against the United Nations regarding the Oil-for-Food program, in fact, go to decisions on the

part of the Security Council itself or actions or failures to act on

the part of the member states of the Security Council. I would like

to briefly address a common misconception. It is often said that

there was no oversight or monitoring or accountability in the Oilfor-Food program. That’s incorrect. There were, by my count, seven

levels of oversight and monitoring. All of these are publicly available. At the first level was something called distribution plan; before Iraq could contract for a single item, it had to submit an

itemized list of every single item it wished to contract for in the

next 6 months. Those distribution plans are and have always been

posted on the OIP Web site. They are not a secret. Every item was

approved.

The next thing was that once Iraq contracted, the contract initially went through the OIP and then to every single member of

the Security Council. Every single member of the 661 Committee

had the right to block or delay or question any contract indefinitely

for any reason. In those cases where there were concerns, for example, the U.S. was primarily concerned with security issues, the U.S.

could block a contract, and it did so for $5.4 billion of contracts.

The U.S. and to some extent the U.K. Could delay contracts by asking for information, and in many cases those requests for information delayed contracts by as much as 2 years. So it was more than

possible for the United States to intervene in blocking or delaying

any contract that raised any concern to the U.S. in any form.

Next, once the goods were purchased, all funds went directly

through an escrow account. There were no legal funds that went

through the Iraqi government at all. Funds were—oil proceeds

went to an escrow account; contracts were paid from the escrow account. There were onsite inspectors Cotecna and Lloyds Register,

for the goods’ arrival. And, finally, there were hundreds of U.N.

Staff on the ground in Iraq to document of the distribution of

goods, the use of goods, whether they arrived at the end user,

whether they were consumed by the end user correctly.

18

Oil sales similarly had multi levels of supervision. The Iraqi government it is sometimes said was free to pick prices and to set

prices low. That is patently incorrect. It had no such authority.

SOMO had the authority to propose a price. The pricing formula

for each month period was reviewed by the oil overseers. If the oil

overseers found it to be consistent with fair market value, it recommended approval to the 661 Committee. The 661 Committee,

again, every member had the right to block the approval of that

formula at any time. It did not require consensus, it did not require

agreement of any others.

The companies who were contracting for oil sales similarly went

through the same process. Every company had to be registered.

Registration did not mean that OIP reviewed them; it meant simply that the permanent nation—the permanent mission of that nation to the United Nations submitted a list, information about that

company, its name and address. Once it did that, then any member

of the 661 Committee could refuse to have that company on the

list. If the price was approved by the 661 Committee and the company had been approved by the 661 Committee, then the oil overseers went forward with the approval of the oil contract. Any member of the 661 Committee, including the U.S., could stop the pricing

if it ever looked unfair or for any other reason. And it could block

any company if that company looked corrupt or for any other reason.

Let me address some of the concerns that have come up repeatedly over the last year. There have been a lot of discussion about

the kickbacks, that contracts were routinely inflated by 5 to 10 percent, and that that amount was received in cash under the table

by the Iraqi government. In fact—and it is often—the U.N. Is often

charged with a failure to supervise or negligence in permitting this

to take place.

That is not correct. In those cases where the price irregularities

were clear, U.N. Staff, the OIP staff went to the 661 Committee

and said: Here is a contract where the pricing is clearly improper.

Do you want to block it? It was not within the authority of the

United Nations’ personnel to stop the contract; it was only within

their authority to provide information to and to advise the members of the 661 Committee.

It was the responsibility of the members of the 661 Committee

to block a contract for that reason or for any other reason. On those

more than 70 occasions where OIP staff identified such extreme

price irregularities as to clearly indicate kickbacks, it went to the

661 Committee. On none of those occasions did any member state,

including the United States, choose to take action to block that contract. In cases where the—and those were in cases where the irregularities were glaring. In cases where the irregularities were 5 to

10 percent, they were difficult to detect, but even if they had been

detected we have to assume that the members of the Security

Council would not have been inclined to act any differently for

minor increases of 5 to 10 percent if they were not prepared to

block contracts where the price irregularities were very extreme.

Let us look quickly at oil surcharges.

Mr. WHITFIELD. Dr. Gordon, you are also about a minute and 15

seconds over. So if you could summarize, we would appreciate it.

19

Ms. GORDON. Okay. As I said before, for the oil surcharges,

what’s—it is the case that for all oil sales—I’m sorry. Again, it was

the oil overseers, it was the staff of the U.N. That brought the oil

surcharges to the attention of the 661 Committee as soon as they

became apparent. That was in the fall of 2000. In that case, unlike

with the import contracts, the Security Council chose to respond

and to put in place a very Draconian measure. However, you cannot lay blame on the U.N. Staff. In both cases, they advised the

Committee correctly. In one case, the committee chose to take action; in the other case, it did not.

I would like to emphasize that the smuggling was by far the

largest amount of the illicit funds that went to Iraq by any measurement, whether it is the GAO, the Volcker report, or the Duelfer

Report. And of the smuggling, about three quarters was through

Jordan and Turkey combined. That again, we now well know was

with the approval and full knowledge of the United States in particular. And I—and I will just end my statement there.

[The prepared statement of Joy Gordon follows:]

PREPARED STATEMENT OF JOY GORDON, PROFESSOR OF PHILOSOPHY, FAIRFIELD

UNIVERSITY

Mr. Chairman and distinguished members of the committee: Thank you for this

opportunity to testify before this committee. In taking on the difficult endeavor of

unraveling the complexities of the Oil for Food Program, this committee is undertaking a tremendously important task, and it is a pleasure to be invited to contribute to that work. This program, its successes and its failures, has broad implications for future US foreign policy, as well as for the future of the United Nations.

My testimony today is based on the research I have done in the field of economic

sanctions over the last seven years, including a close study of the Iraq sanctions

process from 1990 to 2003. In the course of my research I have become familiar with

the scholarly work on economic sanctions in general and on the Iraq sanctions in

particular, as well as much of the extensive body of documents generated in the

course of the Oil for Food Program. Over the last five years I have also interviewed

many of those involved in the 661 Committee—the committee of the Security Council charged with overseeing the sanctions regime imposed on Iraq—and the OFF

program.

Over the last year we have heard much about the failures of the Oil for Food Program. A great deal has been blamed on the Secretary-General for what is seen as

an institutional failure on the part of the United Nations. As many have noted,

there have been failures on the part of nearly everyone involved with the program.

Most recently the Volcker Committee has explored the ethical problems involving

Cotecna; the possibility of serious improprieties on the part of Benon Sevan, the director of the program; and a critical concern about the scope of the program’s audits.

But in recent months there has been growing recognition of the extent to which

the Oil for Food Program, as well as much of the oversight, was in fact in the hands

of the Security Council and its member states—including the United States—not

the Secretariat.

In my testimony today I’d like to address a number of issues concerning the Oil

for Food Program and the accusations against it:

1. The effectiveness of the program

2. The magnitude of the accusations

3. Transparency and oversight

• Monitoring of import contracts

• Monitoring of oil sales

• Transparency

4. Sources of illicit funds

• Overland smuggling

• Maritime smuggling

• Kickbacks on import contracts

• Oil surcharges

• Iraq’s freedom to choose its trade partners

5. The Volcker Committee reports

20

1 ‘‘United Nations: Observations on the Oil for Food Program,’’ Statement of Joseph A.

Christoff, Director, International Affairs and Trade. Testimony before the Committee on Foreign

Relations, U.S. Senate. GAO-04-65IT, p. 2. 2 ‘‘United Nations: Observations on the Oil for Food Program,’’ Statement of Joseph A.

Christoff, Director, International Affairs and Trade. Testimony before the Committee on Foreign

Relations, U.S. Senate. GAO-04-65IT, p. 2 3 ‘‘Comprehensive Report of the Special Advisor to the DCI on Iraq’s WMD,’’ 30 September

2004, Regime finance and procurement section, p. 23.

6. Who was responsible?

• The consensus decision making rule

• The US role

• The State Department’s defense of US support for Iraq’s illicit trade of Jordan

and Turkey

7. Conclusions

1. The effectiveness of the program

I think it is important to begin by recognizing that the Oil for Food Program, and

the UN staff involved, were in fact tremendously successful at raising the quality

of life for the Iraqi population, in very measurable ways. The nutritional intake

nearly doubled, and acute malnutrition in children dropped by half. The health care

system was much better able to meet the population’s needs—surgical operations increased by 40%; polio was eliminated, and communicable diseases were substantially reduced. Water and sanitation improved considerably, and electricity became

much more reliable.

We should be particularly conscious of the significance of these accomplishments

as we see how difficult it is been in the last two years for the US occupation authority and the interim Iraqi government to achieve similar standards. This has been

particularly true as the security situation has deteriorated, and will probably worsen as funds for reconstruction are reallocated to security costs.

The fundamental goal of the Oil for Food Program was to improve the lives of

the Iraqi population through the import of critical humanitarian goods, and that

was unquestionably achieved.

The magnitude of the accusations

While it is common to hear that Saddam Hussein’s regime received $11 billion in

illicit funds through the Oil for Food Program (or more recently, $21 billion), in fact

the credible accusations are much more limited: that the former Iraqi regime obtained somewhere between $2 billion and $4.4 billion through oil surcharges and import contracts.

According to both the GAO reports from 2004 and the CIA’s report from last September, the bulk of the illicit funds that entered Iraq came from oil smuggling—

which took place prior to the Oil for Food Program, and after 1996 occurred entirely

outside the program. As earlier congressional hearings have made clear, Iraq had

ongoing trade with Jordan, Turkey, and Syria for many years.

The major GAO report maintained that from 1997 through 2002, the former Iraqi

regime acquired $10.1 billion in illegal revenues related to the Oil for Food Program.’’ 1 $5.7 of this came from oil smuggling and $4.4 billion from illicit surcharges

on oil sales and commissions on imports.2 The report of the CIA’s Iraq Study Group

maintains that the bulk of Iraq’s illicit funds came from ‘‘government to government

protocols’’—ongoing trade agreements between Iraq and other countries, in violation

of the sanctions. Iraq’s income from these, according to the report, came to some

$8 billion, while kickbacks from import contracts were estimated to be $1.5 billion,

surcharges from oil sales were $229 million, and private sector smuggling was estimated at $1.2 billion.3

Thus, the most credible accusations—the GAO and ISG reports—maintain that

the Iraqi regime illicitly received at most $4.4 billion via some aspect of the Oil for

Food Program.

3. Transparency and Oversight

I’d like to address some common misconceptions about the program. Over the last

year we’ve heard people say many times that the Oil for Food program had no system of oversight or monitoring, and that there was no transparency. It in fact had

an elaborate system of oversight, and there was an enormous amount of information

about the program and its operations that was not only available to the UN and

the member states, but in fact was maintained for the public on the web site of OIP

(Office of Iraq Programme), the agency established within the UN to house the Oil

for Food Program and the UN’s other Iraq programs.

21

4 Note that in northern Iraq the UN executed the program on behalf of the government of

Iraq, and in that capacity took over some governmental functions. In south/center Iraq, the Iraqi

government continued to perform normal governmental functions, but was monitored. 5Some goods that the Security Council considered uncontroversial were eventually put on a

‘‘green list’’ that bypassed the committee (pursuant to Security Council Resolution 1409) but

went through all the other monitoring stages. However, where OIP staff found irregularities in

‘‘green list’’ contracts, they then presented those to the 661Committee.

It is important to understand that to the extent there were kickbacks or improprieties within the program, this occurred not because of a lack of systematic monitoring; but rather took place in spite of an elaborate monitoring system. This monitoring system involved detailed oversight by members of the Security Council, including extensive participation by the United States and the United Kingdom, each

of which received copies of all contracts made by the government of Iraq for every

purchase of humanitarian supplies and oil spare parts.

It was OIP staff—customs officers—who notified the 661 Committee of possible

kickbacks on import contracts, on more than seventy occasions. No member of the

661 Committee, including the US, then exercised its right to block or delay the contract.

It was OIP staff—the oil overseers—who notified the 661 Committee of oil surcharges in October 2000. The US and UK then began withholding pricing approval

in response.

A. Monitoring of import contracts

Briefly, the multi-tiered monitoring structure for south/center Iraq 4 was:

1. Distribution plan: Before an application could be submitted that would allow

Iraq to import goods, Iraq was required to submit an exhaustive list of every single

item it wished to import, identifying quantities and sectors where goods would be

used, and the justification for prioritizing these goods. The Distribution Plan then

had to be reviewed and approved by UN staff, often with modifications.

2. OIP review: Once a contract was negotiated between the Iraqi government

and the supplier, it was submitted to OIP. OIP staff reviewed it to see that it contained all the information required by the 661 Committee, and corresponded to the

Distribution Plan

3. UNSCOM/UNMOVIC: The contract was also sent to UNSCOM (later

UNMOVIC) and IAEA, to determine if there were any military or dual use goods

4. 661 Committee review: The contract was circulated to every member of the

661 Committee.5 Each member had the option of delaying the contract, asking for

more information, or simply vetoing it.

5. Escrow account: Under the terms of the program as designed, no program

funds ever went directly through the hands of the Iraqi government. All proceeds

from legal oil sales went into a UN-held escrow account, and all import contracts

were paid for from this account.

6. On-site inspectors: Upon arrival in Iraq, the goods were inspected by Lloyd’s

Register (later Cotecna) to see that the quantities conformed to the contract

7. End use monitors: Once the goods were in Iraq, staff from the UN agencies

conducted thousands of site visits, surveys, and spot checks to determine if the

goods were being distributed equitably and efficiently, and to gauge the adequacy

of the program.

B. For oil sales:

1. The Iraqi government proposed pricing formulas, which were then reviewed by

oil overseers and submitted to the 661 Committee for approval.

2. Every oil contract, including the prices, delivery specifications, and all contract

terms, was reviewed by ‘‘oil overseers’’—consultants from the oil industry, hired by

the Secretary General, with the approval of the members of the Security Council.

They advised the 661 Committee of any irregularities.

3. Every member of the 661 Committee had the opportunity to review any contract. Any oil contract could be vetoed by any member of the 661 Committee.

C. Transparency

In many ways the program was highly transparent. There was a considerable

amount of information easily available to the general public at all times, and there

was even more information available to the members of the Security Council, which

was overseeing the program.

• The Distribution Plans, showing every item that the UN permitted Iraq to contract for, for every phase of the program, were (and for phases 5-13 continue

to be) posted on the OIP web site

22

• The Secretary General provided reports every ninety days on the program, including detailed information on both oil sales and import contracts, and on the situation in every sector of the Iraqi economy and society, including health, agriculture and nutrition, education, electricity production, telecommunications,

transportation, de-mining. All of these reports were (and still are) posted on the

OIP web site

• For every 6-month phase, OIP posted charts showing the status of both oil contracts and import contracts: for every sector of the economy, how many contracts had been submitted, how many approved, how much had been delivered,

etc. All of these were posted for each phase on the OIP web site.

• OIP issued weekly updates with details of oil liftings, status of holds on particular

contracts, and other items. All of these were (and are) posted on the OIP web

site.

• The OIP web site also listed every Security Council resolution, Secretary-General

report, and every other major report on the program. These were (and still are)

posted on the OIP web site.

The transparency of the Oil for Food Program stands in marked contrast with the

way that the sanctions program had operated in the first half of the 1990s. From

1990-1995, Iraq was permitted to apply to the 661 Committee for permission to purchase humanitarian goods (although it could not sell oil to generate funds). However, the 661 Committee was extremely inconsistent in what items it would permit

and what it would not; refused to generate any guidelines or criteria that would

allow suppliers or the government of Iraq to know what was permitted and what

was not; was often inconsistent, permitting a contract for certain goods, such as ambulance tires, on one occasion, and then a few months later denying a contract for

similar goods; and once it denied a contract, it would not provide the government

of Iraq or the supplier with any information as to why the goods were denied.

4. Who was responsible?

For many months now we’ve heard accusations leveled against ‘‘the UN’’ for allowing Saddam Hussein to garner illicit funds through the Oil for Food Program. There

are some in Congress and elsewhere calling for Kofi Annan’s resignation. Yet the

Secretariat had no decision making role in setting the terms of the Oil for Food Program. The program itself was a product of a Security Council resolution; all subsequent modifications to the program were established through Security Council resolutions; and implementation of the program, including OIP, was overseen by the 661

Committee, which made the decisions regarding implementation.

Under Article 41 of the UN Charter, it was the responsibility of the Security

Council, not the Secretariat, to enforce the sanctions regime. The role of the Secretariat was limited to execution of the program, as the program had been designed

by the Security Council; as well as providing the Council members with information,

and performing administrative functions. The Security Council and its members, including the United States, played critical roles in allowing smuggling and kickbacks

to take place.

A. Smuggling

The bulk of Iraq’s illicit income, according to the GAO and the CIA’s Iraq Study

Group, was from smuggling: $5.7 billion according to the GAO, and $8 billion according to the ISG.

According to the ISG report, the majority of this trade—$4.4 billion—was with

Jordan. A significant amount of illicit trade ($710 million) was with Turkey. According to the ISG report, in 1991 Jordan informed the Council of its intention to continue trading with Iraq, and the Council ‘‘took note,’’ but took no measures to reprimand or prevent Jordan from going forward with large-scale, prohibited trade.

Similarly, in the case of Turkey, the Council turned a blind eye to large-scale illicit

trade. This included the US, which had a strategic alliance with Turkey. All three

US administrations over the course of the sanctions regime sent waivers to Congress, asking that aid be continued to Jordan and Turkey despite their illicit trade

with Iraq.

B. Maritime smuggling

In addition to overland smuggling, there was substantial maritime smuggling as

well. The Multinational Interception Force (MIF) was charged with interdicting

ships engaged in illegal trade with Iraq. The MIF was created by Security Council

Resolution 665, which called upon member states with naval forces in the area to

intervene to enforce the sanctions.

23

6From 1994 to 2001, there were several hundred boardings per year; in 2002 and 2003, there

were over 3000 boardings per year. 7The commanders of the MIF were Rear Admiral A.K. Taylor (1991-1992); Vice Admiral D.J.

Katz (1992-1994); Vice Admiral J.S. Redd (1994-1996); Vice Admiral T.B. Fargo (1996-1998);

Vice Admiral C.W. Moore Jr. (1998-2002); and Vice Admiral T.J. Keating (2002-2003). 8 In 2001, the US contributed 90 vessels, the UK contributed four, and all other participating

countries contributed one or two. In 2002, the US contributed 99 vessels, five nations contributed ten or more, and several other countries contributed less than ten.

According to its reports, the MIF was quite active, boarding hundreds of ships

each year,6 and there is no reason to suggest that it was incompetent or poorly run.

However, it makes little sense to blame the UN for failing to stop Iraq’s illicit oil

smuggling. There was no authorization for any UN entity to take actions to intervene; SCR 665 only invited member states to take these measures.

The MIF involved some participation, at various points, from twenty or so different nations. But it was overwhelmingly dominated by US naval forces. The commanders at every point in the MIF’s history were US naval rear admirals or vice

admirals in the US Fifth Fleet.7 The force itself consisted overwhelmingly of US

ships. In 2000, for example, the US contributed 86 vessels; the UK seven vessels;

Canada contributed one vessel for two months, and the Netherlands contributed one

vessel for one month.8 MIF commanders periodically reported to the 661 Committee.

Kickbacks on import contracts

OIP has been accused of failing to stop illegal kickbacks. However, OIP had no

authority to block improper contracts. It was authorized to request clarification in

the case of irregularities, and provide that information to the 661 committee. Only

the members of the Security Council had the power to block contracts. Where price

irregularities were clear, the customs officers of the OIP staff did in fact inform the

661 Committee, giving each member the opportunity to block the contract, or to ask

for further information before approving. On over 70 occasions, this was done. On

none of those occasions did any member of the Council—including the US—seek to

delay or block the contract for pricing irregularities.

D. Oil surcharges

In October 2000, while reviewing Iraq’s proposed pricing formulas, the oil overseers noted that the proposed formulas did not reflect fair market value. In their

contacts with potential oil buyers, they learned that the Iraqi authorities had started requesting payment of a surcharge of up to 50 cents per barrel. The oil overseers

reported both of these facts to the 661 Committee. In March 2001, the Secretary

General drew attention to this problem in a public report to the Security Council.

In response to this information, the US and UK implemented a ‘‘retroactive pricing policy.’’ The normal practice in the industry, and for the Oil for Food Program,

was to set the price for the coming month. Under retroactive pricing, the US and

the UK withheld their approval for the price until the month had passed. This

meant that buyers literally were required to sign contracts for oil purchases without

knowing what the price was until after they were committed. The US and UK took

the position that this allowed the committee to determine retroactively what the fair

market value of the oil had been the previous month, and charge buyers accordingly. Thus, the argument went, Iraq was receiving no more nor less than fair market value; that eliminated the premia that went to middlemen; and consequently

eliminated the possibility that the middlemen would pay Iraq illicit surcharges.

The new pricing policies did in fact eliminate any margin for surcharges. But it

had another result as well: that oil sales were substantially compromised. Predictably, few buyers were prepared to purchase Iraqi oil without knowing the price. It

did not help much to provide assurances that the price they were ultimately charged

would be ‘‘fair market value,’’ as determined by the 661 Committee. As a result, the

retroactive pricing mechanism created a financial crisis in the OFF program from

2001-2003. In 2001, oil exports averaged 1.7 million barrels per day. In 2002, the

average was 1.1 million BPD. By September 2002, that number had dropped to

400,000 BPD. The result was a dramatic shortfall in funding for humanitarian contracts. As of February 2002, there were nearly 700 fully approved contracts, with

a value of $1.6 billion, for which there was no funding; and another $5.3 billion of

contracts on hold, awaiting approval; for a total potential shortfall of $6.9 billion.

One member of the 661 Committee noted that ‘‘exports are now so low that the proVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 21637.TXT HCOM1 PsN: HCOM1
24

9 In June 2001 Iraq stopped producing oil in protest against a US proposal to modify the sanctions regime, and in April 2002 Iraq again declared a moratorium, to protest Israel’s treatment

of Palestinians. However, the retroactive pricing mechanism was by far the major factor in the

financial crisis of the OFF program from 2001-2003. 10 Income from oil exports increased steadily for the first eight phases, from $2.1 billion in

Phase 1 to $9.6 billion in Phase 8, which ended in December 2000. For Phase 9, the oil exports

fell to $5.6 billion; Phase 10, $5.4 billion; Phase 11, $4.6 billion; Phase 12, $5.6 billion; Phase

13, $4.4 billion.

gram is on the verge of collapsing.’’ 9 Income remained at this reduced level for the

duration of the program.10

E. Iraq’s freedom to choose its trade partners

The CIA’s report makes much of the ‘‘secret oil voucher’’ system, by which Iraq

designated oil purchasers. However, this appears for the most part to be simply

Iraq’s record-keeping system for exercising the rights it had under the terms of the

OFF program to select its trading partners. While it may be said that particular

purchasers should not have been approved, the fundamental decision to allow Iraq

to choose its oil buyers and import contractors—and the political leverage that accompanied that—was a decision made by the Security Council, with the participation and agreement of the United States. It may be that the Council felt that the

elaborate system of monitoring and the multi-tiered approval process would serve

as a sufficient mechanism of oversight. But the decision to allow Iraq to select its

trading partners was not a failure of judgment or oversight on the part of the Secretariat. It was a decision of the Security Council, with the agreement of the United

States.

5. The Volcker Committee Reports

In its February report, the overall finding of the Volcker Committee regarding the

account discussed (the 2.2% account) was that it was run carefully and well. The

reports generated by the Independent Inquiry Committee chaired by Paul Volcker

have been by far the most rigorous and careful studies of the accusations against

the Oil for Food Program to date. Of the accusations addressed in the IIC’s reports

thus far, some concern the operation of the program; some concern individual acts

which did not have significant effects on the program; some improprieties served the

interests of the Iraqi government, and some did not.

• The most significant issue concerning the program’s structure was the claim that

the OFF program should have conducted internal audits. This issue raised by

the Volcker Committee goes to one of the fundamental problems in the basic

structure of the program: that it was a program created, designed, and enforced

by the Security Council under its powers in Chapter VII, but administered by

the Secretariat. There is no provision in the UN Charter for the Secretariat to

override or modify any decision by the Security Council, in any form.

Under the terms of the program’s mandate, contained primarily in Security

Council Resolution 986 and the Memorandum of Understanding, only external

audits were authorized. According to the February report of the Volcker Committee, these were conducted and submitted to the Security Council, as required. Under standard UN practice, contracts to which the UN is a party are

audited; but the import and export contracts in the OFF program took place between Iraq and commercial enterprises. While we may now say that internal

audits should have been conducted, or that the import and export contracts

should have been audited, that was not how the Security Council chose to design the program, and the Secretariat did not have authority to override the Security Council on these or any other aspects of the OFF program.

The other major issues discussed in the Volcker Committee reports released to

date do not indicate that program’s basic structure or operations were fundamentally compromised:

• A great deal has been said about the claim that Kofi Annan’s son may have been

involved in the decision to award an inspection contract to Cotecna. But while

this issue has gotten enormous attention from the media, it is not a significant

factor in the operation of the Oil for Food Program. The Cotecna contract involved a minor part of the program (the 2.2% account). Further, the accusation

is that the contract was improperly awarded to Cotecna; not that Iraq’s humanitarian imports were compromised by any practices of Cotecna.

• The improprieties in contracting identified by the Volcker Committee in the February report indicate that the program was subject to a series of manipulations

for political purposes, but that these generally did not in fact serve the interests

of the Iraqi government. The report of February 3 notes that of the three major

25

contracts under the 2.2% account, only one (the banking contract) was awarded

with the agreement of the Iraqi government; and that arrangement had the

support of the US and UK. The Saybolt contract was improperly awarded to a

Dutch company, on the grounds that the Netherlands supported the enforcement of sanctions against Iraq. The inspection contract to Lloyd’s Register was

improperly awarded to a British company, through the influence of the British

Mission to the UN.

• The Volcker Committee gives evidence for serious concerns that Benon Sevan improperly received $160,000 through his involvement with one company that

bought Iraqi oil through the program. If true, Sevan’s actions would clearly be

improper and may be illegal as well. However, it is not clear that Sevan in fact

used his position to serve illicit interests on the part of the Iraqi government.

The Volcker report indicates that the Iraqi government wanted Sevan to use his

influence to persuade the Security council members to lift holds on oil spare

parts and equipment. The Volcker report notes that the Iraqi government was

disappointed that Sevan did not do so, and cancelled further oil allocations. In

fact, Sevan did argue for lifting holds on oil spares parts and equipment, on the

grounds that these were necessary for oil extraction. But that was also the position held by the oil overseers, as well as most members of the Security Council.

6. Who was responsible?

A. The consensus decision making rule

Prior witnesses at these hearings have suggested that the consensus requirement

of the 661 Committee made it difficult to establish effective oversight of the Oil for

Food program. However, for the most part the consensus requirement in fact operated in exactly the opposite way: in the absence of consensus, the default position

was denial of import or oil sales, not approval. In most contexts, the consensus requirement did not prevent unilateral US action. It was in fact the structure that

enabled the US to impose many policies and decisions unilaterally.

• Import contracts: All contracts (except those eventually included on the Green

List) were circulated to every member of the 661 Committee, and required the

approval of every member of the Committee. Thus, any single member could

block any contract, regardless of whether other members objected.

The United States unilaterally blocked massive quantities of import contracts,

citing security concerns. It was occasionally joined by the UK, but the overwhelming majority of the holds (typically 90-95% at any point in time) were imposed by the US and the US alone.

• Oil contracts: the US, joined by the UK, used the consensus rule to delay approval

of oil pricing, and did so over the objections of others in the Council until October 2001, when the 661 Committee finally agreed to retroactive oil pricing.

• The negotiation of ‘‘rollover’’ resolutions (the Security Council resolutions extending the program for an additional six months) were occasions for dispute. On

one hand, there was considerable controversy over US holds on humanitarian

goods; on the other hand, the US and UK would raise the issue of smuggling,

and seek to include stronger measures against smuggling in the rollover resolution. On these occasions, France and Russia opposed such measures, arguably

because of their own interests. However, it appears that the US also had little

credibility on this issue with the committee, since the US did not want to enforce such measures against its allies, Jordan and Turkey, but only against

other nations.

B. What was the US role?

The history of the program does not support the claim that the US was concerned

about illicit funds entering Iraq, or would have done more if it had not been stymied

by other members of the council. By all accounts, and based upon the US policies

and decisions, the US was singularly preoccupied with military concerns, in particular WMD.

• The US blocked billions of dollars of import contracts—$150 million as of November 1998, then growing to $5 billion as of July 2002. All of these were blocked

on the grounds that they contained items that could have military applications,

or else contributed to Iraq’s infrastructure, thereby creating the possibility of

rebuilding its military capacity.

There was nothing in the 661 Committee’s procedures that prevented the US

from blocking questionable contracts, for either imports or oil sales. To the contrary, the consensus rule was the mechanism that allowed the US to impose

far greater restrictions on import and oil sales than other members of the Security Council supported.

26

11 As Mr. Schweich explained in his testimony, since 1991, under federal law there have been

restrictions on US assistance to countries not in compliance with Security Council sanctions

against Iraq. However, all three administrations filed waivers with Congress throughout the history of the sanctions regime, finding that it was in the national interest to provide aid despite

these violations. 12 ‘‘Data on Iraqi Trade/Rev.3,’’ memorandum dated 1 December 1993 from Paul Conlon to

James C. Ngobi

• The US declined to block any of the import contracts presented, on the more than

seventy occasions on which the US and the other member states were explicitly

informed by UN staff of pricing irregularities suggesting possible kickbacks.

• US officials did on occasion report rumors of kickbacks and ask for investigations.

However, when asked to provide specifics that could be investigated, US officials failed to provide any information on which to base an investigation.

• All three US administrations explicitly permitted large-scale illicit overland trade

between Iraq and Jordan, and between Iraq and Turkey, throughout the history

of the sanctions regime.

• To the extent that there was maritime smuggling, this occurred not through failures on the part of the UN, but rather on the watch of the US Fifth Fleet. The

MIF fleet was overwhelmingly made up of vessels from the US Fifth Fleet, and

was at all times commanded by US naval officers.

• The US approved the hire of every oil overseer hired by the Secretariat

• When the oil overseers—UN staff—informed the 661 Committee of pricing irregularities in oil sales, the US and UK implemented a harsh policy of retroactive

pricing. Far from being stymied by other members on the Council, this practice

began despite the objections of others on the Council.

• The US voted for Security Council Resolution 986 and agreed to the Memorandum

of Understanding, which gave the government of Iraq the right to select its

trading partners. This was crucial in permitting Iraq to use the OFF program

to generate political support.

• The US voted for Security Council Resolution 986, which only required the OFF

program to be subject to external audits, not internal audits.

C. The State Department’s defense of US support for Iraq’s illicit trade with Jordan

and Turkey

In the congressional hearings that have taken place over the last several months,

it has become known publicly what research specialists have known for the entire

Iraqi sanctions episode—that all three US administrations turned a blind eye to this

smuggling, and in fact took efforts to prevent the imposition of penalties under US

law.11 Despite more than a year of harsh attacks on the United Nations—particularly the Secretariat—for claimed mismanagement of the Oil for Food Program, the

fact is that the bulk of the illicit funds that the Iraqi regime acquired in fact had

nothing to do with the Oil for Food Program.

It is clearly a matter of some embarrassment to the State Department that the

United States itself knew, approved of, and took efforts to protect the ongoing smuggling which generated the majority of these funds, specifically in regard to Turkey

and Jordan. The current response of the State Department is that this smuggling

was legitimate and transparent, unlike that smuggling, done by Syria, or other corrupt practices such as kickbacks and bribery. Such a claim seems quite absurd in

light of the actual history of US policy choices.

• In light of the research conducted by Dr. Paul Conlon, who testified before Congress last month, it is not correct to portray Jordan as being honest and aboveboard, when there was evidence from nearly the beginning that Jordan misrepresented its activities to the Committee on an ongoing basis. Indeed, it was

Dr. Conlon himself who wrote the report informing the 661 Committee of this.12

• In the case of Turkey, it was precisely the fault of the United States that Turkey’s

ongoing illicit trade was not granted any legitimacy. Whereas other countries

on the 661 Committee repeatedly asked that Turkey’s appeal for relief under

Article 50 be considered, and Turkey placed this on the Committee’s agenda

over a dozen times, it was the United States (occasionally joined by the UK)

that blocked the Committee from considering Turkey’s request.

The State Department’s current position

In his testimony on April 12 before the House Committee on Government Reform,

Thomas Schweich of the State Department maintained that the large-scale ongoing

illegal trade that Iraq maintained with Jordan and Turkey was ‘‘in no way comVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 21637.TXT HCOM1 PsN: HCOM1
27

13 All quotes from Mr. Schweich are from the Federal News Service transcript of his testimony

(unpaginated). 14Florida State University Journal of Transnational Law & Policy, vol. 6 (Fall 1996). 15 Ibid., p. 112. 16 Ibid., p. 115. 17 Ibid., p. 116. 18 Ibid., p. 117. 19 Ibid., p. 118. 20 Ibid., p. 115. 21 Ibid., p. 114. 22 Ibid., p. 116.

parable to the kind of corruption, bribery, or kick backs’’ that have been investigated

by congressional committees.13

According to Mr. Schweich, the 661 Committee’s decision to turn a blind eye to

Jordan’s smuggling was ‘‘not a back room deal.’’ Rather, he said, in 1991 Jordan

sought relief under Article 50 of the UN Charter, and the Committee never acted.

Consequently, Jordan informed the Committee that a loss of trade with Iraq would

cause considerable damage to its economy, and simply notified the Committee that

it intended to continue importing oil from Iraq. The Committee ‘‘took note’’ of this

without objection, and asked Jordan to report on its trade. Thus, according to Mr.

Schweich, ‘‘it wasn’t really secretive.’’ Similarly, according to Mr. Schweich, in 1996

Turkey requested Article 50 relief, also because of the consequences of sanctions on

the economy. He stated:

The Jordanian and Turkish protocols were done to alleviate economic hardship, it was an exception to the sanctions regime because of the severe consequences that a failing Jordanian and Turkish economy might have on the

world, it was done transparently, openly with the knowledge of the entire 661

Committee and the international community and for a valid purpose.

And to allow countries and individuals to equate that with the type of corruption that went on could seriously undermine our efforts to reform the UN that

are going on now.

Other countries, such as Syria, did not receive similar relief, according to Mr.

Schweich; Turkey and Jordan, by contrast, ‘‘came hat in hand, asked for Article 50

relief, and really did it by the book. Syria just engaged in massive fraud . . .’’

Contrary to the State Department’s claims, the open smuggling was never considered legal. There was clear favoritism based upon US strategic alliances, not altruism or international law; and the US in fact blocked attempts to grant proper,

transparent, legal relief under Article 50.

Jordan

In his 1996 article ‘‘How Legal Are Jordan’s Oil Imports from Iraq?’’’ 14, Dr. Paul

Conlon wrote about this issue in great detail. He noted that:

• When India made a similar request, citing the Security Council’s approval of Jordanian trade, it was rejected. In a formal opinion ‘‘of considerable precision and

clarity’’ from the office of the UN’s Legal Counsel, ‘‘the Committee concluded

that an exemption would be illegal.’’ 15

• Although Jordan provided annual reports to the 661 Committee concerning its

Iraq trade, by 1993 it was apparent that these reports were not truthful. Jordan’s official reports to the UN data base on world trade reported much higher

amounts.16 An internal report regarding these discrepancies was circulated to

multiple members of the 661 Committee, but the committee declined to discuss

it.17

• Research conducted in 1994 indicated that ‘‘considerable manipulation was involved’’ in Jordan’s reports to the 661 Committee: Jordan’s actual oil imports

from Iraq—according to Jordan’s own reports to other UN bodies—were 81%

greater (in dollar value) than the amount it reported to the 661 Committee.18

• There in fact was no transparency on this issue. Some countries believed that the

committee had actually granted Article 50 relief.19 While the illicit trade was

widely known, ‘‘[o]riginally, the pseudo-agreement’s existence was held to be a

secret. It was never mentioned in any published UN document.’’ 20

• The practice of ‘‘taking note’’ of Jordan’s practices, which occurred each year, had

no basis in any relevant legal authority, either Article 50 or paragraph 23 of

Resolution 687.21

• This arrangement continued well past any legitimate concerns with Jordan’s inability to obtain substitute oil supplies. Far from seeking alternate sources of

oil, Jordan actually increased its dependence on Iraqi oil during the sanctions

regime.22

28

23Meeting 171, May 12, 1998.

In the case of Jordan, there was no transparency. An open secret of improper activities is not ‘‘transparency.’’ Nor could the 661 Committee view this as legal, in

light of the legal opinion stating strongly that it was not.

Turkey

In a letter dated August 5, 1996, Turkey submitted a formal request to the 661

Committee for relief, citing the economic hardship due to trade disruption with Iraq

resulting from the sanctions. Turkey sought permission to resume oil imports, and

to in turn provide Iraq with goods for the civilian population. Far from supporting

Turkey’s appeal for Article 50 relief, the US delegate on the 661 Committee said

in an August 1996 meeting (meeting no. 142) that Turkey’s request would compromise the integrity of the sanctions regime, and that the matter should be postponed to a later time. The issue was raised again, and again, and again—in meeting

143 (August 28, 1996); meeting 144 (October 14, 1996); meeting 145 (December 3,

1996); meeting 146 (December 18, 1996); meeting 148 (January 28, 1997); meeting

150 (February 21, 1997); meeting 151 (March 17, 1997); meeting 152 (March 24,

1997); meeting 155 (May 14, 1997); meeting 157 (June 11, 1997); meeting 159 (July

17, 1997); meeting 160 (August 27, 1997); meeting 166 (January 4, 1998); meeting

171 (May 12, 1998); meeting 172 (June 18,1998); and meeting 176 (December 1,

1998).

As the issue dragged on for years, the US position remained unchanged. Again

and again, the US delegate reiterated the same position: that the view of the United

States had not changed, thus blocking any possibility of considering Turkey’s appeal

for relief in a public, legal, and transparent form.

It was the US who maintained that the Committee did not have authority to

grant a sanctions exemption to Turkey—over the opposition of others on the 661

Committee. In one instance, the US objected to a French proposal that the Secretariat provide a report on the effects of the sanctions on neighboring states.23 The

delegates from China and Bahrain spoke in support of the proposal. However, the

US (joined by the UK) refused to agree, thus preventing consensus (effectively

vetoing) even a request to the Secretariat to provide information on the impact of

sanctions on Turkey and other nations.

Conclusion

In the cases of Jordan and Turkey, the State Department currently maintains

that the US did not approve of or participate in any impropriety, on the grounds

that these arrangements were transparent and honest. They were not.

7. Conclusions

• The bulk of the illicit funds that arrived in Iraq over the course of the sanctions

regime had no relation to the Oil for Food Program. They occurred through

large-scale ongoing smuggling, which began well before the OFF program, and

had no relation to the program at all.

• Contrary to common views, the Oil for Food Program did not ‘‘give Saddam Hussein a free hand’’ to use oil proceeds as he wished, without oversight or monitoring. Rather, the OFF program had multiple levels of oversight for both import contracts and oil sales, involving scrutiny by UN staff and by every member of the Security Council, of nearly every aspect of every transaction. To the

extent that there were kickbacks or other improprieties in the program, these

occurred not for lack of oversight; but rather occurred despite an elaborate system of oversight.

• Contrary to common views, the Oil for Food Program was not characterized by

an absence of transparency. In many regards the program was highly transparent, not only to the members of the Security Council—which authorized and

supervised the program—but to the general public as well.

• Contrary to common views, the UN Secretariat was not responsible for what are

seen as the major failures of the program: the ability of Iraq to choose its trade

partners; the kickbacks on import contracts; the surcharges on oil contracts; the

large-scale smuggling. The design of the program, and the enforcement of the

sanctions, was in the hands of the Security Council and its members, not the

Secretariat.

• Contrary to common views, the US did not show significant concern regarding

smuggling and kickbacks. Rather, the US was preoccupied with blocking military goods from entering Iraq. The US generally showed a lack of interest in

stopping illegal funds from entering Iraq, and this was particularly true where

US strategic allies were involved in illicit trade with Iraq.

29

• It is not plausible to attribute the poor humanitarian situation in Iraq to the failures of oversight of the Oil for Food program. These kickbacks and oil surcharges are estimated to be at most $4.4 billion, over the seven-year course of

the program. What was far more damaging to Iraq’s economy and society were

the limitations that compromised oil sales (including retroactive oil pricing) and

large-scale holds on equipment and goods necessary for infrastructure and for

the operation of an industrialized society—electricity production, water and

sewage treatment, telecommunications, transportation, construction, industrial

production, agriculture. These were imposed almost entirely by the United

States. US holds on critical humanitarian and infrastructure supplies at just

one point in time—July 2002—totaled some $5 billion. In the end, the total

goods that actually arrived in Iraq from the program’s inception through May

2003 came to only $4.6 billion per year, or about $191 per person per year. The

extreme impoverishment of the Iraqi population would not have been significantly affected if that amount were increased to $200 per person per year,

which is approximately the difference that $4.4 billion would have made.

We may be shocked that as much as $4.4 billion in illicit funds slipped

through the oversight structures of the Oil for Food Program. But the reality

is that in the face of such severe, longstanding, and widespread impoverishment, the actual impact of the kickbacks and surcharges that have been denounced by many as a scandal of historic proportions was in fact negligible in

comparison to the economic sanctions themselves, and the additional strictures

imposed by the US and the UK.

Mr. WHITFIELD. Dr. Gordon, thank you very much. And I appreciate the testimony of all of you. I might say that Gerald Anderson

will be testifying on the next panel, and I do know that in his testimony he is going to say that the U.S. and Britain made 40 attempts in formal and informal meetings with the 661 Committee

to address the oil surcharge problem.

Now, Mr. Smego, you testified that you reviewed more than

23,000 pages of documents or DVDs equivalent of 23,000 pages. Is

that correct?

Mr. SMEGO. That is correct, sir.

Mr. WHITFIELD. And these are documents from the Iraqi Intelligence Service or the state oil ministry?

Mr. SMEGO. The 23,000 pages were actually from a larger

amount of 60,000 pages from the Iraqi State Oil Marketing Organization, otherwise known as SOMO.

Mr. WHITFIELD. And did you translate Iraqi Intelligence Service

memos?

Mr. SMEGO. Yes. I also did translate nine documents from Iraqi

Intelligence Service.

Mr. WHITFIELD. And, now, you were with the Iraqi survey group

for a period of time. When was that?

Mr. SMEGO. That is correct. I was there from April 2004 to January 2005.

Mr. WHITFIELD. Now, it appears that in some point in 2000, Saddam Hussein began demanding a surcharge on Iraqi oil contracts.

During the course of your work, did you uncover any documents

pertaining to those oil surcharges?

Mr. SMEGO. Absolutely, sir.

Mr. WHITFIELD. And which exhibit is that?

Mr. SMEGO. Exhibit 1.

Mr. WHITFIELD. And what does that say?

Mr. SMEGO. Exhibit 1 is a handwritten document in English regarding contracts under the eighth phase of the Oil-for-Food program stating that the buyer—it is between the seller and the

buyer—for the purchase of however many barrels of crude oil, and

30

that a payment of so much dollars per barrel would be charged as

a surcharge.

Mr. WHITFIELD. And paid either directly in cash or to a SOMO

bank account?

Mr. SMEGO. That is correct.

Mr. WHITFIELD. And who signed that document?

Mr. SMEGO. At the first page, at the top left of the document it

is signed by Amer Mohammed Rasheed, who was the minister of

oil at that time.

Mr. WHITFIELD. Okay. Now, during the course of your work for

the committee, did you examine any documents that purport to

show that Saddam Hussein and members of his regime used, or at

least attempted to use oil allocations under the program to influence individuals and entities?

Mr. SMEGO. Absolutely. Certain documents within the Iraqi Intelligence Service, for example, document 3—excuse me, Exhibit 3

in 1998 states that Iraq was planning to take a portion of its oil

during the phase and distribute it to friendly companies and distinguished personalities. Approximately 80 million barrels ‘‘to the

friendly nations, companies, and political establishments,’’ at the

rates specified.

Mr. WHITFIELD. Okay. And that was Exhibit 2 or 3?

Mr. SMEGO. That was Exhibit 2. I stand corrected.

Mr. WHITFIELD. And Exhibit 2, does it also mention Russia,

France, and China?

Mr. SMEGO. Yes. At the rates of Russia receiving 40 percent,

France 15 percent, and China 11 percent of the approximately 80

million barrels.

Mr. WHITFIELD. And then on Exhibit 3, does it specifically mention those countries as being a part of the permanent membership

of the Security Council?

Mr. SMEGO. Absolutely. Exhibit 3 is a disclosure of the oil allocations after the sixth phase. It is subtitled Special Orders.

Mr. WHITFIELD. Now, they refer I believe in that exhibit also to

standard oil—standard orders and specific orders or special orders.

What’s the difference in those two?

Mr. SMEGO. Underneath special orders, the committee can see

that certain entities and individuals are listed. They are nonstandard—they are not oil companies themselves. So one could certainly draw the conclusion that the standard orders were for the

oil companies, whereas the special orders were for those entities

that were not standard purchasers.

Mr. WHITFIELD. Now, is my understanding correct that, under a

special order, you can literally walk away from the contractual obligation?

Mr. SMEGO. I would not be qualified to answer that.

Mr. WHITFIELD. Okay. Now, I want to ask you a few questions

about this Iraqi Intelligence Service documents. You mentioned

that you translated I think nine of those; is that correct?

Mr. SMEGO. Yes. Nine documents, sir.

Mr. WHITFIELD. Does it appear from those documents that Saddam Hussein attempted to implement a strategy of improving relations with the French government?

31

Mr. SMEGO. Certainly. By January 2002, under Exhibit 4, a

memorandum from the Office of the Secretary of the President

Abed Hamid al-Hattab, stated, and I quote: ‘‘the present leader,

God bless him, ordered the improvement of dealing with France.’’

Mr. WHITFIELD. And did the IAS subsequently take steps to

carry out that directive from Saddam Hussein?

Mr. SMEGO. Yes, sir. The Exhibit 5 states, with the subject of

Iraqi-French relations, to prepare an Iraqi delegation to France in

exchange for an invitation of French delegations to Iraq. And that

specifically, under point number 5, economic privilege such as oil

and trade was to be given to French political and economic individuals close to the center of political decisionmaking.

Mr. WHITFIELD. Okay.

Mr. SMEGO. There was also allegations of support—or at least, I

should say, number 7 specifies the study, the possibility to support

one of the candidates in the French Presidential elections.

Mr. WHITFIELD. Okay. Now, let me ask you. On exhibit 11—or

I want to call your attention to that a minute. This document purports to show that the regime, the Saddam Hussein’s regime subsequently refined their strategy on influencing French companies or

delegations, et cetera. Could you discuss for us what that says?

Mr. SMEGO. Absolutely, sir. By April 2002, point 2 approves the

granting of contracts to the French companies which are the most

important and influential in the French field. However, point 3 of

the document refines it in saying that: Regarding the subject of

doing business with the small French companies, it is understood

that the small companies are not beneficial to the country. Meaning Iraq.

Mr. WHITFIELD. So they focused on large French companies?

Mr. SMEGO. Absolutely. The small companies apparently did not

pan out for them.

Mr. WHITFIELD. Now, did you find any documents during your

work for the committee that identified specific individuals that the

regime sought to target?

Mr. SMEGO. Yes, sir. Examples 6 and 7 are the best—Exhibits 6

and 7 are the best examples of such.

Mr. WHITFIELD. Now, Exhibit 6, what does it say in Exhibit 6?

Mr. SMEGO. The subject of the memorandum, it’s dated in February 2002 from the assistant director of the Iraqi Intelligence

Service to the director regarding Iraqi-French relations. They

named 12 French individuals of influence, among them the former

French president Valery Giscard d’Estaing, Charles Pasqua, JeanPierre Chevenement. Please forgive my pronunciation of French

names. Jacques DeLors. And other individuals.

Mr. WHITFIELD. Now, did you find any documents showing that

any payments were made, for example, to Charles Pasqua?

Mr. SMEGO. The documents that I have presented here today, I

do not have anything that directly denotes a payment to Mr.

Pasqua. However, there were several documents regarding—or that

at least mentioned Mr. Pasqua in them. Among them, the first

would be Exhibit 13.

Mr. WHITFIELD. And according to the Duelfer Report, Mr. Pasqua

received allocations for 11 million barrels of oil, of which 10.75 was

actually lifted. But would you walk us through Exhibit 13?

32

Mr. SMEGO. Certainly. Exhibit 13, the first bullet under which

states that: First of all, the subject is the French individual or dignitary, Charles Pasqua, that Saddam Hussein personally approved

designating 3 million barrels of oil to Charles Pasqua. And that the

Frenchman Bernard Guyet, who represented Charles Pasqua also

visited and requested the contract be under Genmar Company. It

was a Swiss company. However, when the Iraqi side made it clear

that it was necessary to choose a French company, apparently Mr.

Bernard Guyet stated that it was not possible for political reasons.

Mr. WHITFIELD. And was there any additional information on

that page?

Mr. SMEGO. Absolutely. When the Iraqi State Oil Marketing Organization requested from Mr. Guyet a letter of authorization from

Mr. Charles Pasqua to Genmar for Genmar to lift the crude oil, Mr.

Guyet refused and clarified that they could not provide that because of a fear of political scandal.

Mr. WHITFIELD. Okay.

Mr. SMEGO. Subsequently, a few days later, Exhibit 14, a letter

from the office of the deputy prime minister reminds the SOMO executive director that Mr. Bernard Guyet is the diplomatic and political adviser for Mr. Pasqua, and he represents him to receive the

oil allocation.

Mr. WHITFIELD. Okay. Now, are you familiar with a company

called Ibex Energy?

Mr. SMEGO. Yes, sir, I am.

Mr. WHITFIELD. During the course of your work, did you find any

documents relating to Ibex?

Mr. SMEGO. Yes, sir, I did.

Mr. WHITFIELD. Is Ibex a French company?

Mr. SMEGO. I would not be qualified to answer that.

Mr. WHITFIELD. Okay.

Mr. SMEGO. Exhibit 37, if you would, please. Now, the Iraqi document does specify that Ibex Energy is a French company, but I

have not validated such.

Mr. WHITFIELD. Okay.

Mr. SMEGO. Exhibit 37 is a letter from the Iraqi vice president

Taha Yassin Ramadan, who addressed the letter to the minister of

oil approving the supply of Ibex with a quantity of 1.8 million—or,

excuse me, 1.8 million barrels of oil to be included in phase 5 specifically ‘‘as the beginning of doing business with this company as

well as to know the potential of advantage from their activities in

other fields.’’

Mr. WHITFIELD. And then I notice on Exhibit 38 a payment of

$19,700 was made to a Portuguese citizen named Armando Carlos

for services rendered. Is that correct?

Mr. SMEGO. Yes, that is correct, it did appear on Exhibit 38.

Mr. WHITFIELD. And who is Mr. Carlos?

Mr. SMEGO. Mr. Carlos is apparently an oil inspector as reviewed

in Exhibit 39.

Mr. WHITFIELD. And what does Exhibit 39 point out?

Mr. SMEGO. Exhibit 39 is a letter from the minister of oil in April

2002 to the deputy prime minister stating that two additional

quantities of oil had been loaded from the Min al Bakar terminal

with the coordination of the oil inspector, the agreement with the

33

oil inspector for his share of 2 percent of the profit of the additional

quantity in exchange for his services. And point 3 specifically

names that Armando Carlos has been paid $105,819 for both aforementioned shipments.

Mr. WHITFIELD. Okay. I see my time has expired. So at this

point, I would recognize Mr. Stupak for 10 minutes of questioning.

Mr. STUPAK. Mr. Smego, in your testimony you were requested

to look for documents that referred to particular topics. Is that correct?

Mr. SMEGO. That is correct, sir.

Mr. STUPAK. What were those topics?

Mr. SMEGO. The majority counsel specified that we would be

searching the oil documents for transactions that would be from entities or regarding individuals or entities from the United Nations

permanent Security Council member nations that did not appear to

have an established history in the oil trading industry.

Mr. STUPAK. So if an oil company would be an established entity

that had traded in the oil world market, you wouldn’t look at

those?

Mr. SMEGO. We generally went over the companies that did not

have a specific influence or any signs of outside influence or use

of oil for influence.

Mr. STUPAK. Well, did you look for things like Coastal Oil? Did

you look for that entity.

Mr. SMEGO. Coastal Oil did appear. Coastal Oil documents were

very lightly referenced in those pages.

Mr. STUPAK. But they were referenced.

Mr. SMEGO. But we do not have anything that was presented

here today.

Mr. STUPAK. Why not?

Mr. SMEGO. It was not the discretion—or, excuse me; it was at

the discretion of the majority counsel.

Mr. STUPAK. What about Bay Oil?

Mr. SMEGO. Again, that would be at the discretion of the majority counsel.

Mr. STUPAK. Did you see Bay Oil in there, though?

Mr. SMEGO. I do not recall any specific documents.

Mr. WHITFIELD. Mr. Stupak, I might just mention, in the binder

there are some letters from Oscar Wyatt of Coastal that was translated by Mr. Smego. I just would point that out to you. It is Exhibits 40 and 41.

Mr. STUPAK. So the documents you looked at, you were really directed by the majority counsel to look at these documents and you

didn’t go much further than that?

Mr. SMEGO. There were 21 DVDs containing 60,000 pages. We

certainly had our hands full with the amount of pages, and to

quickly triage or at least have gone through 23,000, we hit what

we could.

Mr. STUPAK. Okay. I guess what I am trying to focus on, how did

you focus your investigation; on what majority counsel told you, or

were you trying to get at companies that dealt with Iraqi Oil-forFood program that looked questionable?

34

Mr. SMEGO. I brought documents to the attention of the majority

counsel. It was upon his approval that documents would be translated and presented.

Mr. STUPAK. Okay. Besides looking at these documents as far as

them being accurate, would you have any personal knowledge of

them being accurate?

Mr. SMEGO. Would you be saying authentic, or the translation?

Mr. STUPAK. Authentic. I am sure your translation is correct. The

authenticity.

Mr. SMEGO. I am not sure if I would be qualified to provide an

answer, based that I have not inspected the original document

itself.

Mr. STUPAK. Okay. Do you know whether the statements contained in these documents like Exhibit 4 and 5 and 11 and 6 and

7, do you know if they are true?

Mr. SMEGO. I can simply state that the documents were written

by, or at least from the perspective of the Iraqi side, whether the

author of the Iraqi document put fact in there I am not aware. I

cannot confirm the facts. I can simply tell you what the document

states.

Mr. STUPAK. Should we assume, then, that only the people who

wrote them and those who received them can really testify as to

their truthfulness or accuracy?

Mr. SMEGO. Well, I can simply tell you what the language states.

Whether to be confirmed or not, no in-depth analysis was performed.

Mr. STUPAK. Okay. When you look at so many of these documents, some of these dates just seem to be off base. One date, and

then it is a year later you see another date. Like, take document

2 and 3, the ones you pointed out here. Take a look at No. 2. The

date on that document, if I am reading this right, is November 22,

1998. And then you look at document No.3 which you reference as

part of it, and that is a year later.

Mr. SMEGO. Yes, those dates are accurate.

Mr. STUPAK. So how do you tie these two into each other is, I

guess, what I am trying to figure out. On Document 2 you say Russia gets 40 percent, France 50, and China 11. And then you go to

document No.3 here and it is a whole year later.

Mr. SMEGO. That is correct, sir. In November 1998 the decision

was made to withhold a portion of the oil during that phase and

split it as we have—the document states. Exhibit 3 shows that a

year later, that the Iraqi State Oil Marketing Organization had put

together a spreadsheet outlining No. 1, 2 and 3, being Russia,

China and France, under the subheading of ‘‘countries of permanent membership.’’

Mr. STUPAK. Okay. In this whole deal here, when you talk about

individual profits, these individuals again, this, for Mr. Pasqua and

all that, whether they received that money you have no idea; right?

Mr. SMEGO. I do not have access, or I was not presented with any

documents regarding that. I can simply have the documents from

the State Oil Marketing Organization.

Mr. STUPAK. Okay.

Dr. Gordon, if I can ask you this question. In your testimony you

seem to put all the blame on the problems with the Oil-for-Food

35

program on the Security Council and 661 sanctions committee. I

call it the sanctions committee. Do you believe that the U.N. staff

and the Office of Iraqi Programs were aggressive enough in identifying the problems and bringing them to the sanctions committee

attention?

Ms. GORDON. Yes. From everything I have seen I think that is

quite true. If you look at what is called the customs officer within

the OIP, they absolutely did find several dozen instances of clear

price irregularities and all of those occasions brought them directly

to the 661 committee. In the case of the oil overseers it was the

same. They noted very quickly when the oil prices were not consistent with fair market value, immediately brought these to the

attention of the 661 committee. That is correct.

Mr. STUPAK. Mr. Fawcett, do you agree with that?

Mr. FAWCETT. No, I don’t. I think out of the 20,000 contracts for

the U.N. officials, to find 70 that were a problem, I think they

could have done that by the end of breakfast. The fact that these

were——

Mr. STUPAK. What would make a contract out of order, then,

other than price?

Mr. FAWCETT. I think price, the fact that there was no competitive bidding, should have shown to anyone looking at this—to see

a company from a country that is closely allied with Iraq would immediately raise the attention of an inspector or of a customs official. Also, the great majority of the goods going in were commodities. They were not difficult to price. It was not difficult to work

out what was the standard world price for a commodity; therefore,

what should the price actually be.

Mr. STUPAK. You said one of the things you look at is countries

closely aligned with Iraq. But 75 percent of that oil ended up back

here in the United States, and the United States really isn’t closely

aligned with Iraq.

Mr. FAWCETT. Correct. But we are talking about the contractor,

the first contractor. The game with the oil purchases was to allow

someone else to pay the kickbacks, not the major oil companies of

the world, not the refiners. Clearly, the end user would know there

is a problem, but they would not be the one paying the kickback

themselves.

Mr. STUPAK. And everyone knew there were kickbacks going on.

Mr. FAWCETT. Absolute, without a doubt.

Ms. GORDON. Mr. Stupak, I wonder if I might address this notion

that only 70 of the 20,000.

Mr. STUPAK. Sure.

Ms. GORDON. I understand Mr. Fawcett to be suggesting that

they weren’t working that hard to come up with that 70. I think

what is important to understand is that the Iraqi Government was

not stupid. If they had had extreme price irregularities and frequency, that would have been noted. What they did do was pad the

contracts, for the most part, in fairly small amounts, 5 to 10 percent, where the result of padding was often in contracts that were

made to order, that were built to specifications, for which there

were not in fact standard oil prices.

36

I think what we see is not a failure to discern extreme pricing

irregularity, but in fact consistence in finding those. And no one is

seeing the irregularities when they were marginal, 5 to 10 percent.

I would also point out that by the history of what we have seen

so far, there is no reason to think that the Security Council would

have responded any differently if in fact OIP had presented more

contracts with price irregularities.

Mr. STUPAK. Mr. Fawcett, let me ask you this. In your longer report, you stated that although the major oil companies stopped

buying Iraqi crude from middlemen after Saddam imposed a surcharge, BP and Exxon began to buy again after just a couple of

months and claimed they did not deal with companies that did pay

surcharges. Do you think their claims should be investigated? And

wasn’t the surcharge just passed on to the end user, basically the

American people?

Mr. FAWCETT. From all appearances, that is correct.

Mr. STUPAK. Do you think it should be investigated?

Mr. FAWCETT. I think someone should investigate, whether it’s

this committee or not. And if you do, I am glad to help.

Mr. STUPAK. Thank you. It looks like my time’s expired Mr.

Chairman.

Mr. WHITFIELD. Thank you Mr. Stupak.

At this time I will recognize the chairman of the committee, Mr.

Barton, for 10 minutes.

Chairman BARTON. Thank you, Mr. Chairman. I have got some

general questions. Then I am going to have some specific questions

about the documents that are before the subcommittee this afternoon.

My first general question is to Mr. Fawcett. Do you have any estimation of how many billions of dollars were skimmed from the

Oil-for-Food program?

Mr. FAWCETT. I think the estimates have continually risen. In

2002 we estimated it was about 2.1 or 2.2 billion. However, we

have not looked at the humanitarian supply side. So clearly it is

higher. I think the latest is up to 4, 4.5. And whether that is the

end or not, I doubt it. The one thing I’ve seen about this program

is it’s always worse than you think.

Chairman BARTON. Well, let me ask you a question. Regardless

of how many billions were taken off the top, how much of that

money, say we got a—if it could be proven that one of these officials got a personal voucher—and the one that is referenced in one

of the documents is this Mr. Pasqua—be allocated 3 million barrels, well at $15 a barrel, that is $45 million. At $20 a barrel that’s

$60 million. If we could locate those funds, could they be recovered

and remitted to the current Iraqi Government?

Mr. FAWCETT. Well, the vast majority of that money actually

went to the U.N. Account. We are only looking, on the kickback

you’re looking at maybe 50 cents a barrel, maybe less. So the type

of money there would be $1 million, $1.5 million. However——

Chairman BARTON. So the fact that he got the voucher, he didn’t

get the total proceeds.

Mr. FAWCETT. No, not at all.

Chairman BARTON. Even if we could prove it, nobody alleges that

he got the full value of those 3 million times whatever.

37

Mr. FAWCETT. Not at all.

Chairman BARTON. He got some sort of a commission.

Mr. FAWCETT. That’s correct. However, to address your point of

the bigger picture of recouping Iraqi assets, let’s not forget that

over history and over time, over the last three decades, Saddam

has ripped off tens of billions of dollars, long beyond the Oil-forFood. The highest estimate we have heard is $140 billion. The Oilfor-Food program is really only the latest, and that is what makes

it important because it provides a window into Saddam’s manipulation over the last 30 years. And the most recent information that

we have, and this is why I think these investigations are very important, is they might lead us toward the money that he stole over

time.

Chairman BARTON. Well that’s my point. You made it better than

I could through questioning. That at some point in time, all the investigations by all the various committees, various international

bodies, not just the U.S. Congress, hopefully will result in an identification of recoverable assets.

Mr. FAWCETT. Absolutely. And that’s—again, the Oil-for-Food is

important because it is more recent. The old rip-offs have now been

turned into investments, into real estate, into stocks, into bonds,

into things that wealthy individuals invest in, much more difficult

to find. But if we see in the Oil-for-Food, we find the same mechanisms, the same people involved that helped Saddam launder his

money back in the seventies and eighties, so instead of separating

this out and saying, well, he only ripped off this amount in the Oilfor-Food and he smuggled this amount, actually the stories should

be merged in order to do the best for finding the ripped-off assets

and returning them to the Iraqi people.

Chairman BARTON. Well, step one is to identify the theft. Step

two is to recover the goods if we can identify where the stolen

goods were. And unfortunately, and it is frustrating and I think

members on both sides of the aisle share the frustration. We are

still in step one. I’d rather be in step three, going after the goods

and trying to get them back to the Iraqi people.

I want to ask Mr. Smego a question. The documents that you reviewed for this committee and that you have translated, is there

any reputable authority that disputes your translation?

Mr. SMEGO. I would encourage that if there is any doubt about

a personal—or a certain section of the translation, by all means

you can certainly seek a second opinion.

Chairman BARTON. No. I am just saying since you have done the

translations and they have been available, at least for review by

staffs and I would assume others in official capacities, is there anybody out there that says you mistranslated them? Or can we stipulate that your translation is the correct translation?

Mr. SMEGO. There is no indication to me, no one has approached

me to say that these translations aren’t correct.

Chairman BARTON. As far as this subcommittee is concerned,

your translation can be considered to be a correct translation.

Mr. SMEGO. That’s correct. If another linguist were to translate

the context or the substance, the message would not change.

38

Chairman BARTON. I know, Dr. Gordon, you are not a translation

expert, but do you have any reason to doubt the veracity of the

translations?

Ms. GORDON. No, sir. I don’t speak Arabic.

Chairman BARTON. Okay. Well, I just wanted to try to assert

that our translations are the correct translation.

Mr. SMEGO. One thing that I can suggest, sir, that with the assistance of the native Iraqi linguist, when you pair a native Iraqi

speaker and a native English speaker and having actually two linguists work on the document, you produce a far superior translation than any one individual could produce.

Chairman BARTON. Okay. On document No. 5 in our binder,

what—when we talk about the implications of this document, could

you enlighten us a little bit on the implication of this document No.

5 that the present leader, Saddam Hussein—God bless him and

protect him—has ordered the improvement of dealing with France,

and then Iraq is going to send official political and social delegations to France; they are going to organize a roundtable in Baghdad and Paris to develop the relationship between both countries.

The Foreign Minister is going to visit Paris, and tasking the International Council and Office of Foreign Relations of the party to approach the most influential parties in France and the French Parliament?

And then item No. 5 on the second page of this document, do not

consider granting economic privilege, oil and trade, to those who

are not effective or do not have leverage. However, these privileges

will be given to French political and economic individuals close to

the center of the political decisionmaking. What does that imply,

this document taken as a whole, in your opinion?

Mr. SMEGO. Well, while I cannot specify as to what it implies, I

can reassure you that these are recommendations from the assistant director of the Iraqi Intelligence Service, made to his boss, the

director of the Iraqi Intelligence Service, on how possibly relations

could be improved. Of note would be the director’s margin note that

is listed under the first margin note. The director questioned, how

do we begin? Where do we go with this? He is basically questioning

how to implement this plan and who the targets would be to influence. This memorandum followed subsequently Exhibit——

Chairman BARTON. Well, if I wanted to imply—having read the

documents, if I wanted to imply that this would be considered an

official document of Saddam Hussein’s regime, that they wanted to

find out the people that counted in France and try to bribe them,

would that be a wrong implication? I’m not saying it’s a fact, but

if I were to read this document, do not consider granting economic

privilege to those who are not effective or do not have any leverage,

the fact that it says granting economic privilege would indicate to

me that at least somebody was thinking about bribing somebody in

the French Government if they thought they had leverage. Would

I be wrong to imply that?

Mr. SMEGO. I wouldn’t be qualified to judge that.

Chairman BARTON. Mr. Fawcett, would I be wrong to imply that?

Mr. FAWCETT. Well, without having seen the document it’s hard

for me to say. However, there is a lot of other corroborating evidence to show that that was——

39

Chairman BARTON. And I’m not saying it’s a fact. I’m just saying

a person of normal intelligence, if we assume that these documents

are correctly translated—and nobody apparently is asserting that

the gentleman to your left has improperly translated them—if you

just read the language and the plain meaning of it, it would imply

to me that Saddam Hussein was thinking about bribing people in

France if they were in a position of power. That is my implication.

Mr. FAWCETT. They also publicly went on the record long ago,

back in the late nineties, saying that they were going to skew the

contracts toward those political supporters internationally. So this

is not strange at all. This fits exactly in with their policy.

Chairman BARTON. Well, my time is about to expire. My last

question on this document 13, where the French dignitary Charles

Pasqua says the present leader, Saddam Hussein, God bless him,

approved designating 3 million barrels to him, the French dignitary. Why in the world would the Iraqi Government give Mr.

Pasqua the concession for 3 million barrels? He’s not an oil trader,

that I am aware of. I mean, Mr. Stupak has pointed that out. So

why would they do that? Why didn’t they pick Congressman Joe

Barton, or you, or the good professor to your left? Why did they

pick him?

Mr. SMEGO. Is that question directed to me, sir?

Chairman BARTON. It is a question, yeah. Just out of the blue,

why did he get picked? Did he have any ability to influence things

in the French Government or maybe be an influence maker himself? If I were trying to influence the French Government, might

I pick him?

Mr. SMEGO. One might go back to Exhibits 6 and 7, No.2 of Exhibit 6, subparagraph (b). The French Charles Pasqua was the

former Minister of the Interior and the French candidate for Presidential elections in the current period. And it references that it

would be possible to approach Mr. Pasqua through the relationship

of Tarik Aziz.

Chairman BARTON. So he might be able to influence the French

decision on these sanctions, the position the French Government

might take in the U.N. regarding these sanctions and regarding

lifting the sanctions, mightn’t he?

Mr. SMEGO. That is what Exhibit 6 might mean.

Chairman BARTON. It might be money well spent if you were

Saddam Hussein. Might be. I think it would be. If I decided I wanted to bribe somebody in France, he’d be a good target.

Mr. Chairman, I yield back my time.

Mr. WHITFIELD. Thank you, Mr. Chairman. Mr. Waxman is recognized for 10 minutes.

Mr. WAXMAN. Thank you, Mr. Chairman. It seems that what we

have here is a story of smuggling going on, even though there was

an embargo and kickbacks, in the sale of oil, the proceeds of which

were supposed to provide food for the Iraqi people. Mr. Fawcett, is

that what we are looking at?

Mr. FAWCETT. Yes, that’s right.

Mr. WAXMAN. Okay. And the kickbacks, from what we know from

these documents and otherwise, were to whom? To countries, to individuals, to oil companies?

40

Mr. FAWCETT. The kickbacks were sent back to bank accounts in

Jordan largely. And the accounts were, depending on the humanitarian side, the accounts were registered to the relevant ministry.

And my understanding of the mechanism, that the signators from

that ministry, as soon as the money was received, sent it on to another bank account of which they didn’t know much about, implying that it was going to either Saddam’s family or to the Iraqi intelligence.

Mr. WAXMAN. I see.

Dr. Gordon, was the U.N. supposed to be monitoring this whole

program to provide some kind of transparency?

Ms. GORDON. The whole program meaning the Oil-for-Food program?

Mr. WAXMAN. The Oil-for-Food program.

Ms. GORDON. Again, I think you have to start by not speaking

of the U.N. as a whole. I think that it is easy to not see how things

function if you only look at, quote, the U.N. What is really important is to look at what were the obligations and responsibilities of

the Secretariat, which included the OIP, the Office of Iraq Programs, and what were the responsibilities and obligations of the

Security Council. Obviously both are within the United Nations,

but as we talk these days about whether Kofi Annan should step

down or what the failures were on the part of Secretariat or whether the U.N. as a whole needs to be reformed, what is really crucial

is to say who exactly made what decisions, when. Who exactly had

what oversight responsibilities?

Mr. WAXMAN. What was the committee, the 661?

Ms. GORDON. It was a committee of the Security Council that

mirrored the Council. There were 15 members, one from each member state of the Security Council. It operated by consensus, so any

member of 661 committee could veto any matter at any point for

any reason.

Mr. WAXMAN. And so they were supposed to oversee the program.

Ms. GORDON. That’s correct.

Mr. WAXMAN. And the U.S. was part of that?

Ms. GORDON. Yes, of course.

Mr. WAXMAN. And this committee signed off on all the deals?

Ms. GORDON. That’s correct. More than signed off. Had full

knowledge at every point. That was what the U.N. staff of the Secretariat did, and did very well. They provided information. They

provided advising. If I could identify one particular decision of the

Security Council, as the Congressman before was looking at Mr.

Smego’s documents—and we have heard a great deal about the

vouchers that went to Russians, the vouchers that went to French

officials, and it is as though this is new information or somehow

surprising that Saddam Hussein would use oil sales to garner political leverage. In fact, that was an explicit decision on the part of

the Security Council when it passed Security Council Resolution

986 on the memorandum of understanding, which is, it was an explicit decision to give Iraq the right to choose its trade partners

both for import contracts and for oil sales. It was understood at

that time that Iraq was likely to use that to get—for political leverage.

41

As we see, the memo consisted of vouchers and secret vouchers.

In fact, as far as I can see, those vouchers are nothing other than

the bookkeeping device by which the Iraqi Government exercised

the right that the Security Council gave it to choose its trade partners.

Mr. WAXMAN. Would the U.S. have known about this?

Ms. GORDON. Of course.

Mr. WAXMAN. And so the U.S. Government, as part of the Security Council committee 661, was aware that they were giving Saddam Hussein the power to do the kinds of things he had done in

the past: provide corruption and kickbacks and such.

Ms. GORDON. Of course. I mean——

Mr. WAXMAN. Let me just settle with that, of course, because I

wanted to pursue another matter with Mr. Smego, and maybe

someone else will follow up on this. Mr. Smego, the committee

asked you to review several documents from SOMO, the Iraqi State

Oil Marketing Organization. And I’d like to ask you to review another SOMO document which was handed to you by my staff, if I

may. First, could you please verify for the committee that this document is on or purports to be on SOMO letterhead and is signed

by the General Manager of SOMO, Mohammad al Jabari?

Mr. SMEGO. No, I cannot.

Mr. WAXMAN. You cannot. In looking at it, does it appear to be

on SOMO letterhead?

Mr. SMEGO. I have never seen such letterhead.

Mr. WAXMAN. Okay. Have you ever seen SOMO letterhead?

Mr. SMEGO. Yes, I have.

Mr. WAXMAN. And this is different letterhead than SOMO company letterhead?

Mr. SMEGO. It is different from all of the other SOMO letterhead

that I have seen.

Mr. WAXMAN. It is different. Okay. Could you look at the highlighted text of this letter and verify that it says, SOMO purchased

gasoline to import into Iraq for approximately $1 per gallon. I believe the text reads quote, ‘‘U.S.D. 347 per metric ton delivered to

Baghdad, which is about $0.98 per gallon,’’ end quote.

Mr. SMEGO. I can verify that it is not in Arabic nor that I have

translated the document. It is the first time that I have ever seen

it.

Mr. WAXMAN. But you can verify that’s what it says on this piece

of paper.

Mr. SMEGO. In English, I see that; yes, sir.

Mr. WAXMAN. Okay. So SOMO, according to this document, was

importing gasoline into Iraq for less than $1 per gallon. And, Mr.

Chairman, I am going to ask that this letter be made part of the

hearing record.

Mr. WHITFIELD. I would ask the gentleman where did this letter

come from?

Mr. WAXMAN. Well, let me withdraw my request because I don’t

want to use up my time for questions.

Ms. Gordon, let me turn to you. Suppose a French company had

a separate contract to bring gasoline into Iraq, that this French

company was being paid out of Oil-for-Food funds and that that

French company charged not $1 per gallon but more than $2.50 per

42

gallon. Would you agree that someone at least ought to examine

that discrepancy and figure out why a French company was allowed to charge 250 percent higher than normal Iraqi price?

Ms. GORDON. I’m sorry. A French company to import——

Mr. WAXMAN. If we found out a French company was charging

250 percent higher than normal Iraqi price, wouldn’t that discrepancy call out for some examination?

Ms. GORDON. I suppose so.

Mr. WAXMAN. If I also told you this French company got this contract in secret and that no other companies were allowed to bid on

it, wouldn’t that be a factor for someone to look into? Wouldn’t that

raise suspicion?

Ms. GORDON. I would expect so.

Mr. WAXMAN . Well, Mr. Chairman, this is not a hypothetical example I invented. This is a real case. But it didn’t happen under

the Oil-for-Food program. It happened under the Development

Fund for Iraq under the Bush administration. And it wasn’t a

French company, it was an American company; it was Halliburton.

The administration gave Halliburton its contract in secret, in a nobid process. It excluded all other companies. The Pentagon’s own

auditors have now determined that Halliburton overcharged by

more than $212 million under this contract. And even though the

administration paid Halliburton with Iraqi funds from the DFI, it

intentionally concealed these overcharges from the United Nations.

My point is not to detract from the Oil-for-Food investigation, but

to demonstrate that if these actions had been committed by a

French company or by the French Government under the Oil-forFood program, we undoubtedly would have had dozens of hearings

by now. But presumably because it is Halliburton and the Bush administration, we have had none. This hampers the legitimacy of all

our efforts, and I hope the committee will remedy that disparity

very soon.

Dr. Gordon, how would you compare the transparency of the

American handling of the Iraqi oil funds with the transparency of

the U.N. handling or the Security Council handling the Iraqi oil

funds?

Ms. GORDON. Well, as I said earlier, there are seven levels of

oversight just for import contracts, and another set of separate controls for oil sales. What is the case is that with the Oil-for-Food

program, to the extent that there were improprieties, they happened not because of an absence of oversight or accountability, but,

in fact as large as these numbers sound to us, they happened at

a marginal level. They happened around the edges. They happened

on isolated occasions and they happened despite an elaborate, consistently implemented system of oversight at least on the part of

U.N. personnel.

By contrast, if you look at Security Council Resolution 1483,

which is the resolution that recognized that the occupation authority systematically eliminates all of the forms of oversight that were

in place under the Oil-for-Food program, it replaces them with certain other forms of transparency in some cases, and some forms of

oversight are not replaced at all. And as I believe you mentioned

earlier, we have already seen a huge spate of reports coming out

from the inspector general of the CPA itself, from the Defense ConVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
43

tract Auditing Agency, and from KPMG Bahrain, which is the

auditor retained by the International Advisory Monitoring Board,

all of which indicate a level of corruption and mismanagement that

quite frankly dwarfs the most extreme of the accusations against

the Oil-for-Food program.

Mr. WAXMAN. Thank you. Mr. Chairman, I want to renew my request to put the letter in. And you asked where I obtained the letter. The letter was——

Chairman BARTON. Mr. Chairman, I object.

Mr. WAXMAN. I thought the chairman of the full committee indicated that we work on a bipartisan basis and take documents——

Chairman BARTON. I will do that. But I am objecting to this request because it has not been done on a bipartisan basis.

Mr. WAXMAN. Well, we did furnish it to the majority staff. And

if I might further tell you about this document, this was sent to

the staff.

Chairman BARTON. You can tell me about it off the record. But

I am going to object and I want to make a statement as soon as

your time has expired.

Mr. WAXMAN. Well, if you want to make a statement, then I

want to make a statement; because I don’t know what you are

going to say, but it sounds to me like a pretty negative one about

even trying to find out that SOMO has indicated to us through a

document they sent to us, that they were angry about Halliburton

getting so much more money than they were in providing gasoline

to Iraq.

Chairman BARTON. Mr. Chairman, I think the gentleman’s time

has expired.

Mr. WHITFIELD. I might also just add that on this document, in

and of itself, I see no mention of Halliburton in here at all. I mean

the name Halliburton does not appear anywhere in this document.

And I guess because the chairman has objected, so——

Mr. WAXMAN. Well, Mr. Chairman, the other audits we provided

DCAA, the auditor for the Pentagon, has indicated that Halliburton

was paid from Iraq funds run by the U.S. administration in Iraq,

and they also indicated that there may be as much as $200 million

that have been overpaid in excess of what the gasoline would have

charged.

Mr. WHITFIELD. The other reports have been entered into the

record in their entirety and not by excerpt. But the gentleman’s

time has expired. And at this point I would call on the gentleman

from Texas.

Mr. WAXMAN. Point of order, Mr. Chairman.

Mr. WHITFIELD. Yes.

Mr. WAXMAN. The gentleman from Texas has had his time for

questioning. If he is going to be recognized, and I certainly don’t

object to it——

Mr. WHITFIELD. No, I was getting ready to recognize——

Mr. WAXMAN. If he is going make a statement that pertains to

anything that I have asked about, are you going to out of order

allow me to——

Chairman BARTON. Parliamentary inquiry, Mr. Chairman. Does

the Chair have the right of recognition?

Mr. WHITFIELD. Yes.

44

Chairman BARTON. Has the Chair recognized the gentleman from

Texas?

Mr. WAXMAN. I asked a point of order, which is a higher form

of parliamentary inquiry.

Mr. WHITFIELD. Just a minute. I was getting ready to recognize

Dr. Burgess of Texas for his question-and-answer period. So does

anyone object? If not, I am going to call on Dr. Burgess for his 10

minutes.

Chairman BARTON. Well, Mr. Chairman I thought you had recognized me. Did you not recognize me?

Mr. WHITFIELD. I was recognizing the gentleman from Texas for

his questions. But I would be happy to recognize the chairman of

the committee.

Chairman BARTON. Okay. And I will yield to Mr. Waxman. But

I have a statement that I want to make and then I will be happy

to yield to the gentleman from California.

Mr. WHITFIELD. Okay.

Chairman BARTON. We have operated this subcommittee, as far

as I know, for the last 20 years under both Democrat and Republican, in a bipartisan fashion when it came to document presentation. Now, I am told that the documents in the binder have been

shared with the minority staff for at least a month. If that is in

error, I need to be told that.

The documents the gentleman from California has twice tried to

get into the record have not been shared with anybody until they

showed up at this hearing. Now, if the gentleman from California

has documents that he wishes to be put into the record, if he would

share them with the majority staff in an appropriate fashion, in all

likelihood they would be entered into the record. But showing up

at a hearing and having these surprise documents asked to be put

into the record by unanimous consent is not going to be tolerated.

If you have got documents, share them with the majority staff and

we will work it out and we will put them in the record.

That is what I am objecting to. I am not objecting that you have

a document. And if it is a legitimate document, and is a part of the

hearing record it will be put in. But this is the second time, Mr.

Waxman, in one hearing that you have presented documents to go

into the record that I am told we have not seen until hearing. That

is what I am objecting to, and I will be happy to yield to my friend

from California.

Mr. WAXMAN. Well, Mr. Chairman, I have no knowledge when

you provided our staff with this binder, but we are told it was last

Thursday. But that is not the point for me. We, as part of the investigation on the Government Reform Committee, received the

documents from SOMO—which is of two pages—before this hearing

was ever called. The other documents——

Chairman BARTON. Reclaiming my time. When did you share it

with the majority staff?

Mr. WAXMAN. Well, when we walked into the hearing.

Chairman BARTON. Today?

Mr. WAXMAN. Yes.

Chairman BARTON. Today. And how long have you had it?

Mr. WAXMAN. Well, let me finish what I am saying to you, because I think you are misreading what we are doing here. I had

45

some questions about the other documents that I put into the

record which are already out, and I am sure each of these witnesses has heard about them. And that is the Special Inspector

General Stuart Bowen’s report of maybe $9 billion having been lost

from the Iraq funds since the U.S. took over the Oil-for-Food funds.

This is not a surprise I have pulled on the committee. These are

documents that have been well reported in the press. And maybe

if the chairman would permit——

Chairman BARTON. Well, reclaiming my time.

Mr. WAXMAN. Let me finish my thought.

Chairman BARTON. I have the time. I have yielded to you because I believe in a full and fair debate.

Mr. WAXMAN. And you have cut me at least two times.

Chairman BARTON. But it’s my time.

Mr. WAXMAN. You’ve cut me off two times.

Chairman BARTON. It’s my time. Now, you have been a valued

member of the full subcommittee since before I was even in the

Congress, I think. Now I don’t know how long you’ve been on the

subcommittee, but you have been on the subcommittee a long time.

You were a former subcommittee chairman of this committee when

your party was in the majority. You, more than anybody, know

that to have these investigations and these hearings, documents

and materials need to be shared. You, more than anybody, should

know that you don’t walk into a hearing the day of the hearing,

if you’re trying to be cooperative, and spring documents.

Now, if they are legitimate documents, they deserve to be a part

of the record. My objection is not whether these documents are

good, bad. My objection is that twice in one hearing, a senior member of the minority, who’s a former subcommittee chairman when

you were in the majority, has tried to put documents in the record

without vetting them through the normal process. That’s my objection. If you’re willing to stipulate that you’ll use the normal procedure with the minority staff and Mr. Stupak and his staff on this

subcommittee, we won’t have a problem.

Mr. WAXMAN. Will the gentleman yield to me?

Chairman BARTON. I’ll be happy to yield.

Mr. WAXMAN. I want to point out the essential point that I made

in the very beginning. This is the 13th hearing on the Oil-for-Food

program from Iraq. And I am critical of the fact that we have had

zero hearings on the U.S. use of the Iraqi oil funds. And therefore,

I have raised the issue because it is an investigation that I and my

staff have been pursuing without any cooperation from this committee.

Now, I appreciate your berating me on an issue of whether I

shared these documents in time, which are already in public

record. But I am going to berate you because I think the Republican leadership should be looking into both issues, the Oil-for-Food

mismanagement and the mismanagement by the U.S. Government

of billions of dollars, $9 of which have been lost or laundered or absconded with under the direct jurisdiction of the U.S. Government.

So I hope you would take it into your thought process that perhaps we ought to expand our investigation, and I’d be happy to

work with you on that.

46

Chairman BARTON. Well, reclaiming my time. I am not aware of

one instance the gentleman from California has come up to me and

asked for my help or cooperation in anything you just said.

Mr. WAXMAN. Well, consider yourself asked.

Chairman BARTON. Maybe you have and I’ve just got a bad memory, which is quite possible. But I don’t recall it. Now, are you——

Mr. WAXMAN. I recall that we have had another hearing of this

committee on this issue, and at that time I raised the concern that

we were looking at the Oil-for-Food program and not paying any

attention to the U.S. administration of the Iraq oil funds. That was

on the record and we can get the transcript for it. You maybe didn’t

pay attention to it because I am only a Democratic member of the

committee. That may be true. But I think it’s worth investigating.

Chairman BARTON. Reclaiming my time, this member of the majority is the person who, on the House floor during the energy bill,

asked unanimous consent that you could offer your amendment,

when you weren’t on the floor to offer it. That is who this member

is. That is who this member is who has tried to go above and beyond to make sure that regardless of the majority or minority, if

you’re a member of this committee, all your rights are adhered to.

The gentleman well knows that.

Mr. WAXMAN. And I appreciate that and thank the gentleman for

it. But this is not a personal matter. This is a matter of public concern, and if we are going to look at the kickbacks and corruption

and use of funds that should be directed to helping the Iraqi people, I think we are not only looking at one side of it, perhaps for

political purposes, justifiably so, because I think it is worth pursuing, but we also ought to look at the $9 billion that have been

lost or unaccounted for when the U.S. Government was in charge

directly, and the failure of the U.S. Government to handle in a

transparent manner, or even provide the U.N. the information

about what was happening there when we were operating pursuant

to a U.N. resolution.

I thank the gentleman for allowing the further discussion of this

matter. And if you still object for my document which I questioned

the witness to be in the record, I will accept that fact. But the gentleman did have it before him and we will make it available to anyone.

Chairman BARTON. I just want the documents vetted by the majority staff. And if the staff says they are acceptable, I am not opposed at some point in time to them being in the record. But I do

strenuously object to the process, and if we don’t get agreement on

the process, then there will be an objection every time on process.

Mr. STUPAK. Mr. Chairman, if I may.

Mr. WHITFIELD. Yes, Mr. Stupak.

Mr. STUPAK. Mr. Chairman, if I may, I would request that, No.

1, we give Mr. Waxman some time to lay a foundation on where

this document came from. If it’s part of a public record, I don’t

know why it would not be admitted into the record. And I would

ask that we give him 3 days or so to at least be allowed to submit

this for the record, provided a foundation can be established.

Mr. WHITFIELD. Well, I would ask that he vet it through our

staff. And then I would also just like to reiterate what Chairman

Barton said; and that is we do—have had a policy of sharing docuVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
47

ments, maybe not months in advance, but I know that this binder

on the Oil-for-Food program was provided 6, 7 days ago. And I do

think that it is not fair to bring documents up here that day, that

we have never seen, and start testifying from them. And particularly in this document, there is nothing on this document whatsoever relating to Halliburton. Halliburton is not in any way referenced.

But at your request, I think that we will get the document and

work with the staff and make some decision. But at this point, an

objection has been made to admitting it into the record.

Mr. WAXMAN. Mr. Chairman, might I just point out that we are

talking about two pages? You have a binder of many other documents. I wonder what happens next. Are we supposed to submit

our intended questions of the witnesses to the Republican staff as

well, to see if those are going to be permitted to be asked? Because

it seems to me that that is the direction in which this committee

is going. And I certainly hope that is not the case.

Mr. WHITFIELD. I don’t think that’s necessary.

Mr. WAXMAN. But I had asked about it, this document. I would

be pleased to write a letter to the chairman and he can include it

in the record or not. But this is a document that we received from

the State Oil Marketing Organization that works for the Iraqis in

dealing with their oil, and they were getting paid a lot less than

what we were paying Halliburton to bring in gasoline into Iraq at

the same time, and that ought to be investigated. I wish the committee would investigate that as well.

Mr. WHITFIELD. Okay. Mr. Waxman, thanks for your comments.

Now, I want to call on the gentleman from Texas, Dr. Burgess, for

his 10 minutes of questions.

Mr. BURGESS. Thank you, Mr. Chairman.

Dr. Gordon, in reading through your testimony on paragraph 1,

the effectiveness of the program, you write, ‘‘I think it is important

to begin by recognizing that the Oil-for-Food program and the U.N.

staff involved were in fact tremendously successful at raising the

quality of life for the Iraqi population.’’ I’m sorry, I just find that

an incredible statement to make. I’m astonished by that. But you

back it up with measurement and I guess what I would like to ask,

if I could, is that you will provide us some documentation for the

statements that then follow.

Is this something that you have personal knowledge of, something that has been provided to you by the U.N. or UNICEF? Because it just doesn’t square at all with what I saw myself when I

was in the country of Iraq in August. You said the health care system was much better able to meet its population’s needs. I was in

Al Majar Hospital in August 2003. That place was physically decrepit. There was no reliable running water. The sewer system was

just open into the courtyard . Flies were everywhere. The doctors

complained that the medicine they had under Saddam were worthless, and, in fact, they’d have suffered greatly if Kuwait hadn’t

started a massive humanitarian influx of medication to the country

of Iraq shortly after Saddam fell.

I was in their NICU. There wasn’t any piped-in medical gas nor

was there any provision for any medical gas. There was an infant

there, clearly a premature infant, probably small for gestational

48

age as well, who clearly had what I would characterize as rather

significant respiratory distress syndrome and had no oxygen on. I

suspect that that child was probably dead before nightfall.

I’m sorry, but I don’t see that that is a good system that was

brought to the people of Iraq under the Oil-for-Food program. And

mind you, at the same time the palaces that we went into, granted

there was some damage from the combat phase, but the palaces

that we went into were absolutely spectacular, with marble overlays on everything, marble floors, certainly comparable to anything

we have here in the United States Capitol. So can I ask you to just

discuss that statement a little bit?

Ms. GORDON. Well, sir, I would be happy to do you the dubious

favor of giving you more than you would ever want to read on this.

You could start, if you want to, by going to the Web site for the

Office of Iraq Program. And you can at that spot download reports,

more reports than I promise you will want to read by UNICEF——

Mr. BURGESS. Well, reclaiming my time, because I do have several things I want to get to. It certainly doesn’t square with what

I saw on the ground, and I’ll believe my eyes before I’ll believe a

U.N. Report. Mr. Fawcett——

Ms. GORDON. Sir, I wonder if I could answer your question with

1 minute, which is to say what happened between 1996 and 2003

was that the situation, which was far far worse prior, was significantly improved. Remember, there had been a collapse from 90 to

96. From 96 to 2003 the level of food, nutrition, nearly doubled.

The level of improvements in the health care system from 96 increased significantly. Electricity availability increased significantly.

Availability of potable water increased significantly.

I’m not saying it’s a good system. I’m not claiming that at all.

I am saying, by every measurement of every humanitarian agency

there, between 96 and 2004, under the Oil-for-Food program, there

were substantial improvements in the quality of life.

Mr. BURGESS. Reclaiming my time, probably those are Saddam’s

statistics. But I’ll just tell you, what I saw in the palaces was a significant investment of capital. And if one-tenth of that capital had

been put into those hospitals, those children wouldn’t be suffering.

Mr. Fawcett, I’d like to ask you for your response to that.

Mr. FAWCETT. All of the statistics upon which these judgments

are made are Iraqi Government statistics. The U.N. reports in the

late- or the mid-1990’s that were used to raise the public awareness of all the children dying and build the fear of the Security

Council that allowed that, forced them to give in to Saddam on

these, were later proved to be false. These U.N. reports were retracted because they were based upon phony Iraqi Government statistics. That continued up till the time Saddam left.

Mr. BURGESS. Well, Mr. Fawcett, when you were giving your testimony, you ran out of time. And I believe you made the statement

that you would like to talk about what the U.N. could have done,

and perhaps you could take a minute and just tell us that.

Mr. FAWCETT. I think the first thing they could have done was

not to circulate bad standards, circulate the Iraqi Government statistics aggressively, using them in a PR campaign to ease sanctions. They knew the statistics were bad. Maybe they couldn’t do

anything about that, about the gathering of the statistics. But they

49

did not have to actively disseminate them, knowing they were

false. So that is No. 1.

Second, the whole program should have had transparency. There

was none. There’s a lot of documents that were published, virtually

all of them are useless if you’re trying to look into who’s making

money here and how are they making it. It’s—the U.N. is great at

putting out reports. But there’s no detail in that report. There’s no

company names. There’s no pricing of the commodities, things that

the U.N. could have published anytime they wished. They did not

need Security Council approval to do so. They could have been very

transparent. In fact, when the Security Council was obstructive to

the United Nations, as they were, as I absolutely agree they were,

the U.N. could have gotten around that by just publishing documents and saying this is wrong. This is wrong. They failed to do

so. They kept saying this is proprietary information, when this was

a humanitarian program in a country under sanctions. The normal

business rules should not have applied as far as keeping data secret. They could have published documents at any time. And had

they done so, they would not be in the bind they are now. All the

allegations of corruption against the Secretary General would have

been dealt with long ago.

Mr. BURGESS. I guess I do find it odd that the costs for baby formula could be inflated by 25 percent in an organization that has

as its mission disseminating that product around the world. I

mean, how do you miss a 25 percent overcharge for Similac?

Mr. FAWCETT. That one puts me through the roof. It absolutely

does.

Mr. BURGESS. Well, let me just ask you a question that I know

is on the minds of my folks back home. Did the Secretary General

have no decisionmaking role in setting the terms of this program?

Mr. FAWCETT. I’m sorry. I didn’t understand.

Mr. BURGESS. Did the Secretary of the United Nations have no

role in setting the parameters for this program?

Mr. FAWCETT. The current Secretary General was the first one

to begin negotiations. The Iraqis actually liked him. He was replaced in 92 with another series of people that took a little bit

harder line, and the Iraqis didn’t like them. The Secretary General

at the time that the program came into play was clearly a friend

of the Iraqis, and that is another of the problems that we have seen

early in the program. They should have gone to a far more competitive bidding process for the monitors and the banking. And now as

we see from the Volcker Commission, it was the Secretary General

himself that was manipulating the system.

Mr. BURGESS. Well, can you estimate the percentage of the kickbacks that might have been prevented had more thorough price

checking been performed?

Mr. FAWCETT. I think at least half; without too much problem,

half of the kickbacks could have been prevented. And I base that

upon the fact that most of the goods going in are commodities. We

know that some of the most difficult ones, gas-fired turbines from

China, would be difficult to determine the price. Absolutely. But

wheat from Australia, baby formula, milk, medicines from Pakistan

or Switzerland, that’s easy to do.

50

Mr. BURGESS. Well, besides just the dollars, were there any other

warning signs that Saddam was charging kickbacks on the goods

or contracts under the program?

Mr. FAWCETT. Shady operations. Companies with no backing, no

background. While it’s correct to say that it’s the member states

that put those companies forward, the U.N. Could have at any time

said this one looks shady to us. But instead, they found themselves

dealing with money launderers, with organized crime, and with terrorists.

Mr. BURGESS. And as my time is about expire, any other issues

that the United Nations might have taken up to prevent this from

going as far as it did?

Mr. FAWCETT. Courage, which they failed at.

Mr. BURGESS. Mr. Chairman, I’ll yield back.

Mr. WHITFIELD. Thank you, Dr. Burgess. At this time I will recognize Ms. Blackburn for 10 minutes.

Mrs. BLACKBURN. Thank you, Mr. Chairman.

Dr. Gordon, I think I’d like to come to you first. I want to—you’ve

talked a lot about the Oil-for-Food program and the comments and

the responses that you have made. And so the question I would like

to ask you is if you feel like, if I am understanding you right on

this, do you feel like—do you think—is it your opinion that the Oilfor-Food program was adequately run, adequately and properly

managed and given appropriate oversight? And if so, would you

recommend that the United States participate in such programs in

the future?

Ms. GORDON. Again, I need to break it into which parts of the

U.N. had responsibilities.

Mrs. BLACKBURN. Go ahead. Very quickly.

Ms. GORDON. So specifically the decision to allow Iraq to choose

its trade partners. It was understood at the time that that would

give Iraq considerable political leverage. If the Security Council

members had not wanted to do that, it would have been easy

enough to design the program without that.

If you go to the other side of the fence, as it were, the U.N. staff,

whose only responsibility under the Secretary General was to monitor, to provide information, to advise the 661 committee, not to

make substantive decisions and not to design the program itself, by

every account I’ve seen they did their job and they did their job

well. The program was not designed or created by the Secretary

General. It was created pursuant to Chapter 7 of the charter,

which puts it directly under the control of the Security Council.

Mrs. BLACKBURN. Okay. So I’m going to interrupt here. In other

words, what you’re telling me, then, is with the monitoring and the

advice mechanisms, it is your opinion that it was adequately run

and adequately and properly managed.

Ms. GORDON. I would say the flaws that we have identified have

to do with——

Mrs. BLACKBURN. Okay. And would it be your advice that we embark on such programs in the future?

Ms. GORDON. Well, I think comprehensive sanctions on any country are destructive.

51

Mrs. BLACKBURN. All right. Okay. What do you know of the Iraq

steering committee and its administration of the Oil-for-Food program?

Ms. GORDON. By the Iraq steering committee you mean the 661

committee? I am fairly familiar with how the 661 committee operates.

Mrs. BLACKBURN. Do you think we ought to bring them before

Congress? Do you think we should bring them before this committee to answer questions?

Ms. GORDON. My understanding is that so far the State Department has declined to provide any of its participants on the 661

committee.

Mrs. BLACKBURN. Okay. Let me ask you something else then. Do

you think that there should be independent storage facilities to

store U.N. documents in order to investigate further occurrences?

Or, as we heard today, getting in behind this one might help lead

us to others and other abuses and things. So do you think we need

to set aside a facility to hold all of these documents?

Ms. GORDON. I have no opinion on the mechanics of where you

want to store documents.

Mrs. BLACKBURN. All right, thank you. You know—and I appreciate your answers to my questions. I will have to tell you in my

district in Tennessee, if you want to talk about something that gets

the dander up of a lot of my constituents, it is talking about the

waste, the fraud, the deceit, the despicable acts that took place

with the formula program. That is, those are all things that really

cause people to be incredibly, incredibly upset. And I appreciate

your answering our questions.

Mr. Fawcett I would like to come to you, if I may, please, sir.

How extensive do you think the ties were between Sevan and Saddam at the time that all of this was beginning to take place, and

how do you think it was that Sevan ended up being picked as the

OIP director?

Mr. FAWCETT. That’s a good question which I don’t think we

know the answers to.

Mrs. BLACKBURN. Okay. Do you have insight that you can provide me?

Mr. FAWCETT. No further than what the Volcker Commission has

come out with. However, I have encouraged the Volcker Commission to continue going down that path because I do not think we

have gotten to the end of it. One of the trails that needs to be pursued is what is the money flow to Benon Savan, because I think

if we start to peel that one back, we may end up shedding light

again on longer-running money laundering structures of Saddam

Hussein.

Mrs. BLACKBURN. Okay. Let’s go, at the same point, to Chief of

Staff Riza and the relationship with Sevan. And do you think that

they collaborated and worked together on much of this, and on

some of the oil allocations?

Mr. FAWCETT. I haven’t seen anything that shows that they collaborated. My understanding of the way Mr. Sevan ran his operation was that he was very insular and was not out going and collaborating with a lot of other senior U.N. officials.

52

Mrs. BLACKBURN. What role do you think that Chief of Staff Riza

might have played in the management of the program?

Mr. FAWCETT. I don’t really know.

Mrs. BLACKBURN. You don’t know. Okay. Do you think Kofi

Annan was aware of much of Sevan’s activities?

Mr. FAWCETT. I wouldn’t go as far as to say he was aware of the

illicit activities that have been alleged. However, he was fully

aware of the potential for that, fully aware that the Iraqis would

attempt to do just what they did, attempt to bribe senior public officials around the world and in the U.N. . So I think he is culpable

of not exerting executive authority over that program.

Mrs. BLACKBURN. Okay. And then Boutrus Boutros-Ghali, what

ties do you think exist between him and Saddam and administration of the Iraq escrow account; or do you think there were any?

Mr. FAWCETT. Certainly he had an awful lot of influence on the

selection of the bank. That has become clear from the Volcker investigation, which showed no transparency process whatsoever. It

was a manipulated process between the French and the Iraqis.

Mrs. BLACKBURN. Do you think the French Government played

a role in that?

Mr. FAWCETT. Yes, they did.

Mrs. BLACKBURN. Let’s see, I have got a couple of minutes. Mr.

Chairman, I yield back. Thank you.

Mr. WHITFIELD. You have no further questions?

I call on Dr. Norwood for 10 minutes.

Mr. NORWOOD. Thank you very much, Mr. Chairman.

I would like to tell you something about this hearing. It is the

most partisan one I’ve seen in a long time, and it is hard for

grownups to understand and solve a problem when half the group

is trying to change the subject. This is about the Oil-for-Food program, and we do need to understand it, and our people at home

want to understand it.

Dr. Gordon, you are an associate professor, are you not?

Ms. GORDON. Correct.

Mr. NORWOOD. Are you a lawyer?

Ms. GORDON. I am both. I have a Ph.D. In philosophy and a J.D.

In law.

Mr. NORWOOD. How long have you been teaching?

Ms. GORDON. In a faculty capacity since 1993. I taught as a graduate assistant prior to that.

Mr. NORWOOD. Do you get up to the U.N. a lot, spend a lot of

time up there?

Ms. GORDON. I conduct some interviews from time to time.

Mr. NORWOOD. Do you go up once a month or are you there annually? I am impressed with your knowledge of the U.N. It sounds

like you are there every day.

Ms. GORDON. I’m not there every day.

Mr. NORWOOD. You are getting it from the Internet, I guess.

Ms. GORDON. I get documents from all sorts of sources.

Mr. NORWOOD. But you are having some pretty strong opinions

on documents from all sources, and I’m sort of curious about that.

Ms. GORDON. I’m also familiar with all of the scholarly literature

in this area. I have conducted dozens of interviews with U.N. officials and diplomats.

53

Mr. NORWOOD. Do you spend a lot of time up at the U.N. that

led you to believe some of the things that you have been saying

today? My understanding was you just decided to come testify Friday morning, is that about right?

Ms. GORDON. I was called on Friday morning and invited to testify, and I accepted.

Mr. NORWOOD. Do they offer to let you see these documents that

have been translated?

Ms. GORDON. No.

Mr. NORWOOD. You haven’t had an opportunity to read these?

Mr. NORWOOD. I would love it if you would and report back if you

have changes in attitude or thoughts about what your testimony is.

Ms. GORDON. These are the documents that Mr. Smego translated in the binder?

Mr. NORWOOD. Yes. The minority has that, and it would be helpful for you to read it. I would like to ask you if you think economic

sanctions are a good thing anytime, anywhere.

Ms. GORDON. In general, what the studies on economic sanctions

demonstrate is the most optimistic, which is the HuffnauerShartenelli data base from the 1980’s and more recently the 1990’s,

that in about a third of the cases they are a factor in changing and

influencing the behavior of the target state.

Mr. NORWOOD. Did that lead to the document, Using a Pick Axe

for Brain Surgery, that you wrote?

Ms. GORDON. The title, which was——

Mr. NORWOOD. No, the subject.

Ms. GORDON. The title is a little inflammatory. The subject of

that particular paper is the notion that because economic sanctions

necessarily impact the civilian population that there is no way of,

let’s say just in war doctrine, discriminating between civilians——

Mr. NORWOOD. Let me ask you—I can’t tell where you are on this

exactly. It seems to me that you believe everything in the Oil-forFood program worked perfectly and the U.N. acted correctly, or are

you saying all of the things stated actually have happened, things

that we are hearing today, things that none of us would be very

much for, but all of that could have been stopped if only the United

States would have stopped them? Where are you?

Ms. GORDON. I think it is probably not either of those two positions.

Mr. NORWOOD. Your testimony implies the first one. Your statements and some of the things you said imply the second one.

Let me go to Mr. Fawcett.

Ms. GORDON. I wonder if I could have a chance to answer that.

Mr. NORWOOD. Hold it for a minute. I am watching the clock. I

will get back to you. Let me——

Some people—Dr. Gordon is a good example—claim that the Oilfor-Food program was tremendously successful in helping the Iraqi

people. Do you agree with that assessment?

Mr. FAWCETT. I don’t think we have any data to show how many

people it has helped and to what degree and qualitatively it has.

I would point out one survey that was done in the last year by the

U.N. in which the amount of people that they claim are totally dependent upon their aid has dropped from 60 percent of Iraq to 25

percent, which means 35 percent of Iraq, 7 to 8 million people, are

54

now far better off. So either this invasion was the greatest humanitarian act——

Mr. NORWOOD. The Oil-for-Food program is what I am asking,

though. Has that been successful?

Mr. FAWCETT. I don’t think we have any data to show what success or failures it has had.

Mr. NORWOOD. What you are saying is you believe nobody could

actually determine that at this point?

Mr. FAWCETT. No one could determine it.

What the U.N. has constantly said is 60 percent of the Iraqi people were totally dependent. In my experience in the humanitarian

field for 10 to 15 years, I have not seen any population of which

60 percent will sit in their homes waiting for food to be delivered.

It doesn’t happen.

Mr. NORWOOD. Dr. Gordon went on to state that the U.N. provided considerable information and data about the Oil-for-Food program. Do you agree with that?

Mr. FAWCETT. The data that was essential to stop any of the corruption was not released. The only data that came out was inadvertently leaked from the U.N. on occasion. This is the data that

mentions company names and mentions pricing. None of the other

data is relevant to preventing corruption.

Mr. NORWOOD. Well, it appears to me that we are not getting the

information or at least Congress is not getting the information as

required. Dr. Volcker would be a good example of that. So it

couldn’t very well be said that we are getting correct information,

at least in my opinion, from the U.N. Is it true that the Secretary

had no decisionmaking roles in setting the terms of the Oil-forFood program?

Mr. FAWCETT. That is not true. The Secretariat had ongoing

daily decisionmaking capacity. The oversight was by the Security

Council, and they could step in at any time. But all the data that

was being passed to the Security Council, the options for the program, how it would change, were being provided by the U.N. itself.

Mr. NORWOOD. Is the Secretary a hands-on kind of fellow? Does

he delegate and just sort of didn’t know what was going on or do

you think he knew what was going on?

Mr. FAWCETT. I think he knew what was going on, yes.

Mr. NORWOOD. Do you think the oil voucher system was mostly

a benign recordkeeping system of Saddam’s regime?

Mr. FAWCETT. Absolutely not. The recordkeeping system of graft,

of corruption and political slush fund, I don’t believe all members

of the Security Council knew of the existence or the details of the

voucher regime. I believe that only came out after the toppling of

Saddam.

Mr. NORWOOD. Do you think we can prove that today? Do we

have enough information out and documentation out that we could

prove that?

Mr. FAWCETT. The existence of the voucher system or that——

Mr. NORWOOD. The voucher system actually worked and was

honest.

Mr. FAWCETT. When it first came out, there was skepticism because it came out in the Iraqi newspaper and maybe was pushed

by some of the Iraqi political factions. But the fact that the Duelfer

55

or ISG report came out and looked at that in some depth gave me

more confidence to believe it is correct. We are now seeing many

investigations around the world, not just here in Washington, that

are starting to prove that this original document was correct.

Mr. NORWOOD. I will ask you one last one and perhaps a few in

writing, but this one is important to me. Did the retroactive pricing

of oil contracts cause oil exports to collapse as suggested by Dr.

Gordon and ultimately harm the Iraqi people?

Mr. FAWCETT. No.

Mr. NORWOOD. I am interested in that.

Mr. FAWCETT. You have to look at the time line. Iraqi smuggling

was ongoing at that period. It was really taking off. Iraq was not

as interested in exporting through the Oil-for-Food program as they

were making far more money from the smuggling through the pipeline. So the retroactive pricing, they could afford to stall, hedge and

wait. So I don’t think that that had a negative impact upon the

Iraqi populous; and, once again, if it did, we have no data, reliable

data to show it.

Mr. NORWOOD. Why did we do retroactive pricing?

Mr. FAWCETT. In order to cut out the cutback or the premium on

the oil sales.

Mr. NORWOOD. Explain that.

Mr. FAWCETT. The manipulation of pricing—oil was underpriced. So if oil was supposed to be at $20 a barrel, the Iraqis and the oil

overseers would agree to $19.50 a barrel, which would be another

$.50 to fiddle around. Doesn’t sound like much, but on a tanker

load that is a million dollars. Retroactive pricing meant that the

buyer didn’t know what they were going to pay for it until after

they delivered it or at least after they lifted the oil. So it eliminated

that maneuvering of pricing.

Mr. NORWOOD. Do you think that was a proper thing to do to

stop that kickback scheme?

Mr. FAWCETT. I think that was one of the options they had and

had to go with it.

I want to point out that for 2 years under this program the oil

overseers were a French expert and a Russian expert and for 1

year only the Russian was the oil overseer. When the new oil overseers were appointed, a Danish man and a Dutch, within 1 month

was when the Iraqis insisted upon having an overt premium.

Mr. NORWOOD. Thank you, Mr. Chairman.

Mr. WHITFIELD. Thank you.

First panel has been here a couple of hours. I have about two or

three more questions to complete the record from my perspective,

and I will recognize Mr. Stupak. He has a few additional questions

as well.

First, Mr. Fawcett, under the voucher system, what the 661

Committee would see, it is my understanding, was a contract between SOMO and the oil company that did the lifting, but they

would not see or be aware of the underlying grant of oil to the individual that Iraq wished to influence?

Mr. FAWCETT. That is correct. Not only would the 661 Committee

not see it but most likely U.N. officials would also not see it.

Mr. WHITFIELD. Now, Mr. Smego, originally I was talking to you

about Exhibits 6 and 7 and Saddam’s efforts to influence the

56

French. One of the individuals that was identified was Roselyn

Bachelot. Did you find any documents that purportedly chronicled

meetings between the Iraqi intelligence service and Mrs. Bachelot?

Mr. SMEGO. Yes, Ms. Bachelot was noted in Exhibit 9, for example.

Mr. WHITFIELD. What does it state in there?

Mr. SMEGO. In April 2002, a representative in Paris World wrote

a memo regarding his meeting with the French parliament member, Ms. Bachelot.

Mr. WHITFIELD. What was her title or position?

Mr. SMEGO. Her position was the—she was the national assembly deputy and spokeswoman for Chirac’s 2002 Presidential campaign. The documents state as such, and the committee staff confirmed that as well.

Mr. WHITFIELD. Exhibit 12, would you walk us through that

quickly.

Mr. SMEGO. Exhibit 12 was a memorandum from May 2002 regarding the meeting of the French representative in Paris with Ms.

Bachelot stating that, number 2—point 2, she assured that the

French position opposed any American tax on the nation, and

France used the right of opposition. In parentheses following that

was a veto within the Security Council against any American decision regarding the attack on Iraq and that Iraq issued its statement that it is prepared to offer financial support to Chirac for his

election campaign. The message was passed on to the financial official of the election campaign.

But I do want to make clear that the offer of campaign contribution was declined by the——

Mr. WHITFIELD. No record of the campaign contribution?

Mr. SMEGO. There is no record within that document, but it says

the official declined it.

Mr. WHITFIELD. And then one other question. Vladimir

Zhirinovsky, I know there is some documentation of him. He is a

member of the Russian duma. From your translations, did he receive any oil vouchers?

Mr. SMEGO. Yes, Mr. Zhirinovsky received quite a few oil allocations. Specifically, Exhibits 23 through 30 specify the majority of

the Russian oil allocations to Mr. Zhirinovsky, who was the head

of the Russian liberal democratic party.

Mr. WHITFIELD. Thank you very much.

At this time, I recognize Mr. Stupak.

Mr. STUPAK. Thank you, Mr. Chairman.

Mr. Fawcett, are you the author of this Exhibit Number 42 in

our book, Sources of Revenue for Saddam and Sons: A Primer of

the Financial Underpinnings of the Regime in Baghdad?

Mr. FAWCETT. Yes.

Mr. STUPAK. Are you the sole author?

Mr. FAWCETT. There are two of us.

Mr. STUPAK. Have you done subsequent writing since then?

Mr. FAWCETT. I haven’t done much writing but a lot of research.

Mr. STUPAK. On this?

Mr. FAWCETT. On the Oil-for-Food.

Mr. STUPAK. Because I’m looking at some of these statements in

here, and what you are testifying to really looks a little different.

57

Like on page 13 when we talked about the overseers and Russia

was in control and sort of insinuated that they had complete control, but the Dutch in the fall of 2000 were the overseers?

Mr. FAWCETT. By the fall of 2000, there were three.

Mr. STUPAK. Are you alleging that the oil overseers were in on

the oil surcharges?

Mr. FAWCETT. I am alleging—certainly not by the fall of 2000. I

don’t believe they were. Earlier than that, under the French and

Russian watch, I think there was an awful lot of underpricing of

oil. It had not yet gone out into the public. I do not have any documentation to show that the French or Russian oil overseers were

taking money.

Mr. STUPAK. You didn’t state that in the report. You talked about

the three overseers, one being the United States in there for

awhile, and then they resigned.

Mr. FAWCETT. When the U.S. oil overseer resigned after about 18

months of the program, it was the next month that the first fight

began on oil pricing between the Security Council and Iraq.

Mr. STUPAK. You didn’t say that in your report, and that’s what

we relied upon, and now your testimony is a lot different here

today.

Mr. FAWCETT. The report is 3 years old.

Mr. STUPAK. About 2 years old. Just over 2 years. That is why

I asked you if you have any subsequent writings to try to clarify

what you are saying.

Mr. FAWCETT. No. I think the oil overseers when they came—the

new oil overseers came in in the fall of 2000 is exactly the same

period of time when two other things were happening, the opening

of the Syrian pipeline and the Iraqis demanding an overt kickback.

Mr. STUPAK. On page 23 of your report, you said the second half

of 2000. Because France only went so far in advocating reform of

U.N. sanctions, rather than Iraq’s preferred option of lifting them

entirely, the French company saw their market share slashed dramatically.

Mr. FAWCETT. That is right.

Mr. STUPAK. The Oil-for-Food program, Saddam Hussein leveraged it for political gain and also for trying to lift sanctions?

Mr. FAWCETT. Correct. And he would try to leverage the French,

and one way of leveraging them was to pull away the support he

was giving them.

Mr. STUPAK. In this report, you talked a lot about the U.N. oversight and the lack of oversight and the 661 Committee or the

standing committee. Nowhere did you mention the Secretary General, but you talked a lot about him today.

Mr. FAWCETT. Right. This was a portion of the report that we did

not—or a topic we did not go into.

Mr. STUPAK. The stuff you said about the Secretary General, do

you have documents to back that up?

Mr. FAWCETT. Most of the allegations against the Secretary General have come out in the last year, the allegation about the improprieties of his son.

Mr. STUPAK. To make allegations is one thing, but to be able to

factually back them up is another thing. Do you have any documents to back them up?

58

Mr. FAWCETT. The documents against the Secretary General in

the Volcker Commission are the worst. I have gone back in the history and the public record and found the activities of the Secretary

General vis-a-vis Iraq. Did not do it in 2002.

Mr. STUPAK. Do you have any documents?

Mr. FAWCETT. Plenty of documents.

Mr. STUPAK. We will ask you to produce those for the committee.

Since you are the author of this report, can you explain this to

me? The first year the Oil-for-Food program is found, page 17.

1997, U.S. Only took 13 percent of the Oil-for-Food program of the

oil, still the largest end user. By 1999, the U.S. portion had climbed

to 35 percent; and since September 11 the U.S. has been purchasing well over 50 percent of all the Iraqi oil sold under the Oilfor-Food program.

And you go on to say, and I am not clear either, not clear why

the U.S. purchased such large quantities of Iraqi oil in the wake

of September 11 and amid the heightened threats toward the Baghdad regime emanating from Washington and this administration. If

we know the program isn’t working at solving what it is supposed

to solve and give humanitarian aid to Iraq and we are threatening

war against them and trying to blame them for September 11, even

though they had nothing to do with September 11, why would we

continue to buy oil to fill the coffers of Saddam Hussein? That are

the questions my constituents ask me, not this other stuff about

the U.N.

Mr. FAWCETT. We could not explain it. We had no explanation for

why we were doing it, which is why we reported that.

Mr. STUPAK. Dr. Gordon, I only have a few minutes left, but

every time you tried to answer a question, you got cutoff. Any of

those questions you want to explain from Dr. Burgess, Mr. Norwood or Ms. Blackburn? And you didn’t ask this committee to testify? You were invited to testify.

Ms. GORDON. Yes, sir.

Mr. STUPAK. You were asked by this committee to testify. You

didn’t ask us to testify?

Ms. GORDON. I certainly didn’t do that.

If I could address a few points very briefly, and if I could address

a couple of statements Mr. Fawcett made for clarification.

When Mr. Fawcett and maybe someone else was talking about

the oil overseers after the American and Norwegian left and there

was only the French and Russian and there was implication there

that then they were being self-serving, that is incorrect. That’s not

how that committee worked. The way it worked for the oil overseers is that two oil overseers had to sign off on every contract, and

no oil overseer could sign off on any contract of his own nation.

Mr. STUPAK. Russia has their own oil and basically bought this

oil for food and sold it back to the United States?

Ms. GORDON. I am not familiar with that.

When it was down to two or when it was even at three or when

it was at two, then any time that a French contract came up or a

Russian contract came up, since there were not two oil overseers

from non-French or non-Russian countries to sign off on that, then

that was circulated to the entire 661 Committee. That is what happened when that occurred. There was a control in place. It’s incorVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
59

rect to suggest that there wasn’t, which specifically prevented selfdealing in that form.

Second, I would like to comment on the representative from Tennessee’s comment about the baby formula. With all due respect, an

increase in baby formula is not a major factor in child death in

Iraq. I will tell you what is a major factor, a lack of potable water.

That’s what spikes child mortality.

If you want to know what was responsible for the lack of potable

water, it was the absence of sewage and water treatment equipment and, specifically, electricity to generate them. If you want to

look at what particular goods the United States blocked systematically throughout the sanctions regime including the Oil-for-Food

program, it was the electricity sector, communications sector,

transportation.

If you want examples of what, in fact, caused large-scale child mortality in Iraq, it was such things as the U.S. blocking $200 million of child vaccines. It was the U.S. blocking water tankers during a period of drought in a country with high mortality from

water-borne diseases. It was the U.S. agreeing to approve a sewage

treatment plant in Iraq and blocking the generator to run it.

If I could address the issue of data, Mr. Fawcett has said there

was no reliable data on either the humanitarian situation or the

severity of it prior to the Oil-for-Food program. That is incorrect.

If you look at the scholarship of the leading medical demographers

and public health experts from Harvard, Columbia, and Johns Hopkins, published in the leading public health and medical journals,

you will see something very different. You will see measurements,

fresh data,not based on the Iraqi government, not based on the

Iraqi government’s data, which demonstrates both the severity of

the humanitarian situation as of 1996 and substantial improvements that happened in the humanitarian situation under the Oilfor-Food program.

And, last, I would like to address the claim that the Secretary

General had an ongoing daily decisionmaking process in the Oilfor-Food program. That is incorrect. At every point the structure of

the program was determined by Security Council resolutions and

decisions made by the 661 Committee. The Secretary General had

no decisionmaking role in that. That was something because it was

a program under the auspices of Chapter 7 of the U.N. charter that

was entirely the creation and under the supervision and monitoring

of the Security Council.

Thank you for giving me the opportunity.

Mr. STUPAK. Mr. Fawcett, smart sanctions, which was U.N. Resolution 1409, that sort of lifted any kind of control that was left in

this whole program, right, that was implemented May 14 to the

smart sanctions? Can you explain how that sort of lifted any international control?

Mr. FAWCETT. No. I am not up to speed on the smart sanctions

approach.

Mr. STUPAK. It’s found on page 20 of your report. Because you

said here, the new sanctions regime will actually weaken international control and facilitate increased hard currency opportunities for the Hussein regime in two ways. First, all efforts to increase international monitoring or oversight of sanctions busting

60

trade with Iraq were abandoned in the course of negotiations leading to the passage of the resolution; and, second, the streamlined

procedures will make it much easier for Iraqi officials to insist

upon kickbacks, on contracts supplying goods to the Oil-for-Food

program.

Mr. FAWCETT. I am with you now. That was a process by which

the oversight from the Security Council was lessened and more responsibility was actually put onto the Secretariat, upon the U.N.

officials, to approve contracts without having them go through the

Security Council. So whatever limited oversight the Security Council had been providing previously, which was limited, was decreased.

Mr. STUPAK. No way in the Security Council or any form in the

U.N. does the Secretary General have a vote on the Security Council or anything?

Mr. FAWCETT. No.

Mr. WHITFIELD. Gentleman’s time has expired.

Mr. Stupak and I had two opportunities. If there is anyone else

who wants to ask a question, then we will terminate this panel.

Mr. Burgess was recognized first. Mrs. Blackburn.

Mrs. BLACKBURN. Thank you, Mr. Chairman. I did have just a

couple more questions that I wanted to come back to now that we

are through this, and I know we are all ready to hear from Mr. Anderson.

Dr. Gordon, I would like to come back to you. You have a great

deal of knowledge of the inner workings of the U.N. and seem very

supportive of what you saw carried out in this program. It had

been reported and we had heard that Chief of Staff Riza had shredded some documents that were related to the program. Do you

know if he had the authority to shred those documents and who

may have given him that authority? Do you know anything about

that situation?

Ms. GORDON. The only small amount I know about is the documents were redundant. They were a second set. Other than that,

I don’t know anything about that event.

Mrs. BLACKBURN. And then talking again about Mr. Sevan, my

question—and since you have knowledge of the workings of the

U.N. in this program, my question to you would be, how did he

manage to seemingly disobey U.N. rules and not really raise any

suspicions, just kind of work, you know, on his own framework or

maybe on his own timetable or maybe under his own direction, if

you will? Do you have any insight you could offer to that?

Ms. GORDON. Your question is——

Mrs. BLACKBURN. How is he able to do it without raising suspicions within the U.N. Organization?

Ms. GORDON. You are referring specifically to the claim that he

received an oil voucher?

Mrs. BLACKBURN. Uh-huh.

Ms. GORDON. I assume in the same process as has been described

before. The way the Security Council designed this program is that

the company names were registered and the company names, as

long as they were sold—as long as those companies corresponded

to the contracts and the contracts conformed to the formulas approved by the 661 Committee, that’s what took place. What hapVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
61

pened with the vouchers was entirely outside that system. None of

the vouchers at any point would have come through that system.

Mrs. BLACKBURN. So then what you are saying is you don’t think

there was oversight of his activities in that regard and that would

not have been abnormal for there not to have been oversight of his

activities?

Ms. GORDON. There is enormous oversight of his activities. If you

look at the reports he presented——

Mrs. BLACKBURN. Within a certain framework.

Ms. GORDON. If you want to know whether the voucher came

through, obviously, it did not.

Mrs. BLACKBURN. Mr. Chairman, I yield back.

Mr. WHITFIELD. Mr. Burgess.

Mr. BURGESS. Thank you, Mr. Chairman.

Just a couple of additional questions for Mr. Smego.

On the documents that have been provided to us in the binder,

I believe it is document number 7, in that your translation work

showed you that there was opportunity to discuss the political fortunes of Mr. Chirac of France and Mr. Putin of Russia, is that correct?

Mr. SMEGO. Yes, specifically the people through whom the

French President Jacques Chirac and Russian President Vladimir

Putin could be approached by the Iraqi intelligence service.

Mr. BURGESS. Are there other documents then that show that

Russian political figures received oil allocations from Saddam Hussein?

Mr. SMEGO. Certainly. There were some documents from the

Russian Asbecht. For example, Exhibit 30, which is a spreadsheet,

handwritten, that outlines the different oil allocations during phase

7, specifically, the second handwritten point at the bottom for Mr.

Zhirinovsky and the third for Ms. Sazhi in the political Science

Committee. Ms. Sazhi was identified as the head of the peace and

unity party of Russia.

Mr. BURGESS. I know Mr. Waxman has pointed out this is our

13th hearing, but bear with me because this is my first. Who is

Vladimir Zhirinovsky?

Mr. SMEGO. Vladimir Zhirinovsky was the head of the Russian

liberal democratic party.

Mr. BURGESS. And could you walk us through the documents

that show that Mr. Zhirinovsky received oil allocations from Saddam Hussein?

Mr. SMEGO. I believe starting off at 26—starting off at Exhibit

23, Mr. Zhirinovsky requested some cooperation in contracting.

Exhibit 24 discusses the subject of the special quantity of crude

oil to Mr. Vladimir Zhirinovsky, and the company belonging to Mr.

Zhirinovsky has not registered itself in the United Nations until

now.

Exhibit 26 would be a memorandum from Tariq Aziz to the minister of oil regarding a Russian delegation that was going to arrive

in October 1997 to complete the special contracts regarding the Oilfor-Food products and that the Saddamco company is registered in

Iraq and the United Nations to purchase oil on behalf of that Russian liberal democratic party.

62

Subsequent Exhibit 27 mentions 1.8 barrel contract during phase

2 for Saddamco. That is on October 7, approximately 2 days after

that delegation was to arrive.

Mr. BURGESS. Thank you, Mr. Chairman. I yield back.

Mr. WHITFIELD. Thank you, Dr. Burgess.

I thank this panel for their testimony today, and at this time you

are dismissed.

We will call our second panel: Mr. Gerald C. Anderson, who is

the Director of the Office of Peacekeeping, Sanctions and

Counterterrorism, U.S. Department of State. Mr. Anderson, good

afternoon. You are aware that the committee is holding an investigative hearing and when doing so we have had the practice of

taking testimony under oath. Do you have any objection to taking

testimony under oath or giving it under oath?

Mr. ANDERSON. No objection.

Mr. WHITFIELD. The Chair then advises you that under the rule

of the House and the rules of the committee you are entitled to be

advised by counsel. Do you desire to be advised by counsel during

your testimony today?

Mr. ANDERSON. No, thank you.

Mr. WHITFIELD. If you would please rise and raise your right

hand, I will swear you in.

[Witness sworn.]

Mr. WHITFIELD. You are now under oath.

Mr. Anderson, you may give your 5-minute opening statement. I

didn’t want Mr. Stupak——

Mr. STUPAK. I am listening.

TESTIMONY OF GERALD C. ANDERSON, DIRECTOR, OFFICE OF

PEACEKEEPING, SANCTIONS AND COUNTERTERRORISM, U.S.

DEPARTMENT OF STATE

Mr. ANDERSON. Mr. Chairman and distinguished members of the

committee, I welcome the opportunity to appear before you to discuss the U.N. Oil-for-Food program and to answer your questions

on various aspects of the management and execution of the program.

The Oil-for-Food program was adopted in 1995 to alleviate the

serious humanitarian crisis while maintaining comprehensive restrictive measures on items that Saddam Hussein could use to then

pose a threat to his neighbors in the region and this at a time

when many were calling for an end to those restrictions. The 661

Committee monitored the implementation of the Oil-for-Food program and through each of its members was also responsible for reviewing humanitarian contracts, oil spare parts contracts and oil

pricing submitted on a regular basis by Iraq to the U.N. for approval. The U.S. delegation was an active participant in all such

reviews.

However, the 661 Committee operated on a consensus basis as

a subsidiary body of the Security Council. The efforts of the U.S.

and the United Kingdom to counter or address noncompliance were

often negated by other members’ desires to ease sanctions on Iraq,

often exacerbated by the actions of certain key member states in

advancing self-serving national economic objectives.

63

Clearly, the sanctions failed to force the regime of Saddam Hussein to comply with international obligations, but they did succeed

in limiting Iraqi efforts to rebuild their military capabilities. The

major shortcomings of the OFF program have been widely documented in recent months, but the program did succeed in its basic

humanitarian objective of ensuring that the Iraqi people were adequately fed.

Much of what the U.S. Government could and could not achieve

with regard to monitoring the program was directly related to the

politics surrounding Iraq and the Security Council. U.S. efforts to

keep the comprehensive sanctions regime in place were repeatedly

challenged by Council members whose national firms would derive

economic benefit from the lifting of sanctions.

Indeed, starting in the mid 1990’s and continuing to 2001, these

pressures to lift sanctions grew. Violations with respect to the Oilfor-Food program manifested themselves in a whole pull-down

menu of manipulative mechanisms in order to circumvent the sanctions, including surcharges, topping off, 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 to the

tune of several billion dollars.

Mr. Chairman, some members of the Security Council did not

take their international obligations seriously and either directly or

indirectly facilitated sanctions busting activities by the Saddam regime. The 661 Committee was mired in a political debate with regard to Iraq that often impeded it from taking action against violators of the embargo; and, as the recent Volcker Committee reports

indicate, there are serious charges that U.N. officials may have allowed Saddam to further undermine their system.

When in late 2000 the U.N. Oil overseers reported excessive premiums on oil experts, the 661 Committee, led by the U.S. and the

U.K., agreed to a statement on December 15, 2000, making clear

that additional fees above the selling price approved by the 661

Committee were not acceptable. Despite circulation of this message

to all oil companies approved to lift Iraqi oil, evidence of the illicit

surcharges continued during the spring of 2001.

The U.S., working in close coordination with the British delegation, raised the issue of excessive oil price premiums in a series of

more than 40 formal and informal 661 Committee and Security

Council meetings during that period. After months of stalemate,

the U.S. and British experts made creative use of the consensus

rule governing decisions in the 661 Committee by withholding support until the end of the month on oil pricing proposals submitted

at the beginning of the month by the Iraqis. As a result, by the

spring of 2002, the oil price variation or surcharge for market levels had been reduced from as much as $.50 per barrel to an accepted industry variation of $0.03 to $.05 per barrel.

Allegations of kickbacks to the Oil-for-Food program began to

surface in late 2000. The U.S. and British experts raised this issue

with the 661 Committee experts and the Office of Iraq Programs

representatives in 2000 and early 2001 and formally submitted proposals to address this issue during a 661 Committee meeting in

March 2001. However, no documentary evidence was available at

64

the time to support the allegations, and other committee members

claimed that, without this evidence, no action can be taken.

The United States frequently provided members of the 661 Committee and the Security Council with information and evidence of

sanctions violations by the Saddam regime, including on Saddam’s

diverting funds to benefit Iraq’s elite and on his attempts to procure WMD-related materials.

In March 2002, a U.S. interagency team briefed the 661 Committee on the regime’s diversion of trucks.

U.S. commanders of the multi-lateral interception force in the

Gulf briefed the committee each year starting in 1996 on illegal

smuggling of Iraqi crude oil, including through the unauthorized

use of ferry services from neighboring states.

An equally noteworthy source of oil smuggling was through

Iraq’s pipeline with Syria which restarted in late November 2000.

The U.S., in coordination with the U.K., repeatedly raised concerns

over this blatant noncompliance only to be told by Syria that the

pipeline was, quote, being tested.

Mr. Chairman, thank you for this opportunity to appear before

the committee. I now stand ready to answer whatever questions

you and your fellow committee members may have.

[The prepared statement of Gerald Anderson follows:]

PREPARED STATEMENT OF GERALD C. ANDERSON, DIRECTOR, OFFICE OF PEACEKEEPING, SANCTIONS AND COUNTER-TERRORISM, BUREAU OF INTERNATIONAL ORGANIZATION AFFAIRS, U.S. DEPARTMENT OF STATE

Mr. Chairman, distinguished members of the Committee, I welcome the opportunity to appear before you to discuss the U.N. oil-for-food program and to answer

your questions on various aspects of the management and execution of the program.

Mr. Chairman, let me start by discussing why the Iraq sanctions were imposed

and why the Oil-for-Food Program was established. Four days after Iraq invaded

Kuwait in 1990, the Security Council adopted Resolution 661, which imposed comprehensive trade and financial sanctions against the former Iraqi regime. 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.

The sanctions were not anticipated to remain in place for more than a year or

two before Saddam complied. 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.

In April 1995 the Security Council adopted Resolution 986, establishing the Oilfor-Food Program to alleviate the serious humanitarian crisis while maintaining

comprehensive restrictive measures to deny Saddam access to items that he could

use to again pose a threat to his neighbors in the region.

The sanctions committee that was established under Resolution 661 in 1991, the

661 Committee, monitored the implementation of the overall sanctions regime on

Iraq, and after the adoption of Resolution 986, it also monitored the implementation

of the Oil-for-Food Program.

The 661 Committee, like all sanctions committees, operated as a subsidiary body

of the Security Council. Unlike the Council, decisions were made on a consensus

basis requiring the agreement of all parties and members. In addition to providing

general oversight of the Oil-for-Food Program and to monitoring member state compliance with the sanctions, the committee, through each of its members, was also

responsible for reviewing humanitarian contracts, oil spare parts contracts and oil

pricing submitted on a regular basis by Iraq to the U.N. for approval.

65

The U.S. delegation was an active participant in all such reviews. The efforts of

the U.S. and the United Kingdom to counter or address non-compliance were often

negated by other members’ desires to ease sanctions on Iraq. The atmosphere in the

committee, particularly as the program evolved during the late 1990s, became increasingly contentious.

The fundamental political disagreement between members over the Council’s imposition of comprehensive sanctions was often exacerbated by the actions of certain

key member states in advancing self-serving national economic objectives. 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.

The imposition of a retroactive pricing mechanism and our ability to place holds

on humanitarian contracts that contained potential dual-use items were both made

possible by the use of the consensus rule.

Judging the success or failure of the Iraq sanctions depends on the view of their

objectives. Clearly they failed to force the regime of Saddam Hussein to comply with

its international obligations. But they did succeed in limiting Iraqi efforts to rebuild

their military capabilities after the Gulf War. As regards the Oil-for-Food Program,

similar considerations apply. The major shortcomings of the program have been

widely documented in recent months, but the Oil-for-Food Program did succeed in

its humanitarian objective of ensuring that the Iraqi people were adequately fed,

thus limiting the impact of sanctions on them.

Much of what the U.S. Government could and could not achieve with regard to

monitoring the program and implementation of the sanctions was directly related

to the political situation surrounding the contentious issue of Iraq in the Security

Council and in the 661 Committee. U.S. efforts to keep the comprehensive sanctions

regime in place repeatedly were challenged by Council members who complained

about the humanitarian impact of sanctions on the Iraqi people, and whose national

firms would derive economic benefit from the lifting of sanctions. Indeed, starting

in the mid-1990s and continuing into 2001, these pressures to lift sanctions grew.

Violations with respect to the oil-for-food program manifested themselves in a

whole pull-down menu of manipulative mechanisms in order to circumvent the sanctions, including surcharges, topping off, influence pedaling, product substitution,

product diversion, phony service contracts, phantom spare parts, shell corporations,

illusory performance bonds, hidden bank accounts and then plain old fashioned bribery and kick backs to the tune of several billion dollars.

Let me provide examples in two key areas: manipulation of oil pricing and kickbacks on the oil-for-food program.

The first regards oil flowing out of Iraq. The former Iraqi regime, through the

State Oil Marketing Organization, proposed prices for various markets and grades

of crude for review by the U.N. Oil Overseers, and for approval by the 661 Committee. The U.N. Oil Overseers and committee members verified that the purchase

price of the petroleum and the petroleum products were reasonable in light of prevailing market conditions. Evidence that the Iraqis were attempting to impose excessive price premiums on oil exports to exploit differences between oil prices approved by the 661 Committee and subsequent fluctuations in global oil prices surfaced as early as the fall of 2000, when the UN oil overseers informed the 661 Committee of instances in which the GOI was requesting imposition of an additional fee

on the sale of Iraqi crude.

My second example involves goods coming into Iraq. Again, there was a clear division of responsibility. While Iraqis retained the authority to contract with specific

suppliers under the oil-for-food program, the 661 Committee was tasked with ensuring that the contracted goods were appropriate for export to Iraq under the conditions set out in Security Council Resolution 986. Once a contract was approved by

the committee and the goods shipped, the U.N. inspections agent, Lloyds Register,

and later Cotecna, were responsible for authenticating the arrival of these goods

into Iraq. Separately, it was the responsibility of member states to prevent sanctioned goods from entering into Iraq.

Mr. Chairman, I offer these examples to illustrate exactly where responsibility

lay. There were, in hindsight, substantial problems related to all of these areas of

responsibility. Some members did not take their international obligations seriously

and either directly or indirectly facilitated sanctions-busting activities by the Saddam regime. The 661 Committee was mired in a political debate with regard to Iraq

that often impeded it from taking action against violators of the embargo. And as

the recent Volcker Independent Inquiry Committee reports indicate, there are serious charges that U.N. officials may have allowed Saddam to further undermine

their system.

66

I stated earlier that the United States has made every effort to address violations

within the 661 Committee, even though we were often impeded by other committee

members.

In late 2000, U.N. Oil Overseers reported that Iraqis were attempting to impose

excessive premiums on oil exports. The 661 Committee, led by the United States

and the United Kingdom, agreed to a statement on December 15, 2000, making

clear that additional fees above the selling price approved by the 661 Committee

were not acceptable. Despite circulation of this message to all companies approved

to lift Iraqi oil, evidence of the illicit surcharges continued during the spring of

2001. The United States, working in close coordination with the British delegation,

raised the issue of excessive oil price premiums in a series of more than 40 formal

and informal 661 Committee and Security Council meetings during that period.

After months of stalemate within the committee, the U.S. and British experts

made creative use of the consensus rule governing decisions in the 661 Committee

by withholding support until the end of the month on oil pricing proposals submitted at the beginning of the month by the Iraqis. This retroactive price analysis

gave the U.S. and British experts the opportunity to compare oil prices sought to

the actual market price of similar crude oils to determine if SOMO’s prices reflected

fair market value—a requirement under Resolution 986. Beginning in October 2001,

the United States and United Kingdom regularly employed the retroactive pricing

mechanism to evaluate SOMO’s prices until the suspension of the oil-for-food program in 2003.

The retroactive oil pricing we imposed had the intended effect. By the spring of

2002, the U.N. Oil Overseers reported that the oil price variation from market levels

had been reduced from as much as 50 cents per barrel to an accepted industry variation of 3 to 5 cents.

Separately, allegation of kickbacks to the oil-for-food program began to surface in

late 2000. U.S. and British experts raised this issue with the 661 Committee experts

and the Office of the Iraq Program’s representatives in 2002 and early 2001 and

formally submitted proposals to address this issue during a 661 Committee meeting

in March 2001. However, no documentary evidence was available at the time to support these allegations. Consequently, our proposals received no support. Committee

members claimed that, absent evidence indicating that such kickbacks existed, no

action could be taken.

Important measures taken to address this issue occurred after the fall of

Saddam’s regime, when the United States, through the Coalition Provisional Authority, was informed of the kickback scheme by Iraqi ministry representatives in

Baghdad. With the fall of the Hussein regime in the spring of 2003, and with the

subsequent authorities granted under U.N. Security Council Resolution 1483, CPA

officials, in coordination with U.N. officials and Iraqis, took steps to eliminate surcharges in the remaining oil-for-food contracts.

In addition to eliminating and countering surcharges and kickbacks, the United

States also took initiatives to provide members of the 661 Committee and the Security Council with information and evidence of violations by the Saddam regime, during various briefings. The United States briefed Security Council members in 2000

on the various ways the Saddam regime was diverting funds to benefit Iraq’s elite,

including through the use of diverted funds to build and furnish Saddam’s palaces.

The U.S. again briefed Security Council ambassadors in the spring of 2002 on

Saddam’s noncompliance with U.N. Security Council resolutions, and Saddam’s attempts to procure WMD-related materials.

In March of 2002, a U.S. interagency team briefed the 661 Committee on the regime’s diversion of trucks. U.S. commanders of the Multilateral Interception Force,

or MIF, in the Gulf also briefed the committee each year starting in 1996 on the

MIF’s activities in combating the illegal smuggling of Iraqi crude oil. MIF Commanders in 2001 and 2002 briefed the 661 Committee and highlighted the continued

attempts by Saddam Hussein to circumvent sanctions by illegally exporting oil and

illicitly importing materials into Iraq through the unauthorized use of ferry services

from neighboring states.

The MIF operating in the Persian Gulf enjoyed success from 2000-2001 in significantly reducing the number of small vessels operating out of Shatt al-Arab that

were smuggling Iraqi oil along Iran’s southern coast. An equally noteworthy source

of oil smuggling prior to the 2003 Iraq war was the illegal flow of oil through Iraq’s

pipeline with Syria, which restarted operations in late November 2000. The United

States, in coordination with the UK, repeatedly raised concerns over such blatant

non-compliance, only to be told by Syrian representatives that the Iraq-Syria pipeline was ‘‘being tested,’’ but was not operational.

67

The oil-for-food program was a unique endeavor, and although it was essential to

the Iraqi people, it was also manipulated by Saddam Hussein and his cronies to undermine the sanctions.

Mr. Chairman, thank you for this opportunity to appear before the committee, I

now stand ready to answer whatever questions you and your fellow committee members may wish to pose.

Mr. WHITFIELD. Thank you, Mr. Anderson.

How long have you been with the State Department?

Mr. ANDERSON. I joined the State Department in August 1980.

Mr. WHITFIELD. How long have you been involved in this oil-forfood issue?

Mr. ANDERSON. I became director of this office in July 2004.

Mr. WHITFIELD. Who was the U.S. representative on the 661

Committee?

Mr. ANDERSON. The 661 Committee was a committee of the Security Council; and, therefore, our mission was represented and our

permanent representative was the senior representative. But most

committee sessions were attended by our sanctions unit chief at the

U.S. mission to the United Nations in New York.

Mr. WHITFIELD. Now, in your testimony, you talk about that selfserving national economic objectives often worsened fundamental

political disagreements between members of the Security Council.

Can you provide a specific example of this?

Mr. ANDERSON. The reference there was, by looking at the members of the Security Council and the 661 Committee with whom we

debated measures to deal with noncompliance, with sanctions and

with these various manipulative devices that I listed in my statement, it was clear that countries that had an interest in selling

more of their products, their companies’ products to Iraq, tended to

take positions more favorable to Iraq.

Mr. WHITFIELD. The oil surcharge would be one example?

Mr. ANDERSON. That would be one example.

Mr. WHITFIELD. When did the U.S. become aware that Saddam

was demanding an oil surcharge?

Mr. ANDERSON. The oil overseers first informed the 661 Committee in December 2000 about the blatant attempts to impose the

surcharges of up to $0.50.

Mr. WHITFIELD. Did the U.S. raise concerns about this with the

661 Committee?

Mr. ANDERSON. Yes.

Mr. WHITFIELD. How many times did they attempt to address the

issue of oil surcharges with the 661 Committee?

Mr. ANDERSON. As I mentioned, over 40 times. I have a list of

a number of particular dates when those issues were raised, and

I would characterize it as an iterative process where we sought to

find a solution that would be acceptable to the committee through

a consensus of the committee and would also be effective in ending

the oil surcharges.

Mr. WHITFIELD. And the U.S—I assume you made written requests about this or sent written documents to the committee expressing their concern?

Mr. ANDERSON. We did submit a number of written documents

accompanying our various proposals on this issue over time.

Mr. WHITFIELD. And which states resisted American efforts to

eliminate the surcharge?

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Mr. ANDERSON. Generally speaking, the U.S. and the U.K. Were

like-minded in general. Occasionally, we had some differences of

opinion on tactics, but we were generally with them and the other

permanent members of the Security Council and some of the nonpermanent members of the Security Council such as, for example,

Syria who, during part of the program, during one 2-year period

was a member of the Council and a member of the Committee.

Mr. WHITFIELD. Basically, France, Russia and China were

those——

Mr. ANDERSON. Those were the other three permanent members.

Mr. WHITFIELD. What were their stated reasons for objecting to

removing the surcharges?

Mr. ANDERSON. In general, the first type of reaction to proposals

to deal with the surcharges was challenging the evidence that was

available for the surcharges. Another common argument was to

claim that action on the surcharges would affect the humanitarian

situation in Iraq negatively or would cause the net revenue coming

into the program to decline, which would therefore reduce the

amount of funds under the program available to procure humanitarian supplies.

Mr. WHITFIELD. And yet the surcharges themselves were definitely reducing the amount of money, humanitarian aid going to

Iraq?

Mr. ANDERSON. That was clearly our argument, Mr. Chairman.

Mr. WHITFIELD. But you were never successful in getting them

to correct that, is that correct?

Mr. ANDERSON. That’s correct. We did, however, de facto implement a system of retroactive pricing that was referred to in the

first panel, which we implemented not by consensus in the committee, because we never obtained a consensus, but through the

system of holds on oil prices. In other words, we exercised our right

under the consensus system to place a hold on any oil contracts

until the end of the month when it was known what the market

price for that oil was during that month. And that was the mechanism that we used to implement retroactive pricing. It was over the

objections of other members of the committee.

Mr. WHITFIELD. In some of our testimony, Dr. Gordon—my impression was that everything decided at the 661 Committee had to

be unanimous and the fact that the U.S. was not objecting seemed

to indicate that the U.S. was going along with everything that was

happening. But what you have just described is a little bit different

than that.

Mr. ANDERSON. Mr. Chairman, I’m not sure which issue your reference to objecting is, but I would just reiterate there were many

disputes within the committee over policy decisions and the——

Mr. WHITFIELD. There were a lot of disputes, I take it?

Mr. ANDERSON. Yes.

Mr. WHITFIELD. In Exhibit 46, I notice that the U.S. was willing

to consider other alternatives to retroactive pricing in order to get

rid of the surcharges, is that correct?

Mr. ANDERSON. Yes, Mr. Chairman. Exhibit 46 is a document

that analyzes various responses from various members of the 661

Committee to the problem of surcharges. This is a matrix that was

drawn up at one point during the 6 months of debate within the

69

committee on how to deal with this problem, and it illustrates the

range of ideas that were under discussion. When you add up the

various positions, you can see why we were not able to reach a consensus that we felt would be effective.

Mr. WHITFIELD. Why did the U.S. and Great Britain desire

proactive pricing to be conditioned on a mandatory lifting requirement?

Mr. STUPAK. This document number 46, could you tell us the

source of that document?

Mr. WHITFIELD. Came from the State Department.

Mr. STUPAK. Does Mr. Anderson have that in front of him?

Mr. ANDERSON. Yes, I do.

Mr. STUPAK. Do you recognize that as a State Department document?

Mr. ANDERSON. I know from conversations with colleagues at our

mission to the United Nations that it is a United States document.

It was prepared in New York by our mission.

Mr. WHITFIELD. Can you explain why the U.S. and Great Britain

desired proactive pricing to be conditioned on mandatory lifting requirements?

Mr. ANDERSON. Mr. Chairman, I’m not an expert by any means

on the oil market, but I understand from others who were—whose

reasoning was behind that decision that that method would be

more effective in eliminating the surcharges. Because, as I believe

we heard described in the first panel, if a company that was going

to lift oil was not aware at the time they agreed to lift what the

price would be, it would not be possible to make an agreement with

the Iraqi side for a surcharge. And if they were able to get out of

that lifting obligation, then that arrangement would no longer

apply.

Mr. WHITFIELD. Now you mention in your testimony that members of the 661 Committee did not take their international obligations seriously. Could you be more specific in terms of particular

countries and examples?

For example, with respect to holds placed on humanitarian contracts, can you estimate what percentage of holds were placed by

the U.S. and British due to concerns over potential dual-use capabilities?

Mr. ANDERSON. I would say the vast majority of holds placed by

the U.S. and U.K—over 99 percent of those holds were placed because of concerns about potential dual uses. There were a very

small number of cases where some participants in the interagency

review process that took place in Washington of the oil contracts

signaled a concern about the pricing of the contract as potential

evidence of a kickback taking place. But in almost every case, even

contracts that had a pricing concern were placed on hold officially

because of concerns about dual use.

Mr. WHITFIELD. So if—you are saying over 90 percent by U.S.

and Great Britain and 10 percent or less was for holds placed by

the countries only?

Mr. ANDERSON. If I understand the question, it goes to the percentage of all holds placed by the committee and how many of

those were placed by the U.S. and U.K. And my understanding is

that, indeed, over 90 percent were placed by the U.S. and U.K; and,

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therefore, all other members—the other 13 members of the committee were only responsible for 10 percent of those holds.

Mr. WHITFIELD. I have no further questions at this time. I recognize Mr. Stupak.

Mr. STUPAK. Thank you.

Mr. Anderson, do you agree that there was a serious humanitarian crisis in Iraq in 1995?

Mr. ANDERSON. I would say, sir, and all the evidence that I have

seen indicates that there was, indeed.

Mr. STUPAK. I’m looking at page 3 of your testimony, first main

paragraph there. It says, the Oil-for-Food program did succeed in

its humanitarian objective of ensuring that the Iraqi people were

adequately fed, thus limiting the impact of the sanctions on them.

Is that correct?

Mr. ANDERSON. Yes, I think that’s correct. And I would call your

attention to the precise wording. Adequately fed does not mean luxuriously fed or any situation that we would all wish, but adequate,

yes.

Mr. STUPAK. The illegal profits or sales of this oil and commodities—let’s just say oil—where Saddam Hussein received these

kickbacks or money to do what he wished outside the Oil-for-Food

program, it’s been estimated that half of this illegal money came

from sales to countries like Jordan, Syria, Turkey, is that correct?

Mr. ANDERSON. As I understand from studies that have been

done of the oil market from that period, for example, the GAO

study that I think you’re familiar with, that is the case, yes.

Mr. STUPAK. If the United States was pushing in the U.N. to

make sure that the Oil-for-Food program was properly followed, as

they should have, then why would the U.S. allow Saddam to receive about half of his money through these illegal sales? These

sales were in violation of the sanctions against Iraq?

Mr. ANDERSON. Yes, sir. That’s correct. That’s the reason that

the U.S. Government under the Foreign Assistance Act certified to

the Congress that assistance to Jordan every year starting in 1991

and to Turkey every year starting in 1996 was in the national interest despite their violations of U.N. Sanctions.

Mr. STUPAK. Doesn’t that send a mixed signal to everybody else?

Like the sales to Jordan and Turkey, we will say that is in violation of the sanctions, but we’ll look the other way. But if anyone

else comes up with anything where they receive something that

would be in violation of sanctions, we are going to put a hold on

it or we’re going to try to enforce them in the 661 Committee? Isn’t

that sort of a—how do you put credibility into a program when you

look the other way when it’s in your political interest and then yet

you admonish others for doing the same thing you are doing?

Mr. ANDERSON. Jordan came to the 661 Committee in 1991 with

a request for relief from the sanctions, alleging that the enforcement of the sanctions and a ban on oil trade with Iraq would cause

severe economic hardship to Jordan. Turkey also submitted a similar request for relief. The judgment of the U.S. Government as reflected in those certifications to Congress was that indeed there

was—it was in the U.S. interest to take that approach.

Within the U.N. system, the Jordanian request was never granted officially, but the committee ‘‘took note,’’ was the terminology

71

that they used, of the trade between Jordan and Iraq. And the U.S.

in many bilateral diplomatic exchanges with Jordan suggested that

the trade with Iraq in the other direction, in other words, the compensation that Jordan paid to Iraq, should only be in barter terms

with humanitarian goods. In the case of Turkey, the 661 Committee never acknowledged the request; and the U.S. also had

many diplomatic exchanges with Turkey about attempting to limit

those purchases from Iraq.

Mr. STUPAK. As I said in my opening, it’s a geopolitical decision,

but I think we lose credibility when we start talking about sanctions and what other countries can do. Even though Jordan and

Turkey did go to the standing committee, it sounds like the standing committee did not approve it, but yet the U.S. did as a matter

of policy. We’re supposed to be the big enforcer, us and the United

Kingdom, to say these sanctions have to work; and if they work,

we have to play by the same rules. When it was to our interest,

we forget the rules, correct?

Mr. ANDERSON. What Jordan and Turkey were doing was not a

secret. It was known to the committee and made clear to the world

and U.S. Congress and it is of a fundamentally different character

than this list of under-the-table, secretive, manipulative means of

gaining illegal revenue that the Saddam Hussein regime engaged

in.

Mr. STUPAK. There are numerous allegations that prohibited

items also went to Iraq through Jordan. What kind of controls did

the Security Council have over this trade?

Mr. ANDERSON. For a period of time, Jordan had an inspection

system at its port in Aqaba of goods that were entering Iraq that

was run by a private contractor. And the Jordanians assured us—

and again, we had many diplomatic exchanges with them to make

sure that they would police that trade to make sure that only those

humanitarian goods were traded back to Iraq in exchange for the

oil.

Mr. STUPAK. But we know that wasn’t the case now, right?

Mr. ANDERSON. Every regime has exceptions, it has violations,

including in this case.

Mr. STUPAK. Did the U.S. relieve its inspector of those duties—

that was supposed to be doing these inspections along the border

there in Jordan? Did Jordan have an inspector that was supposed

to be looking at these commodities to make sure they didn’t violate

the understanding that only certain humanitarian things could

move from Jordan to Iraq? Did Jordan remove its inspector who

was supposed to be head of this program and make sure that only

the proper commodities went into—or humanitarian products went

into Iraq.

Mr. ANDERSON. I am not familiar with the details of that. I can

get an answer back to you.

[The following was received for the record:]

This question should be directed to the Government of Jordan, which had responsibility for its side of the border.

Mr. STUPAK. If you would, please. Thanks. In June 1997, the

United States and the United Kingdom told the sanctions committee that it was, ‘‘beyond the committee’s competence to approve

exports of Iraqi oil,’’ to Jordan. Such approval raised all sorts of

72

questions which had been put aside over the past few years, the

U.S. stated. Is this your understanding of the situation concerning

illegal trade between Iraq and Jordan? Is this your understanding?

Mr. ANDERSON. As I said earlier, the 661 Committee took note

of the trade, but the 661 Committee did not authorize it. And the

U.S. participated in that decision.

Mr. STUPAK. You know, when we opened up the pipeline, and I

think it was you that said that, that it was supposed to be an experiment at first just to make sure that it worked. But that was

their pipeline going up to Syria there.

Mr. ANDERSON. Yes, sir.

Mr. STUPAK. After that, that pipeline never really shut down.

And that’s where a lot of these illegal sales took place, was through

Turkey, and really outside the Oil-for-Food program. Were any attempts made by the State Department to shut that down?

Mr. ANDERSON. Many, many attempts, both by raising this issue

within the 661 Committee and also directly with Syria.

Mr. STUPAK. And nothing ever happened. Right?

Mr. ANDERSON. That’s correct.

Mr. STUPAK. Okay. Was the State Department aware of all the

end use of all this oil that was being sold illegally, that the end

use was here in the United States?

Mr. ANDERSON. I believe the State Department received the same

kind of statistical reports on the oil industry that are widely available to the industry. So I assume so. Yes, sir.

Mr. STUPAK. I asked a question earlier that has been bothering

me. Maybe you can shed some light on it. I had asked of the other

witness, Mr. Fawcett, because he sort of raised it in his report, that

when we started in 1997, the first year of the program, the United

States was the biggest user of the oil—Iraqi oil at 13 percent. By

1999, it rose to 35 percent. And since September 11, the U.S. had

been purchasing well over 50 percent of all Iraqi oil sold underneath the Oil-for-Food program. And every year, it kept going up.

And it’s just not clear why the U.S. would purchase such large

quantities of Iraqi oil under this program in the wake of September

11 and the thoughts of going to war. Can you explain that? Was

there any State Department rationale why they would continue to

buy that oil?

Mr. ANDERSON. As far as I know, it wasn’t a State Department

decision one way or the other on whether that oil should be purchased. Those are transactions done by private companies on the

oil market within the framework of U.S. Law and international

law.

Mr. STUPAK. Yeah, but still ended up here. Wouldn’t you do an

investigation to try to enforce this so it did not end up on the U.S.

market? And if we are trying to be true to the spirit of the sanctions, I would think you would not want Iraqi oil coming in here

since we have these sanctions against them.

Mr. ANDERSON. I think the simple answer to that is the oil market is one big pool, and at one end, oil is put in. Obviously, there

are some limits on the particular qualities that are for particular

purposes. But if the oil is going into that market from Iraq and the

U.S. is purchasing oil, it really doesn’t matter whether a specific

73

oil from Iraq ends up in the U.S. or some other—it goes somewhere

else and the U.S. substitutes; it’s one big pool.

Mr. STUPAK. Thank you.

Mr. WHITFIELD. The gentleman’s time has expired. At this point,

I will recognize Dr. Burgess for 10 minutes.

Mr. BURGESS. Thank you. And thank you, Mr. Anderson, for taking time to be with us here today. In your testimony, you stated

that, besides the surcharges and kickbacks, the United States also

brought to the 661 Committee evidence and information concerning

additional violations of the program, the Oil-for-Food program. And

we have got in our binder that was provided to us Exhibit 45. And

I guess, just like Mr. Stupak, this is a document that is known to

you. Correct?

Mr. ANDERSON. Yes, sir.

Mr. BURGESS. Okay. Exhibit 45, an e-mail dated March 5, 2002,

on truck briefing points. And this document describes a situation

where the United States apparently learned that Iraq was diverting trucks imported under the program for military purposes. Are

you familiar with this?

Mr. ANDERSON. Yes, sir.

Mr. BURGESS. Was this matter addressed within the 661 Committee?

Mr. ANDERSON. Yes, it was.

Mr. BURGESS. And what was their feeling about this?

Mr. ANDERSON. This e-mail is dated 1 day before an interagency

group from the U.S. Government briefed the committee on what we

knew about the diversion of trucks that were brought into Iraq ostensibly for humanitarian purposes and were then diverted to military use. And this is precisely the kind of concern that was uppermost in our mind within the committee, in making sure that goods

were not diverted to military use. And that’s why we went to the

trouble of presenting that briefing. And the result of that was a

change in the judgments of the committee on what types of trucks

would be considered humanitarian.

Mr. BURGESS. Well, clearly, the United States and the State Department were concerned. Were other members of the committee,

did they express concern or surprise that this diversion was occurring?

Mr. ANDERSON. This is, sir, a rather typical exchange. Typically,

if someone presented information on a sanctions violation of this

sort, it was usually either the United States or the United Kingdom. Typically, depending on the nature of the evidence, if the evidence was very clear and compelling, there wasn’t too much that

other committee members could say about it. If the evidence was

circumstantial, as sometimes was the case when there would only

be a newspaper article from the press somewhere without any corroborating evidence, other members of the committee would challenge that newspaper article and would say that no action could be

taken until there was more substantial evidence. But in this particular case, the evidence was quite compelling, and there was action taken.

Mr. BURGESS. So the diversion of these trucks to military use, I

mean, what did France think was eventually going to happen?

74

Mr. ANDERSON. Well, I think the position of other countries on

the committee typically was to react to the information that was

presented to them. And we’ve heard earlier described the contract

process, where contract documents would come to the committee.

They would look at that and approve the contract or put the contract on hold. And then, if the—in this case, say a truck contract

said that it was going to be used for a hospital or to transport food

or just some civilian use, no one in the committee would challenge

that, they would accept that. But then if you then subsequently

showed them evidence that in fact these trucks were going right

from the port to the military base being used by the Iraqi military

and you have compelling evidence of that, they then react to that

and say, oh, well, of course that’s in violation of the sanctions, and

that’s not acceptable.

Mr. BURGESS. Well, then there’s another—if we just skip ahead

to Exhibit 47 and let me ask the same question. Is this an exhibit

that is known to you? Is this an e-mail, internal e-mail from the

State Department as well?

Mr. ANDERSON. Yes, sir.

Mr. BURGESS. This one describes the diversion of Ventolin inhalers. Are you familiar with this incident?

Mr. ANDERSON. I’m familiar with the document, and I’ve also had

some conversations with colleagues who were involved in dealing

with it. Yes, sir.

Mr. BURGESS. Now, did we, the United States, ever confirm

whether this medicine that was found in Syria actually came from

an Oil-for-Food shipment diverted from Iraq?

Mr. ANDERSON. We have initiated—since the staff of the committee brought this particular document to our attention, our mission in New York has been searching their records to see, to get

the answer to that question. As of today, they have not found any

indication that we did confirm that or that any particular action

was taken within the 661 Committee with regard to this. But I

would say, sir, that this is an example of a fragmentary information on a possible sanctions violation. We very frequently got such

fragmentary information. It would basically be a tip from a source,

and we would take that information as far as we could take it, and

sometimes, it would involve calling it to the attention of the U.N.

Office of the Iraq program and asking that they take particular

care in following such matters. In other cases, if it involved a country that was a member of the Security Council on the committee,

raising—the fact of raising it in the committee would mean that it

was highlighted that it was going on, and we would do that with

the hope that that country would then subsequently refrain from

that type of behavior.

Mr. BURGESS. But, of course, I mean, as you know, and we have

heard in this room this afternoon the United States has taken a

great deal of criticism from the United Nations and from outside

the United Nations from blocking the flow of humanitarian goods

into Iraq. Is it fair to conclude that the Iraqi regime may have actually been cashing in on medicines intended for its own people?

And this is Ventolin; it’s an inhaler used for asthmatic children.

And they were taking this—it looks like they were taking this

75

across the border, turning it into cash for some other purpose. Do

you think that’s a possibility?

Mr. ANDERSON. Absolutely.

Mr. BURGESS. Well, given the obstacles for reform within the

United Nations, why didn’t the United States, as Mr. Fawcett has

suggested, put public pressure on France, Russia and others to

eliminate this type of abuse? I mean, again, here we have got a

medicine to go to asthmatic Iraqi children we are selling in the

pharmacy of Damascus for whatever purpose, who knows, and the

money is coming back to the Saddam regime. Why didn’t—why

wasn’t more pressure put on France, Russia to—Germany to stop

this?

Mr. ANDERSON. I would say we certainly put tremendous pressure on France and Russia, and then Germany of course during the

period that Germany is a member of the Security Council, but certainly on France and Russia within the framework of the council.

And as far as public pressure, I think, on the general issue of dealing with Iraq, there was a tremendous amount of public pressure

on France and Russia on the overall issue of dealing with Saddam

Hussein. With regard to these specific violations, it would depend

on the issue. I mean, different countries could be involved at different times. But certainly within the framework of the committee,

it was very clear that there was a struggle under way between the

U.S. and the U.K. On the one hand and the other three permanent

members, Russia, France and China, on the other, on a whole

range of issues. During the period before the smart sanctions that

were addressed earlier when we were reviewing every single contract there was a lot of discussion about contract holds that the

U.S. and the U.K. placed because of weapons of mass destruction

or dual-use concerns. Many of those contracts were from—were

submitted by companies in Russia and France or China. And we

were under tremendous pressure from those governments to release the holds. So it was very clear that there was a lot of tension

over those.

Mr. BURGESS. And I’m certain there was. But, golly, this looks

pretty blatant. I mean, you have got a medicine that’s used for

asthmatic children in the country of Iraq, and you are selling it in

Damascus on the black market. I mean, I fail to see why that’s—

you know, just like the other stuff we heard about, about the infant

formula, paying 25 percent more than you know you should be paying for it. It’s almost as if there was—well, I’m not going to say it.

But it looks like this was a premeditated act at so many levels that

I just simply can’t shake that thought.

Mr. Chairman, I will yield back my time.

Mr. WHITFIELD. Thank you, Dr. Burgess. At this time, I will recognize Mrs. Blackburn for 10 minutes.

Mrs. BLACKBURN. Thank you, Mr. Chairman. And I want to

thank Mr. Anderson, and two of our other witnesses are still in the

room. I want to thank them for their time today. This is something

that is of tremendous interest not only to us but to our constituents. And I also want to thank the chairman and the ranking member for their work on getting everything ready for the hearing

today.

76

Mr. Anderson, let me just ask you this as a matter of background, and I think as we look at this and as our constituents, I

know we have many who are watching the hearing and listening

to the things that are going on here. Were you at the State Department in 1991 when Resolution 661 was passed?

Mr. ANDERSON. I was at that time on assignment overseas, and

I was not dealing directly with Iraq or the United Nations at that

time.

Mrs. BLACKBURN. Okay. And then when Resolution 986, in the

mid 1990’s, were you there at that point?

Mr. ANDERSON. No.

Mrs. BLACKBURN. You were not. Okay. And then for the record,

let’s just go ahead. In 1991, who was our Secretary of State and

our U.N. Ambassador?

Mr. ANDERSON. 1991, that was the late Bush period. So that

would have been Mr. Baker as our Secretary of State at that time.

Mrs. BLACKBURN. All right.

Mr. ANDERSON. And our U.N. Ambassador, I would have to check

the list. It was probably the period of Ambassador Pickering, I believe.

Mrs. BLACKBURN. And then in the mid 1990’s?

Mr. ANDERSON. Mid 1990’s, I guess it depends which year,

whether it would be in the Clinton administration, or are you referring to the——

Mrs. BLACKBURN. That would have been?

Mr. ANDERSON. Madam Albright was our representative, our permanent representative at the U.N. And then Mr. Holbrook.

Mrs. BLACKBURN. All right. Okay. And so what I wanted to do

was be certain that we realize who was at the State Department

and who was our U.N. Ambassador during that period of time and

who was in charge of overseeing, and then as I said, for clarification, I felt like it was important to notice to whether you were

there or you were involved. Because I think it’s important for people to realize, you know, we talk a lot about—we use a lot of acronyms and a lot of numbers in DC, and sometimes, it allows us to

gloss over the importance of the Iraq steering committee. And this

group that was put in place by Resolution 661 just simply by using

numbers, you know, it does not speak specifically to the mission

that these folks were given in looking at sanctions and looking at

the oil and the commodities and the proper use of those items and

of the proceeds from the sale of that oil.

And I think that, many times, as we go back and we are looking

hindsight, using the advantage of hindsight in looking at this, we

have a tendency to say, how did the wheels come off of this? And

how did it get to be so seemingly out of control? And that is hard

for us to get our arms around, what appears to be just a blatant

disregard for humanitarian aid and for the welfare and well-being

of people, not to mention respect for the law.

You have mentioned in your testimony a couple of different

places on page 2 and 3 about the political debate and impeding action against violators of the program. And you mentioned earlier in

your remarks, the U.K. Was generally with us.

Mr. ANDERSON. Yes.

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Mrs. BLACKBURN. And then to Dr. Burgess’ response you mentioned against the French and Germans. And how much of the

pressure to turn a blind eye, if you will, to any actions against the

violators, how much of that came from the French and Russian

governments?

Mr. ANDERSON. I would say, ma’am, that I would turn that

image around.

Mrs. BLACKBURN. Okay.

Mr. ANDERSON. And I would say that the pressure from the U.S.

and U.K. To look into violations was quite strong. And we got similar pressure back from countries that were most interested.

Mrs. BLACKBURN. You got the push back from the French and

the Russians.

Mr. ANDERSON. Yes. That’s correct.

Mrs. BLACKBURN. Considerable?

Mr. ANDERSON. Considerable pushback? In particular with regard to contracts that involved companies from those countries.

Mrs. BLACKBURN. Okay. During this period of time, the mid

1990’s, do you know if there was a relationship between Kofi

Annan and Cotecna?

Mr. ANDERSON. I don’t have any familiarity with that beyond

what I read in the second report of the Volcker Commission.

Mrs. BLACKBURN. Do you know if Kojo Annan was involved in

any way at that point? Are you aware of anything from there?

Mr. ANDERSON. I would refer you to the report. That’s the source

of what I know. He was employed by Cotecna, and the dates of his

employment and the conditions are detailed in the Volcker Commission’s report.

Mrs. BLACKBURN. You also mentioned in your testimony that

there were regular briefings on the program that were given to the

Security Council Ambassadors.

Mr. ANDERSON. Yes.

Mrs. BLACKBURN. And what feedback did they give and how receptive did they seem to be to negative information?

Mr. ANDERSON. The—if I understand, ma’am, you are referring

to briefings by the United States on knowledge that we had.

Mrs. BLACKBURN. Right.

Mr. ANDERSON. And I would say the reaction was typically negative from members of the Council, other than the U.K. It was typically—pushback was a good word, challenging the veracity of our

information, challenging whether or not there was evidence to support the assertions that we were making. There was a tendency to

question the information the U.S. was presenting.

Mrs. BLACKBURN. Did they give you as much resistance on accepting negative information as they did to any type of action

against the violators of the program?

Mr. ANDERSON. I just want to see if I understand the question,

ma’am. The violators, are you referring to companies or——

Mrs. BLACKBURN. Correct. You know, as we have talked about

the violators on the aid, and you mentioned in your testimony some

of the disagreements that were there, the fundamental disagreement over dealing with some of these folks. My—and what I’m trying to get to, Mr. Anderson, is how strongly they would resist, the

negative information, and then turn around and deal—how strongVerDate 11-MAY-2000 07:26 Sep 28, 2005 Jkt 000000 PO 00000 Frm 00085 Fmt 6633 Sfmt 6602 21637.TXT HCOM1 PsN: HCOM1
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ly they would resist dealing with anybody who was trying to impede what they saw as a benefit to the French and Russian governments.

Mr. ANDERSON. Well, I think in general everybody on the 661

Committee accepted that violations of the sanctions regime should

not occur, in principle. But when it came down to specific cases of

violators, there tended to be a lot of debate about the evidence,

whether an actual violation had occurred and whether one could be

sure, based on the available evidence, that it had occurred.

Mrs. BLACKBURN. Okay. You know, in the last panel, one of the

questions that I asked was if members of this committee, the 661

Committee, the Iraq steering committee, whatever we are going to

call it, if they should come in and testify before this committee, if

we should have them there. And I would be interested to hear from

you if the State Department, what the State Department’s opinion

would be on having those members come in. Because I find it very

interesting that it seems as if there was a denial, an awareness of

what was probably happening, but then a choice to possibly not

take action. So I would be interested in what the State Department’s opinion is on that.

Mr. ANDERSON. Well, the members of the 661 Committee of

course were the 15 countries who were members of the Security

Council. And the individuals who were sitting in that committee

were all diplomats just as I am. So if I served—you asked, ma’am,

where I was in 1991. I was in Poland, for example, and I dealt with

the parliament of Poland. And occasionally they requested that a

U.S. diplomat would come and talk to them in a committee setting

like this. And our response to that was always that we are always

happy to talk to a committee, but we are not happy to be subpoenaed by a committee because we have diplomatic immunity. And

I would guess that most diplomats from the 15 countries who were

on the 661 Committee, on the Iraq sanctions committee, would

probably react in a similar way; that you might get people to talk

to you, but I’m not sure that you would get them to testify under

oath.

Mrs. BLACKBURN. You are probably correct. And I thank you so

much for your answers.

Mr. Chairman, I will yield back.

Mr. WHITFIELD. Thank you.

I will recognize the gentleman from Florida for 10 minutes.

Mr. STEARNS. Thank you, Mr. Chairman. I don’t have a full

length of questions here, but I just wanted to ask Mr. Anderson:

Has your career pretty much been at the State Department?

Mr. ANDERSON. Yes, sir.

Mr. STEARNS. From when you got out of school, college?

Mr. ANDERSON. I was in West Africa as a Peace Corps volunteer

for 2 years after college. And then I came back to Washington, and

I completed my graduate studies before I joined the Foreign Service

and also worked at the Commerce Department for a period of time

during those graduate studies.

Mr. STEARNS. So you have been at the State Department how

many years, would you say?

Mr. ANDERSON. 25 years.

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Mr. STEARNS. In your 25 years of being there, have you seen anything like this occur? Generally, you find these type of arrangements, that Saddam Hussein used oil allocations to undermine the

sanctions. It’s not brand-new. In your experience, have you seen

other cases where this paradigm, this model has occurred in all of

your experience? Is this unique in all of your professional history?

Mr. ANDERSON. Well, sir, I would say this particular program,

the structure of the program, the breadth of it, is certainly unique.

But since you referred to my career, I will permit myself to refer

to my experience in the Middle East. I served 5 years altogether

in the Palestinian areas and in Israel. And I must say that, in the

kind of approach to dealing with the rule of law that we observed

in this procedure was—is something that one can see in other

areas in the Middle East also. Not on this scale, but the idea that

business transactions are not transparent, that there may be double-dealing or triple-dealing is certainly not unknown in that region

of the world.

Mr. STEARNS. That is what I am trying to get at. It seems to me

we have oil here, but you could have food. You could have housing.

You could have health. I mean, you could have a whole series of

commodities that could be used like oil. And in the Middle East,

there is a climate of quid pro quo, whether it’s money or other

things. So what I’m trying to establish, in your professional opinion, is this unique and egregious and something that people

couldn’t say, Well, this is just how the Middle East is and this is

how everybody does it there. So this program is no different than

they have done for eons. And so for Mr. Volcker to come here and

try and do a report, he might have a difficult time because he can’t

separate what is the custom and culture. And so I need to hear

from your professional experience whether we are talking about

something here that is totally separate from the argument, that’s

part of the culture.

Mr. ANDERSON. I would respond, sir, that this program is different from what is typically the case in the Middle East in several

aspects. One, the size, because, we were talking about——

Mr. STEARNS. Billions of dollars.

Mr. ANDERSON. Billions of dollars and comprehensive sanctions

on an entire national economy.

Mr. STEARNS. Over a long period of time.

Mr. ANDERSON. Over a long period of time. There’s nothing on

that scale.

Mr. STEARNS. So the scale of it, with the amount of money. And,

two——

Mr. ANDERSON. Complexity.

Mr. STEARNS. Complexity. And, three, that it is over a long period of time. It wasn’t just a one-time transaction.

Mr. ANDERSON. That’s correct.

Mr. STEARNS. Do you have—now, just I’m asking in your professional opinion here. And you can also give me a personal opinion.

Do you think Volcker is going to be successful in trying to get to

all the nooks and crannies here and get to the bottom of this, considering the extensive amount of relationships between nations and

third parties? How do you get to the bottom of this? And do you

feel confident that you can? What is your professional opinion?

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Mr. ANDERSON. Sir, I would refer you to the mandate for

Volcker’s committee. We were quite careful in approving the U.N.

Resolution that accepted the creation of the committee to make

sure that the mandate of the committee was limited. And, indeed,

if you look at it, it is limited to investigating wrongdoing by U.N.

Officials in violations of the rules that were established by the

sanctions committee. And that means that other bad things that

happened that were outside the functioning of that—the Oil-forFood program and the procedures are certainly bad, but they may

not be within the mandate of the Volcker committee. So when you

ask me, do I think whether he will succeed, in answering that, I

try to look at what it is, what the task that he was assigned to.

Mr. STEARNS. The question is, can he succeed on the task given

to him?

Mr. ANDERSON. I think it is always a question in any investigation on whether he can get evidence for any assertions. I think that

he is—if you look at his first two reports, I think you will see that

he has uncovered a range of assertions. Some of them have been

better documented; others have been less well documented. But he

has included in his report even things that are less well documented, and he might presumably be continuing to investigate as

that investigation proceeds.

So I would say, since the Volcker committee is not a judicial institution, it’s an investigative committee, and the results of that

committee’s work could be and may be forwarded to national authorities in the appropriate countries.

Mr. STEARNS. Where would that go, to the international court?

Mr. ANDERSON. No. I don’t think so. I think it would go to national judicial authorities in appropriate countries for prosecution

if——

Mr. STEARNS. Because, see, when you do an investigative report,

you really don’t have this subpoena under oath, and you are just

asking questions and people can say what they want. And so my

concern is the range of answers and range of interpretations, and

this whole thing gets so murky. And it seems to me we need more

of a judicial investigation where you have subpoena powers that he

can put them under oath and there is a case where we could, if

they suborned perjury, that we could actually put them in jail, even

minor people. But I just don’t have the feeling that he has that

kind of authority. Is that true?

Mr. ANDERSON. That’s correct. He does not have that authority.

Mr. STEARNS. So how can you investigate if you don’t have the

authority to extirpate the truth?

Mr. ANDERSON. Well, I think what Mr. Volcker stated is that he

is preparing the best information that he can based on the access

he has, granted by the United Nations, and that this information

will be made available to member states including the United

States and our judicial authorities who do have subpoena power

and investigatory authority, who can investigate, if they deem it

appropriate, any of the cases that might be described in the report

of the Volcker committee.

Mr. STEARNS. Just as an outside observer, we see that the implication of some high Russian officials that has been in the paper

this week. Now, how much confidence—and I am just rhetorically

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putting this question out—do we think Russia is going to institute

judicial prosecution against these high Russian political officials?

Mr. ANDERSON. That’s obviously up to Russia to decide. And I

won’t comment——

Mr. STEARNS. But by opening up that, they open up a can of

worms for their own policy positions at their government at the

highest level.

Mr. WHITFIELD. If I could interrupt. They informed us that they

are not going to do anything.

Mr. STEARNS. So we’ve already heard from Russia that, even if

their highest officials are implicated, they are not going to do anything. So, you know, it’s a little frustrating I think for us to look

at the Volcker Commission and think that we are going to get some

solid answers, and, more importantly, there are going to be results

from it.

So, Mr. Chairman, with that, I just appreciate your having the

hearing and want to encourage this continued investigation. But I

think Mr. Anderson pointed out some problems with the ultimate

jurisdiction of Volcker and getting the member country to prosecute

the individuals that are guilty.

Mr. WHITFIELD. Thank you, Mr. Stearns.

At this time, I will recognize Mr. Inslee for 10 minutes.

Mr. INSLEE. Thank you. Mr. Anderson, I do have a question, but

I need to say something before I start. So if you can just bear with

me for a couple minutes.

Yesterday, in preparation for the Democratic-Republican baseball

game, I pressed into service a young man who is a neighbor of ours

to play catch. And this young fellow, I haven’t seen for a couple of

years, he’s been in the Army and he is scheduled for deployment

in Iraq here probably early next year I think. And the reason I

mention that is that, with all due respect to this hearing, I really

would rather be investigating how we can make sure that young

man has the tools available to keep him safe and how we can make

sure that our taxpayer money is not being wasted on contracts that

have been squandered, and how we can make sure that $80 million

gets accounted for so that we can put that into armored HMMVWs

instead of some rat’s nest of profiteering in Iraq. And I’ve been very

disturbed that our institution, the U.S. House of Representatives,

is not getting to the bottom of why contractors are disposing of millions of dollars of taxpayers’ money instead of having armored

HMMVWs for our soldiers like my neighbor who is going there

early next year. I really think that is a fitting subject of inquiry

that I would hope that our committee at some time can get to. We

have made numerous attempts on the floor of the House to do that.

We need a Truman commission in this regard, which, frankly, is

a lot more important than this subject.

I would also like to see an investigation of some of the things

coming out now about why my neighbor has to go to war and how

that takes place—how that took place. I read a note from a London

paper the other day from a July 23, 2002, memorandum that said,

‘‘In high-level meetings between the Bush administration and the

British saying military action is now inevitable, Bush wanted to remove Saddam through military action justified by the conjunction

of terrorism and WMDs, but the intelligence and facts were being

82

fixed around the policy. The case was thin. Saddam was not threatening his neighbors, and his WMD capability was less than that of

Libya, North Korea or Iran.’’

This is a smoking gun about what happened, why my neighbor

has to go to Iraq and be subject to hostility when a war started

based on false, fraudulent information. And that’s what I would

like to see the U.S. Congress investigating so that my neighbor

doesn’t get in harm’s way in Iraq. Instead, we are fooling around

with the history of some oil effort that, frankly, I don’t think is

going to keep him safe. And I hope at some point the U.S. House

of Representatives does its duty, which is to have a Truman commission to investigate the fraudulent use of taxpayer money and

how this war started based on false information. That’s an investigation worthy of this Congress.

But I want to ask you a question about this regard now, turning

to the subject of this hearing. I was looking at some of the language, earlier witnesses have talked about, on kickbacks. And they

submitted a document that said that while, ‘‘While the practice has

usually been associated with weapons procurement, it was also a

regular feature of the Reagan administration’s agricultural support

program to Iraq as administered by the U.S. Department of Agriculture’s commodity credit corporation.’’ In this guise, it was known

as, ‘‘after-sales service.’’

Do you know how that happened and what was going on there?

Mr. ANDERSON. I believe that program was administered by the

Agriculture Department, and I would have to get you an answer

from them or refer you to them. I’m not familiar with that.

This question should be directed to the Department of Agriculture, which administered that program.

Mr. INSLEE. Thank you. I’ll appreciate it if you can do that. Now,

you’re in the office—you’re the director of the Office of Peacekeeping Sanctions and Counterterrorism. That’s your current title?

Mr. ANDERSON. Yes, sir.

Mr. INSLEE. And what were you doing back in July 2002?

Mr. ANDERSON. July 2002, I was the counselor to the U.S. embassy in Warsaw, Poland.

Mr. INSLEE. Okay. So could you give us any information about

this British memorandum that suggests that the Bush administration had made a decision to take military action in July 2002 based

on flimsy evidence, on thin evidence based on assertions that WMD

had less capability in Iraq that Libya, North Korea or Iran? Do you

know anything about that?

Mr. ANDERSON. No, I don’t.

Mr. INSLEE. I wish you did, because that’s the thing I would like

to see the U.S. Congress finally figure out, how this war started

based on false information. Thank you.

Mr. WHITFIELD. I will recognize the gentleman from Michigan for

a brief remark.

Mr. STUPAK. Thank you, Mr. Chairman. And I just want—you

know, today’s hearing got off a little bit there on the wrong foot

with some documents coming into the—or wanted to be admitted

into the record. And, you know, we have always worked well on

this committee in a bipartisan manner; I hope we can keep that up.

In my opening statement I indicated to you that I thought that we

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should do further investigation along these lines, especially some

of the U.S. interests in some of the U.S. oil companies that may

or may not have benefited from this Oil-for-Food program. So I

would hope in the weeks ahead that we can take another look at

that. We have a couple subpoena requests that we had asked and

documents we wanted from certain documents; hopefully, the majority would honor that and sign the subpoenas so we can get the

documents front and center.

I think what the committee has done today is sort of tip of the

iceberg, but you can sort of see the frustration on this. We all have

strong feelings on this, even the last questioner there, my friend

from Washington, there, mentioned the impact of this. It’s more

than just Food-for-Oil program; it’s the whole Iraq war and everything else, which sort of gets energy levels up around here. And no

disrespect meant to the Chair or anything like that, but we do have

some strong feelings on this side as I’m sure you do on your side,

and we’d like to use this committee as being as bipartisan as we

are and that, that we continue to work on this issue, but hopefully,

we can have a full investigation including the areas that the minority would like to explore through subpoena or interviews of companies. And we would hope you would join with us in that request.

Mr. WHITFIELD. Thank you, Mr. Stupak.

And, Mr. Anderson, thank you for your testimony today. As we

all know, the chairman of the full committee has a real interest in

this whole subject matter, and I know that there will be additional

discussions as we move forward in trying to make some determinations about which ways to go in further hearings on this subject.

So, with that, this hearing is adjourned. And I appreciate your testimony.

[Whereupon, at 5:42 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

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