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Oil-For-Food Much Worse Than We Thought

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
November 16, 2004

IN THIS ISSUE:

1.  Saddam Skimmed Over $21 Billion

2.  UN Stonewalls Senate Investigation

3.  Doomed From The Very Beginning

4.  The Corrupt United Nations Exposed

5.  How Oil-For-Food Scandal Worked

6.  Russia & France Were Big Winners

7.  Oil-For-Food For Terrorism?

8.  Hope Rests In Senate Investigation

Introduction

I last wrote about the “Oil-for-Food”program in Iraq in May shortly after the United Nations (UN) engaged former Federal Reserve chairman Paul Volcker to conduct an internal investigation of the scandal.  Only limited attention was focused on the scandal at the time, as the media was busy trying to get John Kerry elected president.

When I wrote my E-Letter on the subject in May, we were told that Saddam Hussein and his cronies in Iraq and elsewhere had skimmed $10-$11 billion from the Oil-For-Food program, which was supposed to be a humanitarian effort to get food and medical supplies to the beleaguered Iraqi people.  At that time, I said this was the largest financial scandal in history.

The United States Senate, to its credit, figured out that the Volcker investigation into the scandal was not going to get very far, since Volcker has only limited powers and no subpoena authority to go after the bad guys in the UN.  So the Senate launched its own investigation, which has received little attention due to the election.  But now, the facts are starting to leak out.

On Monday, we learned that the Senate Permanent Subcommittee on Investigations now believes that Hussein and his cronies pocketed in excess of $21 billion, more than twice the $10 billion reported earlier, from the Oil-For-Food program.  And it will probably get even larger.

We also learned that the Senate has requested over 50 Oil-For-Food documents and registers from the United Nations, and UN Secretary-General Kofi Annan is stonewalling.  So far, he has refused to turn over the documents.  The good news is, this will likely lead to the resignation of Annan before this is over.

The trouble is, much of the billions that Hussein skimmed from the program is unaccounted for.  The fear is that some of that money may now be in the hands of terrorists and insurgents that are battling our troops in Iraq.   Given the scope of this unfolding scandal, we revisit the topic this week, including excerpts from my May 25 issue in which I explained how the scandal worked.

The Oil-For-Food Scandal Widens

Until this week, we had been told that the Oil-For-Food scandal allowed Saddam Hussein to pocket some $10 billion in illegal profits that he used to build palaces and purchase military arms and equipment.  Senator Norm Coleman who is heading the Senate investigation said on Monday that the hearings to be conducted this week and beyond will reveal that Hussein illegally pocketed over $21 billion from the program. 

About all we have learned from the Volcker investigation is that the scandal involved some 248 companies that bought Iraqi oil since the program began. Volcker also released a list of 3,545 firms that sold humanitarian goods to Saddam Hussein’s regime during the seven-year Oil-For-Food program.

The Senate Permanent Subcommittee on Investigations is demanding a full and complete independent audit of the UN’s Oil-For-Food records, and has requested over 50 specific documents.  So far, Kofi Annan is stonewalling.  That has led to increasing pressure for Annan to resign his post as the head of the UN.  There is a very good chance that will occur shortly.

As I will discuss below, the largest benefactors from the Oil-For-Food – other than Saddam Hussein and his cronies – were Russia, France and a host of other players.  This explains why France and Russia were so opposed to the war in Iraq.  We can only hope that all the facts are revealed in the weeks and months just ahead, and that the UN and the other major players are properly discredited!  And we will hopefully learn, finally, if Saddam used his Oil-For-Food billions to fund terrorists.

Doomed From The Very Beginning

The UN Oil-For-Food program was established after the Gulf War in 1991 and was designed to allow Iraq to sell enough oil to meet the humanitarian needs of the Iraqi people, such as food, medical supplies, essential services, etc. The program was never intended to line the pockets of Saddam or benefit his cronies around the world, which sadly is exactly what it did for many years.

As with many UN programs, Oil-For-Food was poorly structured, thus allowing for massive abuses.  The nature and scope of these abuses were so grievous and so widespread that the Oil-For-Food program is proving to be the greatest financial scandal in history.  This incredibly huge scam crosses borders, religions and political ideologies, uniting those involved in plain and simple greed.

What’s most stunning are recent revelations exposing those at the UN and elsewhere who were primarily responsible for the abuses, and who participated in this massive fraud.  In short, many in the UN administrative infrastructure and many of its members have been blatantly corrupt, as have some of our so-called “allies” around the world.

While many in the UN loudly criticized our efforts in the War on Terror as inhumane, at the same time they were skimming millions from the Oil-for-Food program and thereby depriving the Iraqi people of needed food and medicine. Is it any wonder there was such opposition to the US invasion of Iraq?  No, it was simply bad for business!

There is a massive cover-up underway at the UN, and the media is cooperating as always.  Despite the latest revelations from Volcker and what is emerging from the Senate investigation, we hear only scant soundbites in the media about this enormous scandal.  If all the facts in this scandal actually see the light of day, the UN will emerge discredited, weakened, and very possibly, broken.  Maybe that wouldn’t be such a bad thing.

The United Nations Exposed As Corrupt

A Rasmussen survey earlier this year showed that only 38% of Americans have a favorable opinion of the UN, while 44% have an unfavorable opinion.  These favorable/unfavorable numbers were quite surprising to the media, but probably not to most of you reading this E-Letter. The unfavorable numbers are almost certain to rise in the near future as the scathing details of the Oil-For-Food scandal are finally exposed.

If you are surprised by the recent revelations about Oil-For-Food, you really shouldn’t be. After all, the UN is comprised in large part of representatives of small, poor Third World nations, many of which are inherently corrupt and anti-American. The fact that corruption would be found in the UN really shouldn’t surprise anyone. Nor should it surprise us that the UN has had a history of anti-American activity.

In 2001, for example, the United States was removed from the United Nations High Commission for Human Rights (UNHCHR) for the first time since 1947 in favor of Sudan, one of the world’s absolute worst human rights violators. (You can check out Sudan’s human rights record by clicking here.)  By the way, Sudan was recently granted another term on that commission!  This is only one of many such examples, so it’s not a stretch to see how a UN organization could be so corrupt.

When it was conceived, the Oil-For-Food program was intended to be a humanitarian mechanism. Prior to its full implementation, Iraq was subject to extremely stiff trade sanctions resulting from Saddam’s defiance of UN weapons inspectors. The Oil-For-Food program provided basic relief in the form of limited crude sales with the proceeds to be used for humanitarian purposes.  In the beginning, the program was well intentioned, seeking to bring relief in the form of food and medical supplies to the Iraqi people.   After all, it didn’t seem fair to punish the citizens of Iraq for the crimes of Saddam Hussein and the Iraqi regime.

Unfortunately, this program rapidly turned into a complicated kickback scam that allowed Saddam to bribe political figures and institutions around the world, as well as fuel his notoriously evil rule and his military. The tangled web of deceit extended beyond the UN and the governing body of the Oil-For-Food program itself, and also includes several of our so-called “allies,” as you will read below.

How This Information Came to Light

The corruption in the Oil-For-Food program had long been suspected.  A June 20, 2003 article by Marc Perelman on The Forward Internet website discussed doubts about the Oil-For-Food program and suggested that some of the money was being used to fund terrorism (more about this later).  In part, Perelman said:

“The now-defunct program allowed Iraq to buy food and medicine with its oil proceeds under U.N. supervision. Although the oil sales in question were legal and approved by the U.N., several observers say the system involved kickbacks and was used by Saddam to buy political support and to finance intelligence activities and even terrorist groups.”

Concrete evidence came to light in December of 2003.  While advising the Iraqi Governing Council, Claude Hankes-Drielsma, the UK Chairman of Roland Berger Strategy Consultants, sent an urgent fax to UN Secretary-General Kofi Annan.

“As a result of my findings here, combined with earlier information, I most strongly urge the UN to consider appointing an independent commission to review and investigate the Oil-For-Food Programme. Failure to do so might bring into question the UN’s credibility and the public’s perception of it… My belief is that serious transgressions have taken place and may still be taking place.”

Mr. Hankes-Drielsma was shown various documents at the Iraqi Oil Ministry that strongly indicated major abuses in the Oil-For-Food program. These documents reflected both individuals and institutions that Saddam rewarded with allocations of Iraqi oil.

How The Scam Worked

From its inception, the Oil-for-Food program was riddled with flaws and loopholes, opening the door for the grievous abuses that followed.  One of the major flaws was that Saddam Hussein was given the right to: 1) select the parties who would buy the Iraqi oil; and 2) select the suppliers of the humanitarian aid.  Hussein was also allowed to set the price at which Iraqi oil would be sold.

All the seeds for a giant scandal were put into place.  Hussein had the ability to determine with whom to deal and set the official price of Iraqi oil.  Furthermore, the rules did not force Hussein to deal directly with the end-users; instead, he was allowed to sell oil through middlemen.  For political purposes, Hussein would sell the oil at a discount to his chosen middlemen and they, in turn, sold it to the end-users at market prices, thus pocketing huge profits.  Nice work if you can get it! 

Hussein then pocketed billions from the oil sales and built palaces and purchased military equipment and arms.  It is also suspected that he used some of the money to fund terrorists.  Much of the money is still unaccounted for.

Another flaw in the program was that all deals were confidential between Hussein and the UN.  Under this arrangement, the UN was not to examine the contracts for Iraqi oil except between the Iraqi Oil Ministry and the first purchaser.  Until recently, the UN maintained that it had no idea that the oil was being sold at significant discounts in many cases, or that the middlemen were adding surcharges to the contracts awarded them by Saddam.  Therefore they went totally unnoticed by the UN.  Yeah, right!

In one alleged example, UN Oil-For-Food administrator Benon Sevan was granted an allocation of 7.3 million barrels of Iraqi oil, on which he could expect to make a $3.5 million profit.  Not a bad take for an international bureaucrat!  For a graphic representation of how the scam worked, click here.

The US General Accounting Office initially estimated that Hussein skimmed as much as $10 billion from the money that flowed through the program.  As noted earlier, the ongoing Senate investigation reveals that Hussein pocketed over twice that much – over $21 billion.  It all went either directly to Hussein personally or to supporters of the regime. 

By bribing UN officials and foreign dignitaries, Hussein also guaranteed their silence as he used money for purposes other than the humanitarian aid for which it was designed.  The UN also looked the other way when Hussein sold oil to other countries in excess of the amounts allowed by the Oil-For-Food program.

Who’s On The List?

The names and institutions on this list – that benefitted greatly from the Oil-For-Food program - are so numerous and shocking that when they are all confirmed, this will prove to be the greatest financial scandal in history .  According to Paul Volcker, as noted above, the list includes at least 248 companies that purchased Iraqi oil through the program.

From that list, three obvious favorites emerge. At the top of the list is RUSSIA, which is not really a surprise. The Russians have had a vested interest in Iraqi oil production for nearly 15 years.  In documents released earlier this year, there are four pages of entries detailing voucher recipients in Russia that total over one BILLION barrels of crude. On the Russian side, the notable recipients include the “Director” of the Russian President’s office, other prominent Russian politicians and even the Russian Orthodox Church (why, how?).

Admittedly, Hussein owed the Russians tens of billions of dollars in loans, so it is not hard to see why the Russians would try to get some of their money back, even if through questionable or illegal means.  Yet as the scandal is sorted out, it looks like much of the Oil-For-Food money may have simply lined the pockets of key Russian politicos to a great degree. This, of course, explains why the Russians opposed the war in Iraq from the very beginning.

Finishing strong in second place behind the Russians in the Oil-For-Food scandal is none other than our long-time “ally” FRANCE!  In documents released earlier this year, France’s oil vouchers account for 150.8 million barrels of crude and notable recipients include French Interior Minister Charles Pasqua, Patrick Maughien, who is a close friend of Jacques Chirac and head of Soco International oil company, and former French Ambassador to the UN, Jean-Bernard Merimee.  This clearly played heavily into France’s opposition to the War. 

More recent information indicates that Russia purchased $19.2 billion in Iraqi oil while Russian vendors received $3.3 billion in humanitarian contracts.  French firms purchased more than $4 billion in oil and received $2.9 billion in humanitarian aid sales.

SYRIA comes in third in the voucher sweepstakes, again not a surprise, as they have long been allied with the Hussein regime. There are 14 names in the Syrian column accounting for 116.9 million barrels of crude. Syria’s motivations are obvious, having been a hotbed of terror and anti-Americanism for years.

Outraged yet?  Wait, it gets better. Yet even more notable is Kojo Annan, the son of UN Secretary-General Kofi Annan.  Kojo Annan worked for a Swiss company, Cotecna, as a “consultant.”  Cotecna was awarded a $4.8 million contract for the Oil-for-Food program. 

The names go on and on: the President of Indonesia, the PLO, a member of the British Parliament, and even rogue American ex-patriot financier Marc Rich (who was pardoned by Bill Clinton).  Needless to say this is a powder keg with global ramifications.  The internal audit conducted by the UN revealed that tens of millions of dollars are unaccounted for.

Oil For Food For Terrorism?

There has been, thus far, modest media attention on this scandal, with the exception of Fox News and the Wall Street Journal.  That’s not unusual at all considering that the media in general adore the UN and will be hesitant to report any negative news until the evidence becomes overwhelming.

Earlier this year, Claudia Rosett of the Wall Street Journal quoted financial investigators as saying there are possible “terrorist connections” in the list of companies that did business under the Oil-for-Food program.  She wrote:

Included are a remnant of the defunct global criminal bank, BCCI, while another was close to the Taliban while bin Laden was on the rise in Afghanistan, and a third was linked to a bank in the Bahamas involved in Al Qaeda’s financial network; a fourth had a close connection to one of Saddam’s would-be nuclear bomb makers.

Fred Gedrich, a Senior UN and Foreign Policy Analyst at Freedom Alliance, believes that “the UN created an environment where Saddam could funnel large sums of money to terrorists and terrorist organizations to the detriment of humanity and civilization…”

The connections between al Qaeda and Saddam Hussein are still not completely clear.  Hopefully, the Senate investigations will reveal these connections in the weeks and months ahead.

Conclusions

There was only token UN opposition to US military action in Afghanistan. But as we set our sights on Iraq, the protests began in earnest, even though Iraq had been openly defying UN resolutions for over a decade. Afghanistan was not bad for business, but Iraq was. The UN and allies like Russia and France wanted the Oil-For-Food sham to continue, as did Saddam Hussein.

It is outrageous that a world organization whose supposed mandate is one of peace and humanitarian assistance had, through the actions of some of its members and key administrators: 1) propped up a tyrant; 2) oppressed an already poor people; 3) defrauded the world; and 4) in the process, lined their own pockets, while directly or indirectly promoting anti-Americanism and possibly terrorism across the globe.

The UN has had anti-American tendencies for decades, but this blatant display is alarming. The United Nations has become a misguided echo chamber of bitter and corrupt Third World countries whose only chance at global influence is through the UN.  It will hopefully be discovered that the UN is largely a criminal entity whose petty agendas are at odds on a global basis with freedom and democracy, and are certainly anti-American.

With the latest Senate investigations, we can hope that this scandal grows in intensity and visibility, and the UN is exposed as a corrupt, anti-American institution.  As you can read below in Special Articles, it will clearly take more than Volcker’s investigation, which has no subpoena power, to get the truth out and expose all the culprits.

Maybe the US can use this as an impetus to finally remove itself from the UN, and maybe even insist the UN relocate to somewhere else beyond our shores.  But maybe that is just wishful thinking on my part and that of other conservatives.  In lieu of that, it would be nice to see a suspension of US payments to the UN and at least an indefinite US ‘abstention’ from UN sponsored programs and activities.  Maybe that, too, is just wishful thinking.

At the very least, there should be a massive shake-up at the UN with indictments, arrests, convictions, increased scrutiny and a great deal of public shame. It’s definitely time for Kofi Annan to go!

On that note, did you hear that Bill Clinton said he might be interested in becoming the next UN Secretary General?  Wouldn’t that be special!   Maybe I’ll tackle that one in a future E-Letter.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

The Senate versus the United Nations.
http://www.suntimes.com/output/novak/cst-edt-novak15.html

Kofi Annan continues to stonewall investigators.
http://washingtontimes.com/op-ed/20041114-103940-6516r.htm

How the Oil-For-Food Scandal worked.
http://www.foxnews.com/story/0,2933,133484,00.html

Is the Volcker Oil-For-Food Commission credible?
http://www.heritage.org/Research/InternationalOrganizations/wm569.cfm


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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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