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Largest Financial Scandal In History Just Doubled

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
December 7, 2004

IN THIS ISSUE:

1.  Senate Says Saddam Skimmed $21+ Billion

2.  United Nations Stonewalls The Investigation  

3.  Senator Calls For Kofi Annan’s Resignation

4.  How The United Nations Rips-Off The U.S.

5.  Political Scene A Month After The Election

Introduction

The Senate subcommittee investigating the Oil-For-Food scandal revealed last month that Saddam Hussein and his cronies skimmed over $21 billion out of the UN program that was intended to provide food and medicine to the Iraqi people.  That is twice the amount we were led to believe earlier this year.

The United Nations has been stonewalling the Senate investigation of the scandal.  UN Secretary-General Kofi Annan has found himself in the crosshairs, and Senator Norm Coleman who heads the investigation publicly called for Annan to resign on December 1 and several times since then.  I expect Annan will be forced to resign before this is over.

The US pays 25% of the UN’s annual budget, compared to the United Kingdom that pays only 8.9%.  Given how stridently anti-America the UN is, maybe we should also consider relocating the world body to some other country (France comes to mind).  Hopefully, with a new Secretary of State and a new UN ambassador, the Bush administration will force reforms on the UN.

Finally, we look briefly at President Bush’s agenda for his second term and some things that have changed since the election.

The Oil-For-Food Scandal Explodes

I first wrote about the United Nations’ “Oil-For-Food” scandal with Iraq on May 25.  In that issue, I explained how the scandal worked, who benefited from it and how it went on for years. In May, we knew it was a huge scandal, that it lined Saddam Hussein’s pockets, that it did not feed the Iraqi people, and that it could have contributed to terrorism.  We just didn’t know to what extent.

On November 16, I again wrote about the Oil-For-Food scandal and reported that it was far worse than anyone initially thought.  In that E-Letter, I reported that the latest estimates were that the UN allowed Saddam to skim $10-$11 billion from the program into his own pockets and those of his cronies.  Even at $10-$11 billion, it was called “the greatest financial scandal in history.”

Well now we have learned that the UN allowed Saddam to skim at least $21-$22 billion from the Oil-For-Food program!  In late November, the Senate Permanent Subcommittee On Investigations released these initial findings from its seven-month probe into the Oil-For-Food program.  The Senate subcommittee investigating the scandal emphasized in its first public hearing that these are only preliminary estimates, and that the real numbers will likely be even higher when the final results are released early next year. 

Senator Norm Coleman, the subcommittee’s chairman, underscored the urgency of the investigations, noting not only that the size of the fraud “is staggering,” and that some of Saddam’s vast illicit stash might still be funding terrorists and costing American lives.

United Nations Stonewalls The Investigation

It should come as no surprise that the UN is resisting the Senate subcommittee investigation.  The UN maintains that it is conducting its own “independent inquiry”into the Oil-For-Food scandal, led by former Fed chairman Paul Volcker.  While Paul Volcker is widely respected, the UN guidelines on his investigation require that he funnel his findings first through Kofi Annan, the UN Secretary-General. 

It is also interesting to note that the UN’s “independent inquiry” is funded to the tune of $30 million out of one of the old Oil-For-Food accounts it is supposed to be investigating.  The UN says it is not planning to release any specific results of the investigation until sometime next summer.   Next summer??

Thus far, Mr. Annan has refused to cooperate with the Senate subcommittee investigation.  In the spirit of shooting the messenger, Annan has complained often in recent months about criticism of the Oil-For-Food program, and has denounced the Senate investigation as a “campaign that has hurt the UN.”

Kofi Annan Comes Under Heavy Pressure

The Senate subcommittee claims that the United Nations allowed Saddam Hussein and his cronies to embezzle at least $21.3 billion in oil money during 12 years.  Most of that huge amount - a staggering $17.3 billion- was pilfered between 1997 and 2003 while Annan was the UN Secretary-General. 

Annan’s director of communications, Edward Mortimer, sent a letter to The Wall Street Journal in November asserting that Mr. Annan was “not involved” in designing the Oil-For-Food program.  But one wonders how he could not have been involved.  For example, Annan’s own official UN biography states that before becoming Secretary-General, he “led the first United Nations team negotiating with Iraq on the sale of oil to fund purchases of humanitarian aid.”

Once he became Secretary-General, Annan accelerated the plans for the Oil-For-Food program.  In October 1997, just 10 months into the job, he formalized the program from a temporary relief effort into the “Office of the Iraq Program,” a large UN department that reported to him directly.  To run the Oil-For-Food program, Annan picked Benon Sevan who is now alleged to have received oil money from Saddam (which he denies, of course).

Annan’s formalization of the Oil-For-Food program vastly expanded the amount of oil Iraq could sell.  It was at this point, apparently, that Saddam Hussein decided that he could start gaming the system with impunity.  Shortly thereafter, Hussein began denying the UN weapons inspectors access to certain sites, and eventually kicked them out of Iraq altogether.

Annan’s response during this period was not to curtail Oil-For-Food sales.   In fact, he went before the UN Security Council a few months later and urged that Baghdad be allowed to import oil producing equipment, along with the food and medicine, to which the program had been initially limited. This set the stage for the ensuing burst in Saddam’s oil production, kickbacks, surcharges and smuggling of oil.

Under the Oil-For-Food deal, the UN’s Secretariat was paid a 2.2% commission on Iraq’s oil sales, totaling a whopping $1.4 billion over the life of the program.  This money was supposed to be used for supervising the program and to ensure the proper use of the oil revenues by Saddam Hussein.  Yet according to the Senate investigation, the Secretariat did not: 1) fully account for the amounts of the oil shipments; 2) did not conduct full inspections of all goods entering Iraq; and 3) did not find (or reveal) the pricing scams and smuggling that let Saddam and his cronies rake in billions in kickbacks on the oil or the relief contracts that were awarded.

As we now know, other than Saddam and his cronies, it was France, Germany and Russia who were the main beneficiaries of the Oil-For-Food scandal.  They got the big contracts with Iraq.  This explains why they were so opposed to the war in Iraq.  It was their gravy train. 

Time For Kofi To Go?

Annan and his aides maintain to this day that the Oil-For-Food program had nothing to do with Saddam’s pricing scams and smuggling of oil.  Yet the Senate investigation reveals that Saddam and his cronies pocketed at least $21 billion during the years in which the Oil-For-Food program was running.  Those were the very same years in which Annan repeatedly went to bat to enable Saddam, under Oil-For-Food, to import the equipment to rebuild Iraq’s oil infrastructure, thereby creating vastly more oil to game the system.

Yet we are to believe that Kofi Annan knew nothing about the kickbacks, the pricing scams and the smuggling of oil – even though the Senate investigation will reportedly reveal that numerous people in the UN were in on the scam.  It is uncertain whether Annan received any funds from the scandal.  We do know that his son received money from the scams.  But whether Annan directly benefited from the Oil-For-Food scandal or not, he allowed it to continue for years. 

Senator Norm Coleman has called for Annan’s resignation from the United Nations.  Coleman said, “It’s time for U.N. Secretary-General Kofi Annan to resign.  The massive scope of this debacle demands nothing less.” 

Be sure to read Senator Coleman’s December 1 WSJ editorial entitled “Kofi Annan Must Go” in SPECIAL ARTICLES below.

I praise Senator Coleman for his efforts and his hard line against Kofi Annan.  I wish President Bush would join him in calling for Annan’s resignation.  But he hasn’t.  In fact, I was disappointed to hear Mr. Bush say last week that he wishes to strengthen our relations with the UN.  I would argue just the opposite!

The UN Rip-off Of The United States

Did you know that the US pays 25% of the United Nations’ budget each year?   By comparison, did you know that the next largest contributors are Japan at 12.5% and the UK at 8.9%?  Did you know that the US paid dues and contributions of more than $3 billion in 2003, according to the State Department?  This is in addition to the obscenely valuable UN building and land in New York City and elsewhere that we provide.

We do all this despite the fact that many more Americans distrust the UN than trust it.  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.  The unfavorable numbers are certainly higher now that the details of the Oil-For-Food scandal are being exposed.

The UN is unquestionably an anti-American body. 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 their ingrained dishonesty and corruption would spill over into 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) in favor of Sudan, one of the world’s absolute worst human rights violators.  By the way, Sudan was recently granted a third 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.

Is Our Policy Toward The UN About To Change?

There are many of us in conservative circles that would just as soon see the UN relocated to some other country.  France would be a good choice, in my opinion.  But that is not likely to happen.  So it remains to be seen if US policy toward the UN will be toughening under the leadership of Secretary of State-to be, Condoleezza Rice.

President Bush has made it clear that he believes the State Department should carry out the policies and desires of the president, rather than operating its own agenda as it has for years.  It is also clear that Condi Rice is fiercely loyal to President Bush.  Given that the State Department is our direct link to the UN, it will be interesting to see if Miss Rice will continue the current “accommodationist” policy, or if she will begin to seriously pressure the UN for major reforms.

Colin Powell is clearly in the accommodationist crowd.  So also is the current US ambassador to the UN, former Senator John Danforth.  Danforth is seen by many as a politician who believes his job is to smooth over relations with the UN.  One administration official said, “His M.O. is to make nice with the UN.”  Danforth is retiring next year, however, and President Bush will appoint his successor.

With Norm Coleman’s high profile denouncement of the UN and his call for Kofi Anna’s resignation, he has paved the way for the Bush administration to crack down on the UN.  With Danforth’s departure, Bush will have the opportunity to appoint a new ambassador who will fight for reform.

Now it remains to be seen if President Bush really wants to see the UN reformed or not.  If he does, Condi Rice may be the perfect Secretary of State to do so.  She will do what Bush wants.  But it is unclear at this point what exactly Bush wants to do.

Talk in Washington over the weekend and on Monday was that Bush is considering appointing Joe Lieberman (D-CT) as the next UN ambassador.   Lieberman is one of the few moderate senators.  I actually like Lieberman.  However, Lieberman is NOT going to shake up the United Nations.  If Lieberman is Bush’s choice for the UN, then we will know that all this talk about cracking down on the UN is just so much hot air.

The bottom line is: 1) Kofi Annan needs to go; 2) any other members of the UN that profited from the Oil-For-Food scandal also need to go; 3) Paul Volcker should be given complete autonomy in his UN investigation; 4) Bush needs to appoint someone who is very tough as our next UN ambassador; 5) the US should require that the anti-American policies of the UN be stopped; and 6) if not, we halt our bloated payments to the UN indefinitely.

If I were in charge, the UN would be jettisoned to another country to host its liberal, anti-American agenda!  (Even though a majority of Americans probably agrees with me by now, I’m sure to get lots of nasty responses on this one.)

The Political Landscape Since The Election

One month after the election, a lot has changed.  President Bush’s approval ratings have risen nicely.  According to realclearpolitics.com, Bush’s approval rating has gone from 49% to 53-55% depending on the poll; his 47% disapproval rating has fallen to 43% or less.

Bush has laid out his agenda for the second term.  He wants to reform Social Security, simplify the tax code, make his earlier tax cuts permanent and enact serious tort reform.  These are huge issues.  Add to that an extension of the No Child Left Behind education reform, a comprehensive energy plan and immigration reforms.  He also says he intends to cut the budget deficit in half.

“Bush has the most aggressive second-term agenda” in modern history, says Dan Mitchell of the Heritage Foundation.  It will be interesting to see how much of this he can get accomplished in his first two years.  Typically, not much happens in the last two years of a second term.

The Democrats are still reeling from the defeat in November.  A very few in the party understand why they lost so badly this time.  James Carville gets it, but most Democrats refuse to accept that most of this country is conservative, and that homeland security is the top issue.  And many still don’t realize that the “Hate Bush” 527s and the ultra-liberal likes of Michael Moore, Whoopi Goldberg, et al actually hurt Kerry in the end.

Talk of Hillary Clinton being the Dem’s nominee in 2008 has only accelerated since the election.  Assuming she is re-elected to the Senate in 2006 (a good bet), I don’t see anyone stopping her for a run at the White House.   Some Republicans believe Hillary is unelectable, while others are scared to death.  There is no slam-dunk Republican candidate for ’08, and this is troublesome.  John McCain is not the answer, in my opinion.   

Stocks Sprint To Three-Year Highs, Oil Plunges

On the financial front, stocks have rallied to a three-year high since the election.  On September 7, September 28 and October 19 in these pages, I recommended that readers move to a fully invested position in stocks and/or mutual funds.  The markets bottomed in late October and have gone nearly straight up since.  The S&P 500 has climbed over 9% since the low. 

If you bought equities based on my recommendations in September and October, I would hold onto those positions a little longer.  The market looks to have more momentum.

Oil prices plunged from above $55 per barrel to $42 as of last week.  In the September 28 issue of this E-Letter, when oil first surged above $50, I predicted that once the supply lines got back to normal following the hurricanes, oil prices would retreat to the $35-$40 range.  I still believe that can happen, barring any major new developments.

That’s all for this week.  Gotta do some Christmas shopping!  If you are interested, you can click here to see the Halbert family holiday photo.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Senator Norm Coleman:  “Kofi Annan must go.”
http://www.opinionjournal.com/extra/?id=110005966

Scandal over Kojo Annan (Kofi’s son) deepens.
http://www.taipeitimes.com/News/biz/archives/2004/11/28/2003212917

A good review of the UN’s failures over the years.
http://www.opinionjournal.com/editorial/feature.html?id=110005992


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