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Oil-for-food programme plagued by ‘lack of transparency’ and ‘scandalous conflicts of interest’

UN programmes must observe strict conflict of interest rules and implement transparent and open bidding processes, and Iraqi oil sector should be rebuilt with strict anti-corruption controls, says TI

"Scandalous irreconcilable conflicts of interest, the intrusion of political considerations, and a lack of transparency and accountability have plagued the United Nations oil-for-food programme," said TI Chairman Peter Eigen today. Responding to the release today of the first interim report by the Independent Inquiry Committee into the programme, he said that the report, led by Paul Volcker, former Chairman of the US Federal Reserve Board, "points to an inexcusable failure to hold transparent and open bidding processes, compounded by blatant conflicts of interest on the US$ 64 billion programme". TI is the leading global non-governmental organisation devoted to combating corruption.

"Lessons must be learned from this international scandal," said Eigen. "With the recent tsunami tragedy and the subsequent humanitarian aid to South Asia, it is imperative that the UN sets the highest standards of transparency and probity in programmes that it oversees. The UN Security Council bears a responsibility for failing to act against corruption in the oil-for-food programme. Strict conflict-of-interest rules must be implemented and monitored in the UN system, and the Iraqi oil sector must be rebuilt on the basis of open tenders and strict anti-corruption controls. The reconstruction of Iraq should be managed in a way that benefits the Iraqi people as a whole, instead of to the benefit of corrupt cliques in Iraq and other countries, or bribe-paying multinationals, "said Eigen.

According to Volcker, the UN oil-for-food programme lacked "the independence, the clear reporting lines and the management responsiveness critical to achieving a fully effective auditing process". Volcker cited "conclusive evidence" that Benon Sevan, the Executive Director in charge of the UN oil-for-food programme, violated specific UN rules "in effectively participating in the selection of purchasers of oil under the programme, placed himself in an irreconcilable conflict of interest". Volcker is due to publish a comprehensive report in summer 2005.

"The oil-for-food programme was intended to be a lifeline for the majority of Iraqis, but was hijacked by a greedy minority," said Eigen. The programme, which was in operation from December1996 until November 2003, allowed Iraq to sell oil to pay for food and humanitarian supplies. The then Iraqi President Saddam Hussein extorted bribes and surcharges from handpicked buyers of Iraqi oil and vendors of humanitarian goods, and is estimated to have amassed between US$ 1.7 billion and US$ 4.7 billion, according to different studies.

According to Eigen, "the sheer enormity of the oil sector demands open-bidding processes in a sector marked by widespread corruption. For new oil contracts in Iraq and elsewhere, it is imperative that governments and state oil companies disclose oil revenues, and that oil companies disclose what they pay to authorities and state-owned companies."

TI is a member of the Publish What You Pay initiative, a NGO coalition calling for governments to require that their oil companies publish what they pay in taxes, fees, royalties and other payments to host governments. Publication of these payments should be a requirement for stock exchange listing in their own countries.

TI is calling for an open international bidding process for the reconstruction of the Iraqi oil industry. It cannot be less than a transparent, open and accountable process both to the Iraqis and to the world at large. The process must include strict rules on conflicts of interest, which should be binding on both international bidders and Iraqi companies. Conclusive evidence of corrupt practices by companies involved in the oil-for-food programme should lead to their blacklisting by governments, intergovernmental organizations and development banks.

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