<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:20172.wais] S. Hrg. 109-43 THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD PROGRAM ======================================================================= HEARING before the PERMANENT SUBCOMMITTEE ON INVESTIGATIONS of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION ---------- FEBRUARY 15, 2005 ---------- Printed for the use of the Committee on Homeland Security and Governmental Affairs THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD PROGRAM 20-172 PDF 2005 S. Hrg. 109-43 THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD PROGRAM ======================================================================= HEARING before the PERMANENT SUBCOMMITTEE ON INVESTIGATIONS of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ FEBRUARY 15, 2005 __________ Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 20-172 WASHINGTON : 2005 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel Amy B. Newhouse, Chief Clerk PERMANENT SUBCOMMITTEE ON INVESTIGATIONS NORM COLEMAN, Minnesota, Chairman TED STEVENS, Alaska CARL LEVIN, Michigan TOM COBURN, Oklahoma DANIEL K. AKAKA, Hawaii LINCOLN D. CHAFEE, Rhode Island THOMAS R. CARPER, Delaware ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey JOHN W. WARNER, Virginia MARK PRYOR, Arkansas Raymond V. Shepherd, III, Staff Director and Chief Counsel Leland B. Erickson, Counsel Mark L. Greenblatt, Counsel Stephen A. Groves, Counsel Elise J. Bean, Minority Staff Director and Chief Counsel Dan M. Berkovitz, Minority Counsel Zachary I. Schram, Minority Professional Staff Member Mary D. Robertson, Chief Clerk C O N T E N T S ------ Opening statement: Page Senator Coleman.............................................. 1 Senator Levin................................................ 9 Senator Collins.............................................. 2 Senator Domenici............................................. 14 Prepared statement: Senator Pryor................................................ 67 WITNESSES Tuesday, February 15, 2005 Robert M. Massey, Chief Executive Officer, Cotecna Inspection S.A., Geneva, Switzerland...................................... 16 Andre E. Pruniaux, former Senior Vice President, Africa and Middle East Division, Cotecna Inspection S.A., Geneva, Switzerland.................................................... 18 Arthur Ventham, former Inspector for Cotecna Inspection S.A., Western Australia.............................................. 20 Vernon P. Kulyk, former Deputy hief Customs Expert, United Nations Office of the Iraq Program (OIP), Dar es Salaam, Tanzania....................................................... 22 John Denson, General Counsel, Saybolt Group, Houston, Texas...... 24 Milan Radenovic, Contract Manager, Cotecna Inspection S.A........ 41 Joseph A. Christoff, Director, International Affairs and Trade, Government Accountability Office, Washington, DC............... 45 Stafford Clarry, former Humanitarian Affairs Advisor, United Nations Oil-for-Food Program, Syracuse, New York............... 47 Hon. Patrick F. Kennedy, Ambassador to the United Nations for Management and Reform, United States Mission to the United Nations, New York, New York.................................... 54 Alphabetical List of Witnesses Christoff, Joseph A.: Testimony.................................................... 45 Prepared statement........................................... 147 Clarry, Stafford: Testimony.................................................... 47 Prepared statement with attachments.......................... 165 Denson, John: Testimony.................................................... 24 Prepared statement........................................... 139 Kennedy, Hon. Patrick F.: Testimony.................................................... 54 Prepared statement........................................... 188 Kulyk, Vernon P.: Testimony.................................................... 22 Prepared statement........................................... 127 Massey, Robert M.: Testimony.................................................... 16 Prepared statement with attachments.......................... 168 Pruniaux, Andre E.: Testimony.................................................... 18 Prepared statement with attachments.......................... 188 Radenovic, Milan: Testimony.................................................... 41 Ventham, Arthur: Testimony.................................................... 20 Prepared statement........................................... 110 EXHIBITS 1. Iraqi Memo Estimating Sevan's Profits at $1.2 Million....... 202 2. Benon Sevan's Oil Allocations for Phase IV.................. 204 3. Sevan's Oil Allocations for Phases V, VII, VIII, X, XI and XII............................................................ 206 4. Iraqi Chart Indicating Allocations to Benon Sevan in Phases VI & VII....................................................... 216 5. State Oil Marketing Organization (Baghdad, Iraq) Invoices for Iraqi Crude Oil sold to IBEX Energy France, dated June and September 2001................................................. 220 6. Iraqi Memo Describing The Bribe of a U.N. Oil Inspector..... 222 7. Letter Of Iraqi Oil Minister Ordering Payment Of Bribe To U.N. Oil Inspector............................................. 225 8. Iraqi Accounting Spreadsheet Showing Bribe Payments To U.N. Oil Inspector.................................................. 227 9. Letter From Iraqi Oil Minister Describing Bribe Of U.N. Oil Inspector...................................................... 228 10. Copy of Portuguese Passport of Armando Carlos Costa Oliveira, Number F-504464, issued July 4, 2000, and related documents...................................................... 231 11. Documents establish that Armando Carlos Costa Oliveira was an oil inspector for Saybolt in Iraq........................... 241 12. Documents establishing that Armando Carlos Costa Oliveira was a U.N. oil inspector at the unauthorized loading in Mina Al Bakr in May 2001............................................... 249 13. Documents establishing that Armando Carlos Costa Oliveira was a U.N. oil inspector at the unauthorized loading in Mina al Bakr in August 2001............................................ 261 14. Saybolt email, dated February 23, 2002, informing the Iraqi government and the U.N. that Oliveira would travel from Basra to Baghdad on March 3, 2002, from Baghdad to Amman on March 5, 2002........................................................... 270 15. Saybolt email, dated January 24, 2002, discussing the travel schedules of various employees. Notably, Oliveira is listed to leave from Amman, Jordan to Frankfurt on March 7, 2002......... 272 16. Oliveira's Bank Statement (March 2002)...................... 273 17. Deposit slip reflecting cash deposit into Oliveira's account in March 2002.................................................. 274 18. Cotecna Fax from Kojo Annan to Robert Massey, dated September 14, 1998, regarding Non Aligned Movement (NAM) Summit, Durban-South Africa.................................... 275 19. Cotecna Fax from Kojo Annan to Robert Massey, dated October 26, 1998, regarding Outstanding Consultancy Expenses........... 276 20. Cotecna correspondence from Andre Pruniaux to Neville Brunnetta, dated December 4, 1995, regarding Kojo Annan joining Cotecna. (One copy produced to the Permanent Subcommittee on Investigations on August 28, 2004, from the Cotecna files located in Geneva, Switzerland; second copy produced to the Permanent Subcommittee on Investigations on December 22, 2004, from the Cotecna files located in Lagos, Nigeria.)............. 277 21. Cotecna Memorandum from Michael Wilson to Elie Massey, Robert Massey, Andre Pruniaux, et al., dated December 4, 1998, regarding Mission To The UN-Iraq Oil for Food Programme--1-2 December 1998.................................................. 278 22. Cotecna Fax from Kojo Annan to Elie Massey, dated August 28, 1998, regarding Consultative Status for IFIA with the United Nations........................................................ 279 23. Cotecna document prepared for Kojo Annan titled 1998 Meeting of the UN General Assembly..................................... 280 24. Cotecna Fax from Michael Wilson to Kojo Annan, dated August 28, 1998, regarding Ghana, Current Situation................... 281 25. Cotecna Letter from Elie Massey to Joseph Connor, U.N. Under Secretary-General for Management, and Kofi Annan, U.N. Secretary-General, dated October 6, 1998, regarding Possible Additional Funding............................................. 282 26. Resume of Kojo Annan........................................ 283 27. Cotecna meeting minutes, dated December 23 [1998], regarding the Oil-for-Food Program and the role of Independent Inspectors 284 28. Cotecna Memo, dated February 18, 1999, regarding UMMQASR Situation...................................................... 286 29. Cotecna faxes, dated February 1999, regarding lab analysis-- ``fit for human consumption''.................................. 288 30. Cotecna email, dated April 1999, regarding G3 06--medical samples--waiting in fr (procedures--no testing)................ 291 31. Cotecna email, dated June 1999, regarding G3 06 Sampling-- medical samples--new (concerns with quality)................... 292 32. a. Cotecna fax to UN O.I.P.-N.Y., dated March 1999, regarding Claims From Iraqi Receivers.......................... 293 b. Cotecna fax to Cotecna UMM QASR, dated March 1999, regarding Claims From Iraqi Receivers.......................... 297 c. Cotecna fax to Cotecna UMM QASR, dated June 1999, regarding Delays In Authentications............................ 302 33. Cotecna Notes from meeting with Cotecna 23-25 March 1999, regarding Jonas Larsen's Mission Report and Cotecna's concerns with level of inspections...................................... 204 34. Cotecna email, dated April 1999, regarding G2 07 Larsen 01-- answer to report--10........................................... 308 35. Cotecna fax to UN O.I.P.-New York, dated April 1999, regarding Response to J. Larsen's Mission Report............... 316 36. Cotecna fax, dated March 1999, regarding Confidential: J. Larson's Report. Mission Report [prepared by Jonas Larsen, Customs Officer]--The purpose of the visit was to evaluate the services provided by Cotecna, the new Independent Inspection Agents and to attend the monthly meeting between UNOHCI and Cotecna........................................................ 322 37. United Nations Office of the Iraq Programme (OIP) fax to Cotecna, dated April 25, 1999, regarding Outstanding matters (. . . would first however like to address the question that continues to be the cause of the majority of correspondence between Cotecna and the UN, that is the question of quantity and quality inspections and Cotecna's liability arising there from.)......................................................... 328 38. United Nations Office of the Iraq Programme (OIP) fax to Cotecna, dated May 1999, regarding Letter from Mr Sevan to the Permanent Mission of Iraq (. . . letter . . . from Benon Sevan . . . in regards to quality inspection of goods arriving to Iraq.)......................................................... 331 39. Cotecna fax, dated May 1999, regarding Sites' Sampling Methods........................................................ 334 40. Cotecna fax, dated June 1999, regarding Report On A Visit to UMM QASR, May 1999............................................. 344 41. Cotecna email from UN OIP, dated March 2000, regarding Authentications of missing cargos.............................. 363 42. Cotecna email from UN OIP, dated November 2000, regarding Continued--Umm Qasr inspection procedures...................... 367 43. Cotecna email, dated January 2001, regarding Craig Airey's fax on containers leaving the port without inspection (SOMO is intentially creating delays.).................................. 369 44. Cotecna email, dated April 2001, regarding Greenlight to reduce backlog in Umm Qasr..................................... 371 45. Cotecna email, dated July 2002, regarding Visit of UNOHCI Deputy Humanitarian Coordinator (questions . . . related to smuggling of cargo.)........................................... 372 46. Cotecna letter of recommendation on Cotecna employee Arthur William Ventham, dated September 24, 2003...................... 374 47. Cotecna email and Arthur Ventham resignation memo, dated September 29, 2003............................................. 375 48. Oil-for-Food Contract between the Ministry of Irrigation, Baghdad, Iraq [Government of Iraq] & Shanghai Machinery, Imp & Exp (Group) Corp., Ltd, China, dated November 12, 1998, with related documents.............................................. 378 49. Summary of the UN Oil-for-Food Program Audits Conducted by the Office of Internal Oversight Services, prepared by the Permanent Subcommittee on Investigations Majority Staff........ 412 50. Financial Losses Resulting from Waste, Abuse or Mismanagement Identified by OIOS Audits, prepared by the Permanent Subcommittee on Investigations Majority Staff........ 423 51. Illicit Iraqi Revenue 1991-2003, chart prepared by the Permanent Subcommittee on Investigations Minority Staff........ 426 52. BBC News, March 25, 1998, Despatches, Iraq's illegal trade in oil......................................................... 427 53. Documents relating to exports from Kohr al-Amaya, Iraq...... 429 54. Iraq Military Expenditures 1980-2002, chart prepared by the Permanent Subcommittee on Investigations Minority Staff........ 434 55. Supplemental Submission of Arthur Ventham................... 435 56. Letter of Personal Reference--Arthur Ventham, dated January 14, 2005....................................................... 440 57. Responses to supplemental questions for the record for Joseph A. Christoff, Government Accountability Office.......... 441 THE UNITED NATIONS' MANAGEMENT AND OVERSIGHT OF THE OIL-FOR-FOOD PROGRAM ---------- TUESDAY, FEBRUARY 15, 2005 U.S. Senate, Permanent Subcommittee on Investigations, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 9:31 a.m., in room 342, Dirksen Senate Office Building, Hon. Norm Coleman, Chairman of the Subcommittee, presiding. Present: Senators Coleman, Collins, Stevens, Domenici, Warner, Levin, Carper, and Pryor. Staff Present: Raymond V. Shepherd, III, Staff Director; Mary D. Robertson, Chief Clerk; Joseph V. Kennedy, Chief Counsel; Leland Erickson, Counsel; Mark Greenblatt, Counsel; Steven Groves, Counsel; Jay Jennings, Investigator; Katherine Russell, Detailee (FBI); Phillip Thomas, Detailee (GAO); Gregory Coats, Detailee (IRS); Jeffrey James, Detailee (IRS); Richard Fahy, Detailee (ICE); Mike Williams, Intern; Erin Brannigan, Intern; Elise J. Bean, Staff Director/Chief Counsel to the Minority; Dan Berkovitz, Counsel to the Minority; Laura Stuber, Counsel to the Minority; and Merril Springer, Intern. OPENING STATEMENT OF CHAIRMAN COLEMAN Senator Coleman. This hearing of the Permanent Subcommittee on Investigations will be called to order. Good morning and welcome. This is the second in a series of hearings that the Permanent Subcommittee on Investigations will hold to address the abuses of the U.N. Oil-for-Food Program. That noble program was established by the United Nations to ease the suffering of the Iraqi people, who were languishing under Saddam's iron-fisted rule and because of the economic sanctions imposed on Iraq by the United Nations after the Persian Gulf War. While sanctions were designed to speed the removal of Saddam Hussein from power, or at least render him impotent, the Oil-for-Food Program was designed to support the Iraqi people with food and other humanitarian aid under the watchful eye of the United Nations. Instead, Saddam Hussein manipulated the program to generate billions of dollars in illegal revenue. At our first hearing in November, we detailed the methods used by Saddam Hussein to abuse the Oil-for-Food Program. The Hussein regime bought influence and favors by granting oil allocations to its friends and allies and made money on the deal by demanding surcharge payments on the actual oil sales. As Secretary of State Condoleezza Rice testified at her confirmation hearing, Saddam Hussein was ``playing the international community like a violin.'' On contracts for humanitarian goods, Hussein demanded that suppliers inflate their contracts and pay the difference into secret regime accounts. These ill-gotten gains may be funding the insurgency in Iraq against our troops and allies today. All of this misconduct occurred under the supposedly vigilant eye of the United Nations. The weaknesses in the Oil-for-Food Program raise serious questions about the U.N.'s ability to enforce sanctions and administer a humanitarian aid program in the future. American taxpayers pay close to 22 percent of the U.N.'s operating costs. They need assurance that their tax dollars are well spent, especially in light of the fact that sanctions will likely be imposed upon rogue nations in the future. I believe the credibility of the United Nations to monitor any future sanctions programs hangs in the balance unless the corruption and mismanagement in Oil-for-Food is identified and rooted out. Our hearing today focuses on U.N. oversight of the program in the hope of revealing whether mismanagement by the United Nations aided or abetted Saddam's abuses of the program. Despite multiple entreaties by the Subcommittee and public statements of cooperation, the United Nations has not permitted the Subcommittee access to relevant U.N. documents or personnel, with the sole exception of the public release of 58 internal audit reports last month. Given the U.N.'s intransigence, our inquiry is limited to information that we have uncovered from other sources. While the U.N. publicly asserts it is cooperating with Congressional investigations, in fact, this Subcommittee continues to be frustrated by the United Nations' refusal to make witnesses and documents available. On June 1 and November 9, Senator Levin and I requested that the U.N. provide documents and make U.N. personnel available for interviews. To date, neither the documents nor the key U.N. players involved in the scandal have been provided to the Subcommittee. It is often said of governments that sunshine is the best antiseptic. The United Nations should move towards greater transparency. Just a few days ago, the Independent Inquiry Committee, headed by Paul Volcker, released its interim report. In that report, the committee revealed a significant amount of evidence exposing serious problems in the United Nations' management of the Oil-for-Food Program. It is clear that the Volcker Committee arrived at these findings after diligent investigation. I applaud their efforts and hope they will continue their work. Some of the committee's most important findings addressed the actions of the head of the Oil-for-Food Program, a senior U.N. official named Benon Sevan. Mr. Sevan was the head of the U.N.'s office that oversaw the Oil-for-Food Program. Mr. Sevan, according to Mr. Volcker's report, solicited lucrative allocations of Iraqi crude oil for an acquaintance, an Egyptian oil trader named Fakhry Abdelnoor. Mr. Abdelnoor owned an oil trading company called African Middle East Petroleum, or AMEP for short. According to Mr. Volcker's report, Sevan requested that the Hussein regime grant AMEP the right to buy oil under the Oil-for-Food Program. The Volcker panel determined that Sevan's solicitations on behalf of African Middle East created a ``grave and continuing conflict of interest, were ethically improper, and seriously undermined the integrity of the United Nations.'' While I agree with Mr. Volcker's conclusions that Mr. Sevan's actions amounted to grave misconduct, I believe the evidence goes further than just a conflict of interest. As a former prosecutor, I believe that clear and direct evidence establishes probable cause that Benon Sevan broke the law. I arrive at this conclusion not only from the evidence that Mr. Volcker presented in his report, but also documents obtained by this Subcommittee that Mr. Volcker did not use, documents created by the Iraqi State Oil Marketing Organization, commonly called SOMO, which controlled the export of Iraqi crude oil under the Oil-for-Food Program. These documents provide further evidence that Benon Sevan received oil allocations from the Hussein regime. Each Iraqi oil allocation is worth hundreds of thousands of dollars. As a result, if Sevan was granted oil allocations, it is reasonable to infer that Sevan received a substantial amount of money from them. So the question becomes, did Benon Sevan personally receive oil allocations from the Hussein regime? A review of the evidence will suggest the answer to that is yes. The first document we will analyze is created by SOMO after the fall of Saddam Hussein, which we have labeled Exhibit 1.\1\ Written in Arabic, this chart is entitled ``Estimate of Financial Proceeds Achieved by a Sample of People Benefiting from the Crude Oil Allocations.'' The chart clearly states that it explains the estimates achieved by some individuals and other parties as a result of obtaining oil allocations from the former regime. The chart lists the ``Allocated Party,'' which identifies the person that received the precious oil allocations. Next to the allocated party appears ``Total Crude Oil Lifted in All Phases,'' which indicates the amount of oil lifted in connection with those allocations. Last, we see an ``Estimate of Financial Proceeds for All Lifted Quantities,'' in which SOMO estimated the amount of money that the selected allocation recipients earned through selling their high-priced allocations. --------------------------------------------------------------------------- \1\ See Exhibit No. 1 appears in the Appendix on page 202. --------------------------------------------------------------------------- I will direct your attention to the last entry on the chart, which indicates that one of the selected allocated parties was Benon Sevan. Next to Sevan's name, the chart indicates that 9.3 million barrels of oil was lifted in connection with Mr. Sevan's allocations. The last column next to Mr. Sevan's name estimates that Mr. Sevan made $1.2 million from oil allocations under the Oil-for-Food Program. It is worth emphasizing that this chart makes no reference to Fakhry Abdelnoor or his company, African Middle East Petroleum. Therefore, this document makes a strong case that Benon Sevan received many oil allocations under the Oil-for-Food Program and made a significant amount of money from those allocations. Exhibit 2 is another SOMO chart illustrating that Benon Sevan received allocations.\2\ Like the previous chart, this exhibit was created after the fall of the Hussein regime. It identifies every person, official, or company that received an oil allocation in the fourth phase of the Oil-for-Food Program. Those people are listed under the heading, ``Allocated Party.'' In the next column, the chart identifies the company that purchased the allocation from the allocated party, listed as the ``Contractual Company.'' The last two columns indicate the amount of oil allocated and the amount ultimately exported. --------------------------------------------------------------------------- \2\ See Exhibit No. 2 appears in the Appendix on page 204. --------------------------------------------------------------------------- In the highlighted section of the chart, we see Contract Number M-04-60, which lists the allocated party as Mr. Benon Sevan, the United Nations. Moving to the next column, we see that African Middle East Panamanian Company is listed as the contractual company, meaning that it was the party that bought the oil allocated to Benon Sevan. It is important to emphasize that this document clearly suggests that Benon Sevan was granted the allocation and that African Middle East was simply buying the oil set aside for Mr. Sevan. Exhibit 3 indicates that Sevan was granted allocations in at least six other phases.\1\ For the sake of brevity, I will not walk through every chart one by one, but suffice it to say that each of the other charts clearly identifies the allocated party, that is the party receiving the allocation, as Benon Sevan. --------------------------------------------------------------------------- \1\ See Exhibit No. 3 appears in the Appendix on page 206. --------------------------------------------------------------------------- The exhibits we have seen so far were written after the fall of the Hussein regime, but Exhibit 4,\2\ however, presents documents that were created by SOMO during the life of the program. The excerpt on the upper left of the exhibit is a handwritten chart that shows oil allocations for Phase Six of the Oil-for-Food Program. The principal column headers indicate ``Country,'' which relates to the country of the oil purchaser, ``Allocations of for the Period Phase (5),'' ``Allocations of Phase (6),'' and the ``Proposed Allocations for the Period Following Phase (6).'' Under the header ``Country,'' we see Panama, which is the country of incorporation for Africa Middle East. Under the country, we see ``Regular Requests'' and ``Special Requests.'' The meaning of these headings remains unclear and the Subcommittee is attempting to determine precisely what those headings mean. The key, however, is below those words. There appears the name, ``Mr. Sevan.'' Next to Mr. Sevan's name, under the heading ``Allocations for Phase (6),'' we see ``2 million barrels.'' Thus, this document confirms that oil lifted in Phase Six by the AMEP, the Panamanian company, was allocated to Benon Sevan. In addition, this chart indicates that SOMO proposed allocating 1.5 million barrels of oil to Mr. Sevan for Phase Seven. --------------------------------------------------------------------------- \2\ See Exhibit No. 4 appears in the Appendix on page 216. --------------------------------------------------------------------------- The document on the lower half of the exhibit is the same type of chart, but it deals with Phases 6 and 7. The key is the lower part of the table, in which Mr. Sevan's name is prominently displayed. This excerpt indicates that Mr. Sevan was allocated 2 million barrels in Phase 6, 1.5 million barrels in Phase 7, and was poised to receive another 1.5 million barrels after Phase 7. The final document on this exhibit appears on the right- hand side of the chart. That document is yet another chart created by SOMO during the Hussein regime. The date on the chart appears to be July 12, 1999, which fell in Phase 7 of the program. Under the header, ``Quantity allocated and expected to be allocated,'' we see Mr. Sevan yet again. The chart indicates that Sevan was allocated or expected to be allocated 2 million barrels from Kirkuk, a region in the northern part of Iraq. Although we are releasing just four charts from the Hussein regime, the Subcommittee has additional documents written by the Hussein regime that are similar to these exhibits, indicating that Benon Sevan received oil allocations under the Oil-for-Food Program. Previously, some have questioned whether Mr. Sevan himself received oil allocations. The documents we have presented here today are considerable evidence that the answer is an unmitigated yes, that Sevan did, in fact, receive oil allocations from the Hussein regime. This evidence begs the question, how did the fact that the head of the Oil-for-Food Program receive lucrative oil allocations from Iraq affect the Oil-for-Food Program? How did the receipt of oil allocations affect Mr. Sevan's decisionmaking? There have been recent press reports that Mr. Sevan blocked an audit by the U.N. auditors into his own office. Was that a result of his oil allocations? In April 1998, which is roughly the same time Mr. Sevan received his first oil allocation, he instructed U.N. oil inspectors to delete information concerning Iraqi smuggling activities in a report to the U.N. Security Council. He later instructed those inspectors not to be ``detectives,'' with respect to Iraqi oil smuggling. Did Mr. Sevan turn a blind eye because of the oil allocations? The Iraqis believed Mr. Sevan would assist their efforts with respect to the import of spare parts for oil machinery as a result of the oil allocations. Did those allocations affect his support for the spare parts importation? All of these questions and many others remain unanswered. As a result, I believe that Mr. Sevan's misconduct goes well beyond a mere conflict of interest. Instead, these documents, when combined with the evidence presented in the Volcker Report, certainly establish probable cause that Mr. Sevan's actions rose to the level of criminal liability. Accordingly, I call upon Secretary-General Kofi Annan to strip Mr. Sevan of his diplomatic immunity so that he will be available for judicial process and can be called to testify before this Subcommittee about the evidence we have gathered. Over the course of our bipartisan investigation, this Subcommittee has uncovered evidence of even more corruption in the U.N. Oil-for-Food apparatus. In particular, we have found disturbing evidence that one of the U.N. oil monitors, the individuals hired by the United Nations to inspect the oil exports from Iraq under the Oil-for-Food Program, took a bribe. In doing so, the inspector helped Saddam Hussein generate $9 million in under-the-table cash. Other evidence establishes the following facts. The bribed oil inspector was a Portuguese man named Armando Carlos Oliveira. We have matched up Iraqi documents to Mr. Oliveira's passport and other documents to confirm his identity. According to the documents, Mr. Oliveira participated in the falsification of shipping papers related to two purchases by a French company called IBEX Energy. We have accumulated significant evidence proving that Mr. Oliveira was at the oil terminal for both illegal loadings. With the help of the falsified documents, the two shipments took a total of 500,000 barrels of oil worth $9 million in excess of what was approved by the United Nations. Iraqi documents indicated that Saddam Hussein personally ordered the falsification of the documents. Iraqi documents also indicate that Mr. Oliveira had agreed to falsify the documents in exchange for 2 percent of the value of the smuggled oil. In the end, however, Mr. Oliveira received far less than that, only $105,819. Internal SOMO accounting spreadsheets indicate that $105,819 was paid to Saybolt for ``added value.'' The $105,819 was spread over two payments. One was for $86,119 in September 2001 and the other for $19,700 in March 2002. The entry on the spreadsheet for the $19,700 payment in March 2002 to Saybolt complements was a handwritten note to the Iraqi Minister of Oil, which reveals that Mr. Oliveira received $19,700 in March 2002. The note indicates that the $19,700 payment was in cash at the Ministry of Oil in Baghdad on March 4, 2002. We have further documentation to indicate Mr. Oliveira's presence in Baghdad. We have letters written from the Minister of Oil to the Central Bank requesting approval. We have documentation when Mr. Oliveira left Iraq, and that on his return from Portugal, he deposited $5,000 into a cash account in Portugal within days after returning. We have released the evidence that the Subcommittee has uncovered related to these facts and we invite you to review these documents. In addition, we will hear testimony describing the role of Cotecna, the U.N. independent inspection agent for humanitarian goods imported into Iraq under the Oil-for-Food Program. Cotecna was charged with authenticating the arrival of goods into Iraq upon which the United Nations would authorize payment of those goods from the escrow account at BNP Paribas. This escrow account was funded by U.N. approved oil sales by Iraq under the program. Looking into the role of Cotecna is important because Saddam Hussein was able to receive kickbacks on humanitarian goods sold under the program. For example, as raised in our earlier hearing, the Weir Group paid $8 million in kickbacks to a Swiss account under the Oil-for-Food Program. In addition, using substandard goods was another form of kickback known to have occurred under the program, where lesser-quality goods were shipped into Iraq, allowing for the former regime and the complicit supplier to pocket the difference between the lesser- quality goods and the higher-quality goods specified under the goods contract. It is essential to understand if Cotecna's duties were to verify the price or quality of the goods coming into Iraq, or merely to just verify the arrival of humanitarian goods into Iraq. I will note that the U.N. Secretary-General and the Office of the Iraq Program were responsible for overseeing the price, quality, and quantity of goods coming into Iraq, and were responsible for overseeing Cotecna's operations and duties. I am also looking forward to hearing testimony from a former employee of the U.N.'s Office of the Iraq Program. The Office of the Iraq Program would review humanitarian contracts between the former regime and suppliers around the world. It is important to determine whether this review would identify price-inflated contracts that could be used for kickbacks as well as fraudulent contracts. I have a number of concerns about the procurement of goods, particularly as they regard the Northern Kurdish regions. There have been widespread reports from the Kurdish regions that they did not receive all the goods they were entitled to, which was supposed to be 13 percent of all humanitarian goods under the program. Another serious allegation that has been hanging over the United Nations concerns Secretary-General Kofi Annan and his son, Kojo. This allegation involves improprieties in the U.N.'s award of a multi-million-dollar contract to a Swiss company called Cotecna Inspection during the time when Kojo Annan was employed by Cotecna as a paid consultant. Our concerns are heightened due to the fact that the Volcker Commission's recently released interim report revealed major improprieties in the U.N.'s award of contracts in 1996 to Saybolt and Lloyd's, and revealed the direct intervention of then- Secretary-General Boutros Boutros-Ghali in the selection of BNP Paribas. To date, the Subcommittee has reviewed thousands of documents produced by Cotecna and has interviewed a half-dozen current and former Cotecna officers and employees, including Kojo Annan himself. Our investigation of these allegations has revealed a disturbing pattern of information gaps and memory lapses. For example, despite Cotecna's assertions to the contrary, we have learned that Kojo Annan's activities were not strictly limited to Nigeria and Ghana and that he lobbied many other countries while in New York during the 1998 session of the U.N. General Assembly. Particularly troubling is a report written by Mr. Annan relating to some kind of network he was setting up in New York City, and I think if we have Exhibit 18,\1\ we could display that. --------------------------------------------------------------------------- \1\ See Exhibit No. 18 appears in the Appendix on page 275. --------------------------------------------------------------------------- In his report dated September 14, 1998, Kojo Annan stated the following: ``As we discussed with you on Sunday, PM and myself put in place a `machinery' which will be centred in New York that will facilitate the continuation of contacts established and assist in developing new contacts for the future. This `machinery', due to its global nature and its longevity, is as important overall as any other contacts made.'' Subcommittee staff interviewed Kojo Annan this past Friday, but he could not recall what he was referring to when he described a machinery that he had put into place, why it was centered in New York, or why it was of a global nature, or how the machinery might ultimately prove to be beneficial for Cotecna's long-term marketing strategy. In short, Mr. Annan cannot recall what his own words meant. This memory lapse is troubling. Subcommittee staff also interviewed Cotecna's officers about this report, but they, too, could shed no light on Mr. Annan's statements. Our suspicions are further raised due to the fact that there is no report regarding Mr. Annan's activities while in New York during the U.N. General Assembly, and I would note that we have substantial documentation of other reports by Mr. Annan when he was doing other activities at other times. Memory lapses combined with an absence of trip reports is not only troubling, it strains credibility. The Subcommittee has invited Mr. Annan to appear today to address these matters further and afford him an opportunity to explain his statements, but he has declined. Our second panel will address the 58 U.N. audits of the Oil-for-Food Program. I can say at the outset that I find a great many red flags in these audits. The gross mismanagement of almost every aspect of the Oil-for-Food Program is simply inexcusable and wasted over $690 million. Every organization has its shortcomings, but I cannot recall any organization where the scope of its problems encompassed every basic management skill needed to ensure an effective program. The Office of Internal Oversight Services' audits identified problems with budget planning and execution, coordination, strategic planning, communication, procurement, inventory control, cash management, accounting for assets, documenting and/or justifying expenditures, information technology, and human resources management. This represents the complete panoply of required management skills. In our third panel, we will hear testimony from the Hon. Patrick F. Kennedy, U.S. Ambassador to the United Nations for Management and Reform at the U.S. Mission to the United Nations. Ambassador Kennedy will address a variety of issues pertaining to the management and oversight of the U.N. Oil-for- Food Program, including the pervasive oil smuggling that occurred under the program. In our November 15, 2004, hearing, Subcommittee Majority staff estimated that the magnitude of fraud perpetrated by Saddam Hussein in contravention of U.N. sanctions from 1991 to 2003 was over $21.3 billion, of which $13.6 billion, 64 percent, was a result of the Iraqi oil smuggling. The Subcommittee believes that the Oil-for-Food Program provided Saddam Hussein with an enhanced opportunity to circumvent sanctions and amass a greater amount of illicit funds. This was particularly the case with oil smuggling. The export of Iraqi oil under the U.N. Iraq sanctions program was strictly forbidden. It is clear that from the onset of sanctions in 1991, members of the U.N. Security Council were aware of Iraqi oil being exported through the protocols in contravention of the sanctions. Security Council members in the 661 Sanctions Committee took note of Iraqi oil being exported to Jordan under the protocols and did not respond to Turkey's request. The United States and the United Kingdom tried unsuccessfully in the Security Council to tighten controls on oil smuggling. Russia, a veto-holding permanent member of the Security Council, consistently blocked such initiatives. However, other Security Council members did not initiate any other significant action to prevent the flow of Iraqi oil to Jordan and Turkey, nor did they provide financial relief to countries like Jordan and Turkey, who were adversely affected by Iraqi sanctions and had petitioned the Security Council for relief. I look forward to discussing these issues related to smuggling with Ambassador Kennedy, and I suspect so will Senator Levin. I know that was a very long statement. We have a lot of information and this is just the second in a series of hearings, so I thank my Subcommittee Members for their patience as I walked through that and appreciate their presence today. I turn to my distinguished Ranking Member, Senator Levin. OPENING STATEMENT OF SENATOR LEVIN Senator Levin. Mr. Chairman, thank you for holding these hearings, and for your leadership. As you mentioned, today, the Permanent Subcommittee on Investigations is conducting its second hearing on the United Nations Oil-for-Food Program. Today's focus is on the process used by the United Nations to monitor Iraq's oil sales and inspect goods imported by Iraq with the proceeds from those sales. U.N. employees, U.N. contractors, and U.N. member states all had roles to play in inspecting goods, monitoring oil sales, and enforcing U.N. sanctions. Their failures, as well as their successes, hold important lessons for future U.N. sanctions programs. The U.N. recently released 58 audit reports on the Oil-for- Food Program that were prepared by the U.N.'s internal auditor, the Office of Internal Oversight Services. The release of these reports set an important new precedent in U.N. auditing, opened the door to greater U.N. oversight, and contributed to the culture of increased transparency and accountability that needs to take hold at the United Nations. It is a positive omen. The U.N. audit reports show that the Office of the Iraq Program lacked basic financial controls and exercised inadequate oversight of the Oil-for-Food Program. The U.N.'s Independent Inquiry Committee, also known as the Volcker Committee, also shows that the U.N.'s auditing efforts themselves were inadequate. The Volcker Report found, for example, that the audits of the Oil-for-Food Program were understaffed and underfunded. The audit's scope was often too narrow, and the follow-up process to correct identified problems was flawed. The Volcker Report also presented disturbing evidence that the head of the U.N.'s Office of the Iraq Program, Benon Sevan, may have personally profited from oil allocations made by Iraq, and the Chairman in his statement a moment ago outlined significant additional evidence which supports allegations of wrongdoing by Benon Sevan. In addition, the Volcker Report identified problems with how the U.N. selected Saybolt, Lloyd's Register and BNP for key Oil-for-Food contracts. The Volcker Report noted that it was continuing to investigate the U.N.'s decision to award an inspection contract to Cotecna in 1998 to determine whether favoritism played a role. This Subcommittee, as our Chairman has outlined, is examining that issue at great length and that will be a subject of the discussion today. Kojo Annan denies any wrongdoing. Kojo Annan has cooperated with the Subcommittee by voluntarily submitting to an interview, but we have been unable to reach a judgment about the contract award due primarily to the Subcommittee's lack of access to relevant documents and personnel at the United Nations. For that reason, questions remain unanswered about how the Cotecna contract was awarded and about Kojo Annan's activities. The United Nations has responded to the Volcker Report by expressing a determination to remedy identified deficiencies and strengthen its management, procurement, and auditing functions. The U.N.'s comments suggest that the U.N. staff has gotten the Volcker Committee's message and is willing to embark on real change. I hope so. To bolster public confidence, it is essential that the United Nations fully implement the Volcker Committee's recommendations. A key concern about the Oil-for-Food Program is the extent to which it was manipulated by Saddam Hussein to obtain illicit revenues for his regime. We know that some of Saddam Hussein's revenue from sales of oil came from kickbacks that he got from contractors involved in the Oil-for-Food Program. But the bulk of his illicit oil sale revenue, as the Chairman has just pointed out, actually came from the money he received from unregulated sales of Iraqi oil entirely outside of the Oil-for- Food Program to Turkey, Jordan, and Syria. That is sometimes called oil smuggling, but these are the open sales of Iraqi oil to those three countries. We in the world looked the other way from those sales, even though they were prohibited by the U.N.'s sanctions regime. The Volcker Report states, ``There can be no question that bribes and other abuses provided many opportunities for illicit gain, often as part of a deliberate effort by Iraq to reward friends or cultivate political influence.'' What is not clear is the extent to which those illicit financial gains benefited middlemen and corrupted individual Iraqi officials rather than the Iraqi regime. What does appear clear is that the major source of external financial resources for the Iraqi regime resulted from sanctions violations outside the Oil-for-Food Program's framework, and that is shown on the chart which is up here now showing that,\1\ in our computations, about 73 percent of the money which went to Saddam Hussein from oil sales came through those open oil sales primarily to those three countries, principally to Jordan, but also to Syria and Turkey. That was the open oil sales, the dark blue. I think the Chairman's estimated percentage was about 67 percent as I remember, but that is the same oil sales that he referred to as oil smuggling and that I refer to as open oil sales. --------------------------------------------------------------------------- \1\ See Exhibit No. 51 appears in the Appendix on page 426. --------------------------------------------------------------------------- Using numbers provided by the Duelfer Report, it appears that Saddam Hussein's abuse of the Oil-for-Food Program provided about one-sixth of Iraq's total illicit income, while nearly three-quarters of this illicit income came from those open oil sales which weren't supposed to take place because they were outside of the Oil-for-Food Program. They occurred with the knowledge and acquiesence of the world community, including the United States. As a matter of fact, as we have dug into the historical record, we found evidence suggesting that Iraq may have obtained even more illicit revenue from its oil trade with Turkey than previously estimated. The Duelfer Report, for example, states that from 1991 to 1998, Iraq obtained at most $30 million per year from illegal oil sales outside of the U.N. Oil-for-Food Program with its neighbors. However, the evidence now suggests that Iraq's illegal oil trade with Turkey alone during these years generated far more revenue for Saddam Hussein than that, perhaps hundreds of millions of dollars each year. These were openly made sales. The press reported big profits were being made from Iraq's oil sales to Turkey in 1992. The New York Times report noted that, ``The Western allies and just about everybody else seem ready to avert their gaze from this illegal smuggling.'' Three years later, the New York Times estimated that Iraq was illegally selling about 200,000 barrels of oil per day through Turkey, obtaining illicit revenue for Saddam Hussein totaling between $700 million and $800 million per year. The oil sales that we in the world tolerated were open and obvious, despite their being in violation of the U.N. sanctions that we helped put in place. For example, in March 1998, the BBC posted a photograph purporting that it had found, ``clear evidence that Iraq is breaking U.N. sanctions by exporting hundreds of millions of dollars worth of oil across its borders into the Gulf and Turkey.\1\ Huge convoys of trucks and many ships carry the fuel out of Iraq, where it is sold on the black market,'' and that is a copy of that BBC news report showing those lines of trucks going into Turkey. --------------------------------------------------------------------------- \1\ See Exhibit No. 52 appears in the Appendix on page 427. --------------------------------------------------------------------------- The Administration acknowledged the illegal trade in a quote in the New York Times of June 1998, saying that, ``the tendency has been to turn a blind eye because the Turks are benefiting from it at a time when they are complaining anyway about sanctions on Iraq.'' It is clear that the whole world, including the United States, knew about Iraq's oil sales to Turkey, Jordan, and Syria. In the case of the United States, we not only knew about the oil sales, we actively stopped the U.N. Iraq Sanctions Committee, known as the 661 Committee, from acting to stop those sales. Beginning in 1996, Turkey formally asked the United Nations through the 661 Committee for permission to increase its oil trade with Iraq. The United States expressly and repeatedly objected to the 661 Committee's consideration of Turkey's application instead of voting to simply turn it down. The United States could have voted to end the sales. Instead, it stopped the United Nations from acting. The result was that illegal oil sales to Turkey continued unabated. Hundreds of millions of dollars went into the pockets of Saddam Hussein as a result. Both the Clinton and Bush Administrations demonstrated in other ways an awareness and implicit approval of Iraq's oil sales to Turkey and Jordan. Both Administrations repeatedly sent to Congress waivers from U.S. laws prohibiting U.S. foreign aid to any country that violated U.N. sanctions on Iraq. Each year since 1994, Congress has prohibited foreign aid to any country violating U.N. sanctions on Iraq. Both the Clinton and Bush Administrations repeatedly issued waivers for Turkey and Jordan. Oil sales by Iraq to Turkey and Jordan continued apace in violation of U.N. sanctions with our knowledge and implied consent. Now, the U.N. sanctions, despite all the leakage, abuses, and looking the other way to violations, were stopping Saddam Hussein from rearming Iraq. In testimony to Congress in 2001 about the sanctions, Secretary of State Colin Powell said the following, ``I think credit has to be given for putting in place a sanctions regime that has kept him pretty much in check.'' As a matter of fact, the sanctions were working sufficiently well that Saddam Hussein used every tactic at his disposal to circumvent and to corrupt them. He was intent on undermining the U.N. sanctions regime precisely because they were working so well. U.N. sanctions represent one of the few available non-military tools to control the behavior of threatening nations. Helping sanctions work more effectively is an important goal, and fixing responsibility when they are allowed to be circumvented or corrupted will hopefully prevent that from happening in the future. I commend the Chairman for his determined efforts to achieve those goals through these hearings and I commend our staffs for the way they have worked together in carrying out the investigation on which our hearings are based. Thank you, Mr. Chairman. Senator Coleman. Thank you, Senator Levin. We are pleased to have with us the Chairman of the full Homeland Security and Government Affairs Committee, Senator Collins. OPENING STATEMENT OF CHAIRMAN COLLINS Chairman Collins. Thank you, Mr. Chairman. I know that everyone is very eager to hear from the witnesses today, so I would ask unanimous consent that my full statement be entered into the record and I am just going to make a very few comments. Senator Coleman. Without objection. Chairman Collins. First, let me commend you for leading this much-needed investigation into the U.N. Oil-for-Food Program. This is a matter of extraordinary complexity and of great importance. The Subcommittee's first hearing last November established that Saddam Hussein systematically looted the Oil-for-Food Program and turned what should have been one of the greatest humanitarian aid programs in history into one of history's greatest frauds. We know that Saddam Hussein used some of his illicit proceeds to buy international support for his regime and to undermine numerous U.N. resolutions. We know that some of the proceeds were used to buy the weapons that Saddam Hussein needed to remain in power. Some of these weapons are now being used by terrorists against our troops and against the Iraqi people. The question before the Subcommittee now is how was Saddam Hussein able to do this. The interim report of the Volcker Commission provides part of the answer. Indeed, its findings confirm some of our worst suspicions. In the critical components of the Oil-for-Food contracting, the inspections of oil exports, the inspections of humanitarian imports, and the banking arrangements, the report finds that political considerations, favoritism, and expediency seems to take precedence over integrity, transparency, and accountability. In the area of internal program audits, the words used by the Volcker Commission--inadequate, erroneous, and unsatisfactory--are, if anything, an understatement as the Subcommittee's own investigation demonstrates. The clear lack of anything resembling diligent oversight for a program worth some $64 billion is, to use another word, unconscionable. As the Chairman has outlined, the Subcommittee's own investigators have uncovered very disturbing information suggesting improprieties and possible fraud at many levels of the Oil-for-Food Program. This investigation, as well as the investigations by five House Subcommittees, has been hampered considerably by the U.N.'s reluctance to cooperate fully. I believe that we have only explored what appears to be an iceberg. We have only explored the tip of it. As we go deeper, this lack of full cooperation will become increasingly unacceptable. Accountability is vital for all institutions. This is especially true for public institutions. It is clear that something went terribly wrong with the Oil-for-Food Program, and those responsible must be held accountable. Again, Mr. Chairman, thank you for your leadership. Senator Coleman. Thank you, Chairman Collins. [The prepared opening statement of Senator Collins follows:] PREPARED OPENING STATEMENT OF SENATOR COLLINS Thank you, Senator Coleman. I commend you for leading this much- needed investigation of the United Nations' Oil-for-Food Program. This is a matter of extraordinary complexity, and of great importance. The Subcommittee's first hearing on this program last November laid a solid foundation for the work ahead. As a result of our inquiry and others, we know that Saddam Hussein systematically looted the Oil-for- Food program and turned what should have been one of the greatest humanitarian-aid programs in history into one of history's greatest frauds. We know that Saddam Hussein used some of his illicit proceeds to buy international support for his regime, and to undermine the numerous U.N. resolutions demanding compliance with the Gulf War cease- fire agreement. We know that some proceeds were used to buy the weapons the brutal dictator needed to remain in power. We also know that some of those weapons--the ammunition and rocket-propelled grenades--now are being used by terrorists against our troops and against the Iraqi people. The question before us now is, how was Saddam Hussein able to do this? The interim report of the Volcker Commission provides part of the answer. It reviews the way this program was set up and operated. Its findings confirm some of our worst suspicions. In the awarding of contracts to get the program under way, the interim report finds that the U.N. not only failed to follow generally accepted practices, but also failed to follow its own internal policies. In the critical components of Oil-for-Food contracting--the inspections of oil exports, the inspections of humanitarian imports, and the banking arrangements--the report finds that political considerations, favoritism, and expediency seemed to have taken precedence over integrity, transparency, and accountability. In the area of internal program audits, the words used by the Volcker Commission--inadequate, erroneous, and unsatisfactory--are, if anything, understatement. The clear lack of anything resembling diligent oversight for a program worth some $64 billion is, to use another word, unconscionable. It is only in the area of administrative expenditures that the findings are merely disturbing. The report noted that payments were made for expenditures that were not sufficiently documented or explained. In addition, given the widespread allegations of fraud and corruption in this program, the decision to reduce administrative expenditures by shortchanging internal inspections and audits is a glaring example of being penny-wise and pound-foolish. Finally, we come to the findings regarding Benon Sevan, the former Executive Director of the U.N.'s Office of the Iraq Program, the so- called ``ambassador'' of the Oil-for-Food Program. The Commission's finding that Mr. Sevan engaged in, ``a grave and continuing conflict of interest'' regarding extremely lucrative oil allocations speaks for itself. Mr. Sevan's explanation for his unexplained wealth--a gift from an elderly aunt on a modest pension--fails anyone's straight-face test. As the Chairman has outlined, this Subcommittee's own investigators have uncovered very disturbing information suggesting improprieties at many levels of the Oil-for-Food program. This investigation, as well as the investigations by five House committees, has been hampered considerably by the U.N.'s reluctance to cooperate fully. These investigations so far have only explored the tip of what appears to be an iceberg. As they go deeper, this lack of full cooperation will become increasingly unacceptable. Accountability is vital for all institutions. This is especially true for public institutions. It is clear that something went terribly wrong with the way the Oil-for-Food program was set up and administered, and those responsible must be held accountable. I look forward to the evidence the PSI investigators have uncovered and will be presenting today. Chairman Coleman. Senator Domenici. OPENING STATEMENT OF SENATOR DOMENICI Senator Domenici. Mr. Chairman, first, I want to say to you that I have been here a long time, longer than many people believe I should have been, but frankly, I have not seen a new Senator take an issue of this magnitude and do the kind of job you have done with it. I have no doubt that many people were skeptical of your first comments with reference to what was going on, but I believe before we are finished that you will prove that you were right and that you found something that is terribly important to what has gone on in the Middle East. From my standpoint, I always wondered how Saddam Hussein could remain so strong when sanctions indicated to the world that he was depleted of resources that would permit him to remain such a strong power with reference to military might and control over his people. The sanctions were intended to diminish his power, but it seems like something else was happening. I think we might find out when we are finished with these hearings that this is what happened, this is where he got his support. If that is the case, I believe the U.S. Congress has uncovered something that is truly important to our country as we look at what we have tried to do. We have been misled. We have been put upon, without any question, by those who have done this in a very serious way. And last and almost more important, and we don't know the extent of this, but I am very suspicious of countries that seemed to be questioning resolutions that would have led to a conclusion that we should intervene in Iraq. Somehow it seems certain countries decided not to continue down that line, and the question is, were they affected by the transactions that occurred here, directly or indirectly? Were they biased because of the monetary receipts that were coming in to either them or their friends, friends of that government? I think you have talked about that and around that, and I don't know that we have proof yet, but I think these hearings will at least put on the table that something else was happening that might have had an impact on why countries didn't support us with votes in the United Nations when the time came to finally decide enough was enough in Iraq. I hope you understand what I am saying, and I hope the people understand what I am saying. I don't want to openly accuse these countries, but it seems to me very close to a logical conclusion that there was some impact and it might have come from the resources that were siphoned into those countries or people close to the leadership in those countries. If that is the case, and it may very well be so, then these hearings will have proven something far beyond what you started out talking about and far beyond what our people in America were thinking when these U.N. votes were occurring. I thank you for your diligence and I hope we can conclude with facts that you were right from the beginning and that this is a terrible set of actions on the part of the United Nations. If so, something has to happen. Thank you, Mr. Chairman. Senator Coleman. Thank you, Senator Domenici. I would like to welcome our first panel of witnesses for today's important hearing. This morning, we will hear from Robert Massey, the Chief Executive Officer for Cotecna Inspection; Andre Pruniaux, a former Senior Vice President of the Africa and Middle East Division for Cotecna Inspection; Arthur Ventham, a former Inspector for Cotecna; Vernon Kulyk, a former Customs Officer for the United Nations Office of the Iraq Program; and finally, John Denson, the General Counsel for Saybolt Corporation. I welcome all of you to today's hearing and look forward to hearing your views on the United Nations' handling of the Oil- for-Food Program as well as discussing the role of Saybolt and Cotecna as independent inspectors for the Oil-for-Food Program. Cotecna was the independent inspecting agent for the humanitarian goods imported into Iraq under the program. Saybolt Group was the independent inspection agent for Iraqi oil exports under the program. I think it is important to understand how you carried out your duties and whether these duties were consistent and appropriate with the purpose of the Oil-for-Food Program and U.N. sanctions. I want to take this opportunity to thank all of you for coming such a long distance to be at this hearing. It is important that you are with us this morning and we do appreciate your being here. Before we begin, pursuant to Rule 6, all witnesses who testify before the Subcommittee are required to be sworn. At this time, I would ask you to please stand and raise your right hand. Do you swear that the testimony you are about to give before this Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Massey. I do. Mr. Pruniaux. I do. Mr. Ventham. I do. Mr. Kulyk. I do. Mr. Denson. I do. Senator Coleman. We will be using a timing system today. Please be aware that approximately one minute before the red light comes on, you will see the lights change from green to yellow. It will give you an opportunity to conclude your remarks. Your written testimony will be printed in the record in its entirety. We ask that you limit your oral testimony to no more than 5 minutes. Mr. Massey, we will have you go first, followed by Mr. Pruniaux, Mr. Ventham, Mr. Kulyk, and we will end up with Mr. Denson. After we have heard all the testimony, we will turn to questions. Mr. Massey, you may proceed. TESTIMONY OF ROBERT M. MASSEY,\1\ CHIEF EXECUTIVE OFFICER, COTECNA INSPECTION S.A., GENEVA, SWITZERLAND Mr. Massey. Thank you, Mr. Chairman. Mr. Chairman and distinguished Members, good morning. My name is Robert Massey. From 1993 to the present, I have been the CEO for Cotecna Inspection S.A. in Geneva, Switzerland. Cotecna served as independent inspection agent for humanitarian goods entering Iraq in the U.N. Oil-for-Food Program between 1999 and 2003. Thank you for this opportunity to address the Subcommittee. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Massey with attachments appears in the Appendix on page 168. --------------------------------------------------------------------------- You have received my written statement. Therefore, my prepared oral statement will make only four points. First, Cotecna was selected fairly on objective grounds, including price, responsiveness to the RFP, and expertise. Second, we performed our limited and technical role professionally under extraordinarily difficult circumstances. Third, we had no role whatsoever in the financial aspect of the program. Finally, the employment of Kojo Annan was in connection with the company's substantial work in West Africa exclusively and had absolutely no relationship to Cotecna's selection for the Oil-for-Food Program. I will elaborate on these four points in no particular order. Between 1992 and 1996, the inspection mission in the U.N. humanitarian programs for Iraq changed, becoming much more limited. In 1992, Cotecna was competitively selected in the first international call for tender for a U.N. program to monitor Iraq's purchase of humanitarian goods. The company's 1992 draft contract would have provided for Cotecna to perform price verification, pre-shipment inspection, and post-landing inspection. The 1992 program was never implemented, however, because the United Nations and Iraq did not reach agreement. In 1996, Cotecna participated in a new U.N. call for tender, this time merely for the authentication of goods. Authentication, a service unique to the U.N. program, compares the shipping documents accompanying the goods and the goods themselves against U.N. documents and database, confirming the goods actually arrived. Authentication was developed by the United Nations as one of the several steps in the process for paying suppliers under the Oil-for-Food Program. Cotecna did not begin to authenticate shipments in 1996 because the United Nations awarded the contract to another company. This leads me to my next point. Cotecna's limited technical role under the 1998 contract did not place us in a position to detect illegal payments by suppliers. I can best explain our role by specifying what we did and did not do. Cotecna was contracted to, and did, compare the U.N. documents and database with the shipping documents accompanying all Oil-for-Food goods crossing the Iraqi borders at specified locations, did visually check 100 percent of these goods and more closely examined a 10 percent random subset, and did test whether 100 percent of foodstuff was fit for human consumption. Cotecna was not contracted to, and did not, verify that foodstuff shipped was of the grade contracted, did not assess the value of the goods, did not interdict prohibited goods outside the program, did not perform any task with respect to goods not voluntarily presented, and did not select the goods imported, establish their specifications, choose suppliers, negotiate or verify prices, designate sales intermediaries, establish sales commissions, or handle funds for the payment of goods. Your invitation asks me to describe my or my company's knowledge, if any, of illegal payments by suppliers to either U.N., Cotecna, or Iraq officials. My company and I have no knowledge of any such payments to anyone. We as inspectors with a limited and technical role were in no position to have such knowledge. My third main point is that Cotecna performed its job well and fully in accordance with its mandates. My colleague Andre Pruniaux will explain this point in more detail. Let me make only two related observations. First, while limited and technical, Cotecna's mission was difficult and sometimes ambiguous. There were, for example, ambiguities concerning how and whether Cotecna was to test the quality of foodstuffs and how extensive Cotecna's physical inspection for all goods should be. Largely, our role was clarified over time through communications with UNOIP people, although formal contract amendments did not always follow. After 1998, Cotecna asked the United Nations to expand the company's scope of work to include services supporting price verification. The United Nations declined because it saw itself as solely responsible for this task. My final point is that the United Nations properly awarded Cotecna its contract. Before I discuss the 1998 U.N. procurement, let me say that Kojo Annan played no role in helping Cotecna obtain the U.N. contract. A detailed timeline provided with my written statement places his work for us in its proper African context. His employment with us had nothing to do with Iraq and everything to do with West Africa. Cotecna hired him in late 1995 to work in Lagos, Nigeria, on Cotecna's government pre-shipment inspection contract there. He resigned in December 1997, some months after the Nigerian administration terminated Cotecna's contract. Because of his marketing skills in Nigeria and Ghana, Cotecna subsequently hired him to work under a 10-month consultancy agreement, which included a non-compete clause. In January 1999, after completion of this consultancy agreement, we negotiated a new and enforceable non-competition agreement providing compensation, as required under Swiss law. There was a clear business rationale for these arrangements. In 1999 and 2000, Cotecna was pursuing inspection contracts in Nigeria and Ghana and did not want Kojo Annan available to the competition. As reflected in the provided timeline, the intense competitive environment in Nigeria and Ghana continues until this day. Cotecna was awarded a U.N. contract in 1998 based on our proposal, which offered the lowest cost and highest technical expertise, as well as experience working in harsh conditions. Along with the handful of other inspection companies worldwide, Cotecna learned of the U.N.'s October 9, 1998, RFP per standard procurement procedures. Cotecna had in the past been awarded U.N. contracts, had been selected for the unimplemented 1992 program, and had been invited to bid on the new Oil-for-Food Program in 1996. Mr. Chairman, under the unusual and restrictive conditions I have described, Cotecna fully met its obligation to the United Nations. I am proud of Cotecna's performance in this program. From the outset, Cotecna has cooperated fully with this Subcommittee's investigation. This concludes my prepared statements and I would gladly answer any questions. Senator Coleman. Thank you, Mr. Massey. Mr. Pruniaux. TESTIMONY OF ANDRE E. PRUNIAUX,\1\ FORMER SENIOR VICE PRESIDENT, AFRICA AND MIDDLE EAST DIVISION, COTECNA INSPECTION S.A., GENEVA, SWITZERLAND Mr. Pruniaux. Mr. Chairman and distinguished Members of the Subcommittee, thank you for inviting me to speak today. My name is Andre Pruniaux. I served as Senior Vice President of Cotecna Inspection S.A. between 1998 and 2004. As such, I managed Cotecna's operations in Africa and the Middle East, including its work as independent inspection agent for humanitarian goods in the U.N. Oil-for-Food Program. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Pruniaux with attachments appears in the Appendix on page 88. --------------------------------------------------------------------------- Today, I will describe, first, our negotiation of the 1998 Oil-for-Food Program contract with the United Nations, then how we performed our duties, then our working relationship with the UNOIP. We worked on this program from early 1999 to late 2004, so there is a great deal of information for me to cover in a short time. Everything I describe today is detailed in my written testimony and the extensive records that Cotecna has produced to investigators. Cotecna received the Oil-for-Food tender in late 1998. We found that the tender was broadly worded and did not provide detailed technical and process specifications. We found the lack of detail surprising, as the program had already been in operation for 2 years. Although not mentioned in the tender, the United Nations imposed Cotecna the use of their existing Lotus Notes system during the negotiations. We had proposed using our in-house IT and communication system and had fixed the contract price on this assumption. At the time, we did not know that much about Lotus Notes, but our IT team understood that communication costs would be higher and the system less efficient. To accommodate their Lotus Notes requirement, the United Nations agreed to a price increase even before finalization of the original contract. When we arrived on the ground in Iraq, the conditions were worse than anticipated. The inspection sites had recently been evacuated and were in disarray. There was a huge backlog of documents to be processed. We had only 1 month's lead time from contract award to implementation. No standard operating procedures existed when we assumed responsibility, although procedures unique to the Oil-for-Food Program were demanded of us. An example of the initially vague scope of work concerns the testing of foodstuffs to ensure only that they were fit for human consumption. This is not a recognized concept within our industry. We had to work out what the United Nations wanted by making suggestions that they would accept or reject until we knew exactly what they intended our mandate to be. These clarifications were not documented in formal contract amendments, but were agreed ad hoc and then reflected in the standard operating procedures we developed for the program and which were approved by the United Nations If there was any doubt about whether or not we should authenticate a shipment because the paperwork was incomplete or a shipment arrived at the wrong crossing, we would consult with the United Nations in New York and get their decision. These frequent consultations resolved many of our mandate's ambiguities. However, it still seems to have left room for confusion amongst outside observers, such as the U.N. auditors, as to our performance as well as to the scope of our work. We also found that in reality, the U.N. Lotus Notes system was cumbersome and unsuited for the authentication purpose. Replicating data between our servers in Iraq and the U.N.'s servers in New York often took days and the system often crashed. Then we would start the data replication process over, causing us to expend many more man hours. The Lotus Notes system was controlled by the United Nations and was the only way supplier contract information was electronically transmitted to us. The system's shortcomings greatly impacted upon the workload of inspectors, who had to work long hours, often through the night. For example, the system meant that we had manually to fax often 2,000 or more authentication sheets from Iraq through to New York each night. Due to the design of the system, the audit trail was manual. It could take hours to track a single delivery. Think of this in terms of over 30,000-plus contracts, some of which involved several thousand individual deliveries. As you can see, the program presented significant challenges. I will now explain how we worked with the UNOIP staff to overcome these challenges. Cotecna developed standard operating procedures for every aspect of the mandate. We established a three-level internal oversight and audit process. These were carried out by a team leader at each site, the contract manager in Amman, and our head office in Geneva. The contract manager position was introduced by Cotecna at our own cost to ensure efficiency and compliance. We also would hire technical experts as required, for example, customs specialists and financial auditors. The contract manager would be in daily contact with inspectors on the ground and would also conduct detailed field audits at each site on average every 2 months. I would also personally conduct my own on-site reviews twice a year, and there were semi-annual management meetings in Amman and Baghdad which the UNOIP staff would attend when possible. We communicated with the UNOIP daily, providing them with detailed reports as to the precise level of authentication activity at each site. We also provided reports on the pending authentications. The UNOIP regularly visited and audited our sites, and I would visit New York two or three times a year for working sessions with the UNOIP. In conclusion, Cotecna met the terms of its mandate in full. In order to develop the best service possible, we insisted on 100 percent visual inspection of all imports. We also put in place a contract manager and we hired up to 30 surplus inspectors to allow for strenuous shift demands and sufficient rest and recuperation for our inspectors in Iraq. We took these steps at our own expense. We developed clear SOPs that the United Nations approved. Mr. Chairman, I am confident that Cotecna met and exceeded its obligations under the U.N. mandate and we did so under very difficult circumstances. This concludes my prepared statement and I would be happy to answer any questions. Senator Coleman. Thank you very much, Mr. Pruniaux. Mr. Ventham. TESTIMONY OF ARTHUR VENTHAM,\1\ FORMER INSPECTOR FOR COTECNA INSPECTION, S.A., WESTERN AUSTRALIA Mr. Ventham. Mr. Chairman and Members of the Subcommittee, my name is Arthur Ventham and I am here at your request to testify about my experiences as an inspector with Cotecna Inspections S.A., the independent inspection and authentication contractor for the Oil-for-Food Program. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Ventham appears in the Appendix on page 110. --------------------------------------------------------------------------- Before I begin my testimony, I want to thank you and the Subcommittee for giving me the opportunity to travel to your Nation's capital to provide assistance to your investigation into the United Nations Oil-for-Food Program and I hope my testimony assists with your endeavors. I would like to iterate that my intent is not to denigrate my fellow inspectors employed by Cotecna Inspections but to provide the insight into what occurred on the ground in Iraq at the sites that I spent time at, namely Ar'Ar, Al-Waleed, Um Qasir, and Zakho, and Iskenderun in Turkey. The period that I spent with Cotecna in Iraq, Turkey, and Jordan was an experience I would not have missed. I went to Iraq to try and do something for the people of that country as well as assisting an organization that I had a lot of time for, namely the United Nations. Before answering the Subcommittee's questions, let me give you a brief description of my background and role at Cotecna. From 1977 to 1994, I was employed in various capacities with the Australian Customs Service. During my 18 years there, I served in senior positions including their Training Officer, Customs Commercial Systems and Investigations Section; Senior Operations Officer, Investigations and Compliance Section; Duty Manager, Compliance and Passenger Processing Section; and Senior Investigator, Inland Revenue Section. From 1994 to 1995, I was contracted as a Manager, Tariff and Trade Section of Coopers and Lybrand, which is one of the big four accounting firms in Australia. From 1995 to 1998, I was employed in private industry as the Managing Director, Business and Development, Tariff and Trade Section of ArMar Holdings International, an international boutique consulting agency, and as the Chief Executive Officer of Business Development of Power Management Australasia, a specializing accounting, CPA, and business consulting agency for major projects both onshore and offshore Australia. In 1998, I returned to the public service as a contract employee for the West Australia State Government, where I worked until December 2002, when I was hired as an inspector for Cotecna. Upon terminating my employment with Cotecna, I returned to public service work for the State of West Australia, where I work at the present time. As for my employment with Cotecna, I landed the job through a former colleague with the Australian Customs Service who had himself worked for Cotecna as an inspector in Iraq. He suggested that I apply for the inspector position, which I did. I was subsequently hired. I actually departed Australia on December 20, 2002, for service in Iraq. I served as an inspector at the Ar'Ar inspection station on the Saudi Arabian border until the end of January 2004. In mid-January, I volunteered to visit the Al-Waleed inspection station on the Syrian border for the purpose of observing and learning the inspection process so that I could prepare a standard operating procedure for the Ar'Ar site at the request of the team leader. After approximately 1 week at Al-Waleed, I returned to Ar'Ar, where I learned that I was being transferred to Um Qasir inspection station near the Kuwait border and the Persian Gulf. I remained at Um Qasir as an inspector until March 17, when we were evacuated to Jordan due to hostilities associated with Operation Iraqi Freedom. I remained in Jordan until April 7, when I was transferred to Iskenderun, Turkey, as an inspector. While at Iskenderun, I rotated through a satellite site in Mersin, Turkey, and also visited other inspection sites in the area on an as-needed basis. Eventually, I was promoted to the position of Administrative Deputy Team Leader, which meant that I was responsible for administration, accounts, and other activities associated with the Mersin site. In late June, I accepted an opportunity to become the Site Leader of the Zakho inspection station on the Turkish border-- -- Senator Coleman. Mr. Ventham, if I may, rather than going through your history of assignments, can you focus on your observations to help the Subcommittee? Mr. Ventham. Prior to being accepted as an inspector, my understanding of the Oil-for-Food Program was somewhat limited and I was of the opinion that all goods entering Iraq were subject to the same strict inspection services to ensure that no unlawful or inappropriate goods, such as military, chemicals, or other potential dangerous goods were brought into the country illegally. From the procedures and processes I witnessed as an inspector, this did not appear to be the case, as we were only interested in those goods that complied with U.N. SCR 986 sanctions. As an ex-military officer and business consultant, I am aware of and have been trained in logistics, security, and service delivery. The activities that I undertook while employed with Cotecna was contrary to everything that I have been taught, be that through the university, the military, or customs. As a professional customs manager and business consultant, I was somewhat surprised at how Cotecna operated when dealing with a major U.N. activity such as the Oil-for- Food Program. To my dismay, I found that the inspections being performed by Cotecna, inspections which I found to be inadequate were, in fact, appropriate based on the instructions provided to them by the OIP U.N. I could not allow myself to continue to be part of such an inspection program or to be associated with a company who conducted the inspection business in that manner. While I am disappointed that I was unable to work with the United Nations to achieve a desired outcome, I am not sorry to have left Cotecna when I did, as I believe that the way they operated was contrary to best practice. I am now available to answer your questions. Senator Coleman. We will enter your full statement into the record, Mr. Ventham. Thank you very much. Mr. Kulyk. TESTIMONY OF VERNON P. KULYK,\1\ FORMER DEPUTY CHIEF CUSTOMS EXPERT, UNITED NATIONS OFFICE OF THE IRAQ PROGRAM, DAR ES SALAAM, TANZANIA Mr. Kulyk. Good morning, Mr. Chairman, Ranking Member Levin, and Subcommittee Members. Thank you for this opportunity to testify before this inquiry into matters concerning the Office of the Oil-for-Food Program, United Nations. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Kulyk appears in the Appendix on page 127. --------------------------------------------------------------------------- In July 1998, I joined the United Nations Office of the Iraq Program, UNOIP, as a customs expert. Eventually, I became the Deputy Chief Customs Expert and my responsibilities included reviewing contracts for humanitarian aid to be shipped into Iraq under the program as well as monitoring the performance of the independent inspection contractors in the program. I am a Canadian citizen, and prior to my arrival at the United Nations Office of the Iraq Program, I had in excess of 30 years of experience as a customs officer with the Government of Canada and I also had substantial experience enforcing sanctions in a sanctions environment, working in the Balkans in 1993 and 1994. This Subcommittee's invitation requested that I address several topics in my prepared remarks. However, in my opening statement, I will focus on the humanitarian goods contract review and approval process. There were two main categories of contracts that the UNOIP was responsible for reviewing under the program, contracts for humanitarian goods and contracts for agency goods. For the purpose of explanation, humanitarian goods were sometimes referred to as the 53 percent account because 53 percent of the revenues from the sale of Iraqi oil were used to purchase these goods. Likewise, the agency goods were sometimes called the 13 percent account, because 13 percent of the oil revenues went to their purchase. The government of Iraq was permitted to contract directly for the purchase of humanitarian goods with suppliers. Agency goods, on the other hand, were purchased directly by the United Nations agencies for use in the three northern governates because it was felt that the government of Iraq could not be trusted to deliver humanitarian goods to that region. I will first discuss the contract review and approval process for humanitarian goods, which had several distinct steps which I believe demonstrate a reasonably comprehensive review process. First, at the beginning of each phase of the program, the Program Management Division, or PMD, of the UNOIP was responsible for creating a list of goods that could be purchased, and this was called the distribution plan, which in essence essentially was a large shopping list. Second, the government of Iraq negotiated directly with suppliers for the purchase of the goods that were included in the distribution plan. Third, the supporting mission of the supplier would submit the contract to the United Nations, because suppliers were not allowed to submit their contracts directly to UNOIP. Fourth, customs experts at the UNOIP's Contracts Processing Monitoring Division, or CPMD, as it is referred to, where I worked, reviewed the contracts presented by the missions on a first come, first served basis. It is important to note that the review process is not simply a paper exercise. We reviewed the contracts for completeness, box by box, line by line, and clause by clause to assess the following criteria: One, whether the goods being purchased fell into a category of goods on the distribution plan; two, whether the goods being purchased were appropriate and/or suitable for the approved purpose in the sector; three, whether the goods were reasonably priced under the circumstances; and four, whether contracts included prohibited clauses that were outside of the scope of the program, such as preferred payment clauses or performance guarantees or commissions, if you may wish. To assess the reasonableness of prices, we attempted to obtain the transactional value of the goods by various methods. These methods included cross-checking the prices on similar goods from different phases of the program, checking catalogs of different suppliers for price comparisons, researching price information available on the Internet, and contacting suppliers via the permanent missions. It should be noted that customs experts were not allowed to meet with suppliers without mission representatives being present to reduce potential offers or bribes or other financial incentives that suppliers may extend. Following this thorough review of the application and the contract, the customs officer compiled his or her findings in an officer's comment or report, which included the expert's assessment of whether the contract price was reasonable, slightly high, or excessive. Fifth, the Chief Customs Expert or the Deputy Chief Customs Expert conducted another supervisory level of compliance review of each written contract report. Thus, while I was serving as the Deputy Chief Customs Expert, I reviewed most of the contracts and written contract reports compiled by customs experts. Finally, the 661 Committee reviewed each contract and each report, including whether the contract complied with the relevant U.N. resolutions, in particular Resolution 986, and the 661 Committee had the option of approving the contract, denying the contract, or putting the contract on hold pending clarification. Agency goods, or 13 percent account goods, had a slightly different contract review and approval process and it is important for the members of the panel to note that while the authentication of agency goods was not a trigger to payment for suppliers, it was facilitative to the extent of gathering statistics and to some degree of reconciliation of the arrival of agency goods. It was not a trigger to payment. I worked with a group of highly qualified and committed customs experts in the Contracts Processing Management Division, who I believe were dedicated to doing their best to report overpricing and suspected fraud to the 661 Committee. To my knowledge, the 661 Committee was fully aware of all suspected overpricing and fraud detected and reported. In conclusion, the stated goal of the program was to get the humanitarian goods to the Iraqi people who were suffering as a result of the U.N. sanctions while ensuring that the government of Iraq did not manipulate the program to rearm its military. I believe the program was successful in achieving its goal in spite of the limitations placed on it. Mr. Chairman, I am now happy to answer any questions you may have. Senator Coleman. Thank you, Mr. Kulyk. Mr. Denson. TESTIMONY OF JOHN DENSON,\1\ GENERAL COUNSEL, SAYBOLT GROUP, HOUSTON, TEXAS Mr. Denson. Chairman Coleman, Ranking Member Levin, distinguished Members of the Subcommittee, thank you for the opportunity to testify before you today. My name is John Denson. I am General Counsel of Saybolt. You have asked me to speak today about the activity of Saybolt in its capacity as independent inspection agent for the United Nations during the Oil-for-Food Program. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Denson appears in the Appendix on page 139. --------------------------------------------------------------------------- I would like to make a personal observation, if I might, and that is that Saybolt had both the blessing and the curse of playing a very pivotal role in one of the most politically charged international programs in history. We ourselves are not political, and that may be one of the reasons we were chosen for that role. We welcome the opportunity to uncover the truth about what went right and what went wrong in this program, and for that reason, we have worked very closely with your Subcommittee and with all the official investigators to bring things out into the open and have them clearly understood by everybody that needs to learn from and look at this program. Going back to my prepared oral testimony. I have submitted a detailed written statement, so I will keep my oral comments brief, focusing on only a few key points which I hope will help the Subcommittee evaluate the information it has received regarding Saybolt, including almost 300,000 pages we have already provided to the Subcommittee during the last several months. I would like to take a moment to put our performance and our duties as a U.N. contractor in Iraq in some context. Over 7 years of the Oil-for-Food Program, Saybolt inspected some 2,700 loadings at two inspection points designated by the United Nations, the Ceyhan, Turkey, and the Mina Al-Bakr, Iraq, loading terminals. Saybolt also monitored the flow of oil through the pipeline connecting Iraq to the Ceyhan port, in addition to inspecting some oil industry equipment imports and coordinating three expert studies on the Iraqi oil industry for the United Nations. The United Nations extended our contract every 6 months between 1996 and 2000, and in 2000, the United Nations renewed our contract, which was further extended through the end of the program in 2003. These extensions and renewals are a reflection of the quality of work we did under very difficult circumstances. On the subject of the selection of Saybolt to be a contractor for the United Nations, I would like to emphasize one point. The manner in which the United Nations conducted this process, which is described further in my written testimony, elicited some criticism in the interim report produced earlier this month by the U.N. Independent Inquiry Committee, also known as the Volcker Commission. In particular, the interim report found that the United Nations did not adhere to some of its internal rules in conducting that process. However true that finding may be, it is not a finding about Saybolt. Saybolt was not made aware of any such rules. Further, the rules are not even made publicly available, as far as we know. The only guideline that the United Nations made known to Saybolt at the time is that it reserved the right to conduct the procurement process in whatever manner it deemed to be in the best interest of the United Nations. In order to compete in the bidding process, Saybolt therefore had to tailor its efforts to the concerns expressed by U.N. officials, such as the need for a lower price, and to make the various bids an apples-to-apples comparison rather than the apples-to-oranges comparison it started out being. In the end, as detailed in my written testimony, we are confident that Saybolt was the most qualified bidder and that we offered the most competitive price. At Saybolt, we are proud of our performance under the U.N. contract. Although living and working conditions were extremely tough and the Iraqi infrastructure was also found wanting in critical ways, Saybolt inspectors carried out their duties with a very high level of dedication and professionalism. Saybolt always worked in close coordination with the United Nations and always responded promptly to difficulties it encountered in the field. I won't take up the Subcommittee's time with an exhaustive list of the challenges we face in Iraq. Suffice it to say that Iraq under the Hussein regime was not very welcoming to foreign contractors. One operational challenge does bear mention here because it has been periodically discussed at hearings on the program, the lack of functioning metering equipment in Mina Al-Bakr. This, like some of the other issues we will discuss today, reflects some of the inherent flaws in how the program was structured to operate. Although Saybolt alerted the United Nations to this problem from the onset of the program, and to some extent even before the program started, Iraq did not undertake to put into place functioning meters at the Mina Al-Bakr platform. As a result, Saybolt could not measure the flow of oil into individual tankers. Instead, Saybolt had to rely on an alternate method of measurement. This method, while compliant with commercial standards, was not as foolproof as a meter or as accurate as a meter would be. This lack of proper metering equipment was also a contributing factor in the 2001 topping-off incidents involving the oil tanker Essex. As noted in my written testimony, Saybolt immediately investigated this problem and we detailed our findings to the 661 Committee. Our investigation found no evidence at the time to suggest that the company knew of these two topping-off incidents before they happened. The available evidence indicates that the Essex loaded additional oil, approximately 230,000 barrels each of the two times, after the Saybolt inspectors had already certified the loading amount and left the vessel to return to the living quarters. Saybolt immediately instituted several additional safeguards to prevent any recurrence of this. Under the new procedures, our inspectors stayed on board ships until their departure. If their departure was delayed, Saybolt placed numbered, sealed caps on the vessel loading valves, which we again inspected prior to departure to make sure they had not been removed. These additional measures were effective and we are aware of no further incidence of topping off. Furthermore, Saybolt prepared a report for the U.N.'s 611 Committee to analyze the likelihood that there were prior incidents of topping off. This report concluded that it was extremely unlikely that there were other incidents of topping off. As you may know, documents obtained from Iraq last year have led to an allegation that Iraq tried to bribe one of the Saybolt inspectors on the platform in connection with the Essex loadings. I have personally overseen our recent investigation into that allegation. We have sought to gather evidence on a global scale and are in the process of evaluating the evidence we have been able to obtain. In addition, I have cooperated with this Subcommittee and have kept it fully informed of everything that we have been able to do on this investigation and we look forward to continuing to do so. I understand that the Subcommittee has obtained additional documents from Iraq relating to this allegation and that these documents will be placed in the record today. Saybolt will review these documents very carefully. Saybolt does not take allegations of bribery of company employees lightly. If there is any credible evidence to support the allegation, Saybolt will take appropriate disciplinary action. The other point of clarification should be made as it relates to the scope of our duties as a U.N. inspector. As I have mentioned, our inspectors worked at two locations, the Ceyhan-Zakho pipeline between Iraq and Turkey, and the Mina Al- Bakr loading platform in Southern Iraq. Saybolt's mandate was not to inspect all of Iraq oil exports, nor was it to act as a police force. We were not tasked with monitoring exports of oil by Iraq from all locations other than the two I just mentioned. Nonetheless, when we became aware of instances of exports outside of the Oil-for-Food Program, we alerted authorities. For example, in November 2000, Saybolt informed the United Nations of rumors that the pipeline to Syria had been put into operation. In March 2001, Saybolt informed the United Nations of information indicating that there was smuggling into Turkey via tankers, avoiding the Iraq-Turkey pipeline at which our inspectors were stationed. In addition, we informed both the United Nations and the MIF about illegal loadings that we understood were taking place at Khor Al Amaya, a terminal about ten kilometers to the north of Mina Al-Bakr. Finally, I would like to clarify how our contract with the United Nations for inspecting oil exports was priced. As you know, last month, the IIC released an audit report on the management of the Saybolt inspection contract. In its annex to the briefing paper, the IIC summarized certain conclusions from that report. What the IIC did not mention or take into account was that the U.N. Office of Iraq Program, the OIP, and Saybolt had informed the auditors that several of their conclusions were based on a misunderstanding of the nature of Saybolt's contract with the United Nations. Specifically, auditors in the U.N. office had misunderstood the contract as a cost-plus contract rather than a fixed-price contract. In fact, the price of the contract was fixed on a per man, per day rate. In negotiating this rate, Saybolt assumed-- -- Senator Coleman. Mr. Denson, could you sum up? You are about 4 minutes over, and I am trying to let you say everything you need to say---- Mr. Denson. Sorry. Senator Coleman [continuing]. But if you can please sum up, and we will submit that statement for the record. Mr. Denson. All right. We have produced to the Subcommittee documents regarding the audit and the correspondence following the audit and we would encourage their release as other things are being put in the public record. Let me close by saying that Saybolt has been in close contact with the Subcommittee staff through this investigation, has worked hard to be responsive to all requests by the Subcommittee, and we will continue to do so. I hope the Subcommittee has found the information Saybolt has provided useful, and again, I thank you for the opportunity to testify and I would be happy to respond to any questions you may have. Senator Coleman. Thank you, Mr. Denson. I would note, we are going to do 8-minute rounds of questions to start, and I would presume we are going to have more than one round. I would note that Saybolt has been very cooperative with the Subcommittee and we do appreciate that. You indicated that you informed the United Nations in November 2000 about the pipeline into Syria. Do you know if any action was taken on that issue? Mr. Denson. As far as we know, no action was taken. Senator Coleman. And you also informed the United Nations in March 2001 about the smuggling into Turkey. Do you know if any action was taken on that? Mr. Denson. As far as we know, no action was taken. Senator Coleman. Do you know whether Mr. Sevan's office ever inspected your oil monitoring activities in Iraq? Mr. Denson. You mean other than the audits, Senator? Senator Coleman. Yes. Mr. Denson. Mr. Sevan's office, I don't think, physically inspected our operations in Iraq. Senator Coleman. Let me just, for the record, in my opening statement, we talked about an Armando Carlos Oliveira, who our records indicate was a Saybolt employee in Iraq under the Oil- for-Food Program. Can you confirm that he was, in fact, a Saybolt employee? Mr. Denson. He was, in fact, a Saybolt employee. Senator Coleman. One other issue for now, Mr. Denson. In Charles Duelfer's report, the name Saybolt appears as a recipient of an oil allocation Phase 12, though it says no oil was ever lifted. Would you confirm under oath that Saybolt never requested or received any allocation of Iraqi crude oil? Mr. Denson. Absolutely. Saybolt did not request and did not receive an oil allocation and we have no idea how our name ended up on that list. Senator Coleman. I wonder if we could put Exhibit 52,\1\ Senator Levin's exhibit, actually, it is the picture, it is right back there. I would ask Mr. Ventham, since you were on the ground, just looking at the picture of trucks that were lined up, is that a site that you are familiar with? --------------------------------------------------------------------------- \1\ See Exhibit No. 52 appears in the Appendix on page 427. --------------------------------------------------------------------------- Mr. Ventham. Yes. Senator Coleman. Now just to make it clear, you were focused on what we call 986 goods? Mr. Ventham. That is correct, yes. Senator Coleman. Can you explain the difference between 986 goods and other goods? Mr. Ventham. Well, basically, we were only told to inspect goods that complied with the U.N. Security Council Resolution 986. Anything else, we weren't interested in talking about. Senator Coleman. So if someone had papers but the papers weren't relating to 986, those trucks would just go through? Mr. Ventham. As far as I was concerned, yes. Senator Coleman. And we are talking about--could you give me an estimate of the number of trucks that passed through Al- Waleed border station during the week you spent there prior to Operation Iraqi Freedom? Mr. Ventham. I saw approximately 400 to 500 trucks, I think it was. Senator Coleman. And how many of those trucks were 986 trucks that you inspected? Mr. Ventham. I inspected three. Senator Coleman. Three? Mr. Ventham. Three. Senator Coleman. Thank you. I wonder if we can turn to Mr. Massey. I want to focus a little bit on Kojo Annan and the filing of reports. We interviewed one of your former employees, Michael Wilson. I think, in fact, he is currently one of your consultants. Do you know Mr. Wilson? Mr. Massey. Yes. Senator Coleman. At least he indicated to us it was standard practice for Cotecna employees to write trip reports detailing what was accomplished on a particular trip, is that correct? Mr. Massey. This is correct. Senator Coleman. We were not supplied with any trip report for the time, apparently there were 15 days that Mr. Annan was in New York for the General Assembly. Do we have Exhibit 19? \1\ I believe on that exhibit, he is submitting a request for consultancy expenses, 15 days in New York, for work for the General Assembly and various meetings relating to other special projects. Do you have any trip report for those 15 days? --------------------------------------------------------------------------- \1\ See Exhibit No. 19 appears in the Appendix on page 276. --------------------------------------------------------------------------- Mr. Massey. We haven't found any trip report. We looked into our files. We also looked into the archives in Lagos, where he was residing at that time, to see whether there was any trip report. We haven't found any. Senator Coleman. So in spite of the fact that you have a practice and procedure that calls for trip reports, for this, for what he is being reimbursed for for 15 days in New York, the General Assembly, you have no documentation of what he did during that period of time? Mr. Massey. No, and it may very well be that he hasn't written any trip reports. What may have happened is that soon after the General Assembly meeting, which was attended by himself and Mr. Pierre Mouselli, we met again, he and I, in Washington, early October, I think, on the occasion of the IMF World Bank annual meeting. Maybe we have discussed his meetings that he had had during the General Assembly. So that may explain why we haven't found any original reports. This is the only explanation that we can come up with to explain the lack of reports in our archives. Senator Coleman. Mr. Pruniaux, I believe the Subcommittee requested Exhibit 20.\2\ Can you put Exhibit 20 up there, please? Exhibit 20 is a letter from you, Mr. Pruniaux, dated December 4. The original one was produced on August 28 to the Subcommittee, and in that, I believe, there are actually two documents. We have an original document received August 20, and then as we were going through our investigation, we asked for some other documents, and the document refers to, ``I refer to our telephone conversation of Friday, 1 December 1995. Attached is Mr. Annan's CV.'' --------------------------------------------------------------------------- \2\ See Exhibit No. 20 appears in the Appendix on page 277. --------------------------------------------------------------------------- We also then got another copy of that document with a series of papers just a little while ago, on December 22, 2004. It appears that the original document that was sent to us in August, there is information that is redacted. In other words, what we got in our first request in August there is apparently no reference to the ``P.S.'' that is apparently in the original document. It was supplied to us in December of this year. As a ``(P.S.: Attached is also copy of a recent article in newsweek on Kojo's father, Kofi Annan).'' Can you explain to me why the document that was originally sent to the Subcommittee in August had that information redacted? Mr. Pruniaux. No. I recognize my own document, the one I produced on the 4th of December 1995, and the other one which comes from the files in Lagos. Senator Coleman. Do you recall whether the--I am trying to understand why a document that was submitted to this Subcommittee in August has information that was apparently redacted from what was the original. The original document made specific reference to Secretary-General Annan. Mr. Pruniaux. Yes. There is no evidence that it was redacted again, but I can recognize the writing of Mr. Bunnetta, who was the Chief Liaison Officer in Lagos at that time. Senator Coleman. I am deeply concerned, Mr. Pruniaux, that the documents that we received in August apparently had information that was removed. Can you shed any light on how that was removed or why it was removed or why that reference was not seen on the copy that was presented to this Subcommittee? Mr. Pruniaux. It was not removed. Senator Coleman. Well, apparently it was removed. I mean, the documents that we got on August 28 do not have that reference, and I am just trying to understand how that occurred, who would have been responsible, who might have taken that action. You have no information? And I turn to Mr. Massey about this. There are no public references. When you were negotiating working with the United Nations, talking to the United Nations about the contract on December 28, was there any discussion with U.N. officials about the fact that the Secretary-General's son had a relationship with Cotecna? Mr. Massey. Never, ever. Absolutely, 100 percent affirmative. We never mentioned the fact that Mr. Annan, Kojo Annan, worked for us at that time. Senator Coleman. If we can go to Exhibit 21?\1\ Exhibit 21 is a memorandum from Michael Wilson, again, who worked for Cotecna and is presently a consultant, and I believe Exhibit 21, Mr. Wilson's memo indicates that in December 1998, Cotecna believed it had to win the approval of Benon Sevan, Kofi Annan, and the 661 Committee. Can you tell me, were there any efforts made to approach either Mr. Sevan or Mr. Annan about the Cotecna contract? --------------------------------------------------------------------------- \1\ See Exhibit No. 21 appears in the Appendix on page 278. --------------------------------------------------------------------------- Mr. Massey. Never. Senator Coleman. In the Wilson memo, I believe it talks about Cotecna had the active backing of the Swiss mission as well as there was quiet lobbying within diplomatic circles in New York. Can you explain what quiet lobbying was done within diplomatic circles in New York? Mr. Massey. That was an initiative that Mr. Wilson took and I was not informed of the details of the people he met, but he reported to us that he had met several people that could have a say or could be--could help us in promoting the name and the project that we were presenting. Senator Coleman. Exhibit 18,\2\ just one more series of questions for you, Mr. Massey. This is a memo from Kojo Annan to yourself, and in that memo, and I discussed it in my opening statement, it says, ``As discussed with you Sunday, PM and myself put in place a `machinery' which will be centered in New York that will facilitate the continuation of contacts established and assist in developing new contacts for the future. This `machinery,' due to its global nature and its longevity, is as important overall as any other contacts made. For certain reasons, PM was integral to creating the aforementioned structure.'' Can you tell me what this machinery was? --------------------------------------------------------------------------- \2\ See Exhibit No. 18 appears in the Appendix on page 275. --------------------------------------------------------------------------- Mr. Massey. I am sorry to say, but this is a bit of a mystery to us, also. I remember that Kojo tried to elaborate on a system that he could develop in New York to have access to different ambassadors of different countries where we had a specific interest in promoting our abilities, mainly African countries. I think there is also another aspect that needs to be taken into consideration. We are in September here in 1998 and we are 6 or 7 months down the line with this consultancy agreement. Kojo had gone already to the NAM Summit, the Non-Aligned Movement Summit, and very little achievement, very little results, had come out of his different missions and visits. But the main project had given him to really focus on was the Nigerian project, which has been and still is one of the most important projects for Cotecna. Senator Coleman. Now, this is December 1998. This is a few months before Cotecna gets the contract for the Oil-for-Food Program. That was in December 1998---- Mr. Massey. Yes, but this has nothing to do with the U.N. Oil-for-Food Program. I am trying to explain to you what is this machinery about and the way he put it to us. I think in August 1998, the Nigerian administration changed because the then-president died. So suddenly, you find a new Nigerian administration. We had lost a contract a year before in Nigeria. For us, it was an opportunity to reopen doors with the newly formed or caretaker government in Nigeria, the Nigerian administration. The fact that you see the letters mention PM, this PM stands for Pierre Mouselli, who is the Lebanese origin, but based in Nigeria and Lagos, I think. They were introduced and I won't say they were close friends, but a business relation to Kojo Annan. I had agreed for Kojo to work together with Pierre Mouselli to try to establish a relation with the newly-formed government. Now, Kojo, I think, reading this document, is trying to convince me that he has a good idea on how to penetrate the different governments through the ambassadors or through the missions in New York thanks to his relations and so on and so forth. This is what I perceived when reading this document. Senator Coleman. I know my time is up and I am going to turn to my Ranking Member, Senator Levin. The memo does talk about global nature? Mr. Massey. Yes, global nature in the sense of having different approaches to different contracts and countries. But just to finish my statement, Kojo was a very young man at that time. He was trying to prove himself. We were disputing--I was disputing him, the type of fees he was charging us with and he was trying to prove to me that he was, if not already yet now, soon to become efficient in trying to reach out to contacts and make his effort efficient. Senator Coleman. How old is he at this time? Mr. Massey. Maybe late 20's--28, 27, something like that. Senator Coleman. Senator Levin. Senator Levin. Thank you, Mr. Chairman. Just on the questions, some additional questions related to Kojo Annan. When did you hire him? Mr. Massey. OK. When looking at the file, what we saw is, I think--I will turn to Andre Pruniaux because he was the one to really hire and he has a better memory than I do. Mr. Pruniaux. Yes. Kojo was graduated in the U.K. and he approached our company in London. He was looking for training in 1995 and it was--the first person in Geneva who heard of him was my colleague who was in charge of the London office. When he saw the background of the gentleman and that he was African, he spoke several languages, he immediately turned to me and said, ``Andre, are you interested?'' and I said, ``Why not. Let him come to Geneva.'' I have always been looking for young Africans who could take over the positions of chiefs of our offices in Africa. He came to Geneva. I interviewed him. He spoke English, French, and a couple of local languages. I said, let us not hire him for a junior position in London just for summer. Let us train him, and this we did. Sometimes that irritated even the General Manager of the British company. He got 2 months training, after which he was sent to Nigeria at the end of the year because he had the capacity and the background to be of assistance in Lagos. Senator Levin. And he was hired in 1995? Mr. Pruniaux. Ninety-five, yes. Senator Levin. And was his father the Secretary-General at that time? Mr. Pruniaux. No. Senator Levin. Now, I think that Cotecna bid on a contract in 1998, and I want to just make clear that I think I heard your answer to the Chairman's question, but I want to make sure that I am clear on this. Did anyone at Cotecna talk to Kofi Annan about that contract during the negotiations of that contract? Mr. Pruniaux. Never. Mr. Massey. Never. Senator Levin. Not just you, but as far as you know, nobody at Cotecna? Mr. Pruniaux. Nobody. Mr. Massey. Nobody. Senator Levin. Did the Secretary-General have any role, as far as you know, in the selection of a company to authenticate the goods that were going into Iraq? Mr. Massey. I don't believe so, no. Senator Levin. Exhibit 18 \1\ is the memo that the Chairman referred to as the memo from Kojo Annan to you, Mr. Massey, and you have referred to it already, but is this where he is giving you a country-by-country breakdown of, what, his efforts on behalf of the company? --------------------------------------------------------------------------- \1\ See Exhibit No. 18 appears in the Appendix on page 275. --------------------------------------------------------------------------- Mr. Massey. Correct. Senator Levin. So he made efforts in Mozambique, Tanzania, Uganda, Malawi, Zimbabwe. Is that the entire document, or is that page---- Mr. Massey. It is the second page, I think. Senator Levin. This is the only page? Mr. Massey. No. There is a second page, I believe. Senator Levin. There is an additional page, as far as you know? So there may be additional countries? Mr. Massey. Yes, I think---- Senator Levin. He was working on behalf of the company? Mr. Massey. No. What happened is that when--OK. The main goal of--the main objective of Kojo Annan during this consultancy agreement with us in 1998 was to get us back in Nigeria. That was the very first top priority, I think. Senator Levin. All right. Mr. Massey. The second job was to also help us in strengthening our presence in Ghana, because as you know, Kojo Annan is a dual national, Ghanaian and Nigerian. But we also used this young man to represent the company in different seminars and meetings, and this is an example of one of the meetings he had attended in Durban and the Non-Aligned Movement Summit. Senator Levin. So that was not his primary responsibility. Nigeria was the main effort---- Mr. Massey. Absolutely. Senator Levin [continuing.] But there were additional things---- Mr. Massey. But what he would do during that few days he would spend there would just be to go from one mission to the other mission and trying to introduce himself and present the company and so on and so forth, and this is a report---- Senator Levin. I understand. Thank you. Mr. Denson, the employee of Saybolt that has been referred to already, is it Mr. Oliveira, is that his name? Mr. Denson. Yes, sir. Senator Levin. Does he still work for Saybolt? Mr. Denson. He does, pending completion of our investigation, which is ongoing, and with the information that the Subcommittee has now made public, we will revisit his situation at that time. Senator Levin. Now, that information of the Subcommittee, you have that information? Has that been given to you before today, or---- Mr. Denson. We have seen---- Senator Levin. You have seen that before today? Mr. Denson. We have seen bits and pieces of it, but this is the first time we have had this type of access to it. Senator Levin. And so you are saying that you are going to get back to the Subcommittee based on what is in those documents that you have seen the full documents for the first time today? Mr. Denson. Absolutely. We, in fact, have already talked to the Subcommittee staff about how closely we can cooperate in conducting the rest of our investigation---- Senator Levin. The Chairman has made reference to your cooperation and it is appreciated, I know, by all of us as well as by our staffs. It has been very good on your behalf, and I think the same thing is true, may I say, for our other witnesses here today. Mr. Chairman, I perhaps shouldn't say that. That would be up to you to make an assessment on, but I think our witnesses have all cooperated with us and the staff today. Is there any other instance that you know of besides this one where there is any allegation of a bribe brought to your attention? Mr. Denson. In connection with the Oil-for-Food Program? Senator Levin. Yes. Mr. Denson. No, sir. Senator Levin. So this is the only one that you know of so far? Mr. Denson. That is correct. Senator Levin. OK. Mr. Pruniaux, I would like to talk to you, or someone who I think is maybe with you today, if you are unable to answer these questions about the trucks, and I wonder if we could get the pictures of those trucks up there again.\1\ These are oil trucks. These are oil trucks which are taking Iraqi oil to Turkey outside of the Oil-for-Food Program. All oil that was supposed to be sold was supposed to be sold inside the Oil-for-Food Program so the proceeds would go to buy humanitarian goods for the Iraqi people. But at least with three countries, and probably four, all the countries closed their eyes, including us, to massive sales of oil by Saddam Hussein to Turkey, to Jordan, to Syria, and slight sales to Egypt. --------------------------------------------------------------------------- \1\ See Exhibit No. 52 appears in the Appendix on page 427. --------------------------------------------------------------------------- Did you personally see those lines of oil trucks leaving Iraq for Turkey? Mr. Pruniaux. Oh, yes. I came to Iraq for the first time in early January 1999, just before the start of our contract, and to enter into Iraq, you had to go through Amman and get the visas from the Iraqi embassy in Amman, and then you had to drive all the way. There was only one way for inspectors, other persons, to enter Iraq. It was to drive from Amman to Baghdad or other places. Senator Levin. I just want to, because of the time limits, I just want to ask you, did you personally see these lines of trucks---- Mr. Pruniaux. Oh, yes. Senator Levin [continuing.] Leaving Iraq for Turkey outside of the Oil-for-Food Program? Mr. Pruniaux. Absolutely. Senator Levin. It was common knowledge. Now, my last question. Mr. Kulyk, you made an assessment, I believe, in your testimony that in your judgment, the Oil-for-Food Program worked well and I would like to ask you to amplify that statement. Mr. Kulyk. I think it is important---- Senator Levin. In spite of all the difficulties and so forth, why did you reach that conclusion? Mr. Kulyk. Of course, Senator Levin. I think it is important to bring our thinking back to the fact that the Oil- for-Food Program was a humanitarian effort. It was not intended to be nor was it viewed, in my opinion as someone who had worked in a sanctions environment, as a sanctions mission. It was in no way an effort to control the movement of goods outside of the 986 program. So authentication is not sanctions monitoring. I think that needs to be said. So within that context, whether or not the Oil-for-Food Program met its goals and objectives, I think it did. The goals and objectives were to provide humanitarian relief, and on my visits to Iraq--I made three such visits--I did see improvements in terms of quality of life, improvements in the availability of goods, improvements in terms of food and nutrition, and also improvements in two different industries, whether it was the electrical sector or the oil sector. These did happen. There were introductions through the 986 program of these goods into Iraq and that was essentially the mandate of the 986 program, not to control sanctions. None of the independent inspection agencies, whether it was Lloyd's or Cotecna, were tasked or responsible or authorized to monitor sanctions. We were aware of it. I saw it personally myself from my visits as well, and it was reported as asides and in mission reports to the 661 Committee. Senator Levin. All right. On that line of questioning---- Senator Domenici. Senator Levin, could I just ask a question? Senator Levin. Of course. Senator Domenici. What does it mean to monitor sanctions? Mr. Kulyk. That is a good question. Perhaps the best way I can answer that is to give you a little bit of an idea of what I did in the Balkans as a sanctions monitor. Senator Domenici. Thank you. I just wanted the Chairman not to charge this against Senator Levin's time. Senator Levin. I am over my time. Senator Coleman. You may answer the question. Senator Domenici. Mr. Chairman, thank you. Senator Levin. Thank you, Senator Domenici. Mr. Kulyk. In my experience in my role, and I will speak about my time in the Balkans during the early years, 1993 and 1994, as a sanctions monitor, there were resolutions in place that indicated that sanctions were to be imposed upon Serbia and the former Yugoslavian Republic, and in those missions, actually, customs officers participated and had a presence at the border, customs officers who looked at the passage of goods across the borders with a reference to what was considered to be acceptable as humanitarian relief. And when we saw things which were not considered to be within the humanitarian scope of the relief crossing the border, those occurrences were identified and reported to the United Nations as a sanction. No such monitoring took place in respect of the Oil-for- Food Program. Oil-for-Food was a humanitarian effort. It was not a sanctions enforcement regime. Senator Coleman. Senator Levin. Senator Levin. Thank you. You made reference in your prepared testimony to Cotecna's, ``demonstrated outstanding performance.'' You also said that Cotecna had been a very dependable contractor under difficult circumstances and often did more than they were contractually obligated upon request from you, or your office. Mr. Kulyk. Yes, sir. Senator Levin. Is that correct? Is that your testimony? Mr. Kulyk. Yes, it is. Senator Levin. Thank you, Mr. Chairman. Senator Coleman. Senator Domenici. Senator Domenici. Mr. Chairman, I just have one line of questioning. I am interested in finding out from the two of you as consultants what your job did and didn't include. As I understand it, the authority that you had did not permit you or charge you with determining if there was any price manipulation that was occurring, is that correct? Mr. Pruniaux. Absolutely. Senator Domenici. So we have a consulting firm that on the surface is supposed to determine that the transactions were honest and the pricing and all other things were above board and were visible. That was your job. But as to manipulation, you were not given that authority. Mr. Pruniaux. With due respect, it is not exactly like that that I would phrase the---- Senator Domenici. Phrase it as you would like. Mr. Pruniaux. OK. In 1996, the Security Council decided that the price verification--the verification of price would be done by UNOIP. Senator Domenici. By who? Mr. Pruniaux. By UNOIP, by the United Nations itself. Senator Domenici. Yes. Mr. Pruniaux. This is what Mr. Kulyk explained. And it was not the duty of the independent inspectors, who had been hired for other things, to look into the valuation of the goods presented to them. Senator Domenici. So as I understand it, there were similar consulting agreements in the region that had the authority to determine whether or not there was price manipulation. I understand that is correct. In fact, wasn't the first proposal submitted, didn't it include as part of a task the authority to determine price manipulation? Mr. Pruniaux. The very first proposal you mentioned referred to 1992. At that time, the tender, the technical--the scope of work covered by the tender clearly indicated pre- shipment inspection and price verification, but that proposal and that contract that Cotecna was selected, but the contract was never signed, as explained before. Senator Domenici. I understand. Mr. Pruniaux. By 1996, the scope of the contract was of-- the tender was totally different. As I said, the United Nations decided to keep for itself at the UNOIP level the price verification but to select independent inspectors, independent meaning also that these inspectors would not be permitted to do commercial inspections. A commercial inspection is an inspection that a supplier and an importer would agree on so that before shipment, the quality of the goods or the quality of the goods would be clearly specified and that upon arrival, there would be discrepancies, commercial discrepancies, then the receiver would act against the supplier. That was--that is a commercial inspection. And we, as independent inspectors, we were strictly forbidden from entering into this. Senator Domenici. But the United Nations decided that you wouldn't do it but somebody else would? Mr. Pruniaux. Well, you have to realize that for the contracts, the Iraqis were sovereign. They could select--as long as the goods were in the--were acceptable---- Senator Domenici. I understand. Mr. Pruniaux [continuing.] They could select whatever supplier they wanted in any acceptable country. It was--we recommended very often, and I know UNOIP also at the highest level repeatedly told the Iraqi authorities that in order to reduce the amount of disputes on commercial grounds, they should appoint professional inspection companies to inspect before shipment and possibly match the inspections upon arrival of the goods in Iraq. Senator Domenici. So if you repeatedly suggested that to them, that indicates that---- Mr. Pruniaux. The Iraqis did not. Senator Domenici [continuing.] The Iraqis did not do that. Mr. Pruniaux. No. Senator Domenici. So there is a vacuum as to who would do that, or if it was done at all. Mr. Pruniaux. Yes. That was more a commercial dispute, as I said, than---- Senator Domenici. Couldn't that be, if--I am not suggesting that you know it was, but wouldn't that be an easy way, if somebody intended, wouldn't that be an easy way to arrive at conclusions that would lead to some manipulation for the benefit of a people or institution that were not intended to benefit? It could happen, couldn't it? Mr. Pruniaux. Manipulations might not be the right word. In my opinion---- Senator Domenici. Well, why did you suggest that it should be done? What was the reason? Mr. Pruniaux. Because this is normal practice when you do-- -- Senator Domenici. Why is it the normal practice? It isn't the normal practice just to do it---- Mr. Pruniaux. Well, you have to pay for that. Maybe the Iraqis did not want to pay for the commercial inspections by another inspection company. Senator Domenici. But are they useless? Mr. Pruniaux. No, they are not useless, but it is the privilege of the importer to decide to appoint or not to appoint. Senator Domenici. I understand. Mr. Pruniaux. I believe that--they did that on a lot of shipments, but on certain shipments, they did not do that. I am talking of the Iraqis. That would give them some leverage on the suppliers, you see, from--but maybe not manipulations of prices, but just to put some pressure on them to get some incentives upon arrival of the goods in Iraq. You claim that you have a commercial dispute, whether it is true or not is to be confirmed, and you put pressure on the supplier. Senator Domenici. Thank you, Mr. Chairman. Senator Coleman. Thank you. We are going to do a 5-minute follow-up round, and I have a lot more questions, but we have other panels. First, to Mr. Massey and Mr. Pruniaux, you have indicated in response to Senator Levin's questions that the Secretary- General did not have any role in selecting the Cotecna contract? Mr. Pruniaux. Yes. Senator Coleman. If I refer you to Exhibit 21, which is Michael Wilson's memorandum to Cotecna, this is dated December 4, 1998.\1\ This is shortly before you were awarded the contract, and I note that Mr. Massey and Mr. Pruniaux are both individuals who received a copy of this. In that memo on the ``next stages,'' the very end, Mr. Wilson says, ``The current contract with Lloyd's ends in December 1998. The OIP would make its recommendations to the Procurement Division within days to enable them to present it to the U.N. Contracts Committee after approval has been obtained from B. Sevan and the SG.'' I take it SG relates to the Secretary-General? --------------------------------------------------------------------------- \1\ See Exhibit No. 21 appears in the Appendix on page 278. --------------------------------------------------------------------------- Mr. Massey. This is his own statement, but I don't think that that was the case. I think the contract was being negotiated with the Procurement Division and we don't know exactly at which level the contract was being eventually awarded, but we have never imagined that the contract would have gone as high as the SG office itself. Senator Coleman. My concern is, first of all, this memo was sent to you. Did you receive it? Mr. Massey. Right. Yes. Senator Coleman. And did you ever correct Mr. Wilson in saying the Secretary-General has no role in this? Mr. Pruniaux. But Mr. Chairman, with due respect, the way I read it--maybe I misunderstood your question. It does not say that he has got to talk to the Secretary-General. He is just explaining the machinery for contract approval at the level of the United Nations. In fact, this is wrong. I believe that the Secretary-General has no word to say in the awarding of such a contract. It goes to the Contract Committee. Senator Coleman. But Mr. Wilson was under the impression that the Secretary-General had an approval role, is that correct? Mr. Pruniaux. Yes, which is not true. Senator Coleman. But he was under the impression, and he sent this to you. Mr. Massey. This is what he wrote, right. Senator Coleman. Let me also ask you, and my concern is that you have a 23-year-old kid--that is, I believe, how old Kojo was--in 1998. He is submitting to you in October 1998, submitting outstanding consultancy expenses 2 months before you get the contract. He is getting $500 a day. Mr. Massey. Right. Senator Coleman. He spends 15 days at the General Assembly, of which you have no reports of what he talked about, nothing in writing. Mr. Massey. We haven't found any report, no. Senator Coleman. And yet at this point in time, you are negotiating a contract with the United Nations of which your own consultant says it needs the approval of ``B. Sevan'' and Secretary-General, and you are saying that you never mentioned his employment to anybody in the United Nations. Mr. Massey. Absolutely true. Mr. Pruniaux. But he was 28 in 1998. Senator Coleman. I will check the record on that. I will stand corrected if that is the case. Mr. Kulyk, by the way, and I appreciate your kind words about Cotecna, do you work for Cotecna right now? Mr. Kulyk. Yes, I do. That is mentioned in my tendered written statement. Senator Coleman. I just want to clarify that for the record. You are presently employed by Cotecna? Mr. Kulyk. Yes, I am. Senator Coleman. Did you have any concerns about member states putting pressure on inspectors at the time you were working for the OIP Program? Mr. Kulyk. Concerns or experiences? I think I witnessed some experiences. Senator Coleman. Could we get Exhibit 48?\1\ One of them involved a Chinese contract for diesel dredges worth about $12 million? Can you look at Exhibit 48. Does this look like the Chinese contract you were dealing with, and can you tell me the events and circumstances surrounding it? --------------------------------------------------------------------------- \1\ See Exhibit No. 48 appears in the Appendix on page 378. --------------------------------------------------------------------------- Mr. Kulyk. Mr. Chairman, it appears to be familiar to me. Senator Coleman. Were you reviewing this contract? Mr. Kulyk. Initially, I did. If this is the one that, in fact, turns out to be the one, I did have some impact in terms of reviewing the contract. Senator Coleman. Now, did you get a fax stating that--that appeared on your desk--the contract was fraudulent, was for used road graders and various people getting kickbacks? Mr. Kulyk. Yes, I recall that. Senator Coleman. And can you tell us what happened with that fax and the circumstances surrounding it? Mr. Kulyk. I can tell you the circumstances at the time. I don't know where the fax is. It does not appear to be in this package. But in essence, Mr. Chairman, the circumstances were that this contract appeared on my desk. It was early in the contract review phase. There was nothing initially unusual about it. At some point in time, perhaps a couple of days later, an anonymous fax came through relating specifically to this contract. My recollection is that it was sufficiently specific to draw attention to the fact that it was this particular contract. It's been 4 years since I have left OIP, so I am working from memory. My recollection is that there were allegations with respect to the fact that the road graders were, in fact, not new, they were used and refurbished, and also my recollection is that there were suggestions that the contract was, in fact, I guess we can call it put up. It was a false contract with false valuations and that there would be, upon payment, that the proceeds from this contract would be shared amongst a number of different parties. When that fax came to my desk, I took it to my Chief Customs Expert, Jeremy Owen. We discussed it in the office amongst a number of the customs officers. I think at that time we were about five or six customs officers. It was early in the program. I think it was late 1998. My recollection is that this contract was resubmitted in 1999 because it was not proceeded with in 1998. The discussion essentially was that, well, we should take a look at the pricing issues very closely and see what we could dig up. The fax was in itself simply an anonymous fax, and as a point of law, it had certain weight as evidence, but was not necessarily true. But it did raise sufficient concerns that we should have special scrutiny on this. The circumstances were that after this discussion, I went back to my office and I left the contract on my desk, went outside to have a cigarette, came back, and the contract was gone, disappeared from my desk. I looked for it, came back after lunch, and it had reappeared. Being a customs officer, I wanted to know where it was during the time it was missing. I went around and I polled each of the fax machines in the office and I found a corresponding fax to the Chinese mission for the same number of pages that were in the fax. I went back with this information to the Chief Customs Expert, Mr. Owen, who eventually confronted the Chinese customs officer that was working in the program who admitted that he had faxed it to the Chinese mission. His explanation was that he didn't want his mission to be involved in any illegal activity. Senator Coleman. Do you know if any disciplinary action was taken against the individual that was involved? Mr. Kulyk. No, not really. Senator Coleman. Not really? You don't know whether it was taken or you just don't---- Mr. Kulyk. Well, I know his duties changed, Mr. Chairman. I don't know whether it was the result of any disciplinary action, but I know his duties changed at some point in time to essentially only reviewing agency contracts. Senator Coleman. And also, just two other follow-up questions. A Russian customs officer---- Mr. Kulyk. I think it is fair, Mr. Chairman, to say that every customs officer in the program had some contact with their missions. This was not in itself unusual. However, it was on some occasions, and the Russian customs officer who I knew quite well at one point in time complained that he had been receiving pressure from his mission. I think it is fair to say that many of the missions considered what we were working in as more than a humanitarian program, I think they considered it as a commercial opportunity. So it was a very commercial atmosphere. So, the emphasis was on pushing contracts. Senator Coleman. Mr. Ventham, just to clarify the testimony regarding Exhibit 52, that picture may actually have been of oil trucks going out, but your testimony is focused on trucks coming into Iraq, is that correct? Mr. Ventham. That is correct, yes. Senator Coleman. And so during the week you were there, how many trucks did you see coming into Iraq, bringing goods in? Mr. Ventham. About 400 or 500. Senator Coleman. And I presume they weren't bringing oil. Mr. Ventham. No, no different---- Senator Coleman. And you inspected how many of those? Mr. Ventham. I inspected three. Senator Coleman. Three. And do you have an idea what was in those trucks? Mr. Ventham. They were fire trucks. Nothing was in them. They were actually fire trucks themselves. Senator Coleman. Bringing trucks in. What about the other hundreds of fire trucks? Mr. Ventham. Fire engines. Senator Coleman. Fire engines. And the other hundreds of trucks, do you have an idea what they were carrying? Mr. Ventham. Some were carrying different pieces of wood, piping, machinery components, and agricultural equipment. Senator Coleman. But because they didn't have documents relating to the specific program that Cotecna was responsible for, they simply went into Iraq? Mr. Ventham. Well, yes, but there were other shifts working at the same time. They may have been processed through those but I didn't see them. Senator Coleman. Mr. Pruniaux, do you want to add anything to that? Mr. Pruniaux. I would be pleased to introduce the contract manager who worked for us 5 years in Iraq and he was based in Amman. Before that, he was the Team Leader in Trebil, to explain in practical words what happened at the border when the trucks would arrive and those which would come to Cotecna to be authenticated. Senator Coleman. We need the witness to be sworn. Please raise your right hand. Do you swear the testimony you will give before the Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Radenovic. I do. Senator Coleman. Would you please identify yourself? TESTIMONY OF MILAN RADENOVIC, CONTRACT MANAGER, COTECNA INSPECTION S.A. Mr. Radenovic. Mr. Chairman, Ranking Member, distinguished Members of the Subcommittee, my name is Milan Radenovic. I served most of my time as contract manager, initially in Geneva and then in Amman. In the very beginning of the program, I was hired by Lloyd's Register and served for 6 months in Iraq and then was continued with Cotecna once the contract was awarded to Cotecna Inspection. In regards to the cargo passing through the land borders, I can say that Iraqi authorities, Iraqi government exercised its complete sovereignty on the borders in terms of customs. To my knowledge, there were no other international presence or customs enforcement on the borders apart from our mandate, which is absolutely away from any customs enforcement or any anti-smuggling reporting mandate. So on every border crossing--talking about the land borders, we had virtually two streams of traffic. One stream of traffic is traffic going straight to Iraq, and only trucks which are voluntarily presented to Cotecna team in order that the authentication will be condition, triggering payments later on, would stop for the inspection at Cotecna office. The proof is that it very often happened that some of the truck drivers, especially those who are either new in the trucking route, would simply continue in a normal flow towards Iraq and then by Iraqi customs would be instructed to divert and to come to the parking lot of Cotecna and to present their cargo and documents for inspection. It means that I leave to your assessment even the qualification of the smuggling concept. It was a daylight, normal traffic into Iraq, so whoever wanted to--whatever cargo is subject to authentication by Cotecna has to stop by Cotecna premises. Otherwise, it would easily, normally come to Iraq. What I normally noticed and what was concern for our inspectors traveling to and from Iraq is the frequency of traffic of the oil tankers. Whatever arrangement might be, either bilateral government or whatever, but anyway, as I was always concerned about the security of people on the road, they normally, very often, they had to overtake or to be careful driving behind the trucks, especially on the route between Amman and Iraqi border. However, in Iraq, the truck, the oil trucks, the tankers were directed and they were usually driving on the former dual carriage way, which was parallel to the highway Trebil, it means the Jordanian border--Baghdad. We completely focused on our mandate on the inspection of cargo pertaining to 986 program. It means maybe 53, later 59, or 13 percent. So any other observation or remark on other traffic would be outside the mandate or entirely at the internal interest of individual over there, but absolutely there were no mandate and there were no requirement to report anything else apart from outlined system of reporting, it means authentication and either electronic or faxing means of confirming the arrival of cargo in Iraq. Senator Coleman. Senator Levin. Senator Levin. I just have one other question of Mr. Kulyk. You said that you had a favorable impression, or you have a favorable impression of Cotecna. And you work for Cotecna now. You also said in your testimony that others, I guess of your colleagues at the U.N. office, also had a favorable impression of Cotecna at that time, is that correct? Mr. Kulyk. Yes, I did. I think it is important, first of all, and let me state something for the record. I have been asked to come and testify in my capacity as the former Deputy Chief Customs Expert in the Iraq Program. It is a matter of record in my statement that I currently do work for Cotecna. I left the Office of the Iraq Program in March 1998. I have never had any input into any RFPs, was not involved in any decisionmaking process. And when I joined Cotecna, I joined in the capacity of liaison officer in Tanzania. There had been discussion and a decision was taken by Cotecna management that I not be involved in any activities related to their contract with the Office of the Iraq Program to avoid any perceived or real conflict of interest. So in my capacity here, I am a former law enforcement officer. I am someone that believes in testifying and testifying truthfully under oath. So it is for you to decide whether or not my comments or observations bear any weight. But I think it is a general impression, sir---- Senator Levin. That was my question. Mr. Kulyk [continuing.] That Cotecna's services--and I would be saying the same thing if I was working for SGS or Bureau Veritas--it was a general impression that Cotecna, as a service provider, was extremely responsive, and the Office of the Iraq Program, whenever they saw a deficiency or needed something done, they never had to fight for it. An example is, of course, the agency goods, and I don't want to belabor that point, but at some point in time there was a decision made that Cotecna, they wanted Cotecna to assist in authenticating the arrival of agency goods, which I have explained were never subject to--it wasn't a prerequisite for payment. And Cotecna, it was outside the scope of their contract and they did it. Senator Levin. Thank you, Mr. Chairman. Senator Coleman. Thank you. Just one, if I can, a quick follow-up. Were you aware of Cotecna's concerns about staff shortages that were presented to OIP? Mr. Kulyk. I don't know if there were specific concerns with respect to staff shortages. I think there were times early on in the process where there may not have been a very clear indication as to the expectations that the United Nations had with respect to Cotecna's role and responsibilities and their activities. I think it is fair to say, Mr. Chairman, that Cotecna was approaching this authentication process from a point of commercial inspection, and as the program evolved, it became clear that their activities were not going to be consistent with a commercial level of inspection. Senator Coleman. Just to clarify, and I think it is Exhibit 35.\1\ I am not sure who wrote that, but maybe Mr. Pruniaux or Mr. Massey could, but Cotecna did raise concerns to the United Nations saying that our site ``staffing does not allow to fulfill our contractual responsibilities, and we further believe that these have not been comprehensively fulfilled in the past, either.'' So you raised these to the United Nations. --------------------------------------------------------------------------- \1\ See Exhibit No. 35 appears in the Appendix on page 316. --------------------------------------------------------------------------- Mr. Pruniaux. Yes, we did. Senator Coleman. And did the United Nations increase your staffing? Did they--particularly, by the way, at Um Qasir, did they respond to the concerns there? Mr. Pruniaux. Not during the first phase. For the other phases, it was a commercial move to get more money from the UN- OIP. However, the opinion was that we could handle with the staff that had been allocated by contract. Senator Coleman. Nothing further. Senator Levin. Thank you. Senator Coleman. Thank you. This panel is excused. Thank you, gentlemen, very much. Very appreciative. Thanks. Mr. Massey. Mr. Chairman. Senator Coleman. Mr. Massey. Mr. Massey. Mr. Chairman, if you would allow me, I would like to make a comment and a request. My company has been working with this Subcommittee in a fully cooperative basis since early July last year when our counsel first met with you. We have gone to extreme effort and expense to provide you with every document you have asked for and to facilitate interviews with any and all individuals you have asked to interview, regardless of where we had to bring them from around the world. Again, we have been nothing but cooperative. Last week, our counsel met with your Staff Director and investigators and were told that this is a professional proceeding. We were told that there would be no surprises, and yet here we sit with this surprise witness, a disgruntled former employee who quit after he was demoted and was refused a raise. Mr. Chairman, in further supporting the fact finding objective of this Subcommittee and in light of the decision not to share the details of Mr. Ventham's absurd and unsubstantiated testimony, I would respectfully request the opportunity to supplement my written statement with a response to his assertions as well as the previously undisclosed document you showed with two versions. Senator Coleman. Mr. Massey, the record will remain open and I would love to have a further explanation from you as to why this Subcommittee received documents that are apparently different from the original documents, and I would love to have further explanation from you as to whether, in fact, there are written documentation regarding Kojo Annan's participation and work at the United Nations during the 14 days in question. The record will remain open and we certainly appreciate that. And let me say, we do appreciate your cooperation, but this Subcommittee has concerns and this Chairman has concerns. And so certainly if you have anything additional to add, it will be made part of the record. Mr. Massey. Thank you. Senator Coleman. Thank you. This panel is excused. I would now like to welcome our second panel of witnesses. It is my pleasure to welcome Joseph A. Christoff, the Director of the International Affairs and Trade Team of the Government Accountability Office, GAO; and Stafford Clarry, a former Humanitarian Affairs Advisor for the United Nations Oil-for- Food Program. I would ask if Dileep Nair is in the Subcommittee hearing room today. Noting that he is not here, I would like to note that we invited U.N. Under-Secretary-General for Internal Oversight Services Dileep Nair to testify at this hearing. I am saddened that the United Nations did not see fit to allow Mr. Nair to appear today, despite assurances from the United Nations that it would cooperate closely with our investigation. Our research indicates that U.N. witnesses have appeared at no less than 64 Congressional hearings in the past, including an appearance before this Subcommittee in 1996. We informed the United Nations that we would waive the Subcommittee's customary practice of swearing in our witnesses in order to secure the testimony of Mr. Nair, but that does not seem to have made a difference. I regret that we will not be afforded the opportunity to discuss the audits with Mr. Nair and share his insights. Further, I am deeply troubled when representations of cooperation result in empty witness chairs. Mr. Christoff and Mr. Clarry, I welcome you to today's hearing and look forward to your views on the U.N.'s management and oversight of the Oil-for-Food Program and on the audits of that program. Before we begin, pursuant to Rule 6, all witnesses before the Subcommittee are required to be sworn in. Will you please raise your right hand. Do you swear the testimony that you are about to give before this Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Christoff. I do. Mr. Clarry. I do. Senator Coleman. Thank you, gentlemen, very much. We have a timing system here that I think we are going to try to use in this panel. When the amber light goes on, turns from green to amber, you have a minute to sum up. Then when the red light goes on, your testimony should end. We will submit your written statements for the record. We will start with Mr. Christoff, who will go first, followed by Mr. Clarry, and then after we have heard all the testimony, we will proceed with questions. Mr. Christoff. TESTIMONY OF JOSEPH A. CHRISTOFF,\1\ DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Christoff. Mr. Chairman, Members of the Subcommittee, Senator Levin, thank you. Thank you for inviting GAO to this important hearing. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Christoff appears in the Appendix on page 147. --------------------------------------------------------------------------- In January, the Volcker Commission released 58 internal audits of the Oil-for-Food Program and I am here today to present our analysis of these audits, which were completed by the U.N.'s Office of Internal Oversight Services. First, I just wanted to begin with a brief history about OIOS. Before OIOS was established, the United States and other member nations criticized the United Nations for not having an internal audit function. In 1993, the U.S. proposed an Inspector General position within the United Nations and withheld funds until that office was established. In 1994, the General Assembly created OIOS to conduct audits, investigations, and inspections of U.N. programs and funds. Its 124 professional staff have access to all U.N. records and documents. During the Oil-for-Food Program, OIOS generally provided its reports only to the heads of the agencies it audited. Accordingly, member states were not aware of ongoing problems with the program and these problems included flaws in the procurement of contracts, weak safeguards over financial and fixed assets, and poor planning and coordination among U.N. agencies. The audit reports focused on projects in Northern Iraq, the U.N. Compensation Commission, and the inspection contracts, and I would like to highlight some of their key findings. In the North, nine U.N. agencies implemented the Oil-for- Food Program. With almost $5 billion, they built houses, schools, health clinics, and power stations. The auditors found numerous problems with coordination, planning, procurement, and asset management in the 26 reports they completed. For example, an audit in 2000 found that the U.N. Habitat program had no asset inventory system. As a result, materials worth $1.6 million were still on hand at the end of a construction project. In November 2002, OIOS reported that a $38 million procurement of equipment was not based on a needs assessment. As a result, 51 generators were unused for nearly 2 years. OIOS also completed 19 audits of the U.N. Compensation Commission. The Commission was established to pay for losses resulting from Iraq's invasion of Kuwait. As of December 2004, the Commission had resolved nearly 2.6 million claims and paid out almost $19 billion. In its audits, OIOS identified duplicate payments, insufficient evidence to support losses, and inconsistent methods for computing the claims. Overall, OIOS documented overpayments of more than $500 million in claims. In response, the Commission reduced claims by $3.3 million and the Commission also challenged the auditors' authority to review the claims. OIOS also completed audits of contracts the United Nations let for the inspection of commodity imports and oil exports. A July 1999 audit found problems with the U.N.'s oversight of the Lloyd's contract. Lloyd's was contracted to verify the quantity and quality of goods imported into Iraq. However, the United Nations certified the Lloyd's payments without any on-site verification or inspection of the contractors' services. A July 2002 audit found problems with the U.N.'s management of Saybolt's contract. The company was contracted to oversee the export of oil from Iraq. The auditors found that the United Nations paid $1 million more than necessary for equipment already included in the contract. And finally, an April 2003 report found that the United Nations had increased Cotecna's contract by $356,000 4 days after the contract was signed. The amendment included costs for communications equipment and operations that the auditors asserted were already in the contract. Now, let me turn to what the audits did not cover. OIOS did not examine certain headquarters functions, particularly the oversight of the contracts for Central and Southern Iraq that accounted for almost $40 billion in Oil-for-Food proceeds. The Iraqi government used these funds to purchase humanitarian goods and collect illicit commissions. The Volcker Commission contends that the auditors would have uncovered these illicit commissions if they had reviewed the contracts for humanitarian goods. However, the Commission also noted several reasons why OIOS did not audit these contracts. First, OIOS did not believe it had the authority to review the contracts because the Sanctions Committee approved them. Second, the head of the Office of the Iraq Program steered the auditors toward programs in the field rather than headquarters. Third, the auditors' independence was limited because they relied on funds from the audited agency to conduct their reviews. And finally, U.N. management prevented the auditors from reporting their results directly to the Security Council. Mr. Chairman, that concludes my statement and I am prepared to answer any of your questions. Senator Coleman. Thank you very much, Mr. Christoff. Mr. Clarry. TESTIMONY OF STAFFORD CLARRY,\1\ FORMER HUMANITARIAN AFFAIRS ADVISOR, UNITED NATIONS OIL-FOR-FOOD PROGRAM, SYRACUSE, NEW YORK Mr. Clarry. Thank you, Mr. Chairman, Senator Levin. Thank you for inviting me. I am honored to be here. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Clarry with attachments appears in the Appendix on page 165. --------------------------------------------------------------------------- I have been in Iraq since 1991. I was a U.N. liaison officer with Operation Provide Comfort and the Kurdish refugee situation, and then I followed the refugees back into Iraq and was based in Baghdad, but I served most of my time in the Kurdistan region. I will use the term ``Kurdistan region'' because Northern Iraq includes more than the current Kurdistan region that is separately administered by the Kurdistan regional government. That is my bias and that is my focus. I am here to help you understand the workings of the program, to the extent of my experience and knowledge on the ground in Kurdistan. I have been there throughout the 1990's. I am still there. I will go back next week or the week after. There is tremendous experience there and tremendous lessons that have not been learned. Our experience with the Oil-for- Food Program. I am going to try to just focus on what is in my prepared remarks and that is the 13 percent account. I think any of us would like to know how much money do we have in our personal account? How much has been spent, and how much is left over? After 7 years of the Oil-for-Food Program, which concluded over a year ago, we still do not know, and that is part of my campaign and part of my mission, is that we should know and why don't we know. I suggest to you that one way of going about investigating this, this is just an additional contribution, is that you have two sets of transactions, earnings and expenditures. I would suggest taking each of the earning transactions and look at what you received, what the program received, and what the market prices were available at that time, because the undercharges are losses. Similarly, look at expenditures and each transaction and compare it to the market prices at that time and you will see overcharges. Those are losses. But who suffered those losses? Those losses were suffered by the Iraqi people. But who caused the losses? This is what I believe this investigation and other investigations have to get to, because once it is determined how much those losses are and who is responsible for those losses, then someone should pay, and it is that pinch of penalty and compensation which may drive improvement in the way the United Nations goes about its business, because many of us have been involved with the United Nations over many, many years. I have only been a direct employee with the United Nations in Iraq. We are very proud to work with the United Nations, but we are unsatisfied with the way the U.N. functions and goes about its business and it is about time that this be cured. The Oil-for-Food Program probably offers the last grant opportunity to do that because it is just so massive that it is the whole U.N. system pretty much except UNOOSA. UNOOSA is the U.N. Office of Outer Space Affairs. There is a U.N. office for everything. But you have the Security Council directly involved in this program. You have the U.N. Secretariat. You have nine U.N. agencies. You have many governments. We can almost say everyone is culpable. The audits are part of that process of examining what went wrong. The next step is to assign responsibility. Now, looking at the 13 percent account, which is my bias and my focus, I think it is--let me just interject here, but I think it is important that there be conflict and competition amongst the investigations, because already one thing I missed earlier, and I just happened to see last night, is that the ICC interim report states that $6.1 billion was spent from the 13 percent account. I just heard $5 billion. My calculations from December 2002 is $4 billion. We need some conflict and competition amongst the investigations in order to get at the final figure, because once we get those, then we can determine what the losses are, who is to pay, and how were those losses incurred, and what needs to be done to prevent those losses occurring in the future. In my written testimony, I gave you various points of departure. I have had contact with virtually, let me say, all entities with the exception of Cotecna. I had contact with their predecessor, Lloyd's Register. I have had contact with pretty much all the U.N. agencies, with New York, with Baghdad, and with the local authorities. Thank you very much. Senator Coleman. Thank you very much, Mr. Clarry. We will do 8-minute rounds of questions here. Mr. Christoff, I believe in your testimony, you indicated that had the headquarters functions been examined, oversight of contracts with Central and Southern Iraq accounting for 59 percent, almost $40 billion of Oil-for-Food proceeds, is it your sense that the kickbacks and other things could have been uncovered if those activities had been audited? Mr. Christoff. I think the one area that I would have thought that the auditors could have covered was looking at the roles and responsibilities of the Office of the Iraq Program. I have heard over the past couple years that we have looked into this program an unclear understanding of what they were tasked to do. They were tasked with looking at the price and value of the contracts. I am still unclear, even after listening today to the previous panels, how they went about looking at the contracts for the price reasonableness of the contracts. If the auditors would have at least placed some focus on the roles and responsibilities in Mr. Sevan's shop, maybe we would have had some early attention about the contracts. Senator Coleman. In your testimony, your written testimony, you indicated OIP management steered the OIOS toward program activities in Iraq rather than headquarters functions where OIP reviewed the humanitarian contracts. In your oral testimony, you were more specific. You indicated that the head of the OIP steered the audit function away from the headquarters functions, is that correct? Mr. Christoff. Correct. In fact, that is the Volcker Commission's finding, as well. Senator Coleman. And we are talking about Benon Sevan? Mr. Christoff. Correct. Senator Coleman. Could you give me an overall assessment, then, of the--I mean, the audits deal with a lot of minutiae, a lot of minutiae, but the overall body of audit work, what kind of picture does that paint of U.N. management of Oil-for-Food and other programs in Iraq? Mr. Christoff. I think it does two things. First, it sheds some light on some of the programs that haven't gotten much attention, the 13 percent account that Mr. Clarry refers to, the 25 percent of the money that went to this U.N. Compensation Commission. But it also shows that there really was a lack of a basic foundation of financial asset management, procurement management, that you really need in any type of a program. And if you don't have that foundation, then it can lead to fraud, waste, and abuse. Senator Coleman. What role does Benon Sevan have, then, in the oversight and management of these kinds of programs, be it the Oil-for-Food, the compensation, things that were going on in Iraq? Mr. Christoff. The Office of the Iraq Program had a critical role. In fact, some of the concerns that the auditors mentioned was the fact that there was lack of on-site kinds of oversight occurring within Iraq itself. It was oversight that was occurring from New York rather than on the field. Senator Coleman. Mr. Clarry, we didn't get at this in your oral testimony, but I think your written testimony talks about it. Can you talk to me a little bit about any problems with quality of goods that were delivered into Northern Iraq under the 13 percent program, medicines out of date, food not fit for human consumption, as described in the audits? Mr. Clarry. Mr. Chairman, there were always chronic complaints about the quality of food and medicines. These were supplied by the Baghdad regime. I would like to interject here that 40 percent of the 13 percent account, 40 percent of that account was actually under the control of the Saddam Hussein regime, not under control of the U.N. agencies procuring goods and services for the North. There were some expired medicines. There were some medicines that were thought to be defective. There were always chronic shortages of the medicines, even though there were substantial funds available. There was $340 million allocated during the first 11 phases, of which by August 2002 only $100 million had been supplied, and there were shortages. The Kurdistan regional government had to go out, use their own funds on occasion to procure urgent and important medical supplies. Food, many local people would not use the vegetable oil, for instance. It may be a matter of taste. It was all certified fit for human consumption. But certainly with the amount of funds available, and if you could command the best market prices in the world, you could serve steak and eggs for breakfast every single day of the year to everybody. There was plenty of funds available, and some of the food money was, let me say, wasted. Just look at how many people in the world could eat 20 kilograms, 20 pounds of wheat flour a month, but that was the program. Senator Coleman. Were you aware of any kickback schemes in humanitarian goods when you were there? Mr. Clarry. It was just felt, because the contracts were negotiated in Baghdad or by the U.N. agencies themselves. We were plugged into the system after that. So in Northern Iraq or in the Kurdistan region, we were unaware of any specifics regarding kickbacks. Senator Coleman. Mr. Christoff, the draft report on the activities of OIOS said it is OIOS's view that the overall management of the Oil-for-Food Program was not fully satisfactory. It certainly got an assessment from one of the witnesses earlier that they seemed to be satisfied with the work of Cotecna and the inspectors. Can you reflect on what the audits showed regarding Lloyd's, Cotecna, and the other folks responsible for overseeing the program? Mr. Christoff. Yes. The audits that OIOS performed placed a lot of emphasis on the lack of oversight on the part of the United Nations and the Office of the Iraq Program. For Cotecna, for example, they questioned an amendment to that contact occurring 4 days after the contract was signed that increased that contract price by $356,000. So a lot of the thrust of those internal audit reports placed a picture on the extent to which any oversight was being conducted on the part of the Office of the Iraq Program. Senator Coleman. What kind of response did you see within the United Nations to the audit reports? Mr. Christoff. It varied. I think if you look at some of the audits that were done on the U.N. programs in the north, you found that the audited agencies appeared to be receptive to the recommendations. However, in some of the audits, a few follow-up audits that were conducted, OIOS often found that even though the agencies agreed to implement the recommendations, they didn't do it. You look at the audits of the U.N. Compensation Commission, the U.N. Compensation Commission responded to the auditors by challenging their legal authority. Senator Coleman. What responsibility does the top management have to kind of pull everyone together to respond to audits in an appropriate fashion? Mr. Christoff. Well, it is imperative. You can't have change implemented unless you have buy-in by top management. Senator Coleman. And is there any sense that there was buy- in by top management in terms of managing this program well, responding to audits, keeping things clean? Mr. Christoff. Again, I think it varied by the different programs. You had the auditors constantly being challenged. I think there was probably a lot of wasted time debating the merits of what the auditors found and not fixing the problems. Senator Coleman. Senator Levin. Senator Levin. Thank you. Mr. Christoff, in 2002, the GAO issued a report called ``U.N. Confronts Significant Challenges in Implementing Sanctions Against Iraq,'' and I think you are familiar with that report, and may have contributed to it at the time. Mr. Christoff. Yes, sir. Senator Levin. Now, we introduced a chart from that report at the last hearing. This is the chart that we put up.\1\ The GAO found in 2002 that, ``Sanctions may have constrained Iraq's purchases of conventional weapons. There is no indication that Iraq has purchased large-scale weapons systems such as aircraft, ships, or armor.'' --------------------------------------------------------------------------- \1\ See Exhibit No. 54 appears in the Appendix on page 434. --------------------------------------------------------------------------- As I understand your conclusion, it was primarily because of U.N.'s control of Iraq's oil revenues that, ``Iraq's military expenditures have dropped dramatically.'' Is that what that chart shows? Mr. Christoff. That is correct. Senator Levin. That was after the imposition of the U.N. program that the military expenditures of Iraq dropped significantly, and that was in--what year is that? I can't read it from here. Mr. Christoff. It begins with when the sanctions were implemented in 1991. Senator Levin. And then it shows, after that massive drop in 1991, it shows a level spending at a very much lower level-- -- Mr. Christoff. Correct. Senator Levin [continuing.] Right through your report in 2002, is that correct? Mr. Christoff. Yes, that is correct. Senator Levin. The Duelfer Report found in 2004 that the U.N. sanctions stopped Saddam Hussein from rearming Iraq with either large-scale conventional weapons or weapons of mass destruction. Is that a fair reading, also, of your report? Mr. Christoff. I think what we found in our report was that the sanctions were effective in limiting some of the major arms shipments that had been going to Iraq prior to the sanctions. Senator Levin. You said also in your 2002 report that one of the challenges in implementing the sanctions was the ``illicit revenue outside of U.N. control obtained from oil sales through neighboring states.'' Your report noted that most recent U.N. resolutions did not address those oil sales to the neighboring states and that the omission was a significant challenge to the enforcement of the sanctions. Is that correct? Mr. Christoff. That is correct. Senator Levin. Did the U.S. Government take action to address the oil trade from Iraq to those neighboring states following your report? Mr. Christoff. Following the report? Senator Levin. Yes. Mr. Christoff. I don't know following the report. I know during the sanctions program, the United States did bring information to the Security Council about neighboring nations that were violating the sanctions. Senator Levin. And did they take action to stop those sales? Mr. Christoff. We know that the United Nations, ``took note of the smuggling that was occurring to Jordan,'' but we don't know what additional actions, if anything, were undertaken. Senator Levin. So other than that, as far as you know, other than bringing it to the attention of the Security Council, the Security Council taking note of the sales, it did nothing beyond that? Mr. Christoff. Not to my knowledge. Senator Levin. And subsequent to your report? Mr. Christoff. I do recall at least in public statements that former Secretary of State Colin Powell noted that he was putting pressure on the Syrians to stop the oil pipeline that was being constructed and then the oil shipments that were going through Syria, as well. Senator Levin. And any reference to putting pressure on the Turks or the Jordanians? Mr. Christoff. No. Senator Levin. Mr. Clarry, are you now a consultant for-- what do you do now? Mr. Clarry. I am a consultant to the Kurdistan regional government. Senator Levin. And the claims that you say that they have, and this is, as you put it, your bias and your focus to try to get those claims resolved, they relate to money which you believe--or goods which should have been delivered to that region, is that correct? Mr. Clarry. Yes, a little bit of the goods, and mostly the remaining unspent funds, yes. Senator Levin. And were some of those unspent funds delivered to the region? Mr. Clarry. Yes. Senator Levin. It was in cash? Mr. Clarry. Cash. Senator Levin. Do you know about how much that was? Mr. Clarry. About $2 billion. Senator Levin. Two billion? Mr. Clarry. Yes. Senator Levin. And when was that? Mr. Clarry. Last June. Senator Levin. Is that included in your figures? Mr. Clarry. Yes, I do mention it in a written statement. We are looking for the other three. Senator Levin. So that is included in your bottom line---- Mr. Clarry. Yes. Senator Levin [continuing.] As to what you believe is still owing? Mr. Clarry. Yes. Senator Levin. Thank you. Thank you, Mr. Chairman. Senator Coleman. Mr. Christoff, have you had a chance to review the Duelfer Report? Mr. Christoff. I have read it, yes. Senator Coleman. As I recall, the Iraq Survey Group, they indicated that the Iraqi Military Industrialization Committee budget grew substantially post-implementation of Oil-for-Food. Do you recall that? Mr. Christoff. From the Duelfer Committee report? Yes. Senator Coleman. I think the figures were--I am trying to get a copy of the report--that their budget grew from about $7.8 million per year to $500 million per year by 2003, and as I recall Duelfer's testimony before this Subcommittee, he indicated that, in fact, as a result of the Oil-for-Food Program, that Saddam Hussein was able to get around the sanctions and to rearm himself. Do you recall that in the Duelfer Report and is that inconsistent with the chart that we just saw? Mr. Christoff. The information that we presented in our report in 2001 was information that was provided to us by the State Department in terms of what the arms sales were and what they were back in 1980 going through 2001. Senator Coleman. So the Duelfer Report, the information that the Iraq Survey Group provided, was certainly more recent information and more thorough information---- Mr. Christoff. It is more recent, definitely. Senator Coleman. And, in fact, I believe that Mr. Duelfer indicated that the Iraqi military budget actually grew a hundred-fold under the Oil-for-Food Program. Senator Levin. Was that consistent with your report, that their budget for equipment grew a hundred-fold under the program? Mr. Christoff. No. In 2001, when we completed our report, we were basing the information on what we had received from the State Department--it is not there--but which showed that the high peak of armament sales that had occurred before sanctions were imposed declined as a result of the sanctions. Senator Levin. Thank you. Senator Coleman. I just want to follow up. At the time of that report, 2001, were you aware of the kickbacks, the extent of the fraud under the Oil-for-Food Program? Mr. Christoff. Yes. Senator Coleman. Nothing further. Senator Levin. I am all set. Thanks. Senator Coleman. This panel is excused. Thank you very much. I would now like to welcome our final witness, the Hon. Patrick F. Kennedy, the Ambassador to the United Nations for Management and Reform at the U.S. Mission to the United Nations. Ambassador Kennedy, I appreciate your appearance at today's hearing and look forward to your views on U.N.'s management and oversight of the Oil-for-Food Program, U.S. awareness of fraud and abuse in the program, including oil smuggling, and U.S. actions to prevent use of the program by the regime of Saddam Hussein. Before we begin, pursuant to Rule 6, all witnesses before this Subcommittee are required to be sworn in. Will you please raise your right hand. Do you swear the testimony you are about to give before the Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Ambassador Kennedy. I do, sir. Senator Coleman. Thank you very much. I think you know the system here, Ambassador. When the light turns from green to amber, if you can conclude. We will have your written statement submitted in its entirety for the record. Ambassador Kennedy, you may proceed. TESTIMONY OF HON. PATRICK F. KENNEDY,\1\ AMBASSADOR TO THE UNITED NATIONS FOR MANAGEMENT AND REFORM, UNITED STATES MISSION TO THE UNITED NATIONS, NEW YORK, NEW YORK Ambassador Kennedy. Thank you very much, Mr. Chairman. Mr. Chairman, distinguished Members of the Subcommittee, 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. --------------------------------------------------------------------------- \1\ The prepared statement of Ambassador Kennedy appears in the Appendix on page 188. --------------------------------------------------------------------------- Mr. Chairman, I want to reiterate three points regarding the context in which the Oil-for-Food Program was established and implemented. First, I want to emphasize that the United States was fighting an often uphill battle. The very establishment of the program was the result of arduous negotiations among 15 Security Council members, some of whom were arguing for the complete lifting of sanctions. As a result of this political context, the ability of the United States and the United Kingdom to take measures to counter or address noncompliance during the life of the program was often countered by other members' desires to, in fact, ease sanctions on Iraq. Second, sanctions have always been an imperfect tool, but given the United States's national goal of restricting Saddam's ability to obtain new materials of war, sanctions offered an important and viable approach short of the use of force to achieve this objective. Third, the United States made decisions and took actions relating to the Oil-for-Food Program and the comprehensive sanctions on Iraq also to achieve overarching national security goals within the larger political and economic context of the region. Mr. Chairman, given this general context, I would like to attempt to outline some of the issues relating to the responsibility for implementing the program and for sanctions in general. The Oil-for-Food Program was established to address the serious humanitarian crisis that Saddam Hussein had inflicted on the Iraqi civilian population while concurrently maintaining strict enforcement of sanctions on items that Saddam Hussein could use to rearm or reconstitute his weapons of mass destruction or other military programs. We believe the system the Security Council devised by and large met these two specific objectives. The Oil-for-Food Program did have measurable success in meeting the day-to-day needs of Iraqi civilians. The daily caloric intake of Iraqi citizens increased and health standards in the country improved. And as Mr. Duelfer testified before this Subcommittee on November 15 last year, ``U.N. sanctions curbed Saddam's ability to import weapons, technology, and expertise into Iraq.'' Investigations over the past year have uncovered significant sanctions-busting activity that arose both from Saddam Hussein's manipulation of the program and from his and others' abuse of the sanction regime for financial gain. In the end, the Oil-for-Food Program reflected three factors: A collective international desire to assist and improve the lives of Iraq's civilian population; a desire by the United States and others to prevent Saddam Hussein from acquiring materials of war and from posing a renewed regional and international threat; and a decision by some companies, member states, and individuals to pursue their own financial interests at the expense of the international community. Mr. Chairman, this final point about actors who colluded with Saddam Hussein in breaching sanctions and violating the rules of the Oil-for-Food Program leads me to the issue of responsibility. The United Nations, first and foremost, is a collective body comprised of its 191 members. A fundamental principle inherent in the U.N. charter is that all member states will uphold decisions taken by the Security Council. The effectiveness of the sanctions regime against Iraq and the integrity of the Oil-for-Food Program depended completely on the ability and willingness of member states to implement and enforce the sanctions. In this regard, member states held the primary responsibility for ensuring that their national companies and their citizens complied with states' international obligations. Through the Treasury Department, the United States, for instance, took measures to establish a vetting process for U.S. companies seeking to do business in Iraq. We also implemented a comprehensive process to review the contracts for humanitarian goods going to Iraq in order to ensure that dual-use items were not being supplied to Iraq through the Oil-for-Food Program. In addition to the responsibilities of member states, the Security Council also established a subsidiary body of the Council, the 661 Committee, to monitor the sanctions on Iraq, and once it was established--the Oil-for-Food Program--the 661 Committee discussed issues related to violation of the sanctions between 1990 and 2003 and issues related to the Oil- for-Food Program between 1995 and 2003. Action, however, could only be taken to address those issues if there were political will and a consensus of all the members of the committee to do so. Although the United States and the United Kingdom repeatedly raised concerns within this context and often offered solutions to mitigate abuses, consensus in the 661 Committee continually proved elusive as we faced opposition from one or more members of the committee. The Security Council also authorized the Secretary-General and the U.N. Secretariat, under Security Council Resolution 986 in 1995 and subsequent resolutions, to implement and monitor the Oil-for-Food Program. The Office of the Iraq Program staff was hired to devise a system whereby oil revenues from the program could be used to pay for humanitarian supplies for Iraq. To be clear, Mr. Chairman, the Secretariat, OIP, and the U.N. agencies were given the authority and they had the power to implement the program only within the mandate given to them by the Security Council. They were not empowered to monitor or enforce implementation by member states of the overall sanctions on Iraq or act as a border patrol. To make the division of responsibilities clear, Mr. Chairman, let me offer two examples. 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 661 Committee members verified that the purchase price of the petroleum and the petroleum products were reasonable in light of prevailing market conditions. The U.N. contracted monitoring group, Saybolt, provided on- site inspection agents who keep 661 Committee members informed of the amount of petroleum exported from Iraq. Saybolt inspectors also monitored the arrival of oil industry spares under the Oil-for-Food Program. A U.N. escrow account administered by Banque Nationale de Paris received payments for such liftings. Oil flowing out of Iraq through other means-- smuggling, trade protocols, and the voucher system--was outside the mandate of the U.N. Secretariat. Member states were responsible for monitoring these activities. 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 at 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 661 Committee and the goods shipped, the U.N. inspection agent, Lloyd's 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. These were, in hindsight, substantial problems related to all these areas of responsibility. Some members did not take their international obligations seriously and either directly or indirectly facilitated sanction-busting activities by the Saddam Hussein 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. As the recent Volcker Independent Inquiry Committee Report indicates, there were serious charges that U.N. officials may have allowed Saddam Hussein to further undermine their system. 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. Violations with respect to the Oil-for-Food Program manifested themselves in two key areas, manipulation of oil pricing and kickbacks on the Oil-for-Food Program. 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 661 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 the 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 three to five cents. Separately, allegations 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 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 Hussein regime during various briefings. The United States briefed Security Council members in 2000 on the various ways the Saddam Hussein 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's 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 2002, a U.S. interagency team briefed the 661 Committee on the regime's diversion of trucks. The U.S. commanders of the Multilateral Interception Force 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. Mr. Chairman, I know that an issue of concern to this Subcommittee is our relationship with Jordan and Turkey with respect to the imports of oil from Iraq during the Oil-for-Food period and why we felt the need to treat these nations differently. Beginning in 1991 and extending through 2003, the annual Foreign Operations Appropriation Act contained restrictions on U.S. assistance to any country not in compliance with U.N. Security Council resolutions against Iraq. In 2002, the Foreign Operations Appropriation Act, as carried forward in the 2002 Supplemental, for example, enacted such legislation as Section 531. The restrictions under 531 and its predecessors could be waived if the President determined and certified to the Congress that providing assistance was in the national interest. In the case of Jordan, as we explained to then-Senate Foreign Relations Committee Chairman Biden in a letter dated October 2, 2002, the restriction had been waived each year since its enactment in 1991 by three successive Administrations. Jordan was and remains a critical partner with the United States in bringing stability and a lasting peace to the Middle East. By ensuring that Jordan was not strangled by a lack of critical resource, the Jordanian government was able to pursue policies of critical importance to U.S. national security in the region. The Jordanians made clear to us that their trade would not aid Saddam's weapons procurement programs. We understood that they were sending manufactured products to Iraq in exchange for oil. The U.S. determination and certification were solely in recognition of Jordan's lack of economically viable alternatives. The U.N. Sanctions Committee, with U.S. support, took note of Jordan's imports of Iraqi oil and its lack of economic alternatives. As we also explained in the October 2002 letter, similar consideration was given to Turkey, a close ally of the United States, a NATO partner, and host of Operation Northern Watch. Turkey cooperated closely with the U.S. nonproliferation efforts against Saddam's regime. Our approach was to encourage Turkey to bring its trade with Iraq into conformity with the U.N. Security Council resolutions. Turkey claimed that its cumulative losses from the Gulf War and ensuing sanctions against Iraq amounted to about $35 billion, and throughout the 1990's pushed for ways to expand its trade with Iraq. From 1991 to the start of Operation Iraqi Freedom, the United States worked with Turkey to discourage trade out of the U.N. sanctions regime. For instance, the United States did not support a Turkish request for relief from sanctions under Article 50 of the U.N. Charter. In addition, the United States sought to ensure that the U.N. Security Council resolutions did not legitimize trade with Iraq outside the Oil-for-Food Program. Senator Coleman. Ambassador Kennedy, if you could sum up. Ambassador Kennedy. Yes, sir. Senator Coleman. I am sure Senator Levin will follow up on some of these issues. Ambassador Kennedy. Yes, sir. The last issue I would like to address is the accusations of impropriety, mismanagement, or abuse by U.N. personnel, contractors, or agencies. The recently released U.N. Office of Internal Oversight Services audits and the Independent Inquiry Committee interim report paint a very disappointing and disturbing picture. The lack of transparency on the part of the United Nations with regard to OIOS has long been a particular concern. The United States mission has continually sought access to OIOS reports. These were initially denied, as access was deemed outside of the General Assembly rules. Our staff worked tirelessly since last summer to get these particular OFF reports released, both from the Secretary and the Volcker Commission, which both denied. Therefore, last fall, the United States put forward language for inclusion in General Assembly resolutions that required that the United Nations make all OIOS audit reports available to U.N. member states on their request. The General Assembly adopted this U.S. initiative during the evening of December 23. Within an hour, the United States formally requested copies of the OIOS reports covering the Oil-for-Food Program. Two weeks later, these audits were made available, thanks to our efforts, and these are the reports that your staff has reviewed. Mr. Chairman, I convey this information to you because we at the United States mission take our responsibility to make the United Nations a more transparent body very seriously and we intend to continue this initiative in order to ensure adequate follow-up of auditors' recommendations. 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. We will go forward, Mr. Chairman, and take the lessons we have learned from this experience very seriously and apply them to all future U.N. endeavors. I now stand ready to answer any questions the Subcommittee might have. Senator Coleman. Thank you, Ambassador Kennedy. I appreciate that very extensive statement. I also want to say I appreciate the efforts to get us access to the--in the end, I think it was the 58 internal audits. I know we had been promised them at some later time, but it wasn't until the resolution that you discussed was passed that caused us to get them when we did, so I want to thank you for those efforts. In the Duelfer Report, the Iraqi Survey Group noted, and I am going to quote here, and I will have the portion submitted to the record, ``Although Saddam had reluctantly accepted the U.N. Oil-for-Food Program by 1996, he soon recognized its economic value and additional opportunities for further manipulation and influence of the UNSC,'' U.N. Security Council, ``Iraq 661 Sanctions Committee member states. Therefore, he resigned himself to the continuation of U.N. sanctions, understanding that they would become a paper tiger, regardless of continued U.S. resolve to maintain them.'' The report goes on then to detail the significant increases in military funding. It goes on to detail individuals with connections to member states receiving vouchers which then were actually bribes. My question to you is at what point in time were folks in our delegation aware of vouchers being handed out to folks with influence in member states? At what point in time were our folks aware that kickbacks that have been detailed before this Subcommittee by the Weir Group? I am trying to get a sense of what the thinking was as this stuff is going on and the massive way in which it was happening. Were we simply blind at the time it was happening, or were we aware but unable to do anything? Ambassador Kennedy. Mr. Chairman, if I can divide your question into three parts, no one became aware of the voucher program until after the fall of Baghdad. The voucher program was kept very secret by Saddam Hussein. He ran, as you are well aware, sir, an extremely brutal regime and he was able to keep secrets. However, we were certainly aware, and became aware in 2000, of his efforts to subvert the activities, both through the first--the premium pricing on oil and then by kickbacks and we moved to counter this. It was, in fact, a chess game, sir. Saddam Hussein was always on the lookout for a way to get around the sanctions, and as information came to our attention, the United States, and always allied with the United Kingdom, were looking for ways to combat that. The example I laid out in my opening statement about how once we discovered, because the U.N. Oil Overseers reported to us his attempts to put premiums on sales, we moved in the committee. We met resistance from other nations in the committee, something we faced at all times. And then we employed the consensus mechanism, as I said, in a reverse way to end the sanctions. So 2001, 2002, we began to hear a variety of rumors and we then moved to take whatever steps we could to counter them. Senator Coleman. And specifically, you talked about the retroactive pricing. That is the issue described where Saddam Hussein could manipulate price, but once you instituted this retroactive pricing mechanism, that took away his ability to do that. Ambassador Kennedy. It took it away, yes, sir. Senator Coleman. Who was resisting--first of all, how long did it take, from the time we first became aware of this and wanted to change the policy, to actually change the policy? Ambassador Kennedy. I think it took somewhere around 6 to 9 months. We met resistance within the committee. Other members of the committee were always saying, bring us proof positive, and we said, we don't need proof positive. The rumor on the street is sufficient that we must pursue this in order to maintain the integrity of the sanctions system. Other nations resisted. Senator Coleman. Which other members of the 661 Committee were most resistant to changing the retroactive pricing mechanism? Ambassador Kennedy. We received inquiries and challenges to our efforts from the Russians, from the Chinese, from the French, from the Syrians, from others, because the composition of the 661 Committee was the permanent five plus others as they changed. Senator Coleman. Was there ever any concern raised about the value of Oil-for-Food contracts going to these specific member nations and somehow that relating to the measure of their resistance? Ambassador Kennedy. No, sir. I mean, obviously, there may have been colleagues who had speculated on that, but if you go back to the beginning of the program, in 1995, the sanctions had been in place on Iraq for 5 years. Because of Saddam's total lack of care for his own people, his people were simply starving. Child mortality was up. Maternal mortality was up. And the public perception in the world was not that Saddam Hussein was causing this but that the sanctions regime was causing it. The U.S. national goal was to maintain those sanctions, and therefore, we were looking for a way to keep the sanction regime in place but overcome this public perception that the sanctions were causing great harm to the Iraqi people. Therefore, as we worked to implement the Oil-for-Food Program to work it out, that was our dilemma. Our primary goal was to maintain the sanctions. If we could not have a solid wall, then we wanted a screen, and we needed to construct a screen that was as tight as possible within the context. But when we negotiated, the ability to write contracts had to be left to Saddam Hussein. That was the only way to get the program implemented. Senator Coleman. Wasn't there concern that by giving him that ability, that you were giving him the power to manipulate, which obviously he ultimately did? Ambassador Kennedy. It was anticipated, yes, that Saddam Hussein would do anything he could to manipulate the program. We tried to put in means to counter the manipulation, to limit the manipulation, but at the same time, faced with Saddam Hussein manipulating something versus the loss of sanctions as they dissipated, that other countries in the world did not implement the sanctions as aggressively as we felt the United Nations required, the U.N. Security Council resolutions required them to, we did not want the sanctions to fritter away. Senator Coleman. You talked a number of times about the responsibility of ``member states'' to do certain kinds of enforcement. Can you explain what you meant by that? Ambassador Kennedy. Yes, sir. A resolution passed by the U.N. Security Council is, under international law, binding on all member states. So if sanctions are put by the United Nations on Xanadu or Iraq, it is the responsibility of all other 190 members of the United Nations to enforce those sanctions. They are required to bar the movement of goods, to only ship goods into Iraq under the program. But the enforcement mechanism is the court of world public opinion. There is no sanctions mechanism absent going back to the Security Council for another resolution to attempt to take military action against a violator. Senator Coleman. But in this case, where you have an incredibly wide pattern of abuse of contracts, kickbacks, manipulation of contracts, oil smuggling, topping off, a whole range of things, it is difficult for me sitting here to understand how we somehow would not be aware all this is going on when it is going on. Ambassador Kennedy. As I said, sir, we became aware in 2002 of his attempts to manipulate oil pricing, and then as we tamped that down, he moved to kickbacks, moving from one activity to--we were aware of it and we constantly moved to counter it. As I said earlier, Mr. Chairman, I am not here to tell you that sanctions are a perfect tool, but sanctions are a tool. They were a tool that were available to us, and as Mr. Duelfer says several times in his report, they did have an effect on limiting Saddam Hussein's ability to acquire materials. There are other examples in his statement, in his report, I would say, where he talks about the Iraqis, for example, attempting to purchase aluminum powder by setting up massive front companies, and a year later, he never was able to obtain that aluminum powder, which is one of the components of building weapons. So sanctions were having an effect. A perfect effect, absolutely not. But the United States felt it was very important to maintain that screen in place for the value of keeping out as much as was possible. Senator Coleman. Thank you, Ambassador. Senator Levin. Senator Levin. The way Secretary Powell put it was, I think, credit has to be given for putting in place a sanctions regime that has kept Saddam Hussein pretty much in check. Is that what you basically are saying? Ambassador Kennedy. Yes, sir. Senator Levin. And you stick to that? Ambassador Kennedy. Yes, sir. Senator Levin. Even knowing of the abuses that we have heard of, do you still stick to that conclusion? Ambassador Kennedy. Sir, the program, Senator, was certainly not perfect, but it kept Saddam Hussein basically in check, as the Secretary said. Senator Levin. If we could put that chart up,\1\ that revenue that was going to Iraq, you made reference to what we didn't know until 2002. That is what we didn't know. That is only a quarter of the money that he was getting for oil sales that he shouldn't have gotten if the Oil-for-Food Program was working and applied to everybody, including Turkey and Jordan, because what we did know was that big segment of that pie, which is 73 percent of the revenue that he got, and that was all outside of the U.N. Oil-for-Food Program. Are you familiar with that? --------------------------------------------------------------------------- \1\ See Exhibit No. 51 appears in the Appendix on page 426. --------------------------------------------------------------------------- Ambassador Kennedy. Yes, sir. Senator Levin. Does that look like about the right proportions? Ambassador Kennedy. Yes---- Senator Levin. That was the Duelfer---- Ambassador Kennedy. Yes, sir. I think those numbers are good numbers. Senator Levin. So what we did know in terms of what he was doing outside of the program was that he got a huge amount of revenue from oil sales to our allies, at least in the case of Turkey, Jordan, and Egypt. Obviously, Syria is not an ally, but in terms of the major recipient, which was Jordan, we knew that he was selling that oil outside of the program, in other words, in ways that the U.N. resolution did not contemplate, did not provide for. Now, the question is, we decided basically not to object. We could say rhetorically we didn't agree. We could tell Jordan, as we did, that we were aware--we took note at the United Nations of these sales to Jordan, and that was about it. We took note, I guess, that Turkey--we didn't even take note. We didn't even let their application for approval of that direct sale to be considered by the United Nations. We prevented that from coming to U.N. consideration for reasons which are not clear to me, but probably because they may have been vetoed, would be my guess. Essentially, looking at this honestly, is it not accurate to say that the majority of that illicit revenue that Duelfer identified, about three-quarters of the illicit revenue went to Iraq with our implicit knowledge? Is that fair to say? We knew about it? Ambassador Kennedy. Yes, sir, we were aware of it. Senator Levin. And for these strategic reasons you gave or these national--what you call national security reasons, we decided that we were going to basically allow that to continue without trying to stop it, is that fair? Ambassador Kennedy. In the case of Jordan and Turkey, not in the case of---- Senator Levin. Obviously. Ambassador Kennedy [continuing.] Not in the case of Syria. And in the case of Jordan, for example, we worked with the Jordanians to constantly emphasize to them that this should be a barter arrangement. Senator Levin. Right. Ambassador Kennedy. The receipt of oil and its swapping for material that would be acceptable under the sanctions regime writ large. We urged the same with Turkey. Senator Levin. We urged them to do that, is that correct? We urged them to barter? Ambassador Kennedy. We urged the--yes, sir. We urged them to barter. Senator Levin. We don't know whether they got cash or not, do we? Ambassador Kennedy. No, sir, we do not. Senator Levin. All right. Ambassador Kennedy. We do not. Senator Levin. So when we talk about the Oil-for-Food Program and the efforts to get around the Oil-for-Food Program and the sanctions regime which he made, without any doubt, he would use any tactic he possibly could to get around the sanctions, and one of the ways he did it was with kickbacks and with surcharges and with what is called smuggling up there. The major way he got around that sanction program was through sales of his oil to countries, to neighboring countries which were not stopped by the international community, and at least in the case of Jordan and Syria, we acquiesced in and did not attempt to stop. Is that a fair summary? Ambassador Kennedy. With one, if I might apologize, a correction. You said Syria---- Senator Levin. Did I say Turkey? Ambassador Kennedy. No, sir. Senator Levin. Let me correct that, obviously. In the case of Jordan and Turkey, we knew those sales were taking place and we acquiesced in them. Is that a fair summary? Ambassador Kennedy. We notified the Congress every year---- Senator Levin. And notified us. Ambassador Kennedy [continuing.] Under the exception of the Foreign Assistance Act that Jordan and Turkey were--actions were in violation of the sanctions regime, yes, sir. Senator Levin. You notified us. As a matter of fact, you notified us, because under our law, aid to those two allies, Jordan and Turkey, could not take place unless you notified Congress and waived the restrictions of the law, is that correct? Ambassador Kennedy. Yes, sir, that is under the Foreign Assistance Act. Senator Levin. Because I do think it is important that when we assess responsibility, that we also look at our own actions and decide--we can look retrospectively and decide they were the right actions, by the way. As far as I am concerned, I didn't object to them at the time and I think that there was good cause to do what we did. But it is not good enough to point the finger at other countries such as Russia, France, and so forth for stopping things at the 661 Committee. They did it for their strategic reasons. We looked the other way when it came to putting money into Saddam's pocket for oil sales outside of the sanctions program that we had approved and worked so hard to get in place. We did it for what we considered to be good reasons, and may have been good reasons, by the way. They may have been good reasons. I am not arguing with that. But we looked the other way when large amounts of money, three-quarters of the illicit revenue, was going to Saddam Hussein under those direct sales and we ought to acknowledge it. That is my only argument here with your testimony, it is important that we acknowledge it and we be straightforward about what the implications of that were. Jordan was an ally. Turkey is an ally. They had economic problems, and so we acquiesced in, we didn't try to stop those direct sales from a bitter enemy of ours, in violation of a sanctions program that we had helped put in place. Ambassador Kennedy. What I would say, Senator, is I would not use the phrase ``look the other way,'' because we constantly engaged with the Jordanians---- Senator Levin. Did we try to stop it? Let us be honest. Ambassador Kennedy. We engaged with them to mitigate it to the maximum extent possible and to encourage them to use barter so that the exchange would not be any materials of war. Senator Levin. And as you testified, we don't know that they engaged in barter. They may have just paid in cash to Iraq. We don't know whether they did or not. Ambassador Kennedy. I would have to get back to you for that for the record, sir. INFORMATION PROVIDED FOR THE RECORD Official Jordanian representations to the U.S. Government indicate that no cash was provided to Iraq under the protocol arrangement, although the Duelfer Report quotes several Iraqi sources as indicating that a small amount of the trade was in cash. We understand the arrangement between the two countries was to have been one of straight barter, with nothing from the Jordanian government to have been paid directly to the Government of Iraq. Rather, the Government of Jordan was to have paid into a clearing account at the Central Bank of Jordan an amount equal to the price of oil that Iraq was shipping to Jordan. Jordanian companies, under contract to Iraqi government ministries, exported goods to Iraq and were to have drawn down the price of the goods they exported from the clearing account at the Central Bank of Jordan. Senator Levin. All right. And when I say looked the other way, we did not try to stop it. Ambassador Kennedy. As we notified, sir, we---- Senator Levin. As you notified Congress. I said ``we.'' Ambassador Kennedy. I am not shifting the---- Senator Levin. No. Ambassador Kennedy. I am just saying, this was a public position taken by three successive Administrations---- Senator Levin. Absolutely. Ambassador Kennedy [continuing.] That the U.S. national interest was best served by taking this action. Senator Levin. I couldn't agree with you more. When I said ``we,'' I mean America. I am not pointing at this Administration. I am saying, we as a country, decided, this Administration, the previous Administration. We, the Congress, that got the notice decided that all that money or equipment, whatever it was, and we didn't know, would be going to Saddam Hussein, a bitter enemy of ours, in violation of a program that we fought to put in place for reasons that this country thought were good and sufficient. That is all I am saying, and we ought to be honest about it. One other question and then I am done. You didn't react to that, but I assume you would agree we ought to be straightforward in acknowledging that was the facts, is that fair enough? Were those facts that I stated an accurate summary of the facts? Ambassador Kennedy. The sales--the trade was going on and we were aware of it, yes, sir. Senator Levin. OK, final question. About 10 days ago, Ambassador, we asked the State Department for two dozen documents, roughly, which is a very specific number and they all were identified, I believe, by specific Bates numbers. This morning, after the hearing began, we got about half of those documents. What was the holdup in getting us those documents, and second, can we get the other dozen? Ambassador Kennedy. We had some trouble locating the documents because of their age and my staff in New York personally put in a great deal of time. We were able to locate them by searching our files. The other half are so old that we have been unable to locate them in our active files and we have an all points search out for them, including consulting with the U.N. central archives in order to obtain them. As soon as we obtain them, sir, they will be immediately delivered. Senator Levin. I appreciate that, and Mr. Chairman, I would ask that we make part of the record a number of documents which I will ask the Ambassador to comment on for the record relative to some ship deliveries to specific ports which apparently were--this is of Iraqi oil to Jordanian ports, or for Jordan, which apparently were escorted by American ships. There have been a number of press reports on those deliveries and I would ask that we make part of the record at this time a number of documents which we have received by subpoena in the record.\1\ --------------------------------------------------------------------------- \1\ See Exhibit No. 53 appears in the Appendix on page 429. --------------------------------------------------------------------------- Senator Coleman. Without objection. Senator Levin. Thank you. Thank you, Mr. Chairman. Senator Coleman. Thank you, Senator Levin. Thank you, Ambassador Kennedy. I will leave the record open for 10 days to accommodate both the requests of the individuals from Cotecna and the records that Senator Levin has asked for. We will continue with these hearings, the issue of why were certain actions taken by member states, whether it was strategic reasons or whether it was because of bribery or influence or issues that still have to be reviewed further. I reiterate my concern about the need for greater cooperation from the United Nations and for the United Nations to make available certain witnesses and documents to this Subcommittee, to Members of Congress, so that these investigations may proceed. With that, this hearing is now adjourned. [Whereupon, at 1:02 p.m., the Subcommittee was adjourned.] A P P E N D I X ---------- PREPARED STATEMENT OF SENATOR PRYOR Senator Coleman, I'd first like to thank you for your leadership on this subcommittee. Today's hearing, the second into the management of the Iraqi Oil-For-Food Program, is important in furthering our understanding of both the failures of the program but also how the program worked. In November, we heard testimony regarding how Saddam Hussein abused the Oil-For-Food Program. As I noted during that first hearing on November 15, the U.N. sanctions against Iraq will likely not be the last time the international community attempts sanctions against a country; it is therefore important that we understand the ways in which there were breakdowns in the Iraq sanctions and the Oil-For-Food Program. In much the same vain, I look forward to today's testimony regarding the United Nations' management and oversight of the Iraqi Oil-For-Food Program. There is not doubt that there are many lessons to be learned from the Oil-For-Food Program. I am deeply concerned to hear of troubles this subcommittee has had in its attempts to gain access to some records and personnel at the United Nations in New York, and I would urge Secretary General Kofi Annan to cooperate with the U.S. Government and this Congressional Committee as it attempts to piece together the truth about the Oil-For-Food Program. It is in the best interest of the international community, all of us, that we know exactly where Oil-For- Food Program and United Nations policies went awry because we all have an interest in seeing that future sanctions and humanitarian programs are successful. I thank today's witnesses for taking the time to be here today as this Subcommittee attempts to provide a clearer picture of the shortcomings of the Oil-For-Food Program, and I look forward to their testimony. Again, Chairman Coleman, thank you for your important leadership. 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