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Testimony before the Committee on Agriculture, House of 
Representatives:

United States General Accounting Office:

GAO:

For Release on Delivery Expected at 10:00 a.m., EDT:

Wednesday, June 16, 2004:

United Nations:

Observations on the Oil for Food Program and Iraq's Food Security:

Statement of Joseph A. Christoff, Director, International Affairs and 
Trade:

GAO-04-880T:

GAO Highlights:

Highlights of GAO-04-880T, a testimony before the House Committee on 
Agriculture 

Why GAO Did This Study:

The Oil for Food program was established by the United Nations and 
Iraq in 1996 to address concerns about the humanitarian situation after 
international sanctions were imposed in 1990. The program allowed the 
Iraqi government to use the proceeds of its oil sales to pay for food, 
medicine, and infrastructure maintenance. The program appears to have 
helped the Iraqi people. From 1996 through 2001, the average daily food 
intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq 
sold more than $67 billion of oil through the program and issued $38 
billion in letters of credit to purchase commodities. However, over the 
years numerous allegations have surfaced concerning potential fraud and 
program mismanagement.

GAO (1) reports on its estimates of the illegal revenue acquired by the 
former Iraqi regime in violation of U.N. sanctions, (2) provides 
observations on program administration; and (3) describes the current 
and future challenges in achieving food security.

What GAO Found:

GAO estimates that from 1997- 2002, the former Iraqi regime acquired 
$10.1 billion in illegal revenues, including $5.7 billion in oil 
smuggled out of Iraq and $4.4 billion through surcharges on oil sales 
and illicit commissions from suppliers exporting goods to Iraq through 
the Oil for Food program. This estimate includes oil revenue and 
contract amounts for 2002, updated letters of credit from prior years, 
and newer estimates of illicit commissions from commodity suppliers.

The United Nations, through the Office of the Iraq Program (OIP) and 
the Security Council’s Iraq sanctions committee, were both responsible 
for overseeing the Oil for Food Program. However, the Security Council 
allowed the Iraq government, as a sovereign entity, to negotiate 
contracts directly with purchasers of Iraqi oil and suppliers of 
commodities. This structure was an important factor in allowing Iraq to 
levy illegal surcharges and commissions. OIP was responsible for 
examining Iraqi contracts for price and value, but it is unclear how it 
performed this function. The sanctions committee was responsible for 
monitoring oil smuggling, screening contracts for items that could have 
military uses, and approving oil and commodity contracts. The sanctions 
committee took action to stop illegal oil surcharges, but it is unclear 
what actions it took on contract commissions. U.N. external audit 
reports contained no findings of program fraud. Summaries of internal 
audit reports pointed to some concerns regarding procurement, 
coordination, monitoring, and oversight and concluded that OIP had 
generally responded to audit recommendations. Ongoing investigations of 
the Oil for Food program may wish to further examine how the structure 
of the program enabled the Iraqi government to obtain illegal revenues, 
the role of member states in monitoring and enforcing the sanctions, 
actions taken to reduce oil smuggling, and the responsibilities and 
procedures for assessing price reasonableness in commodity contracts.

Evolving policy and implementation decisions on the food distribution 
system and the worsening security situation have affected the movement 
of food commodities within Iraq. As a result, as of June 2004, food 
warehouse stocks are low and Iraq has less than a month’s supply of 
essential food items, according to U.S. and World Food Program 
officials. In addition to these current food security challenges, the 
new government will have to balance the need to reform a costly food 
subsidy program with the need to maintain food stability and protect 
the poorest populations. Also, inadequate oversight and corruption in 
the Oil for Food program raise concerns about the Iraqi government’s 
ability to manage the food distribution system and absorb $32 billion 
in expected donor funds for reconstruction. The coalition authority has 
taken steps, such as appointing inspectors general, to build internal 
controls and accountability measures in Iraq’s ministries.

What GAO Recommends:

www.gao.gov/cgi-bin/getrpt?GAO-04-880T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Joseph Christoff at 
(202) 512-8979 or christoffj@gao.gov.

[End of section]

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss GAO's review of the United 
Nations (U.N.) Oil for Food program and Iraq's food security.

In 1996, the United Nations and Iraq established the Oil for Food 
program to address growing concerns about the humanitarian situation 
after international sanctions were imposed in 1990. The program's 
intent was to allow the Iraqi government to use the proceeds of its oil 
sales to pay for food, medicine, and infrastructure maintenance and, at 
the same time, prevent the regime from obtaining goods for military 
purposes. From 1997 through 2002, Iraq sold more than $67 billion in 
oil through the program and issued $38 billion in letters of credit to 
purchase commodities.[Footnote 1]

Today, we will (1) report on our estimates of the illegal revenue 
acquired by the former Iraqi regime in violation of U.N. sanctions, (2) 
provide our observations on the administration of the program, and (3) 
describe the current and future challenges in achieving food security.

To address these objectives, we reviewed documents and statements from 
(1) the United Nations on its management and oversight responsibilities 
for the Oil for Food program; (2) the Coalition Provisional Authority 
(CPA), the Departments of Defense and State, and the United Nations and 
its World Food Program (WFP) on the current implementation of the 
program and challenges in ensuring a continued food supply; and (3) 
from the World Bank and Iraq's 2004 budget regarding the effect of food 
subsidies on the Iraqi economy. We also reviewed all external audits to 
determine the use of Oil for Food funds prior to the transfer of the 
program to the CPA in November 2003. We did not have full access to the 
U.N. internal audits of the Oil for Food program, but we reviewed the 
summaries of 7 annual internal audits from 1996 to 2003 and had access 
to one report made publicly available in May 2004. We met with U.N. 
officials following the transfer of the program to the CPA and with 
numerous U.S. officials representing the CPA, the Departments of 
Defense and State, and the U.S. Agency for International Development, 
to examine current program management, the status of the food 
distribution system, and current and future food security challenges.

We conducted our review from November 2003 through June 2004 in 
accordance with generally accepted government auditing standards.

Summary:

* From 1997 through 2002, we estimate that the former Iraqi regime 
acquired $10.1 billion in illegal revenues--$5.7 billion in oil 
smuggled out of Iraq and $4.4 billion in surcharges on oil sales and 
illicit charges from suppliers exporting goods to Iraq through the Oil 
for Food program. This estimate is higher than our May 2002 estimate of 
$6.6 billion because it includes (1) oil revenue and contract amounts 
for 2002, (2) updated letters of credit from prior years, and (3) newer 
estimates of illicit commissions from commodity suppliers.

* The United Nations, through the Office of the Iraq Program (OIP) and 
the Security Council's Iraq sanctions committee, were responsible for 
overseeing the Oil for Food Program. However, the Security Council 
allowed the Iraqi government, as a sovereign entity, to negotiate 
contracts directly with purchasers of Iraqi oil and suppliers of 
commodities. This structure was an important factor in enabling Iraq to 
levy illegal surcharges and commissions. OIP was responsible for 
examining Iraqi contracts for price and value, but it is unclear how it 
performed this function. The sanctions committee was responsible for 
monitoring oil smuggling, screening contracts for items that could have 
military uses, and approving oil and commodity contracts. The sanctions 
committee took action to stop illegal surcharges on oil, but it is 
unclear what actions it took on the commissions on commodity contracts. 
U.N. external audit reports contained no findings of program fraud. 
Summaries of internal audit reports provided to GAO pointed to some 
operational concerns in procurement, coordination, monitoring, and 
oversight. Ongoing investigations of the Oil for Food program may wish 
to further examine how the structure of the program enabled the Iraqi 
government to obtain illegal revenues, the role of member states in 
monitoring and enforcing the sanctions, actions taken to reduce oil 
smuggling, and the responsibilities and procedures for assessing price 
reasonableness in commodity contracts.

* Evolving policy and implementation decisions on the food distribution 
system and the worsening security situation have affected the movement 
of food commodities within Iraq. As a result, according to U.S. and WFP 
officials, food warehouse stocks are low and the country has less than 
a month's supply of essential food items, such as staple grains. In 
addition to these current food security challenges, the new government 
will have to balance the need to reform a costly food subsidy program 
with the need to maintain food stability and protect the poorest 
populations. Also, inadequate oversight and corruption in the Oil for 
Food program raise concerns about the Iraqi government's ability to 
manage the food distribution system and absorb $32 billion in expected 
donor funds for reconstruction. The CPA has taken steps, such as 
appointing inspectors general, to build internal controls and 
accountability measures in Iraq's ministries.

Background:

In August 1990, Iraq invaded Kuwait, and the United Nations imposed 
sanctions against Iraq. Security Council resolution 661 of 1990 
prohibited all nations from buying and selling Iraqi commodities, 
except for food and medicine. Security Council resolution 661 also 
prohibited all nations from exporting weapons or military equipment to 
Iraq and established a sanctions committee to monitor compliance and 
progress in implementing the sanctions. The members of the sanctions 
committee were members of the Security Council. Subsequent Security 
Council resolutions specifically prohibited nations from exporting to 
Iraq items that could be used to build chemical, biological, or nuclear 
weapons. In 1991, the Security Council offered to let Iraq sell oil 
under a U.N. program to meet its peoples' basic needs. The Iraqi 
government rejected the offer, and over the next 5 years, the United 
Nations reported food shortages and a general deterioration in social 
services.

In December 1996, the United Nations and Iraq agreed on the Oil for 
Food program, which permitted Iraq to sell up to $1 billion worth of 
oil every 90 days to pay for food, medicine, and humanitarian goods. 
Subsequent U.N. resolutions increased the amount of oil that could be 
sold and expanded the humanitarian goods that could be imported. In 
1999, the Security Council removed all restrictions on the amount of 
oil Iraq could sell to purchase civilian goods. The United Nations and 
the Security Council monitored and screened contracts that the Iraqi 
government signed with commodity suppliers and oil purchasers, and 
Iraq's oil revenue was placed in a U.N.-controlled escrow account. In 
May 2003, U.N. resolution 1483 requested the U.N. Secretary General to 
transfer the Oil for Food program to the CPA by November 2003. 
(Appendix I contains a detailed chronology of Oil for Food program and 
sanctions events.) The United Nations allocated 59 percent of the oil 
revenue for the 15 central and southern governorates, which were 
controlled by the central government; 13 percent for the 3 northern 
Kurdish governorates; 25 percent for a war reparations fund for victims 
of the Iraq invasion of Kuwait in 1990; and 3 percent for U.N. 
administrative costs, including the costs of weapons inspectors.

From 1997 to 2003, the Oil for Food program was responsible for more 
than $67 billion of Iraq's oil revenue. Through a large portion of this 
revenue, the United Nations provided food, medicine, and services to 24 
million people and helped the Iraqi government supply goods to 24 
economic sectors. Despite concerns that sanctions may have worsened the 
humanitarian situation, the Oil for Food program appears to have helped 
the Iraqi people. According to the United Nations, the average daily 
food intake increased from around 1,275 calories per person per day in 
1996 to about 2,229 calories at the end of 2001. Malnutrition rates for 
children under 5 fell by more than half. In February 2002, the United 
Nations reported that the Oil for Food program had considerable success 
in several sectors such as agriculture, food, health, and nutrition by 
arresting the decline in living conditions and improving the 
nutritional status of the average Iraqi citizen.

Since 1997, Iraq has imported almost 2.7 million metric tons of wheat 
annually. During the 1980s, Australia was Iraq's primary wheat supplier 
with 38 percent of the market, and the United States was the second 
major supplier at 29 percent. By 1989, Iraq was the twelfth largest 
market for U.S. agricultural exports, including rice. Since 1997, 
however, Australia has dominated Iraq's Oil for Food wheat trade with a 
73 percent market share, and Vietnam has become a major supplier of 
rice to Iraq. The U.S. market share for wheat dropped to 6 percent 
during that time. U.S. wheat exports during the sanctions only occurred 
in 1997 and 1998.

Former Iraqi Regime Acquired an Estimated $10.1 Billion in Illicit 
Revenue:

We estimate that, from 1997 through 2002, the former Iraqi regime 
acquired $10.1 billion in illegal revenues--$5.7 billion through oil 
smuggled out of Iraq and $4.4 billion through surcharges against oil 
sales and illicit commissions from commodity suppliers. This estimate 
is higher than the $6.6 billion in illegal revenues we reported in May 
2002.[Footnote 2] We updated our estimate to include (1) oil revenue 
and contract amounts for 2002, (2) updated letters of credit from prior 
years, and (3) newer estimates of illicit commissions from commodity 
suppliers. Appendix II describes our methodology for determining 
illegal revenues gained by the former Iraqi regime.

Oil was smuggled out through several routes, according to U.S. 
government officials and oil industry experts. Oil entered Syria by 
pipeline, crossed the borders of Jordan and Turkey by truck, and was 
smuggled through the Persian Gulf by ship. Jordan maintained trade 
protocols with Iraq that allowed it to purchase heavily discounted oil 
in exchange for up to $300 million in Jordanian goods. Syria received 
up to 200,000 barrels of Iraqi oil a day in violation of the sanctions. 
Oil smuggling also occurred through Turkey and Iran.

In addition to revenues from oil smuggling, the Iraqi government levied 
surcharges against oil purchasers and commissions against commodity 
suppliers participating in the Oil for Food program. According to some 
Security Council members, the surcharge was up to 50 cents per barrel 
of oil and the commission was 5 to 15 percent of the commodity 
contract.

In our 2002 report, we estimated that the Iraqi regime received a 5-
percent illicit commission on commodity contracts. However, a September 
2003 Department of Defense review found that at least 48 percent of 759 
Oil for Food contracts that it reviewed were potentially overpriced by 
an average of 21 percent.[Footnote 3] Food commodity contracts were the 
most consistently overpriced, with potential overpricing identified in 
87 percent of the contracts by an average of 22 percent. The review 
also found that the use of middlemen companies potentially increased 
contract prices by 20 percent or more. Defense officials found 5 
contracts that included "after-sales service charges" of between 10 and 
20 percent.

In addition, interviews by U.S. investigators with high-ranking Iraqi 
regime officials, including the former oil and finance ministers, 
confirmed that the former regime received a 10-percent commission from 
commodity suppliers. According to the former oil minister, the regime 
instituted a fixed 10-percent commission in early 2001 to address a 
prior "compliance" problem with junior officials. These junior 
officials had been reporting lower commissions than what they had 
negotiated with suppliers and pocketing the difference.

United Nations and Security Council Had Responsibility for Oversight of 
Program, but Iraq Contracted Directly with Purchasers and Suppliers:

* Both OIP, as an office within the U.N. Secretariat, and the Security 
Council's sanctions committee were responsible for overseeing the Oil 
for Food Program. However, the Iraqi government negotiated contracts 
directly with purchasers of Iraqi oil and suppliers of commodities. 
While OIP was to examine each contract for price and value, it is 
unclear how it performed this function. The sanctions committee was 
responsible for monitoring oil smuggling, screening contracts for items 
that could have military uses, and approving oil and commodity 
contracts. The sanctions committee responded to illegal surcharges on 
oil purchases, but it is unclear what actions it took to respond to 
commissions on commodity contracts. Ongoing investigations of the Oil 
for Food program may wish to consider further examining how the 
structure of the program enabled the Iraqi government to obtain illegal 
revenues, the role of member states in monitoring and enforcing the 
sanctions, actions taken to reduce oil smuggling, and the 
responsibilities and procedures for assessing price reasonableness in 
commodity contracts.

Iraq Negotiated Directly with Oil Purchasers and Suppliers:

U.N. Security Council resolutions and procedures recognized the 
sovereignty of Iraq and gave the Iraqi government authority to 
negotiate contracts and decide on contractors. Security Council 
resolution 986 of 1995 authorized states to import petroleum products 
from Iraq, subject to the Iraqi government's endorsement of 
transactions. Resolution 986 also stated that each export of goods 
would be at the request of the government of Iraq. Security Council 
procedures for implementing resolution 986 further stated that the 
Iraqi government or the United Nations Inter-Agency Humanitarian 
Program would contract directly with suppliers and conclude the 
appropriate contractual arrangements. Iraqi control over contract 
negotiations was an important factor in allowing Iraq to levy illegal 
surcharges and commissions.

When the United Nations first proposed the Oil for Food program in 
1991, it recognized this vulnerability. At that time, the Secretary 
General proposed that the United Nations, an independent agent, or the 
government of Iraq be given the responsibility to negotiate contracts 
with oil purchasers and commodity suppliers. The Secretary General 
concluded that it would be highly unusual or impractical for the United 
Nations or an independent agent to trade Iraq's oil or purchase 
commodities. He recommended that Iraq negotiate the contracts and 
select the contractors. However, he stated that the United Nations and 
Security Council would have to ensure that Iraq's contracting did not 
circumvent the sanctions and was not fraudulent. The Security Council 
further proposed that U.N. agents review contracts and compliance at 
Iraq's oil ministry, but Iraq refused these conditions.

OIP Was Responsible for Key Oversight Aspects of the Program:

OIP administered the Oil for Food program from December 1996 to 
November 2003. Under Security Council resolution 986 of 1995 and a 
memorandum of understanding between the United Nations and the Iraqi 
government, OIP monitored the sale of Iraq's oil, monitoring Iraq's 
purchase of commodities and the delivery of goods, and accounting for 
the program's finances. The United Nations received 3 percent of Iraq's 
oil export proceeds for its administrative and operational costs, which 
included the cost of U.N. weapons inspections.

The sanctions committee's procedures for implementing resolution 986 
stated that independent U.N. inspection agents were responsible for 
monitoring the quality and quantity of the oil shipped. The agents were 
authorized to stop shipments if they found irregularities. OIP hired a 
private firm to monitor Iraqi oil sales at exit points. However, the 
monitoring measures contained weaknesses. According to U.N. reports and 
a statement from the monitoring firm, the major offshore terminal at 
Mina al-Basra[Footnote 4] did not have a meter to measure the oil 
pumped nor could onshore storage capacity be measured. Therefore, the 
U.N. monitors could not confirm the volume of oil loaded onto vessels. 
Also, in 2001, the oil tanker Essex took a large quantity of 
unauthorized oil from the platform when the monitors were off duty. In 
December 2001, the Security Council required OIP to improve the 
monitoring at the offshore terminal. As part of its strategy to repair 
Iraq's oil infrastructure, the CPA plans to install reliable metering 
at Mina al-Basra and other terminals, but no contracts have been let.

OIP also was responsible for monitoring Iraq's purchase of commodities 
and the delivery of goods. Security Council resolution 986, paragraph 
8a(ii) required Iraq to submit a plan, approved by the Secretary 
General, to ensure equitable distribution of Iraq's commodity 
purchases. The initial distribution plans focused on food and medicines 
while subsequent plans were expansive and covered 24 economic sectors, 
including electricity, oil, and telecommunications.

* The sanctions committee's procedures for implementing Security 
Council resolution 986 stated that experts in the Secretariat were to 
examine each proposed Iraqi commodity contract, in particular the 
details of price and value, and to determine whether the contract items 
were on the distribution plan. OIP officials told the Defense Contract 
Audit Agency they performed very limited, if any, pricing review. They 
stated that no U.N. resolution tasked them with assessing the price 
reasonableness of the contracts and no contracts were rejected solely 
on the basis of price. However, OIP officials stated that, in a number 
of instances, they reported to the sanctions committee that commodity 
prices appeared high, but the committee did not cite pricing as a 
reason to place holds on the contracts. For example, in October 2001, 
OIP experts reported to the sanctions committee that the prices in a 
proposed contract between Iraq and the Al-Wasel and Babel Trading 
Company appeared high. However, the sanctions committee reviewed the 
data and approved the contract. Subsequently, the Treasury Department 
identified this company as a front company for the former regime in 
April 2004. The United Nations also required all countries to freeze 
the assets of this company and transfer them to the Development Fund 
for Iraq in accordance with Security Council resolution 1483.[Footnote 
5]

* The sanctions committee's procedures for implementing resolution 986 
stated that independent inspection agents will confirm the arrival of 
supplies in Iraq. OIP deployed about 78 U.N. contract monitors to 
verify shipments and authenticate the supplies for payment. OIP 
employees were able to visually inspect 7 to 10 percent of the approved 
deliveries.

Audits Identified Some Operational Concerns but No Fraud:

Security Council resolution 986 also requested the Secretary General to 
establish an escrow account for the Oil for Food Program and to appoint 
independent and certified public accountants to audit the account. The 
Secretary General established an escrow account at BNP Paribas for the 
deposit of Iraqi oil revenues and the issue of letters of credit to 
suppliers with approved contracts. The U.N. Board of Audit, a body of 
external public auditors, audited the account.[Footnote 6] The external 
audits focused on management issues related to the Oil for Food program 
and the financial condition of the Iraq account. U.N. auditors 
generally concluded that the Iraq account was fairly presented in 
accordance with U.N. financial standards. The reports stated that OIP 
was generally responsive to external audit recommendations. The 
external audits determined that oil prices were mostly in accordance 
with the fair market value of oil products to be shipped and checked to 
confirm that pricing was properly and consistently applied. They also 
determined that humanitarian and essential services supplies procured 
with oil funds generally met contract terms with some exceptions. U.N. 
external audit reports contained no findings of fraud during the 
program.

The U.N. Office of Internal Oversight Services (OIOS) conducted 
internal audits of the Oil for Food program and reported the results to 
OIP's executive director. OIOS officials stated that they have 
completed 55 audits and have 4 ongoing audits of the Oil for Food 
program. Overall, OIOS reported that OIP had made satisfactory progress 
in implementing most of its recommendations. We did not have access to 
individual OIOS audit reports except for an April 2003 report made 
publicly available in May 2004 that assessed the activities of the 
company contracted by the United Nations to authenticate goods coming 
into Iraq. It found that the contractor did not perform all required 
duties and did not adequately monitor goods coming into the northern 
areas of Iraq. We also reviewed 7 brief summaries of OIOS reports 
covering the Oil for Food program from July 1, 1996, through June 30, 
2003. These summaries identified a variety of operational concerns 
involving procurement, inflated pricing and inventory controls, 
coordination, monitoring, and oversight. In one case, OIOS cited 
purchase prices for winter items for displaced persons in northern Iraq 
that were on average 61 percent higher than local vendor quotes 
obtained by OIOS. In another case, an OIOS review found that there was 
only limited coordination of program planning and insufficient review 
and independent assessment of project implementation activities.

The Sanctions Committee Had a Key Role in Enforcing Sanctions and 
Approving Contracts:

The sanctions committee was responsible for three key elements of the 
Oil for Food Program: (1) monitoring implementation of the sanctions, 
(2) screening contracts to prevent the purchase of items that could 
have military uses, and (3) approving Iraq's oil and commodity 
contracts.

U.N. Security Council resolution 661 of 1990 directed all states to 
prevent Iraq from exporting products, including petroleum, into their 
territories. Paragraph 6 of resolution 661 established a sanctions 
committee to report to the Security Council on states' compliance with 
the sanctions and to recommend actions regarding effective 
implementation. As early as June 1996, the Maritime Interception Force, 
a naval force of coalition partners including the United States and 
Great Britain, informed the sanctions committee that oil was being 
smuggled out of Iraq through Iranian territorial waters. In December 
1996, Iran acknowledged the smuggling and reported that it had taken 
action. In October 1997, the sanctions committee was again informed 
about smuggling through Iranian waters. According to multiple sources, 
oil smuggling also occurred through Jordan, Turkey, Syria, and the 
Gulf. Smuggling was a major source of illicit revenue for the former 
Iraqi regime through 2002.

A primary function of the members of the sanctions committee was to 
review and approve contracts for items that could be used for military 
purposes. The United States conducted the most thorough review; about 
60 U.S. government technical experts assessed each item in a contract 
to determine its potential military application. According to U.N. 
Secretariat data in 2002, the United States was responsible for about 
90 percent of the holds placed on goods to be exported to Iraq. As of 
April 2002, about $5.1 billion worth of goods were being held for 
shipment to Iraq. According to OIP, no contracts were held solely on 
the basis of price.

Under Security Council resolution 986 of 1995 and its implementing 
procedures, the sanctions committee was responsible for approving 
Iraq's oil contracts, particularly to ensure that the contract price 
was fair, and for approving Iraq's commodity contracts. The U.N.'s oil 
overseers reported in November 2000 that the oil prices proposed by 
Iraq appeared low and did not reflect the fair market value.[Footnote 
7] According to a senior OIP official, the independent oil overseers 
also reported in December 2000 that purchasers of Iraqi oil had been 
asked to pay surcharges. In March 2001, the United States informed the 
sanctions committee about allegations that Iraqi government officials 
were receiving illegal surcharges on oil contracts and illicit 
commissions on commodity contracts. The sanctions committee attempted 
to address these allegations by implementing retroactive pricing for 
oil contracts in 2001.[Footnote 8]

It is unclear what actions the sanctions committee took to respond to 
illicit commissions on commodity contracts. Due to increasing concern 
about the humanitarian situation in Iraq and pressure to expedite the 
review process, the Security Council passed resolution 1284 in December 
1999 to direct the sanctions committee to accelerate the review 
process. Under fast-track procedures, the sanctions committee allowed 
OIP to approve contracts for food, medical supplies, and agricultural 
equipment (beginning in March 2000), water treatment and sanitation 
(August 2000), housing (February 2001), and electricity supplies (May 
2001).

Issues for Further Investigation:

Several investigations into the Oil for Food program are planned or 
under way. A U.N. inquiry officially began on April 21, 2004, with a 
Security Council resolution supporting the inquiry[Footnote 9] and the 
appointment of three high-level officials to oversee the investigation. 
This investigation will examine allegations of corruption and 
misconduct within the United Nations Oil for Food program and its 
overall management of the humanitarian program. In addition, Iraq's 
Board of Supreme Audit contracted with the accounting firm Ernst and 
Young to conduct an investigation of the program. Several U.S. 
congressional committees have also begun inquiries into U.N. management 
of the Oil for Food program and U.S. oversight through its role on the 
sanctions committee.

These investigations of the Oil for Food program provide an opportunity 
to better quantify the extent of corruption, determine the adequacy of 
internal controls, and identify ways to improve future humanitarian 
assistance programs conducted within an economic sanctions framework. 
Based on our work, we have identified several questions that should be 
addressed:

1. How did the size and structure of the Oil for Food program enable 
the Iraqi government to obtain illegal revenues through illicit 
surcharges and commissions?

2. What was the role of U.N. member states in monitoring and enforcing 
the sanctions? What were the criteria used to certify national 
purchasers of oil and suppliers of commodities?

What actions, if any, were taken to reduce the smuggling of Iraqi oil? 
What precluded the sanctions committee from taking action?

Who assessed the reasonableness of prices for commodity contracts 
negotiated between the Iraqi government and suppliers and what actions 
were taken? How were prices for commodities assessed for reasonableness 
under fast-track procedures?

Much of the information on surcharges on oil sales and illicit 
commissions on commodity contracts is with the Iraqi ministries in 
Baghdad and national purchasers and suppliers. We did not have access 
to this data to verify the various allegations of corruption associated 
with these transactions. Subsequent investigations of the Oil for Food 
program should include a statistical sampling of these transactions to 
more accurately document the extent of corruption and the identities of 
companies and countries that engaged in illicit transactions. This 
information would provide a basis for restoring those assets to the 
Iraqi government.

Subsequent evaluations and audits should also consider an analysis of 
the lessons learned from the Oil for Food program and how future 
humanitarian programs of this nature should be structured to ensure 
that funds are spent on intended beneficiaries and projects. For 
example, analysts may wish to review the codes of conduct developed for 
the CPA's Oil for Food coordination center and suppliers. In addition, 
U.N. specialized agencies implemented the program in the northern 
governorates while the program in central and southern Iraq was run by 
the central government in Baghdad. A comparison of these two approaches 
could provide insight on the extent to which the operations were 
transparent and the program delivered goods and services to the Iraqi 
people.

Challenges in Addressing Iraq's Food Security:

Evolving policy and implementation decisions on the food distribution 
system and the worsening security situation have affected the movement 
of food commodities within Iraq. As a result, warehouse stocks are low, 
and Iraq has less than a month's supply of several food items, 
including staple grains, and no buffer stock. The food distribution 
system created a dependency on food subsidies that disrupted private 
food markets. The government will have to decide whether to continue, 
reform, or eliminate the current system. In addition, inadequate 
oversight and corruption in the Oil for Food program raise concerns 
about the Iraqi government's ability to manage the food distribution 
system and absorb donor reconstruction funds under existing structures. 
The CPA has taken steps, such as appointing inspectors general, to 
strengthen accountability measures in Iraq's ministries.

Inadequate Planning, Coordination, and Security Have Resulted in 
Tenuous Food Supplies:

The CPA's failed plans to privatize the food ration system and delayed 
negotiations with WFP on food procurement and distribution resulted in 
diminished stocks of food commodities and localized shortages in early 
2004. The CPA administrator discussed eliminating Iraq's food 
distribution system and providing recipients with cash payments based 
on plans submitted to the CPA in summer 2003 that asserted that the 
system was expensive and depressed the agricultural sector. As a 
result, the Ministry of Trade began drawing down existing inventories 
of food. In December 2003, as the security environment worsened, the 
administrator decided not to reform the ration system. In January 2004, 
the CPA negotiated a memorandum of understanding (MOU) with WFP and the 
Ministry of Trade that committed WFP to procuring a 3-month buffer food 
stock by March 31, 2004, and assuming the delivery of food to hub 
warehouses inside Iraq through June 2004. The MOU was delayed due to 
disagreements about emergency food procurement, contract terms, and the 
terms of WFP's involvement. No additional food was procured during the 
negotiations, and food stocks diminished and localized shortages 
occurred in early 2004. WFP completed its buffer stock procurement by 
March 31, 2004. The Ministry of Trade assumed responsibility for food 
procurement on April 1, 2004, and will implement the distribution 
system after June 30, 2004.

A U.S. official stated in early March 2004 that coordination between 
WFP and the Ministry of Trade had been deteriorating. The Ministry had 
not provided WFP with complete and timely information on monthly food 
allocation plans, weekly stock reports, or information on cargo 
arrivals, as the MOU required. WFP staff reported that the Ministry's 
data were subject to sudden, large, and unexplained stock adjustments, 
thereby making it difficult to plan deliveries. A State Department 
official noted in April 2004 that coordination between WFP and the 
Ministry was improving. However, according to early June 2004 
discussions with other U.S. officials, these coordination problems are 
continuing.

The security environment in Iraq has affected the movement of Oil for 
Food goods since the fall of 2003. A September 2003 U.N. report found 
that the evacuation of U.N. personnel from Baghdad, following the 
bombing of the U.N. office in August 2003, affected the timetable and 
procedures for the transfer of the Oil for Food program to the CPA and 
contributed to delays in prioritizing and renegotiating contracts. The 
August bombing of the U.N. office also resulted in the temporary 
suspension of the border inspection process and shipments of 
humanitarian supplies and equipment. A March 2004 CPA report noted that 
stability of the food supply would be affected if security conditions 
worsened.

According to an Oil for Food coordination center official, the 
worsening security situation during April 2004 affected food supplies. 
As of early June, major food transport corridors from Jordan and the 
port of Umm Qasr are restricted due to security concerns, and border 
crossings from Jordan, Syria, and Turkey are congested. Also, fewer 
drivers are willing to work in this environment, thereby reducing the 
movement of food from the borders and ports to the food warehouses. 
This situation is exacerbated by congestion at the major port of Umm 
Qasr, which is operating at 50 percent of its capacity due to 
inadequate fuel and power supply, off-loading delays, dredging 
activity, inadequate storage capacity, and security concerns.

Initial planning and management problems, combined with security and 
port congestion issues limiting the movement of food, have resulted in 
the drawing down of warehouse food stocks. The food supply situation 
was described as tenuous by several U.S. and WFP sources in early June. 
At that time, Iraq had less than a 1-month food supply for several 
items in the food basket, including grains. About 360,000 metric tons 
of the 1.6 million metric tons procured for the buffer stock had 
arrived as of June 10, but the full amount will not be delivered until 
September, according to a WFP official. Moreover, these commodities are 
not being reserved as a buffer stock, but are immediately used as 
operating stocks.

U.S. officials are concerned that, as the Iraqi government assumes full 
responsibility for food distribution on July 1, 2004, it will find it 
difficult to manage the food distribution system given low food 
supplies. According to U.S. and WFP officials, the Ministry of Trade 
implemented the food distribution system during the Oil for Food 
program under more favorable conditions. For example, the Ministry was 
able to maintain at least a 6-month food inventory and operate in a 
more secure environment.

Food Distribution System Essential for Current Food Security But May 
Not Be Sustainable:

The Oil for Food program facilitated the operation of the Public 
Distribution System run by Iraq's Ministry of Trade. Under this system, 
each Iraqi is eligible to receive a monthly "food basket" that normally 
consists of a dozen items.[Footnote 10]

After the CPA transfers responsibility for the food distribution system 
to the Iraqi provisional government in July 2004, the government will 
have to decide whether to continue, reform, or eliminate the current 
system. Documents from the Ministries of Finance and Planning indicate 
that the annual cost of maintaining the system is as high as $5 
billion, or about 25 percent of total government expenditures. In 2005 
and 2006, expenditures for food will be almost as much as all 
expenditures for capital projects. According to a September 2003 joint 
U.N. and World Bank needs assessment of Iraq[Footnote 11], the food 
subsidy, given out as a monthly ration to the entire population, staved 
off mass starvation during the time of the sanctions, but disrupted the 
market for food grains produced locally. The agricultural sector had 
little incentive to produce crops in the absence of a promising market.

However, the Iraqi government may find it politically difficult to 
scale back the food distribution system with an estimated 60 percent of 
the population relying on monthly rations as their primary source of 
nutrition. WFP is completing a vulnerability assessment that Iraq could 
use to make future decisions on food security programs and better 
target food items to those most in need. WFP's preliminary assessment 
results found that 10 percent of the population was extremely poor and 
needed food aid in addition to the Public Distribution System. WFP is 
also developing an emergency operation plan to meet the needs of 
vulnerable populations. In addition, in April 2004, a USAID contractor 
submitted a strategy for a short-term plan to stabilize the 
agricultural sector by providing agricultural supplies, re-
establishing domestic wheat markets, rehabilitating irrigation 
systems, and rehabilitating Ministry of Agriculture facilities. The 
strategy also includes a medium-term plan to create appropriate 
agricultural policies, provide capacity building for market-led 
agriculture, and strengthen the agricultural sector through national 
programs.

Addressing Corruption:

In the absence of significant reforms, the history of inadequate 
oversight and corruption in the Oil for Food program raises questions 
about the Iraqi government's ability to manage the import and 
distribution of food commodities and the billions in international 
assistance expected to flow into the country. The CPA and Iraqi 
ministries must address corruption to help ensure that the food 
distribution system is managed with transparent and accountable 
controls. Building these internal control and accountability measures 
into the operations of Iraqi ministries will also help safeguard the 
$18.4 billion in fiscal year 2004 U.S. reconstruction funds and $13.8 
billion pledged by other countries.

To address these concerns and oversee government operations, the CPA 
administrator appointed inspectors general for Iraq's 26 national 
ministries. At the same time, the CPA announced the establishment of 
two independent agencies to work with the inspectors general--the 
Commission on Public Integrity and a Board of Supreme Audit. Finally, 
the United States will spend about $1.63 billion on governance-related 
activities in Iraq, which will include building an effective financial 
management system in Iraq's ministries.

The CPA's coordination center continues to provide on-the-job training 
for ministry staff who will assume responsibility for food contracts 
after July 2004. Coalition personnel have provided Iraqi staff with 
guidance on working with suppliers in a fair and open manner and 
determining when changes to letters of credit are appropriate. In 
addition, according to center staff, coalition and Iraqi staff signed a 
code of conduct, which outlined proper job behavior. Among other 
provisions, the code of conduct prohibited kickbacks and secret 
commissions from suppliers. The center also developed a code of conduct 
for suppliers. In addition, the center has begun implementing the steps 
needed for the transition of full authority to the Iraqi ministries. 
These steps include transferring contract-related documents, 
contacting suppliers, and providing authority to amend contracts. In 
addition, the January 2004 MOU agreement commits WFP to training 
ministry staff in procurement and transport functions through June 30, 
2004. Ten ministry staff are being trained at WFP headquarters in Rome, 
Italy.

Mr. Chairman and Members of the Committee, this concludes my prepared 
statement. I will be happy to answer any questions you may have.

Contacts and Acknowledgments:

For questions regarding this testimony, please call Joseph Christoff at 
(202) 512-8979. Other key contributors to this statement were Pamela 
Briggs, Mark Connelly, Lynn Cothern, Zina Merritt, Tetsuo Miyabara, 
Valerie Nowak, Stephanie Robinson, Jonathan Rose, Richard Seldin, 
Audrey Solis, Roger Stoltz, and Phillip Thomas.

[End of section]

Appendix I: Scope and Methodology:

We used the following methodology to estimate the former Iraqi regime's 
illicit revenues from oil smuggling, surcharges on oil, and commissions 
from commodity contracts from 1997 through 2002:

To estimate the amount of oil the Iraqi regime smuggled, we used Energy 
Information Administration (EIA) estimates of Iraqi oil production and 
subtracted oil sold under the Oil for Food program and domestic 
consumption. The remaining oil was smuggled through Turkey, the Persian 
Gulf, Jordan, and Syria (oil smuggling to Syria began late 2000). We 
estimated the amount of oil to each destination based on information 
from and discussions with officials of EIA, Cambridge Energy Research 
Associates, the Middle East Economic Survey, and the private consulting 
firm Petroleum Finance.

We used the price of oil sold to estimate the proceeds from smuggled 
oil. We discounted the price by 9 percent for the difference in 
quality. We discounted this price by 67 percent for smuggling to Jordan 
and by 33 percent for smuggling through Turkey, the Persian Gulf, and 
Syria. According to oil industry experts, this is representative of the 
prices paid for smuggled oil.

To estimate the amount Iraq earned from surcharges on oil, we 
multiplied the barrels of oil sold under the Oil for Food program from 
1997 through 2002 by 25 cents per barrel. According to Security Council 
members, the surcharge varied, but Iraq tried to get as much as 50 
cents per barrel. Industry experts also stated the surcharge varied.

To estimate the commission from commodities, we multiplied Iraq's 
letters of credit for commodity purchases by 5 percent for 1997 through 
1998 and 10 percent for 1999 through 2002. According to Security 
Council members, the commission varied from 5 percent to 10 percent. 
This percentage was also confirmed in interviews conducted by U.S. 
officials with former Iraqi regime ministers of oil, finance, and trade 
and with Saddam Hussein's presidential advisors.

GAO did not obtain source documents and records from the former regime 
about its smuggling, surcharges, and commissions. Our estimate of 
illicit revenues is therefore not a precise accounting number. Areas of 
uncertainty in our estimate include:

GAO's estimate of the revenue from smuggled oil is less than the 
estimates of U.S. intelligence agencies. We used estimates of Iraqi oil 
production and domestic consumption for our calculations. U.S. 
intelligence agencies used other methods to estimate smuggling.

GAO's estimate of revenue from oil surcharges is based on a surcharge 
of 25 cents per barrel from 1997 through 2002. However, the average 
surcharge could be lower. U.N. Security Council members and oil 
industry sources do not know when the surcharge began or ended or the 
precise amount of the surcharge. One oil industry expert stated that 
the surcharge was imposed at the beginning of the program but that the 
amount varied. Security Council members and the U.S. Treasury 
Department reported that surcharges ranged from 10 cents to 50 cents 
per barrel. As a test of reasonableness, GAO compared the price paid 
for oil under the Oil for Food program with a proxy oil price for the 
period 1997 through 2002. We found that for the entire period, the 
price of Iraqi oil was considerably below the proxy price. Oil 
purchasers would have to pay below market price to have a margin to pay 
the surcharge.

[End of section]

GAO's estimate of the commission on commodities could be understated. 
We calculated commissions based on the commodity contracts for the 15 
governorates in central and southern Iraq (known as the "59-percent 
account" because these governorates received this percentage of Oil for 
Food revenues). We excluded contracts for the three northern 
governorates (known as the "13-percent account"). However, the former 
Iraqi regime negotiated the food and medical contracts for the northern 
governorates, and the Defense Contract Audit Agency found that some of 
these contracts were potentially overpriced. The Defense Contract Audit 
Agency also found extra fees of between 10 and 20 percent on some 
contracts.

[End of section]

Appendix II: Timeline of Major Events Related to Sanctions Against Iraq 
and the Administration of the Oil for Food Program:

Date: Aug. 2, 1990; 
Event/Action: U.N. Security Council Resolution 660; 
Summary: Iraqi forces invaded Kuwait. Resolution 660 condemned the 
invasion and demands immediate withdrawal from Kuwait.

Date: Aug. 6, 1990; 
Event/Action: U.N. Security Council Resolution 661; 
Summary: Imposed economic sanctions against the Republic of Iraq. The 
resolution called for member states to prevent all commodity imports 
from Iraq and exports to Iraq, with the exception of supplies intended 
strictly for medical purposes and, in humanitarian circumstances, 
foodstuffs.

Date: Aug. 6, 1990; 
Event/Action: Operation Desert Shield; 
Summary: President Bush ordered the deployment of thousands of U.S. 
forces to Saudi Arabia.

Date: Nov. 5, 1990; 
Event/Action: U.S. legislation; 
Summary: Public Law 101-513, § 586C, prohibited the import of products 
from Iraq into the United States and the export of U.S. products to 
Iraq.

Date: Jan. 12, 1991; 
Event/Action: U.S. legislation; 
Summary: Iraq War Powers Resolution authorized the president to use 
"all necessary means" to compel Iraq to withdraw military forces from 
Kuwait.

Date: Jan. 16, 1991; 
Event/Action: Operation Desert Storm; 
Summary: Operation Desert Storm was launched: coalition operation was 
targeted to force Iraq to withdraw from Kuwait.

Date: Feb. 28, 1991; 
Event/Action: Gulf War cease-fire; 
Summary: Iraq announced acceptance of all relevant U.N. Security 
Council resolutions.

Date: Apr. 3, 1991; 
Event/Action: U.N. Security Council Resolution 687 (Cease-Fire 
Resolution); 
Summary: Mandated that Iraq must respect the sovereignty of Kuwait and 
declare and destroy all ballistic missiles with a range of more than 
150 kilometers as well as all weapons of mass destruction and 
production facilities.

Date: Jun. 17, 1991; 
Event/Action: Creation of U.N. Special Commission; 
Summary: The U.N. Special Commission (UNSCOM) was charged with 
monitoring Iraqi disarmament as mandated by U.N. resolutions and to 
assist the International Atomic Energy Agency in nuclear monitoring 
efforts.

Date: Aug. 15, 1991; 
Event/Action: U.N. Security Council Resolution 706; 
Summary: Proposed the creation of an Oil for Food program and 
authorized an escrow account to be established by the Secretary 
General. Iraq rejected the terms of this resolution.

Date: Sep. 19, 1991; 
Event/Action: U.N. Security Council Resolution 712; 
Summary: Second attempt to create an Oil for Food program. Iraq 
rejected the terms of this resolution.

Date: Oct. 2, 1992; 
Event/Action: U.N. Security Council Resolution 778; 
Summary: Authorized transferring money produced by any Iraqi oil 
transaction on or after August 6, 1990, which had been deposited into 
the escrow account, to the states or accounts concerned as long as the 
oil exports took place or until sanctions were lifted.

Date: Apr. 14, 1995; 
Event/Action: U.N. Security Council Resolution 986; 
Summary: Allowed Iraq to sell $1 billion worth of oil every 90 days. 
Proceeds were to be used to procure foodstuffs, medicine, and material 
and supplies for essential civilian needs. Resolution 986 was 
supplemented by several U.N. resolutions over the next 7 years that 
extended the Oil for Food program for different periods of time and 
increased the amount of exported oil and imported humanitarian goods.

Date: Mar. 27, 1996; 
Event/Action: U.N. Security Council Resolution 1051; 
Summary: Established the export and import monitoring system for Iraq.

Date: May 20, 1996; 
Event/Action: Government of Iraq and the United Nations; 
Summary: Signed a memorandum of understanding allowing Iraq's export of 
oil to pay for food, medicine, and essential civilian supplies.

Date: Jun. 17, 1996; 
Event/Action: United States; 
Summary: Based on information provided by the Multinational 
Interception Force (MIF), communicated concerns about alleged smuggling 
of Iraqi petroleum products through Iranian territorial waters in 
violation of resolution 661 to the Security Council sanctions 
committee.

Date: Jul. 9, 1996; 
Event/Action: U.N. Security Council Sanctions Committee; 
Summary: Committee members asked the United States for more factual 
information about smuggling allegations, including the final 
destination and the nationality of the vessels involved.

Date: Aug. 28, 1996; 
Event/Action: U.S. delegation to the U.N. Security Council Sanctions 
Committee; 
Summary: Provided briefing on the Iraqi oil smuggling allegations to 
the sanctions committee.

Date: Dec. 3, 1996; 
Event/Action: Islamic Republic of Iran Permanent Representative to the 
United Nations; 
Summary: Acknowledged that some vessels carrying illegal goods and oil 
to and from Iraq had been using the Iranian flag and territorial waters 
without authorization and that Iranian authorities had confiscated 
forged documents and manifests. Representative agreed to provide the 
results of the investigations to the sanctions committee once they 
were available.

Date: Dec. 10, 1996; 
Event/Action: Iraq and the United Nations; 
Summary: Phase I of the Oil for Food program began.

Date: Jun. 4, 1997; 
Event/Action: U.N. Security Council Resolution 1111; 
Summary: Extended the term of resolution 986 another 180 days (phase 
II).

Date: Sep. 12, 1997; 
Event/Action: U.N. Security Council Resolution 1129; 
Summary: Authorized special provision to allow Iraq to sell petroleum 
in a more favorable time frame.

Date: Oct. 8, 1997; 
Event/Action: Representatives of the United Kingdom of Great Britain 
and Northern Ireland to the United Nations; 
Summary: Brought the issue of Iraqi smuggling petroleum products 
through Iranian territorial waters to the attention of the U.N. 
Security Council sanctions committee.

Date: Nov. 18, 1997; 
Event/Action: Coordinator of the Multinational Interception Force 
(MIF); 
Summary: Reported to the U.N. Security Council sanctions committee 
that since February 1997 there had been a dramatic increase in the 
number of ships smuggling petroleum from Iraq inside Iranian 
territorial waters.

Date: Dec. 4, 1997; 
Event/Action: U.N. Security Council Resolution 1143; 
Summary: Extended the Oil for Food program another 180 days (phase 
III).

Date: Feb. 20, 1998; 
Event/Action: U.N. Security Council Resolution 1153; 
Summary: Raised Iraq's export ceiling of oil to about $5.3 billion per 
6-month phase (phase IV).

Date: Mar. 25, 1998; 
Event/Action: U.N. Security Council Resolution 1158; 
Summary: Permitted Iraq to export additional oil in the 90 days from 
March 5, 1998, to compensate for delayed resumption of oil production 
and reduced oil price.

Date: Jun. 19, 1998; 
Event/Action: U.N. Security Council Resolution 1175; 
Summary: Authorized Iraq to buy $300 million worth of oil spare parts 
to reach the export ceiling of about $5.3 billion.

Date: Aug. 14, 1998; 
Event/Action: U.S. legislation; 
Summary: Public Law 105-235, a joint resolution finding Iraq in 
unacceptable and material breach of its international obligations.

Date: Oct. 31, 1998; 
Event/Action: U.S. legislation: Iraq Liberation Act; 
Summary: Public Law 105-338, § 4, authorized the president to provide 
assistance to Iraqi democratic opposition organizations.

Date: Oct. 31, 1998; 
Event/Action: Iraqi termination of U.N. Special Commission (UNSCOM) 
Activity; 
Summary: Iraq announced it would terminate all forms of interaction 
with UNSCOM and that it would halt all UNSCOM activity inside Iraq.

Date: Nov. 24, 1998; 
Event/Action: U.N. Security Council Resolution 1210; 
Summary: Renewed the Oil for Food program for 6 months beyond November 
26 at the higher levels established by resolution 1153. The resolution 
included additional oil spare parts (phase V).

Date: Dec. 16, 1998; 
Event/Action: Operation Desert Fox; 
Summary: Following Iraq's recurrent blocking of U.N. weapons 
inspectors, President Clinton ordered 4 days of air strikes against 
military and security targets in Iraq that contribute to Iraq's ability 
to produce, store, and maintain weapons of mass destruction and 
potential delivery systems.

Date: Mar. 3, 1999; 
Event/Action: President Clinton Report to Congress; 
Summary: President Clinton provided the status of efforts to obtain 
Iraq's compliance with U.N. Security Council resolutions. He discussed 
the MIF report of oil smuggling out of Iraq and smuggling of other 
prohibited items into Iraq.

Date: May 21, 1999; 
Event/Action: U.N. Security Council Resolution 1242; 
Summary: Renewed the Oil for Food program another 6 months (phase VI).

Date: Oct. 4, 1999; 
Event/Action: U.N. Security Council Resolution 1266; 
Summary: Permitted Iraq to export an additional amount of $3.04 billion 
of oil to make up for revenue deficits in phases IV and V.

Date: Nov. 19, 1999; 
Event/Action: U.N. Security Council Resolution 1275; 
Summary: Extended phase VI of the Oil for Food program for 2 weeks 
until December 4, 1999.

Date: Dec. 3, 1999; 
Event/Action: U.N. Security Council Resolution 1280; 
Summary: Extended phase VI of the Oil for Food program for 1 week until December 11, 1999.

Date: Dec. 10, 1999; 
Event/Action: U.N. Security Council Resolution 1281; 
Summary: Renewed the Oil for Food program another 6 months (phase VII).

Date: Dec. 17, 1999; 
Event/Action: U.N. Security Council Resolution 1284; 
Summary: Abolished Iraq's export ceiling to purchase civilian goods. 
Eased restrictions on the flow of civilian goods to Iraq and 
streamlined the approval process for some oil industry spare parts. 
Also established the United Nations Monitoring, Verification and 
Inspection Commission (UNMOVIC).

Date: Mar. 31, 2000; 
Event/Action: U.N. Security Council Resolution 1293; 
Summary: Increased oil spare parts allocation from $300 million to $600 
million under phases VI and VII.

Date: Jun. 8, 2000; 
Event/Action: U.N. Security Council Resolution 1302; 
Summary: Renewed the Oil for Food program another 180 days until 
December 5, 2000 (phase VIII).

Date: Dec. 5, 2000; 
Event/Action: U.N. Security Council Resolution 1330; 
Summary: Extended the Oil for Food program another 180 days (phase IX).

Date: Mar. 8, 2001; 
Event/Action: Deputy U.S. Representative to the United Nations Remarks 
to the Security Council; 
Summary: Ambassador Cunningham acknowledged Iraq's illegal re-export 
of humanitarian supplies, oil smuggling, establishment of front 
companies, and payment of kickbacks to manipulate and gain from Oil for 
Food contracts. Also acknowledged that the United States had put holds 
on hundreds of Oil for Food contracts that posed dual-use concerns.

Date: Mar. 8, 2001; 
Event/Action: Acting U.S. Representative to the United Nations Remarks 
to the Security Council; 
Summary: Ambassador Cunningham addressed questions regarding 
allegations of surcharges on oil and smuggling. Acknowledged that oil 
industry representatives and other Security Council members provided 
the United States anecdotal information about Iraqi surcharges on oil 
sales. Also acknowledged companies claiming they were asked to pay 
commissions on contracts.

Date: Jun. 1, 2001; 
Event/Action: U.N. Security Council Resolution 1352; 
Summary: Extended the terms of resolution 1330 (phase IX) another 30 
days.

Date: Jul. 3, 2001; 
Event/Action: U.N. Security Council Resolution 1360; 
Summary: Renewed the Oil for Food program an additional 150 days until 
November 30, 2001 (phase X).

Date: Nov. 29, 2001; 
Event/Action: U.N. Security Council Resolution 1382; 
Summary: The resolution stipulated that a new Goods Review List would 
be adopted and that relevant procedures would be subject to refinement. Renewed the Oil for Food program another 180 days (phase XI).

Date: May 14, 2002; 
Event/Action: U.N. Security Council Resolution 1409; 
Summary: UNMOVIC reviewed export contracts to ensure that they contain 
no items on a designated list of dual-use items known as the Goods 
Review List. The resolution also extended the program another 180 days 
(phase XII).

Date: Nov. 6, 2002; 
Event/Action: U.N. Security Council Sanctions Committee; 
Summary: MIF reported that there had been a significant reduction in 
illegal oil exports from Iraq by sea over the past year but noted oil 
smuggling was continuing.

Date: Nov. 25, 2002; 
Event/Action: U.N. Security Council Resolution 1443; 
Summary: Extended phase XII of the Oil for Food program another 9 days.

Date: Dec. 4, 2002; 
Event/Action: U.N. Security Council Resolution 1447; 
Summary: Renewed the Oil for Food program another 180 days until June 
3, 2003 (phase XIII).

Date: Dec. 30, 2002; 
Event/Action: U.N. Security Council Resolution 1454; 
Summary: Approved changes to the list of goods subject to review by the 
sanctions committee.

Date: Mar. 12, 2003; 
Event/Action: U.N. Security Council Sanctions Committee; 
Summary: Chairman reported on a number of alleged sanctions violations 
noted by letters from several countries and the media from February to 
November 2002. Alleged incidents involved Syria, India, Liberia, 
Jordan, Belarus, Switzerland, Lebanon, Ukraine, and the United Arab 
Emirates.

Date: Mar. 19, 2003; 
Event/Action: Operation Iraqi Freedom; 
Summary: Operation Iraqi Freedom is launched. Coalition operation led 
by the United States initiated hostilities in Iraq.

Date: Mar. 28, 2003; 
Event/Action: U.N. Security Council Resolution 1472; 
Summary: Adjusted the Oil for Food program and gave the Secretary 
General authority for 45 days to facilitate the delivery and receipt of 
goods contracted by the Government of Iraq for the humanitarian needs 
of its people.

Date: Apr. 16, 2003; 
Event/Action: U.S. legislation; 
Summary: Public Law 108-11, § 1503, authorized the President to suspend 
the application of any provision of the Iraq Sanctions Act of 1990.

Date: Apr. 24, 2003; 
Event/Action: U.N. Security Council Resolution 1476; 
Summary: Extended provisions of resolution 1472 until June 3, 2003.

Date: May 1, 2003; 
Event/Action: Operation Iraqi Freedom; 
Summary: End of major combat operations and beginning of post-war 
rebuilding efforts.

Date: May 22, 2003; 
Event/Action: U.N. Security Council Resolution 1483; 
Summary: Lifted civilian sanctions on Iraq and provided for the end of 
the Oil for Food program within 6 months, transferring responsibility 
for the administration of any remaining program activities to the 
Coalition Provisional Authority (CPA).

Date: Nov. 21, 2003; 
Event/Action: U.N. Secretary General; 
Summary: Transferred administration of the Oil for Food program to the 
CPA.

Date: Mar.19, 2004; 
Event/Action: U.N. Secretary General; 
Summary: Responded to allegations of fraud by U.N. officials that were 
involved in the administration of the Oil for Food program.

Date: Mar. 25, 2004; 
Event/Action: U.N. Secretary General; 
Summary: Proposed that a special investigation be conducted by an 
independent panel.

Date: April 21, 2004; 
Event/Action: U.N. Security Council; 
Resolution 1538; 
Summary: Supported the appointment of the independent high-level 
inquiry and called upon the CPA, Iraq, and member states to cooperated 
fully with the inquiry. 

[End of table]


FOOTNOTES

[1] All references to Oil for Food estimates are in 2003 constant U.S. 
dollars.

[2] U.S. General Accounting Office, Weapons of Mass Destruction: U.N. 
Confronts Significant Challenges in implementing Sanctions Against 
Iraq, GAO-02-625 (Washington, D.C.: May 23, 2002).

[3] The Defense Contract Audit Agency and the Defense Contract 
Management Agency, Report on the Pricing Evaluation of Contracts 
Awarded under the Iraq Oil for Food Program (Washington, D.C.: Sept. 
12, 2003).

[4] Previously called Mina al-Bakar.

[5] U.N. Security Council Res. 1483 (May 22, 2003). Paragraph 19 states 
that a Security Council committee will identify individuals and 
entities whose financial assets should be transferred to the 
Development Fund for Iraq.

[6] The U.N. Board of Auditors is comprised of the Auditors General of 
three member countries and their staff. Board members are appointed by 
the General Assembly for 6-year terms and one member rotates every 2 
years. During the period of the Oil for Food program (1996-2003), 
France, Ghana, India, the Philippines, South Africa, and the United 
Kingdom served on the Board of Auditors.

[7] The sanctions committee received reports from the independent oil 
experts appointed by the Secretary General to determine whether there 
was fraud or deception in the oil contracting process.

[8] Under retroactive pricing, the Security Council did not approve a 
price per barrel until the oil was delivered to the refinery. The Iraq 
government signed contracts with suppliers without knowing the price it 
would have to pay until delivery. 

[9] U.N. Security Council Res. 1538 (April 21, 2004).

[10] Wheat flour, rice, vegetable ghee (semifluid clarified butter used 
for cooking), pulses (edible seeds of various leguminous crops, such as 
peas, beans, or lentils), sugar, tea, salt, milk, infant formula, 
weaning cereal, soap, and detergent.

[11] United Nations/World Bank, Joint Iraq Needs Assessment: 
Agriculture, Water Resources, and Food Security (New York: October 
2003).