JIM LEHRER: The U.N.'s errant oil for food program in Iraq, Spencer Michels begins our coverage of today's Volcker report.
SPENCER MICHELS: The oil for food program, begun in 1996, came under sharp criticism today. It originally was intended to help Iraqis suffering from international sanctions. The program let Iraq sell oil to buy food and medicine and thus ease the effects of the economic and trade sanctions, all the while under the watchful eye of the United Nations.
But then, after the Iraq War in November 2003, the $60 billion program came to an abrupt halt. And documents were uncovered renewing concerns about just how closely the eyes of the U.N. had been monitoring it.
Among the charges: that Saddam Hussein put surcharges on oil sales and then pocketed the money. The investigation, commissioned by the U.N. Security Council and headed by former Federal Reserve Chairman Paul Volcker, found the program was "tainted" from top to bottom and riddled with fraud.
Some of the findings were: the procurement process was marred by political considerations and did not follow U.N. guidelines. And the audit process was under funded and undermanned. The report went on to say the director of the program, Benon Sevan, had "seriously undermined the integrity of the U.N.," in choosing which contractors were able to purchase the oil. Sevan has repeatedly denied any wrongdoing.
The full report, due later this year, will address several issues, including the involvement of Secretary-General Kofi Annan and his son, Kojo. Kojo Annan was employed by a Swiss company also under investigation for its role in the program.
JIM LEHRER: And to Margaret Warner.
MARGARET WARNER: Late today Secretary-General Annan's chief of staff said Annan will discipline Benon Sevan, the former director for the Oil-for-Food program, and another official named in the Volcker report.
And for more on the report we're joined by Paul Volcker. Annan appointed him last April to head this investigation.
Mr. Volcker, welcome. Let's talk about Benon Sevan first. You found him -- that he'd engaged in what you call a grave and ongoing conflict of interest for interfering in the selection of the companies that got to sell this oil. How did he do that?
PAUL VOLCKER: Well, he had contact with various Iraqi officials from time to time, some contacts clearly in the normal course of his business, but he apparently in what we found made suggestions to the Iraqi government that a particular small company that's in the oil business be preferred as a purchaser of oil.
And since there were profits to be made in purchases of oil, that is a, you know, a substantial suggestion to the Iraqis. And there is a record that the Iraqis continued to make allocations of oil to that particular company from time to time with the continued encouragement of Mr. Sevan.
MARGARET WARNER: And did you find that Mr. Sevan personally profited from this?
PAUL VOLCKER: No we have not. The investigation is continuing as to whether or not there is a possibility, but we have not found that at this time. We found that his interposing himself in this process itself put him in a conflict of interest situation with his responsibilities as head of the program in the U.N., and that's the particular finding that we've made.
MARGARET WARNER: Did you find he had -- I mean, what would have been his motivation to do this? Did he have any personal contacts with that small company?
PAUL VOLCKER: Well, he had some contact, which was more extensive, we believe, than what he has admitted.
MARGARET WARNER: I see. All right. Let's go on to -- oh, one other thing, I'm sorry, about Mr. Sevan. There have been stories, and Charles Duelfer, the U.S. weapons inspector, reported allegations that Mr. Sevan got these vouchers, these very valuable vouchers to sell Iraqi oil, seven million barrels. Now, were those to him personally, or were those vouchers he was getting for the company?
PAUL VOLCKER: Well, this is a matter of semantics really. The company had to actually get the oil, but if he designated them, much of the language says he got the allocation. That's just a question of the way you express it. It seemed to be clear that the Iraqis were providing the oil to the particular company at the suggestion of Mr. Benon Sevan.
MARGARET WARNER: All right. Now on to the procurement process that you said was tainted. And here you're talking about the selection of these three other foreign company, as I understand it, that ran other parts of the program, is that right?
PAUL VOLCKER: That's correct. One company, a large French bank, was responsible for holding the funds in escrow from the oil sales, and those funds, among other things, were used to finance imports into Iraq, humanitarian imports. And there was an inspector to vouch for the oil sales, and there was an inspector to inspect the humanitarian imports. And those were the choices that were made that we discuss in the report.
MARGARET WARNER: Okay. One was a French company, one was British and one was Dutch. Now, how did their selection not conform? I mean, what was wrong with the way they were selected?
PAUL VOLCKER: Well, the U.N., as many organizations, had rather detailed rules and regulations about how you made procurement, how you made purchases. They were designed to ensure fairness and competitive bidding. And when the case of the French bank in particular where there was an agreement that that decision would be made by the then secretary-general in consultation with the Iraqis, there were undoubtedly a feeling on the part of Iraq that it should not be a British or American bank. And it turned out there was a feeling on the part of the United States that it should not be a Swiss bank. A bank that remained interested was a French bank. And they got the contract, although they were not the lowest bidder. So that was -
MARGARET WARNER: I'm sorry. Go ahead.
PAUL VOLCKER: -- so that was the problem.
MARGARET WARNER: So when you say that it was tainted by political considerations, what do you mean "political"?
PAUL VOLCKER: I mean the concern of Iraq that it not be a British and American bank, the concern of the United States, among others, that it not be a Swiss bank, because at that time Switzerland was not a member of the United Nations, and they had a reputation for secrecy in operations, and there was some concern about a conflict of interest that was expressed. So that undoubtedly had an influence in not picking the Swiss bank.
MARGARET WARNER: I'm sorry. But you're not suggesting that say the U.S. wanted to keep the British and the French happy or that there was any kind of politics going on like that?
PAUL VOLCKER: No. I think the politics were they didn't want a Swiss bank.
MARGARET WARNER: Okay. Let's move on now to the kickbacks or the surcharges that Saddam Hussein would add on top of the price and then get to keep.
PAUL VOLCKER: Right.
MARGARET WARNER: Now, you found -- you basically confirmed that there were a couple billion dollars worth of surcharges that he got from these companies?
PAUL VOLCKER: Well, that figure is not quite fixed. We will do further investigation, but it may be in that area, yes.
MARGARET WARNER: And who, if anyone at the U.N., is in fault on that?
PAUL VOLCKER: Well, there is a question which is rather elaborate which we will investigate. This is a very preliminary interim report, and we have not examined the precise question that you're asking, but the question is: Was the responsibility with the inspectors that were chosen at this time? Was the responsibility with the secretariat? Did they report aggressively enough to the Security Council and the Security Council committee? We will be opining on that at a later stage.
MARGARET WARNER: Tim Wirth, a former senator and involved in this issue, was on our program a few months ago. He said that the staff really did report it to the Security Council, at the committee, and that the U.S. and others looked the other way. You haven't gotten to that?
PAUL VOLCKER: Well, it depends upon just what illicit transactions you're talking about. I think this were some indication, yes, of reporting. It depends upon what time the program was in effect, and the question of what was done about it. There were parallel sales of oil outside the program by Iraq to Jordan, to Turkey, eventually to Syria and to Egypt, and there's a question about whether that became known, but there's no question that some of those sales were known by the Security Council and they decided not to do anything about it.
MARGARET WARNER: And there you're basically talking about the smuggling of illegal oil sales outside the program?
PAUL VOLCKER: Exactly, yes.
MARGARET WARNER: I know you've got a couple other reports coming. How soon will you report on the Kofi Annan-Kojo Annan matter be out?
PAUL VOLCKER: Well, I can't tell you that with any precision. We want to be very sure, given the obvious sensitivity of that when we make a report that we have the right answer.
And you may have noticed or other people may have noticed there was a report just recently about some activities of Kojo in connection with another type of transaction connected with the program. And we're going to have to look into that a little more carefully, too.
MARGARET WARNER: You've been at this about ten months. Are you prepared to say now -- how big a scandal does this appear to you?
PAUL VOLCKER: Well, let me -- I'm glad you raise that question because in the preliminary comments it was suggested that we had somehow discovered fraud and corruption up and down in the U.N. That is definitely not the case. The only thing that we are prepared to opine upon now is what was in this preliminary report that dealt with these contractors, that dealt with Benon Sevan, dealt with the auditing, as you said, dealt with administrative funds that the U.N. was using to finance their own operations, and by and large we found that that was responsibly used. There's further investigation necessary there, but we haven't got findings now that justify the statement I heard on this program earlier.
MARGARET WARNER: All right. Well, your correction is noted. And thank you, Mr. Volcker, very much.