The Facts Behind the Volcker Commission’s Interim Report

By Joy Gordon

No 5. February 2005
UNA-USA Policy Brief

Introduction

The media and the critics of the United Nations have made much of the interim report of the Independent Inquiry Committee’s (the “Volcker Commission”) finding that the UN’s Oil-for-Food Programme was “tainted,” going as far as to conclude that the program as a whole—and perhaps the UN itself—is corrupt. In fact, the Commission’s findings are much more limited than that. The interim report does not have much to say about the “big ticket” accusations: that Saddam Hussein was able to get $10 billion (or $21 billion, depending on whose numbers you look at) through illicit means. It does say one thing very clearly about the multi-billion dollar accusations: that they largely have nothing to do with the UN or the Oil-for-Food Programme at all.

In this connection, the interim report states: “What does appear clear is that the major source of external financial resources to the Iraqi regime resulted from sanctions violations outside the program’s framework. [S]muggling began years before the Programme started. Exports of Iraqi oil to both Jordan and Turkey and imports from those countries generally took place within the terms of trade agreements negotiated with Iraq. [These agreements were] brought to the attention of the 661 Committee.”[1]

The interim report does address the “2.2 percent account”—that is, the 2.2 percent of proceeds from Iraqi oil sales that covered the UN’s administrative costs, as well as the contracts with companies providing inspection and banking services for the program. The total funds in this account for the seven years of the program’s operation came to $1.4 billion, and of these funds, the UN returned $327 million—nearly 25 percent. This amount was, according to the interim report, “transferred out to be used directly for the benefit of the Iraqi people.”[2]

Much of the Volcker Commission’s overall assessment of the basic UN administration of the Oil-for-Food Programme was strongly positive. According to the interim report, the UN did not treat the account as a “commission,” as a profit-making enterprise to the UN in either design or practice, but rather as a necessary pool to cover actual administrative expenses.[3] The funds were deposited, and there was no evidence of commingling. The Commission found a few instances of inadvertent miscoding and one isolated instance in which remuneration was not correctly allocated.[4] Although the UN’s Internal Audit Division (IAD) did not audit all aspects of the program,[5] its Board of Auditors routinely audited accounting and financial reporting processes. The Commission found that the external audit reports were distributed to the Security Council and others.[6]

The interim report also discusses in detail the three contracts (banking services, oil inspectors and import inspectors), all of which took place in the summer of 1996, under Secretary-General Boutros Boutros-Ghali’s leadership. The interim report concludes that the bidding process in these cases was flawed. But the interim report does not suggest that the companies didn’t do the work, or didn’t do their jobs well. There is no indication that the UN’s contracting process resulted in some form of harm to the Iraqi people, or that Saddam Hussein benefited.

What the interim report does document is that the process involving those three contract decisions was highly politicized. But this was not necessarily the fault of the Secretary-General. It was because the Security Council needed Iraq’s agreement to proceed, and because the program administrators had to accommodate the demands of the United States and Britain. One UN employee, Joseph Stephanides, took it upon himself to influence the contracting process to benefit a country that supported sanctions enforcement.

Finally, the interim report discusses in detail the claim that Benon Sevan, the director of the Oil-for-Food Programme, received and sold oil allocations for personal profit, in direct violation of UN policy.

The Banking Contract

The contract for banking services was given to Banque Nationale de Paris (BNP). The UN staff originally identified five banks with sufficient assets and credit ratings that were deemed acceptable to use—one German bank, two Swiss banks and two US banks. Iraq wanted BNP to be added, and SG Boutros-Ghali agreed. The UN’s Treasury Department ranked Credit Suisse as the strongest choice, but Madeleine Albright, then the US ambassador to the UN, objected to giving the contract to either of the Swiss banks. BNP was approved by Iraq, the US, Britain and France. According to SG Boutros-Ghali, this is why BNP was chosen; it was a political choice that satisfied the major parties interested in the matter.[7]

On this issue, the Volcker Commission is highly critical of the UN for its failure to follow the standard procurement process as the Security Council seems to have authorized its own process. The Memorandum of Understanding (MOU) that, with Security Council Resolution 986, established the Oil-for-Food Programme says nothing about the UN’s standard procurement process, or the criteria that should be employed in selecting the bank, other than that it should be a “major international bank.”[8] It does, however, explicitly give Iraq a role in the selection of the bank. It says that “the Secretary-General, after consultations with the Government of Iraq, will select a major international bank and establish there the escrow account described in paragraph 7 of the Resolution, to be known as ‘the United Nations Iraq Account’ (hereinafter the ‘Iraq Account’). The Secretary-General will negotiate the terms of this account with the bank and will keep the Government of Iraq fully informed of his actions in choosing the bank and opening the account.”[9]

By contrast, the MOU does say that the transactions involving the account should be conducted in accordance with the usual procedures: “All transactions and deductions mandated by the Security Council under paragraph 8 of the Resolution shall be made from the Iraq Account, which will be administered in accordance with the relevant Financial Regulations and Rules of the United Nations.”[10]

SG Boutros-Ghali’s decision to give Iraq a voice in the matter was not arbitrary, nor was it an improper decision on his part. It was mandated by the Security Council. Furthermore, the MOU suggests that the selection of a bank would not necessarily follow the standard procurement procedures, although the financial transactions thereafter would follow standard financial procedures.

The interim report does not discuss this. Instead, it assumes that the normal UN contracting procedures applied, and that the departure from these procedures meant the process was tainted and improper. But the Oil-for-Food Programme is an odd kind of hybrid. If the banking contract were solely a decision of the Security Council, there would be no review of any form. If the Oil-for-Food Programme were part of a standing UN agency, the procurement process would be clear. But the Oil-for-Food Programme was a creation of the Security Council, in conjunction with a political agreement made with the government of Iraq. It involved several UN agencies and offices and, as a result, seems by design to have been partly subject to standard UN procedures and partly exempt from them.

The parts of the Oil-for-Food Programme operated by the Secretariat were in fact operated with far more scrutiny and consistency than those under the purview of the Security Council. The 661 Committee (the Committee of the Security Council charged with implementing the sanctions regime) made literally thousands of decisions about how funds could be spent, whether an account could be unfrozen and whether Iraq could import particular items; it was entirely exempt from review of any sort outside the Council. All of those financial decisions were made politically, with no reference to standard UN financial procedures.

The fact is that when the Security Council invokes Chapter VII, passing a resolution that puts in place a financial system that operates outside normal UN procedures, it is absolutely unclear under international law, or under UN procedures, how such a situation should be resolved.

The Inspection Contracts

The second contract discussed in the interim report concerns Saybolt, the Dutch company that supervised the oil extraction. Again, there were political considerations, although they were certainly not in the service of the Iraqi government. Joseph Stephanides of the UN Department of Political Affairs intervened to see that the oil inspection contract went to Saybolt because the Netherlands had a strong commitment to enforcing Iraqi sanctions.[11] Another company had submitted a lower bid, but Saybolt was allowed to revise its bid, and then awarded the contract.[12]

As with the BNP banking contract, there was no suggestion in the interim report that Saybolt didn’t do its job, or that funds were misspent, or that the Iraqi population was harmed as a result of this contract. Nor is there any suggestion that somehow Saddam Hussein was influencing or benefiting from the contract process.

The inspection contract for goods awarded to Lloyd’s Register likewise involved the intervention of Mr. Stephanides. In this case, a French company had offered a lower bid. According to the interim report, Mr. Stephanides contacted the British Mission to the UN, and they pressured the steering committee of senior UN officials “to come to the right decision”—that is, to go with Lloyd’s Register.[13] Again, there is no suggestion in the interim report that Lloyd’s Register did not do its work, or was serving Saddam Hussein, or engaged in improper acts.

Benon Sevan

The interim report discusses one case of possible corruption—the accusation that Benon Sevan, then the executive director of the Oil-for-Food Programme, asked the Iraqi government for oil allocations, which he then transferred to an Egyptian company. The interim report also finds that Mr. Sevan had $160,000 in income over the six-year-period that he directed the program for which he could not adequately account. According to the interim report, the Iraqi government agreed to give Mr. Sevan an oil allocation in the hope that he would persuade the Security Council to approve Iraq’s request to import spare parts to operate the oil industry. But it was no secret that the Iraqi government had asked him to do this. When Mr. Sevan returned from Iraq in July 1998, he reported to the UN that the Iraqi oil minister and the vice-president had stressed that he and the Secretary-General “spare no effort in ensuring the approval of the contracts for essential oil spare parts.”[14] Nor, apparently, did the Iraqi government think that Mr. Sevan had served it particularly well. His oil allocation was reduced from 1.8 million barrels to 1 million because, according to the interim report, the government of Iraq did not believe that Mr. Sevan had been helpful in lifting the holds.[15]

The interim report does note that Mr. Sevan complained to the Security Council about the holds, both on humanitarian imports and on oil spares—implying that he was influenced by the oil allocations he had received. It is important to note that relying on the information contained in the interim report alone makes it easy to believe that it was improper for Mr. Sevan to try to reduce the holds on oil spares, and that doing so resulted in some illegitimate gain for the Iraqi government.

The fact is that the holds on imports were causing enormous damage to the program as a whole, and that the holds on oil spares in particular compromised the ability of the program to generate enough funds to operate. Mr. Sevan was not alone in raising these concerns; nor were his concerns unfounded.

Even though Iraq was permitted to import oil under the Oil-for-Food Programme, the condition of the oil industry was so poor that it could not always pump the amount allowed, even where that amount was quite low. Once the ceiling on oil exports was lifted, Iraq’s oil income did not increase significantly—its facilities for pumping oil were in poor condition. Even after Iraq was permitted to start purchasing spare parts and pay maintenance costs, the oil industry was in such disrepair that it was not possible for Iraq to significantly increase production. The UN hired an international team of consultants to evaluate Iraq’s oil industry and they did not mince words. Their March 2000 report described the “lamentable state of the Iraqi Oil Industry,” and anticipated declines in Iraq’s ability to pump oil.[16] The primary reason that oil production continued to founder was the lack of spare parts and necessary equipment.

The report further states that “a sharp increase in production without concurrent expenditure on spare parts and equipment would severely damage oil-containing rocks, and pipeline systems. This has now occurred. The reasons for the lack of effectiveness of the spare parts and equipment program are many and the situation can be summarised as ‘too little, too late.’”[17]

The ongoing deterioration of Iraq’s oil industry during the Oil-for-Food Programme’s run was not new information. As one member of the Security Council observed six months earlier, the Secretary-General had already stressed the need to allocate more funds for oil spares and equipment. “The state of the Iraqi oil industry was known to us even before the findings of the oil experts.”[18]

Even though Iraq was permitted to allocate $400 million of the proceeds from oil sales to buy spare parts and equipment, a substantial portion of the equipment it contracted for was blocked or put on hold. As of October 1998, for example, there were contracts totaling $132 million for oil spares submitted; of those, $38 million of contracts were put on hold.[19] As of January 1999, Iraq had submitted $269 million of oil contracts for that six-month period; holds were placed on $51 million of those.[20] When one set of holds was lifted, another set of contracts would be blocked.[21] In August 2002, there were over 600 oil contracts blocked.[22]

The reasons for the holds—almost all of which were imposed unilaterally by the US—were often so vague that neither the manufacturer nor the oil consultants could figure out what information to provide in response. Some equipment would be approved at one point, then rejected at another, with no apparent reason. Equipment was rejected as “dual use,” although it was standard industrial equipment that was necessary for the oil extraction to occur.[23]

Regardless of whether Mr. Sevan was influenced by illicit funds, he was more than justified in pressing the issue of the holds regarding spare parts. Indeed, it was incumbent upon him as Executive Director of the Oil-for-Food Programme to try to resolve the bottleneck that compromised the program’s ability to function.

The Scope of Internal Audits

The UN’s internal auditors—the Office of Internal Oversight Services (OIOS) and its Internal Audit Division (IAD)—did not audit Iraq’s purchases of humanitarian goods and oil spares, or the contracts for the sale of oil. Instead, the Board of Auditors provided external audits, as mandated by Security Council Resolution 986 and the Memorandum of Understanding. Security Council Resolution 986 “requests the Secretary-General to establish an escrow account for the purposes of this resolution, to appoint independent and certified public accountants to audit it, and to keep the Government of Iraq fully informed.”[24] It does not apparently assume that the normal internal auditing will occur, but rather that there will be external accountants appointed to audit the account.

The MOU provides for auditing by the Board of Auditors, “who are external independent public auditors.”[25] The auditors were required to issue periodic reports to the Secretary General, “who will forward them to the 661 Committee and to the Government of Iraq.”[26] According to the interim report, all of this was done.

But the Volcker Commission is extremely critical of the failure of IAD to provide internal audits of the Iraqi government’s oil and humanitarian contracts. IAD staff informed the Volcker Commission that their understanding was that these contracts were outside of their mandate. “The Committee finds that several important aspects of the Programme were not reviewed by IAD. [These include] key elements of the oil and humanitarian contracts, including price and the quality of goods. “[27]

IAD staff explained that these contracts were outside of their purview because of the 661 Committee’s involvement in the program and especially its role in approving oil pricing and in reviewing humanitarian contracts. This remained IAD’s view, even after information about contract abuses had surfaced widely in the media in 2001.[28] However, the Volcker Commission rejects this position: “The Committee finds that the view held by IAD staff that the contracts were beyond their purview was erroneous. IAD had the means and duty to examine these contracts. A thorough audit of these aspects could have uncovered or confirmed the various kickback schemes employed by the Government of Iraq in relation to the Programme.”[29] The interim report does not explain why IAD’s view was “erroneous.” However, it is not at all clear that IAD was authorized to audit these contracts or that it would even have had access to them given the legal constraints.

According to UN policy, OIOS was mandated to conduct internal audits “in accordance with the relevant provisions of the Financial Regulations and Rules of the United Nations, and examine, review and appraise the use of financial resources of the United Nations”[30] (emphasis added). Thus, OIOS reviewed contracts to which the UN was a party, such as the inspection and banking contracts. UN programs conducted internal audits of their operations or (as in the case of UN Habitat) if the agency did not have its own audit staff, it asked OIOS to conduct the audits.

However, the UN was simply not a party to the Iraqi government’s trade agreements. The contracts for humanitarian imports and the contracts for oil sales were between the government of Iraq and commercial companies doing business with Iraq. A memorandum from the UN Office of Legal Affairs (OLA) found that the Office of the Iraq Programme (OIP), which administered the Oil-for-Food Programme, could not even post information about the contracts without the permission of the two parties—the company and the government of Iraq. The parties could be deemed to have consented to making available the information only to the agencies necessary for the approval of the contract: their country’s Mission to the UN; the Secretariat; and the 661 Committee. According to OLA, it could not be assumed that the parties consented to any other disclosure; consequently, any information made available to anyone else—presumably including OIOS—could not include the identity of the person or company contracting with Iraq, the quantity of goods, or the price.[31] Thus, even though the paperwork was available in New York, as the interim report notes, OLA’s finding was that the contracts could not be released to any agencies outside of the approval process without the consent of both the company and the government of Iraq, which would have made an audit impossible.

The interim report as well as the Volcker Commission’s briefing on the audits released in January 2005, suggest repeatedly that the kickbacks might have been prevented if IAD had reviewed the contracts for oil sales and humanitarian imports. But there seems to be no evidence to support that assertion. IAD could only issue recommendations to UN agencies on UN contracts or practices. IAD did not have the power to issue recommendations to member states requiring their companies to change their commercial practices; nor did IAD have the power to recommend that the Iraqi government change its commercial practices. Moreover, IAD did not have the authority to report to the Security Council; OIOS (and IAD) were created by the General Assembly and has no reporting line to the Security Council.

Even if IAD had provided information to the 661 Committee about suspected overpricing or other irregularities, it seems unlikely that this would have effectively curbed the kickbacks. Only the members of the 661 Committee had the power to reject a contract because of pricing irregularities. We know what the Committee’s practices were in that regard. In over 70 cases, OIP staff informed the 661 Committee of contracts where there were clear pricing irregularities and nothing was done. No member of the Committee chose to block or delay any of these contracts—including the US and the UK, the countries that had complained the loudest about rumors of kickbacks.

It is not clear that audits would have provided evidence of kickbacks in the bulk of the cases. Although former Iraqi government officials have said that they routinely increased contract prices by 5 to 10 percent, even a close examination for kickbacks produced only the conclusion that less than half of the contracts looked at were “potentially” overpriced. The Defense Contract Audit Agency conducted a study on nearly 800 Oil-for-Food contracts, comparing prices to world market prices, the sale of similar items, published industry standards and other sources.[32] It found that about half were “reasonably priced,” and about half were “potentially overpriced,” meaning that the overpricing was 5 percent or more of the value of the contract. In light of the 661 Committee’s refusal to block contracts where pricing irregularities were far higher, it seems unlikely that they would have vetoed contracts with pricing irregularities of just 5 or 10 percent.

The question is not: “How could IAD have thought it had no authority to audit the oil sales and import contracts?” IAD’s mandate concerns UN operations, not commercial contracts between foreign governments and foreign companies. In addition, the Security Council established a program that explicitly provided for external auditing by the Board of Auditors, but which bypassed the usual process of internal audits.

The real question is: When a Security Council decision runs contrary to other UN policies, which trumps the other? In the case of the Oil-for-Food Programme, the answer has consistently been that the Security Council does. This holds true not only for procurement procedures and auditing mandates, but also for the very structure of the sanctions regime. The fact that the procurement process was politicized should not come as a surprise to those familiar with the program. At every juncture, the Security Council and its individual members made critical decisions determining the contours of the operation of the program, and this was true even for those that overrode the normal mandates of UN agencies. When the UN’s humanitarian agencies sought to deliver humanitarian goods, the Security Council determined that neither they nor other humanitarian or relief organizations could do so freely; they were restricted to goods permitted by the Security Council and were required to provide notification in some cases, and receive permission in others.

There is no formal restraint on the Security Council’s decision-making process.[33] It is explicitly a political body and its decisions are not subject to judicial review, nor are they subject to the constraints of the UN’s normal institutional procedures. This is particularly true when the Security Council is acting pursuant to its powers under Chapter VII, and Security Council Resolution 986 was passed under the auspices of this very chapter.

The Volcker Commission does a disservice to its task if it treats the Oil-for-Food Programme as though it simply should have abided more closely to the UN’s normal institutional procedures. That was not possible. Such a view ignores the fact that the program operated in the context of Security Council resolutions, and that it was implemented through ongoing political negotiations and compromises within the Security Council. It is a terrible disservice to attack the UN for “its failure to follow its own internal procedures” regarding contracting and auditing when the program was, from its inception to its termination, structured by the decisions of the Security Council and its members.

Where to Go From Here

The interim report of the Volcker Commission does not by any means offer evidence of widespread corruption or institutional failure, either within the context of the Oil-for-Food Programme, or more broadly within the United Nations. It addresses only a very minor part of the Oil-for-Food Programme—specifically the 2.2 percent account. Its findings concerning three of the contracts (all in 1996 under the former Secretary-General) made under that account suggest that the contracting process was subject to political intervention and should probably have been awarded to other companies. However, the interim report does not suggest that the contracted companies failed to perform their job, or that they were subject to Saddam Hussein’s influence, or that they had a negative impact on the Iraqi people.

The interim report provides documentation to support one case of alleged corruption involving Benon Sevan. It strongly suggests that he profited from illegal oil allocations in direct violation of UN policy. The interim report does not suggest that others in the UN knew of his actions or that his superiors knowingly tolerated them. It also suggests that it was because of the illicit profits that Mr. Sevan engaged in lobbying efforts to lift the holds on spare parts for oil extraction. However, it was widely recognized by everyone involved with the program that Iraq’s oil industry was near collapse, and that parts and equipment were necessary if there were to be any oil sales.

The interim report’s criticisms regarding the scope of the auditing—that IAD failed in its responsibilities when it did not perform internal audits on the export and import contracts—should be reconsidered. IAD’s mandate concerns UN funds and UN programs, not contracts between sovereign governments and independent companies. Furthermore, in creating the Oil-for-Food Programme and its terms, the Security Council established the scope and nature of its audits. Perhaps the Council should have done differently, but it did not, and there is no body within the United Nations that can override the decisions of the Security Council.

Joy Gordon is a professor of philosophy at Fairfield University and is writing a book about Iraq sanctions to be published by Harvard University Press.

NOTES

[1] “Interim Report,” Independent Inquiry Committee into the United Nations Oil-for-Food Programme, February 3, 2005, p. 42 (hereafter “interim report;” http://www.iic-offp.org/documents/InterimReportFeb2005.pdf). Furthermore, the interim report notes that successive US administrations not only recognized the existence of these violations of the sanctions regime, but refused to punish Jordan or Turkey for participating in them, p. 42.

[2] Interim Report, p. 39.

[3] Interim Report, p. 39.

[4] Interim Report, p. 39.

[5] IAD conducted audits and produced 58 reports, including audits of the UN Office of the Humanitarian Coordinator in Iraq, UN Habitat, the UN escrow account, and other aspects of UN operations and financial resources in Iraq.

[6] Interim Report, p. 39.

[7]Interim Report, p. 83.

[8]“Memorandum of understanding between the Secretariat of the United Nations and the Government of Iraq on the implementation of Security Council resolution 986 (1995),” S/1996/356, para. 12 (hereafter “MOU”).

[9] MOU, para. 12.

[10] MOU, para. 12.

[11] Interim Report, p. 85.

[12] Interim Report, p. 92.

[13] Interim Report, p. 101.

[14] Interim Report, p. 133.

[15] Interim Report, p. 136.

[16] “The level of exports during phase 7 will decline from the level of 2.2 million barrels per day achieved in phase 6, to a level of between 1.8 to 1.9 million barrels per day,” (”Report of the Group of United Nations Experts Established Pursuant to Paragraph 30 of the Security Council Resolution 1284 (2000). March 2000, p.9.)

[17] “Report of the Group of United Nations Experts Established Pursuant to Paragraph 30 of the Security Council Resolution 1284, March 2000, p.15. A report by the Secretary-General reiterated this: “Spare parts and equipment and the impact of holds on contract applications: According to the group of experts, the recent decrease in the production and export of crude oil can be attributed to the failure to replenish depleted wells, the delays in implementing wet crude treatment projects and the loss of producing wells—56 in the south alone. Other contributing factors include the failure to carry out major plant and equipment overhauls, delays in the repair of the pipeline systems, the further decline in conditions on the Mina al-Bakr loading platform and limitations in the crude oil storage and transportation system. These are all factors that have arisen because of the lack of necessary spare parts and equipment.” Report of the Secretary-General pursuant to paragraph 28 and 30 of resolution 1284 (1999) and paragraph 5 of resolution 1281 (1999) S/2000/208. para 49.

[18] Minutes of Security Council meeting, 24 March 2000, S/PV.4129 (Resumption 1): Delegate from Namibia (Mrs. Ashipala-Musavyi), p. 6. Indeed, a report from the Secretariat on the Programme’s operation from December 1996-1998 noted that “the oil spare parts and equipment required by Iraq are not always readily available and in some cases must be custom made; they often have long delivery periods, as stated in the relevant contracts submitted for approval. However, there have been considerable difficulties experienced in receiving approval of applications submitted to the Security Council Committee established by resolution 661 (1990). Inconsistencies have also been noted in the manner in which applications for spare parts have been placed on hold, depending on the geographical location of the installations concerned.” Review and assessment of the implementation of the humanitarian programme established pursuant to Security Council resolution 986 (1995) (December 1996-November 1998): S/1999/481 para. 28.

[19] As at 31 October 1998, 277 applications for oil spare parts and equipment worth $155.932,902 had been received by the Secretariat, of which 217, worth $132,632,124 had been circulated to the committee; 112, worth $88,875 were being processed and 77, worth $37,998,946 were on hold; 15, worth $2,963,875 were being processed; and 5 had been cancelled. (Report of the Secretary General pursuant to paragraph 10 of the Security Council resolution 1153,” 1998, p. 110, para 13.)

[20] In addition, it has not been possible to utilize fully the available funds apportioned to the oil spare parts sector under phase IV owing to delays in the submission to the Secretariat of applications for goods in this sector, as well as to holds placed on 113 applications in the amount of $50,631,743. As at 31 January 1999, the Office of the Iraq Programme had received only $269 million worth of applications, against a distribution plan allocation of $300 million. No application for this sector has yet been received for phase V. “Report of the Secretary-General pursuant to paragraph 6 of Security Council resolution 1210 (1998),” 1999, p. 187, para. 11.

[21] “Report of the Secretary-General Pursuant to Paragraph 6 of Security Council Resolution 1210 (1998)-(S/1999/187).” Introductory statement by Benon V. Sevan, Executive Director of the Iraq Programme, at the informal consultations of the Security Council on 25 February 1999 (OIP web site): “We welcome the increasingly flexible approach taken by members of the 661 Committee in reducing substantially the holds placed on oil spare parts and equipment. However, just as we welcome the decrease in numbers of holds, we face additional holds placed on new applications.”

[22] Status List, Office of Iraq Programme, “Oil Spares Holds as at 14 August 2002.”

[23] The key problem areas regarding the lack of effectiveness of the spare parts and equipment program: The long delays in obtaining approval of individual contracts, in some cases exceeding a year, after which contracted suppliers may not wish to perform as contracted, whether on price or delivery; large contracts placed on hold because one, or a few, items are considered unacceptable. Specific and timely advice on the unacceptable items would allow revised contracts to be raised for the balance of non-contentious items; the lack of specificity in reasons given for holds. Non-specific reasons, such as “dual-usage concern” and “not directly related to the repair of the Iraqi oil infrastructure for the purposes of increasing exports,” effectively result in holds that cannot be removed and allocated funds cannot be utilized for the other essential needs; The lack of time limits. Delays for evaluation for “mission clarification” and holds “pending further clarification” remain in place seemingly indefinitely; The lack of consistency regarding holds between phases. Spare parts and equipment approved, contracted and delivered in phase 4 are placed on hold in phases 5 and 6; the lack of clarification of holds based on “1051 concerns.” Without specificity, action cannot be taken to resolve such holds, nor can reordering of such items be avoided in subsequent contracts,” p. 98.

[24] Security Council Resolution 986 (1995), para. 7.

[25] MOU, para. 14.

[26] “In accordance with the United Nations Financial Regulations, the ‘Iraq Account’ will be audited by the Board of Auditors who are external independent public auditors. As provided for in the Regulations, the Board of Auditors will issue periodic reports on the audit of the financial statements relating to the account. Such reports will be submitted by the Board to the Secretary-General who will forward them to the 661 Committee and to the Government of Iraq.” MOU, para. 14.

[27] Interim Report, p. 189.

[28] Interim Report, p. 182.

[29] Interim Report, p. 189.

[30] Secretary-General’s Bulletin, “Establishment of the Office of Internal Oversight Services,” 7 September 1994, ST/SGB.273, para 13.

[31] Memorandum from Ralph Zacklin, Assistant Secretary-General for Legal Affairs, 25 February 1999.

[32] Statement for the Record of Michael Thibeault, Deputy Director, Defense Contract Audit Agency, Hearings of the House Subcommittee on National Security, Emerging Threats, and International Relations, April 21, 2004.

[33] The Security Council itself can seek an advisory opinion from the International Court of Justice, as can the General Assembly, and UN agencies (within the scope of their mandate). There is no recognized venue by which the legality of the Security Council’s actions can be challenged or overridden.