Iraq
Expected Council Action
The Council is facing a difficult decision over residual issues from the Iraq oil-for-food programme. The issue seems minor in that the amount involved ($273 million) is small relative to the $44 billion the programme managed throughout its 13 year life. However the spectre of the scandals raised in 2004-05 still looms. The UN Independent Inquiry Committee (the Volcker Committee) found evidence that Saddam Hussein had manipulated the programme and evidence of corruption involving numerous companies and government officials. There were also unproved—but very damaging—allegations against UN officials.
The Iraq oil-for-food programme was finally terminated on 31 December 2007. When the programme was terminated a residual issue that remained was the existence of several hundred contracts under the programme where suppliers claimed to have delivered goods to the Saddam regime but were unpaid because of lack of evidence of receipt. Currently there are 132 such contracts and they are understood to include companies from three permanent members, Russia, China and France, as well as some other countries.
Russia, with general support from the P5, has been pushing for the Council to make an exception to the rules and pay out on all the contracts in the absence of receipts. The Secretariat is concerned that it will be left with legal responsibility and (bearing in mind how much it was criticised after the Volcker report) also a huge political risk.
Costa Rica is opposing adoption of a draft letter from the Council to the Secretary-General. Some P5 members seem to be contemplating a voted resolution to override Costa Rica’s objections.
Background
The UN is holding funds in escrow to cover the costs of these residual contracts. Current rules require the Secretariat to release payments only upon receipt of documentation confirming delivery. Any final balance is to be transferred to the Development Fund for Iraq (DFI).
Under the oil-for-food programme, payment to a company that had entered into a contract with the Saddam regime to supply humanitarian goods was guaranteed through a letter of credit.
After receiving advice from the Secretary-General in March that payment was not possible on a number of letters of credit because of the slow processing of authentication documents by the Iraqi government, the P5 circulated a draft letter for approval by the Council. This draft in effect proposed, after a 45 day pause, that all outstanding letters of credit would be automatically paid regardless of whether there was documentation. (For more detail, please see our May 2008 Forecast.)
Costa Rica opposed approving the draft letter, which under Council working methods requires consensus. It argued that in light of the deficient handling of the oil-for-food programme in the past and the conclusions of the independent inquiry in 2005 it was all the more important for the Council either to stick to the rules or put proper legal mechanisms in place to protect the UN.
The Secretary-General reported to the Council in May and reiterated that the problem continued. Payment of just four out of 167 outstanding letters had been possible in the reporting period. The Iraqi government also wrote to the Council requesting that the deadline to provide the authentication documentation for outstanding letters of credit be extended to 30 June. The Council, in response, decided to delay the transfer of unencumbered funds associated with the oil-for-food programme from the UN Iraq account to the DFI until all outstanding issues were resolved. The Council also requested an update report in July.
The July report revealed that as of 30 June 132 letters of credit with claims of delivery but no authentication documents remained. These had an approximate value of $273 million. The UN/Iraq Working Group suggested three possible options:
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continue to monitor progress and process the remaining letters of credit as evidence was provided by Iraq;
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establish a dispute-resolution mechanism (as has been proposed by the Secretary-General in December 2007 but rejected by the Council as too cumbersome); or
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agree with Iraq to transfer all funds in the escrow account to the DFI, and for Iraq to assume the responsibility for administering the remaining letters of credit.
In July Costa Rica requested that any solution include:
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measures to ensure there are no conflicts of interest, surcharges or other irregularities for operations in which it is recommended that outstanding payments be settled;
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verification measures to authorise payment where there is no confirmation that goods have been received by the government; and
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an indication of whether any companies claiming payment without confirmation of receipt of goods were also mentioned in the Volcker Committee report.
In late August, Costa Rican Foreign Minister Bruno Stagno wrote to the Secretary-General requesting a list of companies with outstanding letters of credit. Stagno also expressed concern about the Working Group’s option of transferring funds in the escrow account to the DFI, in light of recent reports from the International Advisory and Monitoring Board of deficiencies and weaknesses in the administration of this Fund.
Options
Previously suggested options include:
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continuing with current arrangements;
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establishing a dispute resolution mechanism;
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transferring funds and the responsibility for administering the remaining activity of the programme to the Iraqi government; and
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adoption of the letter drafted in March by the P5 proposing the payment of outstanding letters of credit with claims of delivery but without authentication documentation.
Another possible option is for the Council to approve the Iraqi government assuming responsibility and itself authorising payment of outstanding letters of credit from the escrow account subject to Iraq providing an indemnity to the UN against any future claims.
Key Issues
A key issue for the Council is the legacy of the Volcker report on the UN administered oil-for-food programme, which found misadministration and evidence of corruption, and the risks associated with, again, being seen to improperly administer the programme. (The Secretary-General’s July report asks that the UN be comprehensively protected from any claims resulting from administration, operation and management of the programme. The main issue for the Council is to ensure proper processes are applied to resolve outstanding letters of credit thereby safeguarding the UN from future legal action.)
A further issue arises from the fact that traditionally P5 members have dominated this issue—and some have been major beneficiaries of the programme. A related issue is whether to proceed by consensus or put the matter to a public debate and vote, inevitably drawing attention to the rift on this issue between permanent members and an elected member.
A major issue has been the Iraqi government’s difficulty in issuing authentication documents. Underlying the government’s failure to transmit authentication documents to pay suppliers, or documentation contesting claims of delivery, may be genuine problems of capacity or the sheer absence of information in the aftermath of the war.
Council and Wider Dynamics
For the P5, issues relating to Iraq have been difficult and divisive. There seems to be a strong sense among them that the Council should just take a political decision and move forward. Companies from France, China and Russia have outstanding unpaid contracts. There is also some P5 sympathy for the view remaining companies have now been waiting for payment for over six years.
Historically the elected members of the Council have tended to pay only limited attention to these issues. Often they have been all too happy to leave hard decisions on this to the P5. However, well before its election to the Council Costa Rica was active on oil-for-food programme issues. It called, in the General Assembly, for effective follow-up of the recommendations made in the Independent Inquiry Committee in 2005. Since becoming a member of the Council in January Costa Rica has repeated its concerns with the handling of the oil-for-food programme.
The proposal to simply pay outstanding creditors without any authentication documents raised serious concerns for the Secretariat and Costa Rica about exposing the UN to claims. Some Council members seem sympathetic to these concerns, and are keen to find an alternative arrangement. Some members are anxious to ensure that whatever measures are selected, they are final and neither the Iraqi government nor the companies in question have an opportunity to criticise the UN.
The Iraqi government has expressed support for any decision by the Council to resolve outstanding issues. Most members seem to agree that a formal dispute settlement mechanism would be unnecessary, expensive and complicated, and would only further delay the conclusion of outstanding elements of the programme. Despite the Iraqi government expressing its willingness to accept responsibility for administering the remaining process, there also seems to be reluctance among some P5 members to transfer responsibility of the programme to the government, perhaps fearing slow processing. Some elected members also put some blame on Iraq for lack of cooperation in the past.
There is a general sense that the Council has been generous with time and support for concluding the oil-for-food programme and that it is time for a compromise solution that is both quick and protects the UN.
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Selected Security Council Resolutions |
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Latest Secretary-General’s Reports |
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Selected Letters |
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2005 Independent Inquiry Committee into the UN Oil-for-Food Programme, www.iic-offp.org
