INTERIM REPORT The Initial Procurement of United Nations Contractors (1996) Benon Sevan and Oil Allocations Internal Programme Audits Management of the Programme’s Administrative Account (2.2%) Paul A. Volcker, Chairman Richard J. Goldstone, Member Mark Pieth, Member February 3, 2005 www.iic-offp.org This page is intentionally left blank INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME INTERIM REPORT TABLE OF CONTENTS PART ONE I. PREFACE ................................................................................................................. 1 II. INTRODUCTION....................................................................................................... 3 A. Brief Overview of the Programme............................................................................... 4 B. The Mandate, Organization, and Procedures of the Independent Inquiry Committee. 6 III. PROCUREMENT....................................................................................................... 9 A. Summary Background ................................................................................................. 9 B. Questions ................................................................................................................... 10 C. Escrow Account: Banque Nationale de Paris ............................................................ 10 D. Oil Inspectors: Saybolt Eastern Hemisphere BV....................................................... 12 E. Goods Inspectors: Lloyd’s Register Inspection Ltd................................................... 14 F. Findings and Conclusions.......................................................................................... 16 IV. BENON SEVAN AND OIL ALLOCATIONS ............................................................... 19 A. Summary Background ............................................................................................... 19 B. Questions ................................................................................................................... 19 C. Actions....................................................................................................................... 19 D. Findings and Conclusions.......................................................................................... 25 V. INTERNAL AUDITS ................................................................................................ 29 A. Summary Background ............................................................................................... 29 B. Questions ................................................................................................................... 29 C. Overall Assessment.................................................................................................... 29 D. Application of Internal Audit “Best Practices”.......................................................... 30 E. Findings and Conclusions.......................................................................................... 31 F. Recommendations...................................................................................................... 33 VI. ADMINISTRATIVE EXPENDITURES ....................................................................... 37 A. Summary Background ............................................................................................... 37 B. Questions ................................................................................................................... 37 C. Methodology.............................................................................................................. 38 D. Findings and Conclusions.......................................................................................... 38 E. Recommendations...................................................................................................... 40 VII. MAGNITUDES ........................................................................................................ 41 i INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME INTERIM REPORT TABLE OF CONTENTS PART TWO CHAPTER 1........................................................................................................................ 43 I. OVERVIEW ............................................................................................................ 43 II. THE INVESTIGATION ............................................................................................ 45 A. Staff and Investigative Approach............................................................................... 45 B. Witness Interviews..................................................................................................... 45 C. Documentary and Electronic Evidence...................................................................... 46 III. COMMITTEE POLICIES AND PROCEDURES .......................................................... 49 A. Adverse Notice Process ............................................................................................. 49 B. Law Enforcement Cooperation.................................................................................. 49 CHAPTER 2........................................................................................................................ 51 I. ESTABLISHMENT OF THE OIL-FOR-FOOD PROGRAMME .................................... 51 A. Historical Context...................................................................................................... 51 B. Resolution 986 ........................................................................................................... 51 C. Memorandum of Understanding................................................................................ 52 D. Programme Contractors ............................................................................................. 52 E. Rules and Procedures................................................................................................. 53 II. EVOLUTION OF THE PROGRAMME....................................................................... 57 A. Overview.................................................................................................................... 57 B. United Nations Administration of the Programme .................................................... 58 III. UNITED NATIONS RULES OF EMPLOYEE CONDUCT............................................ 61 CHAPTER 3........................................................................................................................ 63 I. INTRODUCTION..................................................................................................... 63 II. THE UNITED NATIONS PROCUREMENT RULES ................................................... 65 III. THE IRAQ STEERING COMMITTEE ...................................................................... 69 IV. SELECTION OF A BANK – BANQUE NATIONALE DE PARIS................................... 73 A. Toward Selection of BNP .......................................................................................... 73 B. Questions Remaining................................................................................................. 78 V. SELECTION OF OIL INSPECTORS - SAYBOLT EASTERN HEMISPHERE BV.......... 85 A. Before Formal Bidding .............................................................................................. 85 B. The Initial Bidding Process........................................................................................ 87 C. Revision of the RFP................................................................................................... 89 D. The Steering Committee’s Intervention..................................................................... 91 E. Explanation of Allan B. Robertson............................................................................ 94 ii INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME INTERIM REPORT TABLE OF CONTENTS VI. SELECTION OF GOODS INSPECTORS – LLOYD’S REGISTER INSPECTION LTD. .. 97 A. The Initial Bid Process............................................................................................... 98 B. Alerting the United Kingdom .................................................................................... 99 C. Intervention of the Iraq Steering Committee ........................................................... 101 D. Rejecting All Bids and the “Interests of the Organization”..................................... 103 E. Explanation of Joseph J. Stephanides ...................................................................... 107 VII. FINDINGS AND CONCLUSIONS ............................................................................ 109 VIII. ANNEX................................................................................................................. 113 CHAPTER 4...................................................................................................................... 121 I. INTRODUCTION: OIL ALLOCATIONS AND BENON SEVAN................................. 121 II. BACKGROUND OF BENON SEVAN ....................................................................... 123 III. IRAQ AND OIL ALLOCATIONS ............................................................................ 125 IV. OIL FOR AMEP.................................................................................................. 127 V. ALLOCATIONS OBTAINED BY BENON SEVAN ...................................................