SECOND INTERIM REPORT The 1998 Procurement of the Humanitarian Goods Inspection Contract Other Conduct of United Nations Officials Paul A. Volcker, Chairman Richard J. Goldstone, Member Mark Pieth, Member March 29, 2005 www.iic-offp.org INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME SECOND INTERIM REPORT TABLE OF CONTENTS I. INTRODUCTION.................................................................................................... 1 II. SUMMARY OF COTECNA FACTUAL BACKGROUND................................ 3 A. COTECNA INSPECTION S.A.................................................................................... 3 B. EVENTS LEADING UP TO COTECNA’S BID FOR THE INSPECTION CONTRACT IN 1998............................................................................................... 3 C. COTECNA’S BID AND AWARD OF THE CONTRACT................................................. 4 D. KOJO ANNAN ........................................................................................................ 4 E. QUESTIONS RAISED ABOUT COTECNA.................................................................. 5 F. CONTINUATION OF COTECNA’S CONTRACT .......................................................... 6 III. DETAILED REVIEW OF COTECNA’S SELECTION...................................... 7 A. THE UNITED NATIONS PROCUREMENT AND ETHICS RULES .................................. 7 B. COTECNA AND THE AWARD OF THE INSPECTION CONTRACT .............................. 13 C. COTECNA, KOJO ANNAN, AND THE SECRETARY-GENERAL................................. 25 D. EVIDENCE RELATING TO ANY INFLUENCE ON THE AWARD OF THE CONTRACT TO COTECNA.............................................................................. 48 E. QUESTIONS RAISED ABOUT COTECNA AND KOJO ANNAN................................... 49 F. CONTINUATION OF COTECNA’S CONTRACT ........................................................ 71 G. RESPONSES TO NOTICES OF ADVERSE FINDINGS................................................. 73 IV. FINDINGS AND CONCLUSIONS...................................................................... 77 V. OTHER CONDUCT.............................................................................................. 81 A. S. IQBAL RIZA..................................................................................................... 81 B. DILEEP NAIR....................................................................................................... 84 APPENDIX GLOSSARY CHRONOLOGY This page is intentionally left blank INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME SECOND INTERIM REPORT THE SELECTION OF COTECNA INSPECTION S.A. I. INTRODUCTION In December 1998, the United Nations selected a Swiss company, Cotecna Inspection S.A. (“Cotecna”), to conduct inspections of humanitarian goods entering Iraq under the Oil-for-Food Programme (“the Programme”). Cotecna replaced the former inspection company, Lloyd’s Register Inspection Ltd. (“Lloyd’s”) of the United Kingdom.1 Cotecna’s initial service contract ran for six months, from February 1 to July 31, 1999, and its contract was extended several times through the termination of the Programme’s activities in November 2003. In this Second Interim Report, the Independent Inquiry Committee (“the Committee”) addresses the propriety of Cotecna’s receipt and retention of the humanitarian goods inspection contract.2 The Report addresses the following three questions: 1. Was the selection of Cotecna Inspection S.A. in 1998 free of improper or illicit influence and conducted in accordance with the United Nations’ financial and procurement regulations, including the competitive bidding rules? 2. Was the conduct of the Secretary-General with respect to the selection and retention of Cotecna Inspection S.A. adequate, especially relating to a possible conflict of interest or the appearance of a conflict of interest? 3. Were the actions of persons other than the Secretary-General free from impropriety or misrepresentation? Part II of this Report summarizes the relevant factual background in regard to the selection of Cotecna. At the end of this Report, the Committee includes a chart illustrating the chronology of key events. Part III of the Report is a detailed review of the Committee’s evidence. Section A discusses the background rules of procurement and ethical standards of conduct governing conflicts of interest at the United Nations at the time that Cotecna was selected. Section B reviews the background of Cotecna, its prior efforts in 1992 and 1996 to win the Iraq inspection contract, and its bid for and award of the contract in 1998. Section C reviews Kojo Annan’s employment history with Cotecna leading up to Cotecna’s award of the contract in 1998, and it reviews evidence of 1 The initial 1996 selection of Lloyd’s to inspect the humanitarian goods was a subject of the first Interim Report. See Independent Inquiry Committee, “Interim Report” (Feb. 3, 2005) (hereinafter “First Interim Report”), pp. 97-108. 2 This Report does not address issues concerning Cotecna’s performance of its duties. The Internal Audit Division (“IAD”) of the United Nations Office of Internal Oversight Services (“OIOS”) previously addressed this issue in an audit report, which is now posted on the Committee’s website. See OIOS Audit Report, No. AF2002/23/1 (Apr. 8, 2003), http://www.iic-offp.org/documents/OIOS/OIP% 20Report%2019%20-%20OIP%20UNOHCI.pdf. Although the Committee has not commented on the substance of IAD’s findings, it will do so in its future report on the Programme’s administration. INTERIM REPORT – MARCH 29, 2005 PAGE 1 OF 90 INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME SECOND INTERIM REPORT THE SELECTION OF COTECNA INSPECTION S.A. meetings between Cotecna’s chairman and the Secretary-General in 1997 and 1998. Section D discusses whether the evidence indicates that the Secretary-General exercised influence on the contract bidding or award process. Section E discusses the concerns raised in January 1999 after the contract was awarded to Cotecna about Cotecna’s relationship with Kojo Annan and about the investigation of Cotecna in Switzerland involving allegations of illicit payments made for the benefit of former Pakistani Prime Minister Benazir Bhutto. It discusses the United Nations’ response to these public concerns and the efforts of Cotecna and Kojo Annan to conceal their continuing financial relationship. Section F reviews the multiple extensions of Cotecna’s contract through 2003. Section G addresses the responses of parties against whom the Committee has made adverse findings in connection with the selection of Cotecna. Part IV of this Report presents the Committee’s findings and conclusions concerning the selection of Cotecna. With respect to two separate matters of the Committee’s investigation, Part V of this Report presents the Committee’s evidence and its findings and conclusions concerning: (A) the conduct of S. Iqbal Riza, the former Chef de Cabinet to the Secretary-General, in connection with his authorizing staff members to shred his “chron” documents during the pendency of the Committee’s investigation; and (B) the conduct of Dileep Nair, the Under-Secretary-General for Internal Oversight Services, in connection with his use of Programme funds to hire a special assistant for work in his office. Attached in the Appendix to this Report are submissions received from parties against whom the Committee has made adverse findings, where the party has requested that the submission be made a part of this Report. The Committee invites such submissions in response to letters it sends advising parties of its proposed adverse findings; parties may elect also to meet with the Committee. All written and oral submissions are considered by the Committee before making its final findings. Accordingly, the findings in this Report may differ from a proposed finding discussed in a party’s response. INTERIM REPORT – MARCH 29, 2005 PAGE 2 OF 90 INDEPENDENT INQUIRY COMMITTEE INTO THE UNITED NATIONS OIL-FOR-FOOD PROGRAMME SECOND INTERIM REPORT THE SELECTION OF COTECNA INSPECTION S.A. II. SUMMARY OF COTECNA FACTUAL BACKGROUND A. COTECNA INSPECTION S.A. In 1998, Cotecna was in the business of commercial trade inspections. It operated under contracts with governments and private companies to authenticate and certify the shipment, arrival, quantity, and quality of goods and commodities during the course of international trade. Based in Switzerland, Cotecna was a family-owned business founded, owned, and controlled by its chairman, Elie Georges Massey. Cotecna’s Chief Executive Officer was Robert Massey, the son of Elie Massey. Cotecna had long been interested in the United Nations inspection contract for Iraq. In 1992, it prevailed over other bidders for the contract, but the Government of Iraq declined at that time to proceed with the Security Council’s initial resolutions that would have authorized Iraq to sell oil to generate proceeds for purchasing and importing humanitarian goods. In 1995, the Security Council tried again, and this time Iraq agreed in May 1996 to participate in what became known as the “Oil-for-Food Programme.” The United Nations again initiated a competitive bidding process for the inspection contract in 1996, and Cotecna submitted a proposal. This proposal was not competitive with those of the other bidders. In any event, the United Nations deviated from the bidding process for political reasons and selected Lloyd’s, a British company,