On October 27, 2005, the Independent Inquiry Committee into the United Nations’ Oil-for-Food Program issued its fifth and final report (“Report”) on allegations of misconduct and corruption by participants in the program. After a year-and-a-half investigation, the Committee concluded that $1.8 billion in illicit payments had been made to the Saddam Hussein regime on behalf of buyers of oil and suppliers of humanitarian goods under the program. A number of the companies cited in the Report are already under government scrutiny. However, as was the case following previous Committee reports, the new revelations may well serve as a catalyst for enforcement authorities to launch additional investigations.
The UN established the Oil-for-Food Program in 1996 to allow food and medicine to reach Iraq following the imposition of UN sanctions after Iraq’s 1990 invasion of Kuwait. Iraq was permitted to sell oil at a fair market price on the condition that the proceeds were deposited in a UN-controlled escrow account and used solely for humanitarian purposes. Under the sanctions, transactions were authorized only with the explicit prior approval of the UN Sanctions Committee.
The Committee found, however, that nearly 2,400 participants in the program were involved in unauthorized transactions, in violation of both UN sanctions and the conditions of the program. According to the Report, the diversion of funds took two primary forms: “surcharges” imposed on purchases of Iraqi oil; and “transportation” and “after-sales service” fees imposed on contracts to sell humanitarian goods to Iraq. The vast majority of the improper payments were made in connection with the humanitarian goods sales. The Report lists 2,253 companies that made a total of over $1.5 billion in such payments.
Because the Iraqi Government had discretion in choosing purchasers and suppliers, participants were largely from countries less supportive of the sanctions, particularly Russia and France. However, program participants cited in the Report hail from over sixty different countries, including the United States. These participants include prominent multinational corporations, as well as relatively unknown entities.
Companies listed in the Report could face varying degrees of legal exposure. Through a complicated coding scheme, the Report makes a number of potentially important distinctions among the companies, based on a variety of factors, including the nature of the transactions, the magnitude of the payments, and the level of corporate knowledge. Importantly, the Report emphasizes that the mere identification of a company’s contract as the subject of an improper payment does not reflect a finding that the company itself “made, authorized, or knew about an illicit payment.”
Investigations related to the Oil-for-Food Program were already underway in France, Switzerland, the United Kingdom, and the United States when the Report was issued. Additional inquiries could now follow. Since the Report’s release, at least one Committee member has expressed a willingness to share evidence with enforcement authorities, and the UN Secretary-General has encouraged such authorities to take action. Australian authorities have announced an investigation, and German prosecutors are reportedly considering inquiries as well. Given the broad scope of the Committee’s findings, companies should determine whether (and, if so, why) they or any affiliates or business partners are identified in the Report. Even if no further enforcement actions occur, the Report underscores the increasingly international focus on anticorruption and sanctions issues.