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The Volcker report and troubling issues

The fifth and final report of the "Independent Inquiry Committee" on the "manipulation" by Iraq of the United Nations' Oil-For-Food Programme (OFFP) between 1996 and 2003 is an informative, but complex and deeply problematical document. The Committee was appointed in April 2004 — a year after United States-led forces invaded Iraq, bypassing the U.N. and international law — by Secretary General Kofi Annan amidst allegations of fraud and corruption on the part of U.N. officials, personnel, agents, and contracting companies. It was asked to investigate the administration and management of the OFFP, including the allegations. These terms of reference constituted the first serious problem. Following the Gulf War triggered by the Saddam regime's calamitous invasion of Kuwait, Iraq was under a deadly regime of U.N. sanctions between 1991 and 2003. According to Iraq Under Siege, a book of well-documented indictments and analyses edited by Anthony Arnove, the sanctions regime took a direct toll of a million Iraqi lives. Any objective and fair investigation into the working of the OFFP should have looked at the larger picture. It was a context of enormous suffering and loss of sovereignty inflicted on Iraq and its people by the sanctions regime, which allowed the country with the world's second largest proven reserves of crude oil to resume exports only in December 1996. The second major problem with the investigative exercise was the composition of the "Independent Inquiry Committee." It was headed by Paul A.Volcker, former chairman of the chief occupying power's Federal Reserve Board. The two other members were Justice Richard J. Goldstone, a former judge of the South African Supreme Court and Constitutional Court who had made his mark in the law during the days of apartheid; and Mark Pieth, a Swiss law professor specialising in the tracking of transnational corruption, money laundering, and organised crime.

This composition explains the part Spanish inquisitional, part modern investigative, and, in consequence, biased and insufficiently transparent approach of the Committee. It explains the snap judgments and the loaded vocabulary of the report, starting with "manipulation" of the OFFP, "illicit income," and "humanitarian kickbacks." Functioning in the shadow of the U.S.-led military occupation of Iraq, the exercise fails to come clean on all its data sources, above all on the evidentiary basis of its listing of non-contractual political and other beneficiaries of Iraqi oil sales. It bears reiteration that under the OFFP, Iraq sold $64.2 billion worth of crude oil to 248 companies, and 3416 companies sold $34.5 billion worth of humanitarian goods to Iraq. Three types of "illicit" transactions are spotlighted by the Volcker Committee report: 139 of the oil-buying companies paid a total of $229 million in "oil surcharges"; 2253 of the companies selling humanitarian goods forked out $1.55 billion of "humanitarian kickbacks" under the heads of "After Sales Service Charges" and "Inland Transportation Charges"; and "non-contractual beneficiaries" of different kinds received undetermined amounts in connection with the oil sales. The Government of Iraq's estimated "total illicit income" under the OFFP constituted 1.82 per cent of the $98.70 billion worth of oil-and-humanitarian goods transactions. Imagine a country under unjust siege, trying to beat an unprecedented regime of sanctions and peacetime bombings by the U.S. and the U.K. Would it not be natural for it to try and "manipulate" the OFFP and use the two-way transactions as "a tool of foreign policy and a sizeable source of illicit revenue," to use the language of the Volcker Committee report? Well might Saddam Hussein, in his incarceration, exclaim, recalling the 1773 response of Robert Clive to a parliamentary inquiry, "I stand astonished at my own moderation."

All this is not to take away from the plenitude of information provided by the Volcker Committee — or the seriousness of the issues its information and allegations raise for political and business India. For this country, the explosive part of the report lies in the accusation that K. Natwar Singh, now External Affairs Minister and at the relevant time the head of the Congress Party's foreign affairs department, and separately the party itself were hidden beneficiaries of Iraqi oil sales, who together were associated with oil sale contracts valued at $63 million and surcharge payments amounting to $748,540 (of which their alleged share has not been computed). These allegations have not been substantiated in any way other than through a claim that the information on non-contractual beneficiaries and surcharge payments is "broadly based on four sources," especially records of Iraq's Ministry of Oil and the State Oil Marketing Organisation (SOMO). What has given the allegations some plausibility is the detail provided in the relevant tables on the surcharge payments made to the accounts of Andaleeb Sehgal and Hamdan Export in the Jordan National Bank. The tables also allege that Reliance Petroleum Limited was a non-contractual beneficiary, but with the contract values and surcharge payments being much higher. The second category of India-specific allegations made in the report relates to the payment of "humanitarian kickbacks": close to 130 Indian companies, drawn from the private and public sectors and making up a who's who of business India, figure in the tables. While the Volcker Committee got in touch with the alleged non-contractual beneficiaries in a few cases and got responses, it failed to send notice to others who figure in the list, including Mr. Singh and the Congress Party, thus violating an elementary rule of fairness. This contrasts with its procedure of sending notice to thousands of companies accused of contributing to Iraq's "illicit income" of $1.8 billion under the OFFP. Political implications aside, was any law broken by these Indian companies? The answer seems to be `no', or at least `not likely'. But the cases of Mr. Singh and the Congress Party are quite different. The Volcker Committee showed gross irresponsibility, if not political bias, in listing them as beneficiaries without any explanation and without being transparent about the source of the allegations. While the Manmohan Singh Government would do well to inquire into these allegations to determine their truth or falsity speedily, it need not feel politically defensive at all — given the character and fatal weaknesses of the Volcker Committee exercise.

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