“Can the United Nations Meet the Challenges Before It?”

Paul Volcker
Former Chairman, Federal Reserve System
Chair, United Nations Independent Inquiry Commission

Asia Society Hong Kong Center
November 19, 2006

I was so happy when I got up this morning and read the Herald Tribune and saw the big news that Margaret Chan is going to be head of the World Health Organization and lead that important U.N. agency.  It is the first time somebody from here, and I read all the things about her background, has got such an appointment which makes me feel good about that part of the U.N. anyway.  And then I looked at a column entitled “A Reform Plan for the U.N.”  I thought maybe it was a column about something I had done.  It doesn’t happen to be by me.  It’s by three other, I guess, distinguished people I don’t know.  I don’t know how many of you saw this article this morning, but let me read a couple of paragraphs and then maybe I can sit down or we can have some questions because it pretty much encompasses the problem.  Let me just read from the column:

“International cooperation has been and still remains the key for dealing with an increasingly interdependent world beset by enormous social and economic inequalities.  The U.N. system needs to be radically overhauled however if it is to keep up.  If not, the U.N. will find itself increasingly marginalized and the ones to suffer most will be the world’s poorest and most vulnerable.  To maintain its legitimate position as a leader within the multilateral system the U.N. system needs drastic changes.  This is imperative for the U.N. to be effective in supporting sustainable development and providing more decisive responses to humanitarian crises and natural disasters and in mobilizing international action for the protection of the environment.”

And it goes on.  That pretty much summarizes my view of the problems of the United Nations and the potential for the United Nations and the challenges before the United Nations that developed in the course of the investigation that I was asked to chair into the Oil for Food Program.

I don’t know how prominent that all was in Hong Kong, but the Oil for Food Program and accusations of corruption, inefficiency, and maladministration became a very large political issue in the United States a couple of years ago lead by, I think it’s fair to say, the neo-con part of the Republican Party which was in full cry at that time.  It was a broadsided attack on the United Nations generally and it finally reached a point where the Secretary General, Kofi Annan, who was the principal target of the attackers, decided that he better sponsor an investigation of the organization, or at least of the organization so far as the Oil for Food Program is concerned, and he asked me to chair a small committee to look into it.

I don’t think he had any idea when he felt he had to do this as to what it would involve.  The only wise thing I did in accepting to be chairman of this committee, apart from assuring our independence from the U.N. itself, was to tell him how much it was going to cost.  I’d had a little experience with investigations and I know once you begin hiring lawyers and accountants the bills go up pretty fast, and I said to him, “You know, Mr Secretary General, you know that it’s going to cost some tens of millions of dollars and it’s going to take a couple of years.”  And I could almost hear him gulp over the telephone, but since he didn’t have much choice at that point, he said, “Okay”, and off we went.

Now let me just remind you of what the Oil for Food Program was all about.  Very strong sanctions were put on Iraq after the first Gulf War:  No exports, no imports.  Obviously these were aimed to put pressure on Saddam and to avoid him from getting any weapons of mass destruction, and after a while that became increasingly controversial because of the suffering that it created among the Iraqi population.

We now have evidence, which we confirmed in this investigation, that nutrition standards were approaching the point that there was a real risk of severe malnutrition in Iraq.  Health standards were deteriorating, infant mortality was rising rapidly, and other measures of a health crisis were present.  So the idea developed of - kind of an ingenious idea - we’ll let them export some oil in limited amounts under U.N. surveillance.  We’ll escrow the money.  The money will only be released under U.N. surveillance for humanitarian goods, initially medical supplies and food.  That got broadened a lot over time, but that was basically the idea:  Oil for humanitarian goods under U.N. surveillance.  This turned out to be over the life of the program about 110 billion dollars, counting the oil exports and the food imports.  So it turned out to be a big deal.  This is by far the biggest challenge the U.N. ever had in terms of the financial implications, probably the biggest humanitarian program in history.  I think the Marshall Plan after World War II probably was bigger in terms of today’s dollars, but it was a very sizable magnitude and I think it’s fair to say that it had its success, that nutrition standards in Iraq did rise.  I don’t think it was the fanciest food within the world, but they got enough wheat and rice and other essentials to maintain caloric intake.  The health standards didn’t improve much but they stopped going down and, most important in connection with the inspections, Saddam did not get weapons of mass destruction.  But this all involved a very serious cost as it turned out that the accusations were not entirely off the mark; that we found indeed misadministration, maladministration, and corruption within the U.N. itself in at least limited amounts, widespread corruption outside the United Nations as part of the program, and I think what only can be called malfeasance by some of the member states of the United Nations, not excluding the United States.

So what is this all about and what does it mean?  What we found I think while we investigated the Oil for Food Program was clearly reflective of systematic problems in the U.N. organization.

The sanctions against Iraq were maintained only with a considerable amount of disagreement in the Security Council itself as time passed as to how effective they were and whether they should be maintained.  And with that disagreement evident in the Security Council Iraq was not very cooperative from the start.  But the mutual suspicions, if that’s the right thing to say, among the members of the Security Council led the Security Council to keep some of the key decision-making in the program in their own hands through a sub-committee called the 661 Committee which simply duplicated the Security Council.  These in effect were second-level diplomats that were overseeing this enormous financial and technical program, which is not a recipe for efficient administration in the first place, but the Secretariat and the Secretary General, who is the chief administrative officer of the U.N., had large responsibilities in administering the program, and there were nine separate U.N. agencies, including the World Health Organization, that had responsibilities on the ground in Iraq, and this administrative organization was a perfect recipe for passing the buck.  Nobody was responsible for anything, or that’s what they would like you to believe ex-post.

It started out with massive smuggling, straight-out smuggling not directly connected with the Oil for Food Program, in sales of Iraqi oil to Jordan in the first instance, then to Turkey.  It became known, although not admitted - you know it became known because, whatever you think of the competence of American intelligence agencies, you could hardly miss hundreds of trucks a day going and carrying oil to Jordan and Turkey.  And the eyes were kind of closed because of disagreement within the Security Council, and the United States said - I think, well, it’s hard to explain all their actions - that Jordan is a friendly company, if they want to smuggle some oil let’s close our eyes.  Turkey’s a friendly country, if they want to buy some oil from Iraq, okay.  How they justified it when Syria began buying oil through a pipeline, which is really efficient, not exactly the most friendly country to the United States, I don’t know.  So from the start there was outright evasion of the sanctions, which I mention because I think it affected the atmosphere in the administration of the Oil for Food Program.

If all the diplomats in the Security Council, and the junior diplomats, and all the administrators in the Secretariat, and all the bureaucrats in all the agencies knew all this was going on and nobody was doing anything about it, why should they care individually what kind of retail corruption was going on in the course of the program they were responsible for.

In any event, it really took two or three years for the Iraqis to learn how to rip this program off, to put it colloquially, but they began insisting anybody who bought oil from them would pay what came to known as a surcharge back to Iraq, completely outside the rules of the program.  And they would sell the oil at a lower price than the market price, outside the rules of the program right under the nose of U.N. inspectors, so that the buyers of the oil could make a nice little profit, pay a surcharge back to Iraq, and keep some profit for themselves.

On the other side there was more money because the market price was never so clear.  You sold goods to Iraq you had to pay what came to be known as a kickback.  These were kickbacks to Iraq, initially 10 percent.  That worked pretty well so it became 20 percent, and in some cases it became 30 percent by the end of the program.  And of course that was paid - Iraq would actually go to the seller and say, “I know you bid X.  Bid X plus 20 percent and you give the extra 20 percent back to us illicitly under the program.”

Well, how could all this go on?  There were inspectors.  There were contractors to inspect shipments at the border.  There were people who were supposed to be checking the pricing of all these items.  Where were the auditors, number one?

This was a 110 billion dollar program.  Initially it had one auditor.  By the end of the program after seven years I think they had four or five auditors assigned to the program.  What did they audit?  Well, I’ll tell you.  When they got near somebody sensitive in New York they were told, “That’s not a priority.  You go check something going on with the WHO or UNICEF or something in Iran, in Iraq.  That’s your job.”  So they never really got audited in New York which is rather interesting because it became evident after a while that the accusation was that the man in the Secretariat responsible for running the program was himself corrupt.  And we did unfortunately verify Mr Benon Savan, who ran the program, was a beneficiary of some of these oil shipments.  He arranged who went to intermediaries or intermediaries arranged with him that they would get oil at a cheap price and the money would, or at least some little part of it, would end up in Mr Savan’s bank account.

You know it’s kind of a sad story I guess.  We were collecting a lot of things.  There wasn’t that much money by corrupt standards on Wall Street or other places I guess, but he had a good friend who was a good friend of some oil traders and we discovered that what happened was, when he had suggested a so-called allocation of oil to a particular oil trader, at the time the shipment was actually made and detanked, there was a flurry of phone calls between Mr Savan and his friend in Geneva, his friend in Geneva and the shipper, and back-and-forth for several days; and by some coincidence or another Mr Savan ended up in Geneva, where his friend lived, some days or weeks later; and by another coincidence there were a number of cash withdrawals from the friend’s bank account in Geneva at the time Mr Savan was in Geneva; and, lo and behold, a few days later when Mr Savan was back in New York there were similar cash deposits in Mr Savan’s bank account in New York.  These are the kind of things you can find out obviously in investigations these days.  It’s amazing to me what you can find out if you are investigating people - but Mr Savan was a little strapped for cash and he was looking for a little relief.

We also found some corruption where you would expect to find it, in the purchasing department of the U.N., but I don’t want to exaggerate that.  We did find these incidents of corruption in the U.N., but not as massively as the accusations were suggesting.

There was an interesting question as to whether Kofi Annan himself was corrupted, to use the word directly, because it turned out that his son was involved quietly with one of the major contractors for inspections of the humanitarian goods going into Iraq.  It was a big contract for this particular company.

There was a denial that his son was involved, although he had been employed by the company earlier.  The suggestion was made that he was no longer employed.  It turned out he was still employed and we found some evidence that he himself, in a modest way anyway, tried to influence a contract.  I think they would have gotten the contract anyway because they were by far the lowest bidder at that particular time and we found no evidence that the Secretary General himself influenced the contractors.  It was just one of the accusations.

What it came down to, and the most controversial part of the investigation, was whether he even knew about it and knew his son was involved, which he stoutly denied all through this.  There were a number of circumstances which cast, frankly, suspicion about his denial, all of which are reported in great detail in our 2,500 page report.  But all that evidence was circumstantial and we finally concluded that we did not have definitively enough information to say that he even knew his son was involved.  In any event there isn’t any disagreement I think at this point for anybody as to whether he influenced the contracts.  So the question is whether there was an appearance of a conflict of interest not an actual corruption.

What we did say and feel very strongly about, when the accusations came to light was that there was no real investigation in the U.N.  There was an inquiry made from the Secretary General’s office to the chief administrator in the U.N.  In effect a memorandum came back the same day saying they had looked into it and there is nothing to it.  That is not the definition of an effective investigation when his own veracity was challenged, and a lot of trouble would have been avoided if they had made that investigation earlier.

Anyway, I wouldn’t put the emphasis directly on, you know, huge amounts of corruption.  We didn’t find huge amounts of corruption, but we found a systematic pattern of poor administration to the point of maladministration and a refusal to take responsibility in the Secretariat or among the secondary diplomats in the Security Council for the very obvious shortcomings and difficulties.  And I am sure there were lots of problems on the field in Iraq but we didn’t have the time or the capacity to look at them as fully as we did in New York.  But we came away - I say we - the members of the committee came away with a very strong conviction that the U.N. was sorely in need of reform.  We came away with the same basic premise that this article this morning reflected.

The U.N. is an important institution in my view.  Its great advantage, its great role, is that it’s the one institution in the world with universal membership that has a certain legitimacy in taking action with respect to an international problem, and there are lots of international problems.  Certainly Iraq was one of those international problems and they were asked to administer this in fact very complicated program.  They are the legitimate expression of the international interest.  But, just as this article suggests, the legitimacy isn’t going to last and mean too much if they are felt to be incompetent, if not corrupt.  I don’t think that is a sustainable proposition.  So my strong conviction, and I think the strong conviction of a lot of people, is they better get their act together if in fact they are going to be able to respond to the demands put upon it.

One of the ironies of this situation to me is in the political environment in the United States.  There were large elements in the American administration, the American body politic, that were ready to write off the U.N. a year ago.  Now we’ve got a problem in Lebanon; we’ve got a problem in Iran; we’ve got a problem in Korea; we’ve got a problem in Darfur.  All these same people are saying, “Well, let’s go in the U.N. and deal with the problem.”  Well, what’s in question here is the capacity of the U.N. to deal with the problem.

The U.N. has 19, or I guess 20 now in Lebanon, peacekeeping operations around the world.  There are questions as to how effectively they are being administered and I think the consensus would be there are pluses and minuses, some areas better than others, but by and large there are some very large problems there as well.

So let me just conclude by saying what should be done.  We found there were no clear and consistent rules against conflicts of interest among the staff, the senior staff.  There were no reporting requirements about their outside financial interests which had become rather common, certainly in the United States government for a long while, but other governments.  There were no broad ethical standards set out very clearly about the responsibility of U.N. officials.  There is no whistleblower protection.  The auditing staff was small, underfinanced and not very professional, to the extent it was there at all.  They had an internal inspection unit which is rather new, and there is some suspicion about whether the guy who managed that was not corrupt.

What else shall I say?  There are certain weaknesses in the administrative body.  Now, the result of this is that there has been some energetic effort by some people within the U.N. to correct some of the lapses I just mentioned.  They now have, on paper anyway, reporting standards, ethical standards, conflict of interest standards, whistle-blower protection, which I am told is state-of-the-art in terms of best call for governance.  The question remains as to whether that’s going to be effectively implemented given the weakness of the administrative apparatus. There have been questions about whether the Secretary General, who has been pushing these reforms, will be able to implement them effectively over time without some structural changes.  So there are three changes that we have pressed for of a more structural nature.

One is they sorely need, and everybody that’s looked at the U.N. has made a similar recommendation- it’s the only value added our investigation had is we have all these facts to back up the weaknesses we saw, some kind of an independent outside oversight body with some authority over the auditing, the accounting, and the control systems in the organization, some kind of a professional body with real authority to review the budgeting, the staffing, the professionalism of people hired and so forth reporting to the General Assembly.  It kind of seems like a no-brainer, but the recommendation lies there without any action at this point.

The other recommendation we made is admittedly more difficult but interesting.  I think it’s become evident, given the nature of the responsibilities that tend to be thrust upon the United Nations, that no Secretary General is likely to do a good administrative job.  The only description of what the Secretary General does in the Charter is chief administrative officer.  The one thing he does not do is chiefly administer.  He is preoccupied.  He’s the chief diplomatic officer.  He’s the chief political officer.  He’s the chief negotiator.  That’s what he appreciates the problem is, that what he appreciates his responsibility is, that’s what he’s occupied with.  That’s what he’s doing now running around the Middle East, and I think that’s what he should do.  But the question is whether he can do that and effectively administer the place in an organization of sovereign states that have disparate interest, but many of them and many of the smaller states have one interest and that is to get some favours out of the administration.  And he is totally vulnerable in trying to reach some consensus to try to satisfy these disparate interests in personnel and administrative practices that are entirely incompatible with an efficient operation of the institution.  And Kofi himself has made an eloquent statement, “I’m sorry but I didn’t have time to administer the place and no Secretary General has time to administer the place.”

What you have to -- well, we can’t say, “appoint a chief administrative officer” because those terms are already taken.  But we suggested, and other people have suggested, you need somebody there to administer the place that has some kind of authority that’s not simply a subordinate official.  Kofi himself appointed a new deputy, presumably in charge of administration.

It is symbolic of the place that we found an email from him to this newly appointed deputy in charge of administration saying rather directly - it’s a small email saying don’t forget, in effect, you are in charge of overseeing the Oil For Food Program.  And we run around interviewing her and I say, “Why were you so lax in your responsibility,” and in effect, she said, “I didn’t know I had the responsibility.”  And it is that kind of administrative difficulty that’s chronic in the organization.

Well, we said, “Look, you better get somebody else in there, we’ll call him chief operations officer, who has some status a little apart from the Secretary General and a status that the other administrators don’t have.”  Which means why don’t you get him nominated by the Security Council and appointed by the General Assembly just the way the Secretary General is and he is not responsible for negotiating anything.  He’s not the politician.  He is responsible for running a tight ship and getting all these other things that they say they are going to do implemented with discipline.  That’s a kind of tough recommendation because it will inevitably lead to some tension with the Secretary General.  We concluded what you need is some tension with the Secretary General.  He needs to be protected from the pressures that he otherwise is inevitably under.

And the disappointing thing is, if you go to the General Assembly which has final authority, it’s a nice little body of 192 countries ranging from, I don’t know how you want to measure size, ranging from China to some island with 10,000 people in the Pacific, with rather disparate interests, but one thing that the smaller countries in particular in the General Assembly are not interested in is reform.  They rather like the organization the way it is, and since they are the ones in the end that have to sponsor the reform it is very hard to get some action.  And I sit there wondering why this is true, and I think you just said a whole explanation, but whatever the reasons, I tell you it’s true.  Black Africa had a caucus about this and concluded no go.  It was not just Black Africa; most of the small countries wherever they are say no go, so there’s been an impasse.  They tell the Secretary General himself who proposed an outside oversight body.  Their response to him was, “Why are you getting into our business?  It is our business to get over the administration and make this kind of change.  You’re not supposed to be telling us what to do.”  Well, that’s fine.  The reports say don’t take any initiative and a body of 192 countries is not likely to take much initiative, so we’re stuck in this impasse.

Now some of my staff wanted to get a little more publicity for this.  I had some sympathy with them so we agreed to do a summary book about all this and it’s kind of interesting reading and I’m sorry I didn’t bring it along.  Whatever else the staff was they were pretty good investigators, but a couple of them were pretty good writers and it’s kind of an interesting story in this little pocket book.  It’s cheap, only US$15.  What’s that times eight?  That means most of you can afford it I suspect, but I don’t know if we’ve got any copies here.  I wish I could wave this in front of you.  Good Intentions Corrupted, there is it.  But it’s not very colourful in this way.  And it describes what I’ve said in some detail.

Now, let me just really conclude by saying, partly because of this and partly for other reasons, I got much more interested in and much more sensitive to the amount of corruption there is in international trade.

I didn’t mention it but there were 4,500 companies that were buying oil and selling goods to Iraq during the period of the Oil for Food Program, 4,500.  Half of them were in effect bribing, either in the form of a surcharge on the oil or kickbacks on the humanitarian goods.  Now Iraq was insisting upon this of course, but what’s interesting is half of the contractors were perfectly willing to go along with Iraq’s request for this money.

And the other thing that struck me is the World Bank for other reasons has decided to get more aggressive about corruption in their own programs, corruption in their projects particularly, and worry about corruption in recipient countries more generally.  I think there is a consensus among development experts.  Their consensus seems to change every 10 years or so, but the present consensus which I think is valid is that corruption is probably the single most important factor inhibiting economic development in many countries, and maybe most particularly in Africa but in some Asian countries as well.  And it doesn’t do much good to keep pouring in assistance if you’re not going to pay some attention to trying to deal with the corruption.  So the World Bank can say we’re going to be more aggressive now than we were in our own programs in the past and otherwise about corruption in general.  What amazed me is the amount of pushback and resistance they got in Singapore at the recent meeting in trying to push this program, resistance among other things from European countries, and for reasons that are partly explicable and partly, for me anyway, not very explicable.  In any event, I think this is a major problem.

Now, I am told that one of the countries (Do you call Hong Kong a country or one of the special administrative areas in the world?) has one of the most effective anti-corruption programs available, and I think we all ought to learn what we can from that program to see how applicable some of it is to the rest of the world because I think this is a very central problem and it’s a preoccupation as you know in China itself now, and I think that’s a healthy thing.

So out of all this combination of events I’d like to think some progress would be made in not just in the U.N. itself, but in creating more consciousness about the pervasiveness of corruption.  We’re in quite a little different context.  We’ve had a little taste of it or much of a taste of it in good old Washington D.C. as well.  But I do think in modern society it is kind of, unfortunately, a growing cancer which ought to be dealt with.  So without much ado I’ll end here - Ronnie, I don’t know how much time I’ve left for discussion.