An aid scheme riddled with loopholes

What was the oil-for-food scheme?

It was a humanitarian scheme offered by the UN Security Council to Saddam Hussein as a way to alleviate the impact of the economic sanctions on his people, which were imposed after the 1990 invasion of Kuwait. But it took four years for Iraq to agree the terms with the UN.

Under the agreement, which came into force in 1996 and was wound up after the 2003 invasion, Iraq was allowed to export a certain amount of oil ­ in dollar terms ­ every six months as long as the revenue was spent on food and medicines. To ensure no money was diverted into rebuilding Iraq's weapons of mass destruction, the UN was in charge of administering the programme, from the approval of contracts to the delivery of goods, and the oil money was channelled through an escrow account. The UN Security Council sanctions committee ­ comprising all 15 member states ­ scrutinised every contract.

So what went wrong?

The scheme was riddled with loopholes. One allowed Iraq to choose the goods it wanted, who would provide them and who would buy Iraqi oil. In the highly politicised atmosphere of the UN Security Council, where the five permanent members had widely divergent views on Iraq, individual governments turned a blind eye to abuse of the system which enabled Saddam to benefit by adding oil surcharges, and by oil smuggling.

The sanctions committee was used as a political tool by the permanent members to further their political agenda: the US and Britain took a hard line by blocking millions of dollars worth of contracts, while the French, Russians and Chinese adopted a position more favourable to Iraq.

The Volcker report concluded that the scheme administrator, Benon Sevan, was promoting an oil company in what was called a "grave conflict of interest". The way the scheme's pillars­ Banque Nationale de Paris, Saybolt Eastern Hemisphere BV, and Lloyd's Register Inspection Limited ­ were chosen was also tainted as it did not conform to competitive bidding rules.

How did we find out about the corruption?

Documents were found at the Iraqi oil ministry incriminating various political officials after US forces took control of Baghdad in April 2003. In January last year, the Iraqi newspaper Al-Mada published a list of about 270 former government officials, activists, journalists and UN officials from more than 46 countries suspected of profiting from the Iraqi oil sales. That led to the independent Volcker inquiry.

Who else is in the frame?

The son of Kofi Annan, Kojo, is being investigated for his connection to a Swiss company, Cotecna, which inspected goods arriving in Iraq. Mr Annan has said he only discovered belatedly that Kojo had been paid by Cotecna for longer than his son had initially maintained. Paul Volcker will publish a separate report into the allegations against Kojo Annan, which led to calls for his father to resign as UN secretary-general. Mr Annan's predecessor as secretary-general, Boutros Boutros-Ghali, is also being questioned by the Volcker committee.