Report to Congressional Committees

UN sanctions and the Oil for Food program averted a humanitarian crisis while limiting Iraq's ability to purchase military-related items, but internal control problems allowed the former Iraqi regime to manipulate the program and circumvent sanctions to obtain illicit payments ranging from S7.4 billion to S12.8 billion/ In particular, weaknesses in the control environment compromised the oversight of the Oil for Food program and made it vulnerable to fraud and abuse. First, in the mid-1990s, as Iraq's humanitarian situation worsened, the Security Council and Secretariat made concessions to the Iraqi regime that allowed it to negotiate contracts directly with companies purchasing oil and selling commodities. In the absence of UN oversight of these contracts, Iraq manipulated contract terms and obtained kickbacks. In addition, the Security Council was aware that Iraq smuggled oil to neighboring UN member states in violation of the sanctions but did little to prevent the smuggling, thus allowing Iraq to obtain revenues not authorized by the Oil for Food program. Second, the Oil for Food program had a highly complex organizational structure with unclear lines of responsibility and authority, which contributed to an ineffective control environment The diffusion of responsibility among numerous entities meant that no single entity was accountable for the program in its entirety. In addition, each entity had weaknesses in its fragmented responsibilities that further undermined management and oversight of the program. Despite this difficult environment, the Oil for Food program averted a major humanitarian crisis by raising the food intake of the Iraqi population and decreasing malnutrition.