Last week, the Independent Inquiry Committee into the UN’s Iraq Oil for Food programme scandal issued its report, naming those companies that it claims made illicit payments to secure contracts. Not surprisingly, the food industry, which commanded the biggest contracts, was the biggest payer of these fees, as Keith Nuthall reports.

The report issued last week by the Independent Inquiry Committee into the UN’s Iraq Oil for Food programme scandal, on illicit payments being made by 2,253 companies supplying ‘humanitarian’ goods under the scheme, has illuminated a murky episode in the global food industry’s history.

From 1997 to 2003, around US$37bn was spent from a UN escrow account on food, medicine, equipment and other civilian goods, deemed vital for the country’s well-being, with the money being raised from Iraqi oil sales. The programme began with good intentions, but went awry from 1999, when the Saddam regime decided to “recoup purported costs it incurred to transport goods to inland destinations after their arrival by sea”. Instead of seeking compensation from the UN-controlled Oil for Food escrow account, it required suppliers to pay Iraq-controlled bank accounts or overseas front companies.

Said the report: “Not only were these side payments not authorised under the programme, but it was an easy matter for Iraq to impose ‘inland transportation’ fees that far exceeded its actual transportation costs.” By mid-2000, this policy had developed into a general 10% kickback demand, usually couched as an ‘after-sales-service’ fee. The food industry was the biggest payer of these illicit fees, because it commanded the fattest contracts.

Part of doing business?

Together, five food suppliers accounted for around $5bn in contracts under the programme, nearly one-sixth of its humanitarian spending. They were:

*AWB Ltd (the Australian Wheat Board), which secured the largest contracts and which handed over $82m in kickbacks, said the report, which claims evidence links these payments to contracts worth $1.3bn (around half the total business AWB did with Iraq over the Oil for Food era). The AWB accepts it made the payments, considering them part of doing business with the programme.

*The Vietnam state-controlled Vietnam Northern Food Corporation (Vinafood), which allegedly paid $28.6m in illicit fees when securing $529m in contracts for supplying rice and sugar, plus plastic bags and water pump parts. As with AWB, the company accepts the payments, but considered them either authorised or paying for legitimate Iraqi government services. Here again, there is a significant discrepancy between the overall Oil for Food business quoted in the report and the amount linked to kickbacks, something that applies to all five major suppliers.

*The (also state controlled) Vietnam Dairy Joint Stock Company (Vinamilk), said the report’s tables, paid $23.4m in kickbacks, when securing contracts worth $373m for supplying milk, baby food and formula, cheese, instant milk powder, tea and weaning cereal. It did not comment to the committee on the allegations.

*Thailand-based rice producer Chaiyaporn Rice Company Ltd, which, said the committee, secured contracts worth $379m for supplying rice, sugar and ghee, whilst handing over $18.2m in kickbacks. It accepted the payments, considering them authorised or justified.

*The Holding Company for Food Industries, of Egypt, paid $19.2m in illicit fees, when securing $312m in business for supplying milk, baby food and formula, barley, glucose, cheese, ghee, milk powder, sugar, weaning cereal, and other non-food items, said the report. Again, this company accepts the payments as authorised or legitimate.

Indeed, said the report, these fees were often incorporated into contracts, so suppliers could recover the money from the UN’s escrow account. Invoices submitted by Vinafood show how dramatically the new charges rose: one 2001 invoice involves fees of $25 per million tonnes for transporting rice; in 2002, it was $65 pmt.

A contrasting response

The report also highlighted some issues regarding pricing, where bills issued by suppliers often exceeded market prices. This problem was particularly acute in the food sector, said the report, quoting US government audit research concluding, “that the most consistent overpricing involved food commodity contracts”, where almost 90% were estimated to be overpriced by 22% of contract value. That said, the committee accepted there were risks dealing with Iraq, including demands for illicit fees. It concluded, “the reasons for the persistent high premiums over and above market prices are not entirely clear, but this matter likely warrants further investigation and review”.

Another common thread is that for food, Iraq generally favoured long-standing suppliers; “prominent among these was AWB”. In fact, the report noted the board has been selling wheat to Iraq for at least 55 years: well before Saddam or even the Ba’ath Party took power. Furthermore, Chaiyaporn had supplied Iraq since 1978, and Vinafood since the early 1990s.

In response to the committee investigation, companies named have responded in contrasting ways. Some have claimed no knowledge of side-payments, saying they were unauthorised and made by agents; others (as with four of the big food suppliers) said they considered the fees legitimate; some challenged the committee’s evidence and denied paying kickbacks; and others still accepted the payments “as a cost for all companies doing business with Iraq under the programme”.

But were these payments’ crimes? The report ducks the issue, given the wide variety of national laws on bribery and kickbacks, stressing “it is unnecessary to determine whether the illicit payments described…were true ‘kickbacks’ in the strict legal sense that this term may be used in criminal corruption laws”.