The interim report said millions of dollars of oil money were siphoned off in the program during Saddam Hussein’s rule in Iraq.

The report, presented by enquiry chief Paul Volcker and handed to UN chief Kofi Annan, says the oil-for-food operation was “tainted” and that Mr Sevan, violated rules on sales and had a “conflict of interest”.

It qualified its findings, however, by saying that abuse was not widespread.

Mr Sevan’s conduct in soliciting oil deals was “ethically improper and seriously undermined the integrity of the United Nations” the report stated.

Although Mr Sevan said he never recommended any oil companies, the investigation led by former U.S. Federal Reserve Chairman Volcker concluded that he repeatedly solicited allocations of oil from Iraq under the program.

Mr Volcker also said there was “convincing and uncontested evidence” that the selection of the three UN contractors for the oil-for-food program — Banque Nationale de Paris, Saybolt Eastern Hemisphere BV and Lloyd’s Register Inspection Limited — did not conform to established financial and competitive bidding rules.

Mr Sevan denied any wrongdoing, the report said, but it added that evidence from Iraqi officials contradicted those denials. However, a summary of the report’s findings did not accuse Mr Sevan of any criminal actions.

Mr Volcker’s committee said it investigated allegations that Mr Sevan, while executive director of the oil-for-food program, requested oil allocations from the Iraqi government on behalf of the African Middle East Petroleum Co. Ltd. Inc., a Swiss-based oil trading company known as AMEP.

The committee concluded that Mr Sevan solicited and received several million barrels of allocations on behalf of AMEP in 1998-2001. Those allocations generated US$1.5 million (A$1.94 million) in revenues, the report said.

The report said Mr Sevan “was not forthcoming to the committee when he denied approaching Iraqi officials and requesting oil allocations on behalf of AMEP.”

In a separate investigation by US arms inspector Charles Duelfer, allegations surfaced that Mr Sevan may have personally profited by receiving vouchers to sell Iraqi oil. According to the Duelfer report — which got its information from the former Iraqi oil ministry — Mr Sevan allegedly received vouchers for 7.3 million barrels of oil through various companies and representatives that he recommended to Iraqi ministries.

The financial take would have been in the range of US$700,000 (A$907,565) to US$2 million (A$2.59 million), depending on oil prices.

The oil-for-food program, launched in December 1996 to help ordinary Iraqis cope with UN sanctions imposed after Saddam Hussein’s 1990 invasion of Kuwait, quickly became a lifeline for 90 per cent of the population.

Under the program, Saddam’s regime could sell oil, provided the proceeds went primarily to buy humanitarian goods and pay reparations to victims of the 1991 Gulf War. Saddam’s government decided on the goods it wanted, who should provide them and who could buy Iraqi oil. But the Security Council committee overseeing sanctions monitored the contracts.

The program ended in November 2003, after the US-led war that toppled Saddam. Allegations of corruption first surfaced in late 2000, with accusations that the Iraqi leader was putting surcharges on oil sales and pocketing the money.

The report by Volcker’s committee said the budgeting, accounting, auditing and administration of the program was relatively disciplined, although there were isolated violations.

However, it highlighted flaws in the auditing of the program, saying there was insufficient funding and staff, and poor planning. It stressed that important areas of the program were never reviewed, and it called for greater transparency and accountability.

The interim report did not address questions about Mr Annan or the employment of his son, Kojo, by the Swiss company, Cotecna Inspection SA, which had a UN contract to certify deals under the oil-for-food program. It said that topic would be addressed in another report.

Mr Volcker said he intended to issue a definitive report this summer on the entire management and oversight of the program, including the role of the UN Security Council, the UN Secretariat and the UN agencies that administered the program in Iraq.

Mr Volcker said the investigation also will focus on some of the parties involved in selling Iraqi oil or purchasing goods under the program.

The BBC reports that the scandal emerged in early 2004, after an Iraqi newspaper published a list of about 270 people including UN officials, politicians and companies it alleged may have profited from the illicit sale of Iraqi oil during the Oil-for-Food program.

Later, US Senate investigators found the Iraqi regime under Saddam Hussein made US$17.3bn from abuses. About US$13.6bn allegedly came from selling oil to neighbour states keen to breach the sanctions.

A further US$4.4bn was allegedly earned through kickbacks and illegal surcharges on services and goods provided by companies contracted under the Oil-for-Food program, the Senate investigators found.

The UN has come under fire as the organisation responsible for administering the Oil-for-Food program.

According to the BBC, politicians and UN officials from dozens of countries are suspected of receiving bribes to lobby against sanctions on Iraq’s behalf. UN officials in Iraq are suspected of failing to stop the abuses.

International firms – mainly from the Middle East and Russia, but including some large US oil companies – are also being investigated.

Apart from the Volcker-led enquiry, there are two other investigations under way. Separate inquiries are under way in the US Senate and by the Iraqi interim government.

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