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Volcker Report Rips Oil-For-Food Program; Annan Punishes Two Accused of Wrongdoing

A panel investigating the United Nations' Iraq oil-for food program has charged the head of the program with a "grave conflict of interest that undermined the world body's integrity." Secretary-General Kofi Annan has pledged to punish the program chief and another official named in the probe.

The panel sharply criticized the program chief, U.N. Undersecretary-General Benon Sevan.

In a 219-page initial report, the commission documents how Mr. Sevan used his position to solicit and receive allocations of oil from Iraq during the years he oversaw the 64-billion dollar humanitarian program.

Commission chairman Paul Volcker called Mr. Sevan's conduct "ethically improper". "I think it is a fact that Mr. Sevan placed himself in a grave and continuing conflict of interest situation that violated explicit U.N. rules and violated the standards of integrity essential to a high level of an international civil servant. It is a painful espisode in the life of the United Nations," he said.

The Volcker report stopped short of accusing Mr. Sevan of taking bribes, but noted that the oil-for-food chief had received 160-thousand dollars in cash from an aunt in his native Cyprus who has since died. The report said the aunt had apparently not been wealthy.

Mr. Sevan has denied any wrongdoing. A statement issued on his behalf by a public relations firm Thursday charged that he had never taken a penny of oil-for-food proceeds, and accused the Volcker panel of using him as a scapegoat.

The U.N. Security Council created the oil-for-food program in 1996 to allow Saddam Hussein's Iraq to buy food and medicines that were in short supply because of international sanctions. But the Saddam regime quickly turned it into a source of illicit funds.

An earlier report by U.S. weapons inspector Charles Duelfer told how Saddam was able to generate an estimated one-point-seven billion dollars in revenue outside U.N. control from 1997 to 2003.

But while the Volcker Commission turned up what was described as convincing and uncontested evidence that contractors hired in the early days of the program had not conformed to established financial and bidding rules, he said financial oversight of the program had been sound. "We have not, and in this case I emphasize that we have not found systematic misuse of funds dedicated to the administration of the oil-for-food program," he said.

The commission's report makes no allegations of criminal activity, but Mr. Volcker did not rule out the possibility that charges might be filed by authorities in countries with jurisdiction.

Secretary-General Kofi Annan immediately responded to the findings in the report, saying he would discipline Mr. Sevan and one other official named in the probe, Joseph Stephanides. Mr. Sevan retired last year, however, and it was not immediately clear what action could be taken against him.

In a statement, Secretary-General Annan said if any criminal charges arise from the investigation, the United Nations would cooperate with national law enforcement authorities.

Mr. Annan's chief of staff Mark Malloch Brown told reporters there would be no use of diplomatic immunity to shield anyone accused of a crime. "When there's a case, and when prosecutors indicate that it would advance that case to waive diplomatic immunity, the secretary-general will waive diplomatic immunity," he said.

The report issued Thursday does not address several issues still under investigation. Among them are questions about the involvement of Secretary-General Annan, as well as that of former Secretary-General Boutros Boutros-Ghali, who headed the organization at the time the oil-for-food program began.

The commission will also look into payments Mr. Annan's son Kojo Annan received from a Swiss firm hired to oversee oil-for-food contracts. Mr. Volcker says these issues will be addressed in future reports.

The commission is expected to publish at least one more interim report before its wrapping up its investigation, probably by the middle of this year.