Such was the case with Iraq – the country had oil, which it was willing to sell, but some countries – namely, the United States, didn’t want Iraq to use the oil profits for military spending. Moreover, after harsh sanctions following Iraq’s invasion of Kuwait in 1990, the global community believed that it was the country’s civilians who received the short end of the stick. Thus, in 1995 Bill Clinton’s administration introduced the Oil-for-Food Programme, which was supported by the UN Security Council and eventually launched with Iraq’s agreement in 1996.
This program entailed using an escrow system. First, Iraq sells oil – but the recipient doesn’t pay directly to Iraq, but to a third part, appointed by the United Nations. In this case, it was the BNP Paribas bank. Part of the money went to Kuwait, as reparations for the conflict, as well as cover the cost of UN operations in Iraq. The rest was made available to the Iraqi government – but the UN regulated its spending, meaning that only certain goods were made available for purchase, thus curbing military spending. That’s how it worked, at least in theory. Of course, the reality was much bleaker. In 2005 the US Congressional Research Service published a report – one of many reports highlighting the problems with the OFFP – entitled Iraq: Oil-For-Food Program, Illicit Trade, and Investigations.
Critics asserted that the US strategy was to maintain sanctions on Iraq indefinitely as a means of weakening Saddam Hussein’s grip on power… The United States and other members of the United Nations Security Council were aware of billions of dollars in oil sales by Iraq to its neighbors in violation of the UN sanctions regime and outside of the OFFP, but did not take action to punish states engaged in illicit oil trading with Saddam Hussein’s regime.
Inefficiency and red tape plagued the program from the very beginning. For example, some goods, even as simple as pencils, could not be authorized until six months since the order placement. Some reports claimed that not just some, but much of the food aid purchased through the program "was unfit for human consumption".
A 2005 report of the Independent Inquiry Committee into the UN Oil-for-Food Programme described how over 2000 companies took part in corruption schemes such as surcharge payments and bribery:
Several years into the Programme, Iraq realized that it could generate illicit income outside of the United Nations’ oversight by requiring its oil buyers to pay “surcharges” of generally between ten to thirty cents per barrel of oil. As described more fully below, the surcharge policy started in the autumn of 2000 and lasted through the autumn of 2002… Iraq’s largest source of illicit income from the Programme came from “kickbacks” paid by companies that it selected to receive contracts for humanitarian goods under the Programme.
The program was shut down in 2003 as the US invasion of Iraq began, following the country’s failure to follow the United Nations Security Council Resolution 1441. The legality of the invasion itself is debated to this day – as for the OFFP, various investigations eventually led to indictments – some were arrested, some fled, but it is unlikely any lessons were learned.
