OFF Scandal: Getting It Straight About Lloyd's Register

By Victor Comras

The Volcker Commission Interim Report has charged that, in setting up the Oil for Food program, UN Secretariat officials deviated from the UN's procurement regulations. Their selection of BNP,Saybolt and Lloyd's Register, the report finds, was based largely on "political" factors and "to achieve a balance among broadly 'political' interests. of some member states" (ie the Perm Five and Iraq). The Volcker report makes no suggestion of "corruption" in their selection, unlike the subsequent operation of the Oil for Food program itself. What is surprising is that the political nature of these selections came as a surprise to the Volcker Commission. The UN Security Council is a "political" body. The Iraq sanctions that gave rise to the Oil for Food program were "political" measures. And all the parties involved were motivated by national interests and international political objectives. Yet, the report holds individuals that were manipulated by these political pressures, rather that the authors of these pressures, accountable. I am speaking particularly of Joseph Stephanides who I knew as one of those Secretariat persons working to make the Iraq sanctions, and the Oil for Food program effective.

A former British Diplomat, Carne Ross, who was in charge of Iraq policy at the British UN mission told the UK newspaper The Telegraph that "the contracts were 'carved up' by diplomats. Official rules which favoured companies that submitted the lowest bids were routinely flouted." '"That is the way the UN operates and it seems a little harsh if Joseph Stephanides is carrying the can for this as a UN official.'" Former British UN Ambassador Sir John Weston also defended his and Stephanides role saying that he was following "ministerial instructions'' from London. "'We were to advise Lloyd's Register on the best tactics in the face of apparent competition," he said. "There was nothing the least bit improper. "' I hope that US officials will also bone up to their own role in this selection process. Let me provide a little background, as I know it.

At the time of these events Stephanides was Chief of the Sanctions Branch within the Department of Political Affairs. Those in the US government knew him as one of the "good guys" who took the sanctions against Iraq seriously. He worked hard to put in place a viable Iraq sanctions monitoring and enforcement structure.

Following Iraq's invasion of Kuwait, the US moved quickly to get the UN Security Council to impose sanctions against Iraq. This included authorizing the operation of a Multilateral Interdiction Naval Force (MIF) to cut off goods flowing to Iraq through the Persian Gulf and up the Gulf of Aqaba via Jordan. Jordan protested this arrangement as it had resulted also in great losses for Jordan's own Aqaba port. Jordan reached an agreement with the US and the UK in 1994 to substitute inspection of goods within the Port of Aqaba once the goods were landed, These sanctions inspections were to be conducted by Lloyd's Register which was trusted by both the UK and the US and acceptable to Jordan. This arrangement predated the Oil for Food program by more than two years.

When it came to setting up the Oil for Food program Lloyd's seemed like the right choice to take on this additional function. They had done a good job. They were well known to the US, UK, and Jordan. The system was working. And Lloyd's wanted to carry on. Having two different inspection systems -- one for the Oil for the Food program and one for the Iraq Sanctions program -- seemed to make little sense. Lloyd's, which had the confidence of the US and UK, was willing to take on the new responsibilities.

Political pressure was already being exerted at high levels in the UN to select a French Bank -- BNP -- to handle the Escrow Account. The EU had also was pushing senior UN officials to select the Dutch firm Saybolt to monitor Iraq oil exports. Saybolt had a good reputation and the Dutch were active supporters of the Iraq sanctions program. The US and UK favored Lloyd's. Its chief competitor for the job was Veritas, a French firm -- but the French were already getting BNP. At the time our greatest concern was to make sure that no WMD or military dual use tech or equipment was going to Iraq. We wanted to make sure the job was being done right.

The final decision to select Lloyd's was made by the Oil for Food Steering Committee, which, was made up of a select group of UN Undersecretaries General, including Stephanides boss Marrick Goulding. The Steering Committee always remained sensitive to the views of key Security Council members -- including the US and UK. None of their decision were made without the full knowledge and consent of these key Security Council member. Stephanides handled these issues at the working level.

In 1999 Jordan was pushing to close down the Aqaba port inspections. The Iraq sanctions were falling apart, and running the dual jobs of sanctions inspections and oil for food was costing Lloyd's Register a great deal in money and prestige. They wanted out. The bid they put in for renewal of the contract this second time around was extremely high. They had to know they would be replaced, and I can't help but believe that was the outcome they desired. Cotecna, a Swiss Firm was chosen to replace Lloyd's in 2000. They eventually moved into facilities on the Iraq side of the border. In my view the quality of inspections deteriorated rapidly after that.

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