United States: UN Trade Sanctions After the Oil-for-Food Program

On October 27, 2005, the United Nations ("UN") released its final report (the "Report") on the investigation of the Oil-for-Food Program ("OFFP"). In addition to highlighting certain structural deficiencies, the Report identified more than 2,200 companies that paid bribes or kickbacks to the Iraqi government in violation of the OFFP. Without issuing a final verdict, the Report essentially provided a roadmap for interested national law enforcement authorities to follow by naming those companies that appear to have violated anti-bribery laws.

In addition to its explosive revelations, the UN inquiry represents a new and potentially significant development in the administration of international trade sanctions. Under previous UN sanction regimes, individual Member States were primarily responsible for implementing and enforcing trade sanctions imposed by the Security Counsel. In the aftermath of the allegations associated with the OFFP, however, the UN formed a special committee—the Independent Inquiry Committee ("IIC")—to investigate the scandal. Although a unique set of circumstances precipitated the IIC’s formation, its investigative powers nevertheless warrant special attention, since they may have ramifications for future UN sanction programs.

Soon after Iraq’s invasion of Kuwait in early August 1990, the United Nations imposed comprehensive trade sanctions on Iraq through UN Security Council Resolution 661. The United States implemented UN Resolution 661 through the issuance of Executive Order No. 12724 on August 9, 1990, and established its own comprehensive trade sanction regime as well. UN Resolution 661 further established a Committee consisting of all members of the Security Council to obtain information from Member States regarding the implementation of the UN sanctions and to otherwise coordinate the sanctions regime.

The growing humanitarian crisis in Iraq caused the UN Security Council to re-assess the sanctions program in 1995. On April 14, 1995, acting under Chapter VII of the United Nations Charter, the Security Council adopted UN Resolution 986, establishing the OFFP. This program provided Iraq with an opportunity to sell oil to finance the purchase of humanitarian goods and to support other mandated United Nations activities concerning Iraq. The OFFP was funded exclusively with the proceeds from Iraqi oil exports that were deposited in a UN-sponsored escrow account. The OFFP was intended as a temporary measure to provide for the humanitarian needs of the Iraqi people, until the fulfillment by Iraq of the relevant Security Council resolutions.

The Security Council lifted civilian sanctions on Iraq on May 22, 2003 with the adoption of UN Resolution 1483. This resolution gave the Secretary-General the authority to appoint a Special Representative to work with the occupying forces in rebuilding Iraq. Following public allegations involving corruption and mismanagement of the OFFP, the UN Secretary General appointed the IIC on April 21, 2004 to conduct an inquiry into the program. Shortly thereafter, the UN Security Council unanimously adopted UN Resolution 1538, which called for full cooperation in the investigation by all United Nations officials and personnel, the Coalition Provisional Authority, Iraq, and all other Member States, including their national regulatory authorities.

The IIC was chaired by Paul Volcker, former Chairman of the United States Federal Reserve. Committee Members included Mark Pieth of Switzerland, an expert on money-laundering in the Organization for Economic Cooperation and Development ("OECD"); and Richard Goldstone of South Africa, former Prosecutor of the International Criminal Tribunals for the former Yugoslavia and Rwanda.

The IIC was given a broad mandate to collect and examine information relating to the administration and management of the OFFP, including allegations of fraud and corruption (bribery, illegal surcharges, illicit payments, etc.) on the part of United Nations officials, personnel, and agents, as well as by private contractors. Pursuant to the IIC’s Terms of Reference, as listed on its official website (www.iic-offp.org/reference.htm), the IIC’s responsibility included:

The IIC was granted access to all relevant UN records and information, and the Secretary-General insisted that all UN officials and personnel cooperate and make themselves available for interviews. As noted above, the IIC’s mandate also included the investigation of individual contractors that participated in the OFFP. As an administrative inquiry committee, the IIC was not assigned legally enforceable subpoena powers, meaning that individual contractors were under no legal obligation to provide information. Nevertheless, the IIC was able to put indirect pressure on private contractors, most notably, through the threat of providing information to national legal authorities. The IIC’s Investigation Guidelines specifically stated that "[c]onsideration will be given to referring investigative information and findings to the appropriate national governmental authority," although companies with pending adverse findings were given an opportunity by the IIC to rebut such charges prior to any final determination of corruption.

At several stages of the investigation, the IIC apparently recommended that the Secretary General grant a properly supported request by the law enforcement authorities that were pursuing active investigations of potential OFFP violations within their respective jurisdictions, with due consideration being given to the requesting authority’s commitment to reciprocal cooperation with the Committee’s investigation. Whether the Secretary General ultimately provided this information in these individual cases remains unclear. In any event, the October 27, 2005 Report identified thousands of companies that unlawfully manipulated the OFFP. The Report undoubtedly will serve as a starting point for law enforcement authorities in investigating possible violations by domestic companies of national anti-bribery laws.

The IIC was granted special powers to investigate corruption and other malfeasance in the OFFP. While the IIC probe may turn out to be a one-off event, it raises the possibility of increased interaction between the UN and domestic judicial authorities in investigating violations of UN trade sanctions. Moreover, the IIC’s issuance of the Report, highlighting individual violations, could lead to a more active UN role in supervising trade sanction programs. The Report itself most likely will lead to criminal investigations and indictments in numerous countries, and its full impact has only begun to be felt. Future Security Council sanction resolutions will have to be reviewed carefully to determine to what extent the UN relies on the IIC precedent and pursues greater oversight authority over sanction programs.

This article is presented for informational purposes only and is not intended to constitute legal advice.