Thursday, October 27, 2005

Oil For Food

I bring this topic up, from time to time, because I think that the importance of the corruption in the UN's Oil for Food program have gone ignored. Also, it's been hijacked by the right wing as a weapon to be used against the UN, which they hate.

I don't hate the UN and, as I've said before, I wish that the sanctions against Saddam Hussein had been credible and effective enough that any notion of Saddam being able to fund a weapons of mass destruction program would have seemed like gibberish.

Paul Volcker's independent commission that looked into the Oil for Food program released it's long-awaited report today. I only read the section on international oil companies who paid surcharges to Saddam in order to get their hands on Iraqi oil, which the UN had set at below-market prices. In a sense, I have to tip my hat to hard core free market people who would rightly point out that when you set a price of one country's product below the world product, you create a clear reason for companies to bribe their way into getting that profit. Look at it this way -- the oil's 50 cents cheaper than what's it's selling for on the world market. Why not pay 10 cents to make sure you get some, knowing you'll pocket 40 cents a barrel. Some trades that I analyzed yielded an 11% gain in just a few days. Might not sound like much, but it's better than most oil traders get on one trade. Also, the profits went through Gibraltar, where it's unlikely that they were taxed.

Volcker found that half of the companies, from all over the world, who traded in Iraqi oil paid illegal surcharges to Saddam. The total paid to Saddam is close to $300 million. That not only explains how he built palaces while his people starved but it solidified his grasp on power and is thus part of, though by know means is it primary, the cause of the 2,000 troops who are dead in Iraq.

Back in college, we used to theorize about multinational corporations, acting beyond the control of local governments or international organizations. Well, guess what? It happened here. These companies were not necessarily even large. Sure, the Volcker commission points the finger at a giant Russian conglomerate called The Alfa Group (Alfa says the commission is in error and when I found something similar for a story I wrote for Forbes, they said the same to me). But there were also small operations with few or even one employee, like Italtech involved. It's not about size. It's about where you choose to operate.

In that sense, this is even less about corporations than it's about having an international market without any sort of influential international regulations.

Back in the 1990s, I wanted the UN to lift the sanctions. To me, sanctions don't work. As is clear, Saddam and his cronies got rich and his people suffered. Even in the absence of corruption, Saddam would have taken care of himself before his people. That's what dictators under sanctions do. Ask Fidel Castro about that.

But, my objections aside, the UN, admittedly under US pressure, chose to keep the sanctions in place for years after the first Gulf War. We can debate how smart that was, but it is the choice the UN made. Some UN employees, it seems, defied their own edicts in order to get rich. That's deplorable and dissapointing and does so much harm to the idea that we can have an international body to foster international cooperation and fairness.

To me, corruption within the UN is an issue that we can't ignore. However, I think we'd be foolish to focus on that and nothing else. Let's not forget that something else went badly wrong -- in the political sphere, the world decided that Saddam had to be contained by sanctions in order to make sure he was not a threat to his neighbors or to minorities within his own country. But a bunch of companies, both large and small, guided by an unregulated market and doing what companies do (seeking profits) completely ignored the directions of the world's politicians and governments. They didn't protest. They didn't debate. They didn't try to change minds. They didn't even really lobby and buy votes or anything like that. They didn't participate in a political debate, they just pursued their own interests. Some Americans have been indicted in the US. Some others will probably face charges abroad. But most won't.

Those charged here stand a good chance of beating the rap or of settling, too. Part of the problem is, once Iraq's oil left its ports, the only records of where it went, and at what prices, are on private balance sheets. When I investigated this, I was lucky to stumble onto an unrelated lawsuit that contained some of these records. Absent that stroke of luck, I'd have gotten nowhere. This is complicated stuff and juries will be hard to convince.

I know they'll be hard to convince because I was hard to convince. Look over the records of a bunch of international trades, often between subsidiaries of the same company, and your head swims. You do the math. $100,000 is missing. Where did it go? The records don't say. It's boggling stuff.

While a lot of people will focus on the failure of the UN, and while I hope they also focus on the failure of the US (we turned a blind eye to a lot of Saddam's smuggling operations, which is a separate issue) I hope that we also deal with the notion that there's a largely unregulated trading market at work in the world. This might be the first overt instance where that market has actually worked in direct defiance of the political decisions made not just by the US but by the UN.

I've never really been against globalization. It's done a lot of good for the world. Some times, it pays to remember that the sweat shops its created are better than the sweat shops that were there before. But that's no excuse not the get rid of globalization's sweat shops, is it? What we have, with globalization, is this very powerful force that, if guided and watched and designed, can really make the world better for most people. Guided. Watched. Designed.

Left almost entirely to find its own form, which is what we're doing now, will have consequences that we don't expect and that we don't necessarily want and that we will sometimes abhor. All markets, left unfettered, will deliver unintended and unhoped for results. Because they're so hard to control, markets will do that even under the best regulations. To me, though, it's impossible to think that we're exterting anywhere near the proper level of control when private interests, not even acting in grand concert and not even intending to make a political statement can completely undermine a global, governmental policy.


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