Global Policy Forum

By Charles Homans

A House of Representatives subcommittee on Tuesday broadened its investigation of Iraq's oil-for-food program to include the Bush administration's handling of the country's oil money. The decision to subpoena documents from the Federal Reserve Bank of New York marks a major shift in the Government Reform subcommittee's investigation, which until this point had focused on corruption in the United Nations oil-for-food program in Iraq during Saddam's regime.

The decision means the subcommittee also will scrutinize the activities of the U.S.-led Coalition Provisional Authority, which governed Iraq from May 2003 to June 2004. A recent internal audit of the CPA by its inspector general concluded that the authority couldn't account for $8.8 billion in oil revenues that belonged to the Iraqi people.

The New York Fed manages the Development Fund for Iraq, an account in which Iraqi oil money and other funds earmarked for Iraq's reconstruction are held. "This money belongs to the Iraqi people - it is not a slush fund," said Rep. Henry Waxman, D-Calif., the subcommittee's ranking minority member. "The administration should use these funds in a transparent manner for the benefit of the Iraqi people."

The New York Fed held the account into which Iraq's oil revenues were transferred after Saddam's regime fell. The subcommittee hopes to use the bank's account records as a window into the CPA's largely opaque management practices. The bank had yet to receive the subpoena Tuesday afternoon and had no comment on the matter.

The move was a victory for Democrats on the House Subcommittee on National Security, Emerging Threats and International Relations, who also had sought to subpoena Defense Department documents on the CPA's accounting practices. Under a compromise struck Tuesday between Waxman and subcommittee chairman Christopher Shays, R-Conn., the subcommittee instead will send a letter to Defense Secretary Donald H. Rumsfeld requesting the documents.

Iraqi oil revenues have been allocated in one way or another for humanitarian purposes since the United Nations created the nation's oil-for-food program in 1996, and they've been dogged by mishandling for just as long. The oil-for-food program was an exception to the sanctions placed on Iraq after the 1991 Persian Gulf War. It was intended to allow Saddam's government to sell limited amounts of oil in exchange for humanitarian goods such as medical supplies and food. An April audit by Congress' Government Accountability Office found that Saddam's regime skimmed $4.4 billion from the program through surcharges on oil sales and illegal commissions on goods imported through the program.

In recent hearings by the subcommittee, contractors and banks involved in the oil-for-food program came under scrutiny for apparent complicity in Saddam's theft. Among them was the French bank BNP Paribas, which handled Iraqi oil revenues under the program and which Shays has criticized for an apparent lack of oversight of the Iraqi government's financial activities. David Smith, a representative of BNP Paribas, said in prepared testimony that "the bank has had no discretion over how money has been spent or invested under the (oil-for-food) program." Shays contended at a subcommittee hearing Tuesday that three U.N. Security Council members - France, Russia and China - had undermined the Iraq sanctions by limiting the policing authority of the contractors who oversaw the oil-for-food program. "The U.N. sanctions regime against Iraq was all but eviscerated, turned inside out by political manipulation and greed," he said.

Christine Grenier, the first secretary of the French Embassy's political section, derided what she called unjustified allegations against France. No immediate comment from the other two countries was available. More light may be shed on the oil-for-food program Wednesday afternoon when Charles Duelfer, the Bush administration's top arms inspector in Iraq, releases a report on his work and testifies before Congress. The report is based on the work of the Iraq Survey Group, a multinational effort to unearth evidence of Iraq's weapons of mass destruction program, and is expected to include an examination of how Saddam's regime manipulated the oil-for-food program with an eye toward raising cash for clandestine purposes, including weapons research.