From 1997 to 2002, the Oil for Food program was responsible for more  than $67 billion of Iraq's oil revenue. Despite concerns that sanctions may have worsened the  humanitarian situation, the Oil for Food program appears to have helped  the Iraqi people. According to the United Nations, the average daily food  intake increased from around 1,275 calories per person per day in 1996 to  about 2,229 calories at the end of 2001. Oversight Role

From 1997 through 2002, we estimate that the former Iraqi regime acquired  $10.1 billion in illegal revenues—$5.7 billion in oil smuggled out of Iraq  and $4.4 billion in surcharges on oil sales and illicit charges from suppliers  exporting goods to Iraq through the Oil for Food program. However, the  Security Council allowed the Iraqi government, as a sovereign entity, to  negotiate contracts directly with purchasers of Iraqi oil and suppliers of  commodities. This structure, in addition to the uncertain oversight roles  of OIP and the sanctions committee, was an important factor in enabling  Iraq to levy illegal surcharges and illicit commissions. U.N. external audit  reports contained no findings of program fraud. Summaries of internal  audit reports provided to GAO pointed to some operational concerns in  procurement, coordination, monitoring, and oversight. United Nations and Security Council Had Responsibility for Oversight of Program, but Iraq Contracted Directly with Purchasers and Suppliers

Both OIP, as an office within the U.N. Secretariat, and the Security  Council’s sanctions committee were responsible for overseeing the Oil for  Food Program. While  OIP was to examine each contract for price and value, it is unclear how it  performed this function. The sanctions  committee responded to illegal surcharges on oil purchases, but it is  unclear what actions it took to respond to commissions on commodity  contracts. The Sanctions Committee Had a Key Role in Enforcing Sanctions and Approving Contracts

The sanctions committee was responsible for three key elements of the Oil  for Food program: (1) monitoring implementation of the sanctions, (2)  screening contracts to prevent the purchase of items that could have  military uses, and (3) approving Iraq’s oil and commodity contracts. These efforts may wish to further examine how the structure  of the program enabled the Iraqi government to obtain illegal revenues, the  role of member states in monitoring and enforcing the sanctions, actions  taken to reduce oil smuggling, and the responsibilities and procedures for  assessing price reasonableness in commodity contracts. Current or  planned efforts include an inquiry initiated by the United Nations, an  investigation and audit overseen by the Iraqi Board of Supreme Audit, and  efforts undertaken by several U.S. congressional committees. Appendix I: Scope and Methodology

We used the following methodology to estimate the former Iraqi regime’s  illicit revenues from oil smuggling, surcharges on oil, and commissions  from commodity contracts from 1997 through 2002:
To estimate the amount of oil the Iraqi regime smuggled, we used  Energy Information Administration (EIA) estimates of Iraqi oil  production and subtracted oil sold under the Oil for Food program and  domestic consumption.
Why GAO Did This Study

The Oil for Food program was established by the United Nations and Iraq in 1996 to address concerns about the humanitarian situation after international sanctions were imposed in 1990. The program allowed the Iraqi government to use the proceeds of its oil sales to pay for food, medicine, and infrastructure maintenance. The program appears to have helped the Iraqi people. From 1996 through 2001, the average daily food intake increased from 1,300 to 2,300 calories. From 1997-2002, Iraq sold more than $67 billion of oil through the program and issued $38 billion in letters of credit to purchase commodities. GAO (1) reports on our estimates of the illegal revenue acquired by the former Iraqi regime in violation of U.N. sanctions and provides some observations on the administration of the program and (2) suggests areas for additional analysis and summarizes the status of several ongoing investigations.

What GAO Found

From 1997 through 2002, we estimate that the former Iraqi regime acquired $10.1 billion in illegal revenues--$5.7 billion in oil smuggled out of Iraq and $4.4 billion in surcharges on oil sales and illicit charges from suppliers exporting goods to Iraq through the Oil for Food program. The United Nations, through the Office of the Iraq Program (OIP) and the Security Council's Iraq sanctions committee, was responsible for overseeing the Oil for Food program. However, the Security Council allowed the Iraqi government, as a sovereign entity, to negotiate contracts directly with purchasers of Iraqi oil and suppliers of commodities. This structure was an important factor in enabling Iraq to levy illegal surcharges and commissions. OIP was responsible for examining Iraqi contracts for price and value, but it is unclear how it performed this function. The sanctions committee was responsible for monitoring oil smuggling, screening contracts for items that could have military uses, and approving oil and commodity contracts. The sanctions committee took action to stop illegal surcharges on oil, but it is unclear what actions it took on the commissions on commodity contracts. U.N. external audit reports contained no findings of program fraud. Summaries of internal audit reports provided to GAO pointed to some operational concerns in procurement, coordination, monitoring, and oversight. Ongoing investigations of the Oil for Food program may wish to further examine how the structure of the program enabled the Iraqi government to obtain illegal revenues, the role of member states in monitoring and enforcing the sanctions, actions taken to reduce oil smuggling, and the responsibilities and procedures for assessing price reasonableness in commodity contracts. Current or planned efforts include an inquiry initiated by the United Nations, an investigation and audit overseen by the Iraqi Board of Supreme Audit, and efforts undertaken by several U.S. congressional committees.