Surjit S Bhalla: Volcker Report - FAQs

IT DOESN'T MATTER

The Saddam oil-for-food scam was made possible by humanitarian UN mandarins

At a cocktail party on the night of November 2, just a few days after the UN Volcker report on the Iraqi oil for food scam, I asked everybody (mostly journalists, academics, intellectuals) as to what they thought the repercussions would be for the Indian politicians. Two politicians, Bhim Singh and the Indian foreign minister, Natwar Singh, had been named in the report as "non-contractual" beneficiaries of Saddam Hussein's largesse. The third political beneficiary listed was the Congress party. Almost to a woman, the feeling was that nothing of consequence would emerge. A few days later, Natwar Singh was relieved of his job, suggesting that our page 3 wannabes are, at best, politically naïve. A documentation of some of the facts involved might help us all make better judgments.

Q1: How did this food-for-oil scam originate?

A1: It originated because of very good intentions. Iraq invaded Kuwait, against all norms of international and UN practice. A classic old-fashioned invasion in 1990, smack in the middle of the so-called globalisation period. The Berlin Wall had fallen, the Soviet Union was at the beginning of a collapse, the Cold War had virtually ended, and here was one oil-producing country simply invading another oil-producing country. This was brazen, and most people felt so, though the Indian left, and their numerous card holders within the Congress party, may have a different interpretation""they often do. The UN wanted to punish this behaviour, and did, by imposing "sanctions" on Iraq's export of oil. Given that oil was the only export that Iraq had, and that it imported most of its food and medicines, a justified humanitarian concern was voiced across the world and the UN""the people of Iraq should not be punished because of the aggression of their leaders.

The obvious "solution" to the problem was that Iraq's oil export revenues should be directed towards food and medicine. So the UN set up a bank to collect oil revenues and to pay for food. The optimal solution, but this was before the central planning leftist economists that house and advise the UN got into the act. They stipulated, for "in the name of the poor" and punishment reasons, that Iraq should not be allowed to sell the oil at market prices, but at a "fair" price mandated by the UN mandarins.

Now the UN mandarins should have known, must have known, that when you set both the price and quantity of the sale, there will be corruption. They must also have known that one of the biggest beneficiaries of the corruption scheme would be the administrators of the scheme""the UN bureaucrats. They further facilitated the scam by allowing Saddam Hussein to choose the people who would be authorised to buy and sell the oil. Hence, the origin of "non-contractual" beneficiaries, i.e. people who had never seen a barrel of oil, much less knowing its contents, suddenly became traders in oil. And trading in oil meant that one was making some profits. How much profit, after paying kickbacks to Saddam? Approximately $3 a barrel, i.e. the difference between the UN fair price and the market price of oil. As a percentage, about 10 to 15.

Q2: What was illegal in participating in a UN-mandated programme?

A2: Nothing""indeed just the opposite. Participants in the oil-for-food scam could justifiably feel that they were serving humanity by facilitating food to the needy, medicines to the poor. This was no ordinary exchange programme that the Congress party and Natwar Singh were involved in""this was approved, and sponsored, by a Nobel Peace Prize-winning organisation, the UN.

Q3: But aren't the kickbacks demanded and delivered to Saddam illegal?

A3: Depends, in some countries, yes; in other countries, like India, most likely not. If everyone was convicted of taking and giving bribes in India, there would be no adult left. So this is not what was inappropriate behaviour on the part of the non-contractual beneficiaries. And it can legitimately be claimed that if one did not give kickbacks to Saddam, the poor in Iraq would suffer.

Q4: So why are the non-contractual beneficiaries like the Congress party and Natwar Singh being maligned by the media, a few intellectuals, and an opportunistic opposition party, the BJP?

A4: Because the fear is that the foreign policy decisions taken by the Congress party and Natwar Singh today may have been compromised by the expensive gifts they have been alleged to have received from Saddam when they were out of power. How expensive? About $9 million (3 million barrels at a profit of $3 a barrel). Coincidentally, $9 million in 2001 is approximately equal to $5 million in 1985, the beginning year of the Bofors scandal. And $5 million then was approximately equal to Rs 64 crore, the approximate kickback alleged to have been given by Bofors to non-contractual beneficiaries in India.

The only reason to worry (if one were Natwar Singh and/or the Congress party) is if the oil-for-food profits were not declared to the income tax authorities. A case of Al Capone?

Q5: Didn't the non-contractual beneficiaries know that they were running a potentially huge risk by making easy profits?

A5: Of course they realised. The opposition alliance, the NDA, is not exactly known for being clean, yet did not participate as a wannabe oil trader. Why not? Perhaps because Saddam felt the Congress party was more likely to do his bidding; perhaps the NDA realised that the risks involved were non-trivial with respect to a reward of "only" $9 million.

Q6: So does it all matter for the price of tomatoes or the future course of politics in India?

A6: Note the title of this column""most likely, it just doesn't matter. Men may come and women may go, but politics is likely to remain "business as usual"""perhaps, my cocktail party friends were right after all.

ssbhalla@gmail.com