Corruption in the Oil Industry - Situation in Alaska - Essay Example

Corruption in the Oil Industry - Situation in Alaska, UN Oil-for-Food Program - Table of Contents I. Introduction ………………………………………………………………. 3 II. The Cause and Effect of Oil Corruption ……………………………… 4 III. Well-Known Individuals Who have been Directly and Indirectly Involved in Oil Corruption Scandals …………………………………… 6 IV. The Negative Impact of Oil Corruption to the Local People in Iraq . 7 V. The Strength and Weaknesses of Alaska’s Regulation on Oil Corruption …………………………………………………………….. 8 VI. Suggested Ways on How to Prevent and Minimize Oil Corruption Under the Said Program …….………………………………………….. 9 VII. Conclusion ……………………………………………………………….. 11 References ………………………………………………………………………. 13 - 14 Introduction The high level of humanitarian needs of the people in Iraq and Kuwait during the early 1990s resulted to the establishment of Saddam Hussein’s ‘Oil-for-Food’ program back in December 1995. (Office of the Iraq Programme Oil-for-Food, 2007a; Asman, 2004) As mandated by the United Nations, the main objective of this program is to provide a temporary relief measure for the people in Iraq by allowing them to trade oil globally in order to financially resolve the huge gap between the demand and supply of humanitarian goods 1. Since the first trading of oil back in December 1996, the Security Council allowed Iraq to deliver a maximum of $4 billion worth of oil each year wherein two-thirds of the profit will be used in the purchase of humanitarian goods and services. (Office of the Iraq Programme Oil-for-Food, 2007b) This value was eventually increased to $10.52 billion a year in 1998. Due to the huge demand for oil globally, the Security Council removed the export limit in December 1999. Despite the huge amount of money that is expected to be collected from this program, the United States Government Accountability Office (GAO) reported that more than $67 billion of oil revenue has accumulated over-the-years but only $31 billion or less than 50% was spent on the humanitarian program in Iraq. (United States Government Accountability Office - Report to Congressional Committees, 2006, p. 2) The Oil-for-Food program has been successful in achieving its main objectives. As of March 2003, a lot of positive improvements with regards to the Iraqi’s socio-economic status were reported to have increased the living status of its local people. (Office of the Iraq Programme Oil-for-Food, 2007b) However, negative issues related to the oil corruption scandals connected to this program have been tremendously debatable for many years. (United States Government Accountability Office - Report to Congressional Committees, 2006; Asman, 2004) In line with the act of removing the export limit of oil under the Oil-for-Food program, the study will examine the major causes and effects of oil corruption; the well-known personalities who are directly and indirectly involved behind the oil corruption scandals; the negative impact of oil corruption to the local people in Iraq; and the strength and weaknesses of Alaska’s regulation on oil corruption. At the end of the study, the researcher will discuss and suggest several ways on how the government of Alaska could prevent and minimize the negative impact of oil corruption among its government officials. The Cause and Effect of Oil Corruption Power and greed are two of the most common characteristics that could trigger the oil corruption. Considering the fact that the ‘Oil-for-Food’ program can be used to generate billions of dollars over a short period of time, power-grabbing politicians could easily take advantage of using the humanitarian funds for the purpose of terrorists’ campaign. Between the years 1995 to mid-2006, fully entrusting the major control of the sales collection that are generated from the ‘Oil-for-Food’ program as well as the types of humanitarian commodities being purchased on behalf of the Iraqi nation to Saddam Hussein alone generally increases his power to rule other people and the risks of oil-related corruption. (Shays, 2006; Gordon, 2004) Threatening the lives of anyone who goes against the oil corruption activities is possible as seen in the case of the president of the Finance Ministry’s audit board Mr. lhsan Kareem who past away due to an improvised explosive that was planted on the exterior of his car. (Asman, 2004; CNN International, 2004) According to the United States Government Accountability Office (2006), several entities such as the Secretariat, UN Security Council, 9 UN agencies, UN member states, Government of Iraq, the Audit entities which is composed of both internal and external auditors, and the Multinational Interception Force (MIF) were assigned a specific task as part of the monitoring process. (pp.16 - 20) However, there is no single entity that is assigned to coordinate and double check whether or not their specific findings is significantly correlated to the report of the other groups. (United States Government Accountability Office - Report to Congressional Committees, 2006: p. 15) The absence of integrated auditing entities makes it impossible for the UN Security Council to clearly track the in and out of cash, other assets, commodities behind the Oil-for-Food program. Although the UN Office of the Iraq Program (OIP) was able to point out several occasions wherein a discrepancy in the financial statement of the Oil-for-Food program was noted (UN Foundation, 2005), little action was made in response to the report. It is also believed that the lack of proper communication among the said entities significantly contribute to the weak internal monitoring control. The fact that the said program has been implemented using a weak auditing framework and the lack of risk assessment procedures allow Saddam to easily manipulate the people who are in-charge of monitoring the Oil-for-Food system. Specifically the lack of a strong internal control to oversee the daily activities related to the ‘Oil-for-Food’ program makes it easier for the people in-charge of the program to violate the legal process as well as the terms and conditions under the said program. As a result, the incidence of illegal activities such as the smuggling of oil via several routes using hidden pipelines, oil-transporting trucks, or by ships (United States Government Accountability Office - Report to Congressional Committees, 2006: p. 14; Gordon, 2004), illegal trading process and agreements like overpricing of goods and services, illicit commissions, kickbacks, levy surcharges, as well as the other forms of ‘red tape’ increases. (Shays, 2006) In line with the issue of illicit transaction, CIA reported that most of the illegal trading of oil occurs between the Iraqi government and the government of other countries that are highly dependent on crude oil. (Gordon, 2004) Well-Known Individuals Who are Directly and Indirectly Involved in Oil Corruption Based on a news report that was written by David Asman for Fox News, the main objective of the so-called ‘Oil-for-Food’ program has been corrupted considering that several evidences were noted by the CIA suggesting the possibility that more than $21 billion dollars that was generated from this humanitarian program may have been used by Saddam Hussein and other potential terrorist groups. (Asman, 2004; Gordon, 2004) Rumors spread rampantly that government official(s) who are in high position such as the former head of the ‘Oil-for-Food’ program – Mr. Benon Sevan has been removed from his office for accepting illegal oil vouchers and soliciting the allocation of oil under the said program during his term in the office. (UN Foundation, 2005; Gordon, 2004) The second government official that has been charged of going against the UN procurement regulations on supplies and securities that favour several companies is Mr. Joseph Stephanides – the Chief of the Sanctions Branch and Deputy Director of the Security Council Affairs Division. (Angelides, 2007; Hoge, 2005) Charges against him were eventually dismissed by the court. The Negative Impact of Oil Corruption to the Local People in Iraq The smuggling of oil to other countries is a clear sign of violating the main objective of the ‘Oil-for-Food’ program which is to generate sufficient fund to be used in supporting the financial needs of the ordinary Iraqis in order to improve their lives and well-being. The unrecorded ‘sales and revenues’ coming from the large volume of smuggled oil cuts-down a huge sum of money needed by the local people in Iraq. (U.S. Department of State, 2002) Prior to the death sentence that was executed on Saddam Hussein back in December 2006 (Macfarquhar, 2006), the weak monitoring and supervising of the ‘Oil-for-Food’ program allowed Hussein to generate millions of dollars by under-pricing and overpricing of traded humanitarian goods and services under the said program. (UN Foundation, 2005) According to the U.S. Department of State (2002), failure to control such practice could eventually lead to serious global problem considering the possibility that the profit gained from purchasing and selling of these items can be used in the purchase of fire arms and other mass destructive weapons that could endanger in the lives of many people. The Strength and Weaknesses of Alaska’s Regulation on Oil Corruption Alaska’s regulation on the issue of oil corruption, under the supervision of the Alaska Public Offices Commission (APOC), is proven to be actively strong. This has been evident with the recent controversy regarding the conviction of the Alaska’s former state House speaker Mr. Pete Kott who has been sentenced for six years in the federal prison for accepting a sum of $9,000 as bribe as well as being involved in a conspiracy and extortion related to oil taxes. (Demer, 2007a; Joling, 2007) Aside from Mr. Kott, the former vice president of Veco Mr. Rick Smith also pleaded guilty of bribery and conspiracy; the former Rep. Vic Kohring is also convicted of bribery, conspiracy, as well as attempted extortion; whereas the former Rep. Bruce Weyhrauch is charged of bribery, conspiracy, mail fraud, and attempted extortion. (Demer, 2007b) In line with the issue of highly corrupted lawmakes in Alaska, APOC executive director Brooke Miles announced that the organization will continuously look over government officials who will be proven to be involved in a corruption scandal. (Cockerham, 2007) In the process, a proper legal action will be taken against them. Although the effort of cleaning the act of bribery and corruption among the individuals who are in the position to manipulate the oil taxes is visible, the weakness of the Alaska’s regulation on oil corruption lies on the fact that many corrupt government officials are still not punishable by the law. (Cockerham, 2007) Suggested Ways on how to Prevent and Minimize Oil Corruption under the said Program As part of the suggested management reform, internal control should not be limited to the practice of auditing the total sales vs. the proceeds; and the implementation of asset and cash management system to ensure that collected funds are not being misused for other purposes – but also include the physical inspection with regards to pricing and the quality of food items and other services that is purchased on behalf of Iraqi beneficiaries. (United States Government Accountability Office - Report to Congressional Committees, 2006: p. 26) By doing so, it will be possible to prevent minor form of corruption like ‘red tapes’, under-the-table, and other inappropriate business practices. There is also a strong need for a management reform such as establishing and implementing not only a reliable group of internal auditors but also a group of anonymous or independent auditors and inspectors that will be assigned to oversee and trace any possible abuse of power, fraud, and other illegal activities behind the huge humanitarian project such as the smuggling of oil via several routes using a hidden pipelines, oil-transporting trucks, or by ships. (United States Government Accountability Office - Report to Congressional Committees, 2006: p. 18; Gordon, 2004) It is a good step that the UN Secretary-General established the Independent Inquiry Committee (ICC) to externally examine the UN records and information concerning the program. (UN Foundation, 2005) However, such action taken is not enough to totally eliminate illegal activities and oil corruption. It is more important to implement a law that could strictly punish individuals who will be caught being engaged in illegal activities related to the program. Adding more staff under the group of UN’s auditors is also necessary due to the fact that the ICC has reported the lack of competitive manpower to carry on the tedious task of auditing the daily transactions of the ‘Oil-for-Food’ program. (UN Foundation, 2005) It is also advisable to continuously change and rotate the Security Council members to help minimize and prevent the corruption and power manipulation behind the Oil-for-Food program. (Shays, 2006) The written documents could reflect only a small picture of corruption that is happening behind the ‘Oil-for-Food’ program. For this reason, external investigators are advised to focus more on capturing illegal activities that are related to the smuggling of oil since the ICC has reported that Saddam Hussein was able to generate as much as $10.99 billion out of it as compared to the $1.8 billion he approximately had gotten from being able to manipulate the ‘Oil-for-Food’ program. (UN Foundation, 2005) Since it was possible for Saddam Hussein or a powerful government official to threaten the lives of individuals who would go after these illegal activities, it would be best to encourage, support, and secure the lives of the civilians who have the courage to report any signs of oil smuggling within a specific region. By engaging the people globally to be a part of fighting oil corruption, it will be easier for the Multinational Interception Force (MIF), headed by the Fifth Fleet of the U.S. Navy to fight and prevent the illegal smuggling of oil (UN Foundation, 2005). Limiting the volume of oil being exported to other countries is not really the answer to the problem of oil corruption. In the absence of a strong measurement being implemented to fight the smuggling of oil from Iraq, corrupt government officials can still generate a large sum of money at the expense of the ‘Oil-for-Food’ program. Lastly, scientists should be encouraged to invent new alternative or renewable sources of fuel other than the usual oil that we use to generate electricity or power. Alternative fuel, such as the ‘biofuel’ or ‘ethanol’ that are derived from crops like corn, soy, barley, and wheat, will eventually lower down the demand for crude oil. (Montana Green Power, 2007) The decrease in demand for these oil will gradually decrease the power of Saddam Hussein to manipulate powerful people around the world. As a result, there will also be a tendency that the corruption related to the ‘Oil-for-Food’ program will decline. The rationale behind this suggestion is simply to allow other countries to have the option to choose other forms of energy resources to keep their economy going instead of having no option but to participate in oil corruption or have no choice but to pay the high price of crude oil. Conclusion Not all people who are directly involved in the Oil-for-Food program, such as in the case of Mr. lhsan Kareem, are corrupt. (Asman, 2004; CNN International, 2004) Allowing the person-in-control of the program with much money and power, such as in the case of Saddam Hussein, will enable them to easily manipulate some of the people working behind the ‘Oil-for-Food’ program. As a result, there is a higher tendency that oil corruption will increase. It is never easy to fight and prevent oil corruption considering that many countries all over the world are highly dependent on the use of oil. A strong political effort to punish corrupt individuals in accordance to the law is the best way to solve the problem. *** End *** References: Angelides, Stavros. "Xpress Oikonomiki." 16 February 2007. Cyprus-U.S. ties Strained Over Sevan Extradition. 16 December 2007 . Asman, David. "Fox News." 20 September 2004. Oil-for-Food Scandal Draws Scrutiny to U.N. 14 December 2007 . "CNN International." 5 July 2004. The Struggle for Iraq: Bomb Targeted Iraq Oil Row Auditor. 16 December 2007 . Cockerham, Sean. "Anchorage Daily News." 13 December 2007. APOC Seeks More Money. 15 December 2007 . Demer, Lisa. "Anchorage Daily News." 8 December 2007b. Kott Gets 6 Years: Severity of Crime, Perjury on Stand Earn Longer Sentence. 15 December 2007 . Demer Lisa. "Anchorage Daily News." 7 December 2007a. Kott Gets 6 Years in Prison for Corruption. 15 December 2007 . Gordon, Joy. "The Nation." 6 December 2004. UN Oil for Food Scandal. 14 December 2007 . Hoge, Warren. "The New York Times." 30 March 2005. Panel Says Annan Didnt Intervene in Iraq Contract. 14 December 2007 . Joling, Dan. "Anchorage Daily News." 7 December 2007. Former Alaska Lawmaker Gets Six Years on Corruption Convictions. 15 December 2007 . Macfarquhar, Neil. "The New York Times." 29 December 2006. Saddam Hussein Had Oppressed Iraq for More than 30 Years. 16 December 2007 . "Montana Green Power." 15 December 2007. Biofuels. 15 December 2007 . "Office of the Iraq Programme Oil-for-Food." 14 December 2007a. About the Programme: Oil-for-Food. 14 December 2007 . "Office of the Iraq Programme Oil-for-Food." 14 December 2007b. Fact Sheet. 14 December 2007 . Shays, Christopher. "Congressman Christopher Shays - Connecticuts Fourth District." 2 May 2006. Shays Probes Viability of Sanctions After Oil for Food, UN Management Reforms. 14 December 2007 . "U.S. Department of State." 20 December 2002. Oil-for-Food Program - Fact Sheet. 16 December 2007 . "UN Foundation." 2005. Frequently Asked Questions About the Oil-for-Food Program. 16 December 2007 . "United States Government Accountability Office - Report to Congressional Committees." April 2006. United Nations: Lessons Learned from Oil for Food Program Indicate the Need to Strengthen UN Internal Controls and Oversight Activities. 15 December 2007 . Read More