Transcript: Paul Volcker Talks Tough

The team of investigators led by Paul Volcker (search) looking into the corrupt Oil-for-Food program this week blasted the United Nations for mismanaging the program. In a report released Tuesday, it found that nearly all the 10,000 contracts signed in the last three years of the program were tainted by corruption.

Volcker spoke with FOX News' Eric Shawn following the release of the report, the most comprehensive documentation of Oil-for-Food's problems since the United Nations (search) approved the creation of the Independent Inquiry Committee.

"In the end, it's going to be the General Assembly and the Security Council" that will have to take serious action, Volcker said. "The organization needs leadership for drastic reform — that's the test."

Following is a transcript of the interview. To read more about the report, click on the related stories in the box to the right.

ERIC SHAWN: Do you believe that he (Kofi Annan) is not exonerated?

PAUL VOLCKER: The word exonerated becomes relevant because we (inaudible) not found that he is directly or indirectly influenced this one particular procurement. We said that in our earlier report and I repeated it now we have no evidence for that. But that's not a general exoneration.

VOLCKER: But much of this report is critical of his management of the Secretariat in general terms and in quite specific terms about his own personal responsibilities. But one of the failings here which we criticized in before, and we kind of underscore now, is that when this entire question arose as to whether he had a conflict of interest, or an implied conflict of interest, or the appearance of a conflict of interest and he found out about his son employer winning a contract, there was no real investigation.

And he was satisfied with a press statement, which, (chuckles), I wouldn't call an investigation. If that investigation had taken place, I think that interesting things would have been discovered at that time. I don't think they would have discovered that he interfered with the contract award, but you would have found out weaknesses in the Procurement Department and activities of his son, which are only now coming out in color.

Unfortunately, his whole regime. It should have been dealt with at the time. It's just one of those things, you slide over something and it comes up and bites you later.

SHAWN: Do you believe that Annan tried to cover up for his son?

VOLCKER: He may well have believed that his son was not involved in any way and there is clear evidence that his son lied to him at that period of time about his activities in connection with the company.

So we, we have not found the kind of conclusive evidence that would be necessary to say that he knew all this happened. It's just didn't exist as far we could see. There are a lot of seemingly suspicious circumstances, but you can't draw a conclusion for a few seemingly suspicious circumstances.

SHAWN: His stewardship has been tainted?

VOLCKER: There is no question that his stewardship has fallen short, tainted to use your word for administrative failings and he didn't have that investigation which is a personal thing. There is another incident with his son and the purchase of a car, which is troublesome without question. Again, he may be without knowledge but it is not clear and so there are serious of troublesome (chuckles).

SHAWN: Do you believe Mr. Annan told your investigators the truth when he denied knowledge of the contracts?

VOLCKER: No, well I, we didn't believe, at least we are not ready to say he didn't tell the truth. We don't have the kind of evidence that would be necessary. Frankly I think for any reasonable person to reach that conclusion, obviously there are a lot of people who say, oh, that looks suspicious, and I think it happened, but that is saying it looks suspicious and I think it happened is not the considered conclusion of an investigator.

SHAWN: We have some new revelations about Kojo and that he contacted his father's assistant and that he was involved in the Cotecna contract.

VOLCKER: At least marginally involved. But look, the central part of this report is not this, these little tidbits, the central question is there was a breakdown of the administration of a program by the UN, which is not the responsibility of any one person, more than one person contributed to this. But very strongly indicates far reaching reforms are necessary in the administration of the UN.

That is the central point that emerges from this investigation. That is the point that ought to be pressed in the interest of the UN. It needs reform and this opportunity should not be missed. Because you cannot have any plainer demonstration of need for reform. There has been a lot of talk about it; this is the evidence for it so to speak. What the press ought to do is to keep the pressure on to say what are you doing about it, let's get it done. We say in the report there ought to be important reforms by the time of the General Assembly meeting next year.

This in the end is the responsibility of the General Assembly. And they better get at it and take it seriously. And there will be resistance at the UN to taking it seriously. A lot of people just would like to let it go along just the way it is, because that's comfortable, get their political appointments and don't push us too hard. That resistance has to be overcome. And this report, I would like to think, is a vehicle, an important vehicle for overcoming it. And that's much more important than whether (chuckles) Kojo made some telephone calls.

SHAWN: But don't the people there, Mr. Annan for example, Mrs. Frechette, have the role, have the duty and the mission to try and change it?

VOLCKER: Yes, if they're gonna be there then they've got to change it, or they've got to be a part of it. In the end it's going to be the General Assembly and the Security Council. But they gotta, somebody, the organization needs leadership to press the reform, that's the test. Do they have the leadership to press the reform, and do it successfully.

SHAWN: Do you think Kofi Annan is the man for that job?

VOLCKER: Well, that's not my decision, but that is the question for the organization.

SHAWN: One point you brought out in the report had to do with the fact that Mr. Annan, even though you say obviously that there were faults with his tenure, he was constantly pushing for the program to increase and grow yet now he says that he wishes that he never had the program. Isn't that being disingenuous?

VOLCKER: (chuckles) Well, those are two different questions. And his pushing at some occasion for an expansion of the program, I would draw no inferences from that. Perfectly reasonable, straightforward arguments for that taking place which I think in the end were convincing to the Security Council and the United States and everybody else. I know this comment that 'I wish it never happened' I think is an understandable comment. And we raised the question as to whether, maybe the UN should have said look it's too complicated, too big, we're not able to manage it, go away.

But at the end of the day I don't think that's a satisfactory answer for the UN, do you? Because nobody else is capable of doing this sort of thing. They exposed their own difficulties and fragilities. But who else is gonna do it? And some times, it's necessary to get done, and in this case starvation of many Iraqis was avoided. Not unimportant. That the sanctions were maintained and Saddam did not get weapons of mass destruction. Now if the UN had said I don't want to fool around with this complicated program, what would have happened? Maybe Saddam would have given in, maybe people would have starved to death.

SHAWN: You mentioned weapons of mass destruction. Do you see a conflict at all with the Duelfer Report, and that their view was that Saddam purposely got rid of the materials to fool the UN inspectors and his intent was that the moment the sanctions were gone he was going to start up again?

VOLCKER: Well, that may be. I have no experience with weapons of mass destruction. All I know is that he didn't have them, and I think the fact that he was under sanctions made it difficult for him to have them while those sanctions existed. The sanctions no longer existed, it's an entirely different story, and that's got nothing to do with our report.

SHAWN: You talk about the Oil-for-Food program and growing. Mr Sevan, for example, you concluded was bribed with that $160 thousand or so, $170 thousand dollars. Have you established what he did for that? Was it supporting the program, his push to enlarge the program with the oil production?

VOLCKER: Well, as they say, once people know that he got some benefits you go back and look at everything he ever did and said 'Did he say that because he was getting benefits?' It's quite clear at times that he took positions that the Iraqis opposed. And as I said earlier, it's a peculiar fact that both the British and the Americans thought he was doing a good job. The Iraqis thought he was doing a good job (laughs). He's quite an operator.

SHAWN: Another point on Kojo which I want to mention is this Financial Times report of $750 thousand from companies. Have you looked into that, or will that (cut-off)

VOLCKER: I haven't personally looked into it. I think our investigators are aware of it, and it's a question as to whether it's getting into the Oil-for-Food program.

SHAWN: As you also indicated Kojo is cooperating more now, but it seems that he's lied to you in the past.

VOLCKER: You keep coming back to Kojo. (laughs)

SHAWN: I'm just trying to be specific on (cut-off)

VOLCKER: He has cooperated with us in a limited way. I am sure that he has not told us everything he knows.

SHAWN: And where do you think this will go? What do you think the next step is?

VOLCKER: The next step for us is very clear. We're going to look at the specific areas of corruption by contractors, by the people who bought the oil and the people selling the goods. And there were a lot of them. There was a lot of hanky-panky.

SHAWN: When you talk about hanky-panky and problems inside, do you think the UN had a conflict of interest in that they received that 2.2 percent fee, that maybe that helped perpetuate this, and maybe they turned a blind eye?

VOLCKER: No, I don't think that affected this kind of corruption. We looked at that pretty carefully, and we concluded earlier that the Secretariat itself was quite punctilious and using that money for the purposes which it was intended, namely administering this program. The agencies, I think, were less punctilious, but partly for an understandable reason. They do have overhead expenditures, like any organization, and they mostly exist through voluntary contributions for particular projects.

And if people said we're only going to finance your direct expenditures, the agency wouldn't exist, because they do have some indirect expenditures. So they said look, we need some coverage of our overhead, of our core expenditures. I don't think that's unreasonable. What got unreasonable was the amount. Particularly at the end of the program, the egregious part was right at the end as the program was winding down, they clearly exaggerated their need of a reasonable definition of overhead.

So we have suggested, to use a mild word, that they give up to $50 million back, and they've already agreed to give, I don't know, $35, $40 million back. (Laughs) So from the standpoint of the investigation that's a nice tangible result.

SHAWN: Finally, I mention the issue of Mr. Annan and his stewardship at the UN. What could you say to critics who could say that you went easy on him, that if he had this mismanagement -- bribes, payoffs, this unethical behavior -- he's the leader of the United Nations, should he step down?

VOLCKER: Well, you read the report and you make up your mind whether we went easy on him. I don't think that he feels we went easy on him (laughs). Of course he would not. But I look at it checkeredly, he comes in for a lot of criticism, some of which he thinks is unfair, without question. He says look, the Security Council was running this thing, and they were confused, and it wasn't my fault. But he now admits he's got his failings, too. Some people will say we were too harsh, other people will say we weren't harsh enough. We tried to impart what we knew.

SHAWN: All in all, what do you think the lesson is in what you found?

VOLCKER: The lesson is very clear. The lesson is that this institution needs administrative reform, and needs it clearly. The reasons for what happened, I think in very general terms, are reasonably clear. This organization was not administered, wasn't made up in a way to facilitate this kind of an operational program. It was not dreamed of in 1945. And the organization needs to be restructured. If it's going to have operational responsibilities, it's got to be able to carry them out. That means a much stronger administrator.

We have suggested a chief operating officer be appointed with full status. We have suggested a very strong oversight board be created, an independent oversight board to look over the auditing, to look over the control systems, to look over the investigations. All of those things were weak in the UN, they need to be strengthened and they need outside, independent backbone.

SHAWN: And finally, one quick thought. Do you think it's fair or unfair -- you know, Harry Truman said 'The buck stops here,' but it doesn't stop with Annan -- or do you think that's unfair?

VOLCKER: Well, he certainly carries his share of the responsibility. In this particular organizational framework, I can't say that the responsibility was only his. But he certainly has, he's the head of the Secretariat, he's responsible for the organization. Apart from the narrow Oil-for-Food, the deficiencies in the purchasing department, the corruption of the purchasing department, the lack of adequate auditing, the lack of adequate controls are all part of the administrative structure of the Secretariat, which he's the head of.

Click on the links below to read sections of the report:

Volume I - The Report of the Committee (pdf)
Volume II - Program Background (pdf)
Volume III - United Nations Administration, Part I (pdf)
Volume IV - United Nations Administration, Part II (pdf)
Impact of Oil-for-Food Program on the Iraqi People (pdf)