United Nations, Volcker report

Procurement Scandal: New Conflict of Interest in Annan's Inner Circle?

By Claudia Rosett & George Russell

Wednesday, October 5, 2005

UNITED NATIONS — United Nations investigators scrambling to discover the extent of a bribery scandal spreading out from the organization's procurement department may soon be looking toward the building's 38th floor — the U.N's executive offices.

Bubbling up from the procurement scandal is yet another apparent conflict of interest, this one linked to the inner circle of the secretary-general by way of veteran U.N. diplomat Giandomenico Picco. An Italian, Picco has served as one of the United Nations' most trusted envoys, specializing in navigating hotspots such as Afghanistan, Iran and Iraq.

Now, confidential corporate documents obtained by FOX News show that while serving as a U.N. under-secretary general and personal representative of Kofi Annan, Picco was also for part of that time chairman of the board of a mysterious and controversial company, IHC Services.

During Picco's tenure as board chairman, IHC did big business with the United Nations, some of it via a U.N. procurement staffer with whom IHC had especially close ties, Alexander Yakovlev Yakovlev this summer was convicted of federal charges involving bribe-taking and money-laundering.

In an e-mail response to written questions from FOX News, Picco has denied that he himself had any part in any wrongdoing, "or any interaction with the U.N. procurement office on behalf of IHC or any other company." He also asserted that he never held the two roles of U.N. representative and IHC chairman at the same time.

Based in New York with offices in Milan, IHC until recently was a registered vendor to the U.N. procurement department, acting both as a contractor selling goods directly to the world body and as a go-between, or "vendor intermediary," for a number of other suppliers. Minutes of IHC board meetings obtained by FOX News show that Picco joined IHC as a director as early as 1997, and served as chairman of the board from at least January, 1998 until at least February, 2000.

During this time, he took on an assignment as Annan's personal representative to a globe-spanning United Nations project known as the Dialogue Among Civilizations, originally sponsored by the Islamic Republic of Iran.

Neither Picco nor the United Nations has ever disclosed publicly that during part of his tenure as Annan's personal envoy he was also chairman of IHC.

In a written response to FOX queries, Picco asserts that such an overlap did not exist. Asked in writing whether he had ever disclosed a conflict of interest to Annan, Picco did not respond to the question. But in another reply he declared, "from the onset of my involvement with IHC, it was very clear that I agreed to serve as an IHC board member on the understanding that I would not have any interaction with the U.N. at all."

Asked by FOX News whether Picco had declared any potential conflict of interest to the United Nations, Annan's office did not respond.

During the time that documents show Picco heading the firm, however, IHC signed or brokered a series of contracts with the U.N. Procurement Department, worth millions of dollars. These included a deal for portable generators, as well a contract for a floating hostel ship for peacekeeping troops. The generator deal was signed Sept. 28, 1999, and the ship contract was signed Dec. 7, 1999, both within the period in which Picco's IHC chairmanship appears to have overlapped with his high-level work for Annan.

In Picco's written response to questions from FOX News, Picco claimed that if my memory is right," his final board meeting with IHC "was May/June of 1999" and that "any and all activities with IHC stopped in 1999."

Minutes of IHC board meetings obtained by FOX News, however, show Picco not only attending but chairing an IHC board meeting in College Point, N.Y., as late as February 17, 2000. The minutes of that and other meetings are signed by Picco as chairman. How much later than that he actually left his chairman's job with IHC is unclear from additional documents seen by FOX News. Picco appears to have been absent from board meetings in 2001 and 2002, with a managing director presiding instead. But a new chairman was not named until 2003.

Since early 2000, IHC has been involved in a number of other U.N. deals, including two contracts for bulletproof vests and another contract for generators, worth millions of dollars. The company also played a role, according to U.N. insiders, in registering for U.N. work the Milan-based winner of a $44 million contract to provide plans for the $1.2 billion renovation of the world body's headquarters in New York. IHC since 2004 has also had a close business relationship with a Cyprus-based company, Eurest Support Services, which supplies hundreds of millions of dollars worth of rations to U.N. peacekeeping troops around the world.

The Yakovlev Link

IHC became openly embroiled in scandal last June, when a FOX News investigation established that the Russian Yakovlev had obtained a job for his son at IHC while handling IHC contracts to supply the UN in 1999 and 2000 — roughly the same period that Picco was still serving as chairman of the IHC board. FOX News also revealed that Yakovlev had established a secret company and bank account in the Caribbean.

Yakovlev resigned on June 22, two days after the story broke. In August, a report from Paul Volcker's U.N.-authorized probe into the Oil-for-Food program accused Yakovlev of taking more than $950,000 in bribes linked to $79 million worth of U.N. contracts outside of Oil-for-Food, as well as unsuccessfully soliciting a bribe under the program.

Federal agents arrested Yakovlev on Aug. 8.

He entered a guilty plea on charges of conspiracy, wire-fraud and money-laundering, and became a cooperating witness in a continuing investigation. Last month, that investigation led to the federal indictment of the chairman of the U.N. budget oversight committee, Vladimir Kuznetsov, another Russian.

During Yakovlev's 20-year tenure in the UN procurement department, he handled a variety of portfolios, but in recent years kept up especially close contact with IHC. From at least 1998 until his resignation and arrest, Yakovlev played a major role as a U.N. procurement officer handling at least half a dozen major IHC-related contracts that FOX News has been able to identify. The United Nations refuses to disclose specifics that would allow a full view of Yakovlev's former responsibilities.

In May, as FOX News began inquiring into his activities, the United Nations began its own investigation, which it now cites as one more reason for keeping information secret.

Veil of Secrecy?

Picco's dual role as IHC board chairman and as Annan's personal envoy on a high-profile project raises a host of new questions about what is behind the U.N. veil of secrecy.

Picco accepted his appointment from Annan in August, 1999 to promote an exchange of ideas among nations and diverse cultures, with special emphasis on Islam and the West. The Dialogue culminated in a report, entitled Crossing the Divide, which was presented by Annan to the U.N. General Assembly in November 2001. But Picco's preparatory work evidently began well before 2001, and he kept his high U.N. rank for some time after. U.N. records show him moderating a planning meeting on the premises in November 1999 under the title of personal representative of the secretary general, and continuing in that position through at least December 2004 — more than a year after Picco himself now says he had stepped down. The United Nations has not yet clarified the date on which Picco left his post.

In explaining his Dialogue role, Picco wrote to FOX, "it was understood that I could only take on this project on a part time basis. Thus I was provided an consulting agreement, which meant that on days I was working on this project I was considered a U.N. staff member at the level of under secretary general."

How Picco's role with the Dialogue Among Civilizations ended is still something of a mystery. According to Picco, UNESCO continues to work on the Dialogue, but he closed down his part in it some time ago. As Picco put it in written responses to FOX News: "The title of U.N. representative to the secretary seneral for the Dialogue Among Civilizations was no more as of early 2003. After that, I was occasionally asked to attend DAC conferences."

Picco has long been regarded as one of the U.N.'s star diplomats, serving two lengthy stints with the organization over the past 32 years. During his first round, from 1973-1992, he worked in some of the major trouble-spots of the Middle East, helping in the late 1980s to negotiate the end of the Iran-Iraq war, then negotiating in Iran for the release of U.S. and other hostages in Lebanon. In 1992, following in the footsteps of then-Assistant Secretary General Annan, Picco led an early round of U.N. negotiations with Saddam Hussein's regime over setting up the Oil-for-Food program, which finally began operation in 1996.

In mid-1992, Picco left the United Nations and went into private business. Two years later, in 1994 he founded a New York-based consulting firm, GDP Associates, which he has run ever since. Given Picco's resumption in 1999 of ties to the United Nations, his GDP business raises questions about potential conflict of interest. GDP advertises offices in places such as Jordan, Iraq and Croatia, as well as a reach into Southeast Asia-all places that overlap with Picco's U.N. portfolio of recent years.

GDP's current Web site states, 'Gianni Picco draws on his twenty years of experience as a U.N. official negotiating and establishing credible relationships in the Gulf region and the Middle East." The site also advertises that in addition to serving as the U.N. envoy for the Dialogue Among Civilizations, he has been "a member of the U.N. Secretariat Policy Working Group on the UN and Terrorism" since 2001, and "in April 2003 he was appointed Advisor to the U.N. secretary general." The GDP site does not mention any termination of these appointments.

In his written responses to FOX News, Picco declared, "I can think of no way in which my roles in GDP and DAC facilitated each other."

Picco confirms that he served earlier this year at the secretary-general's request as a U.N. adviser to a successor project, the Alliance of Civilizations. In this advisory capacity, Picco worked with Annan's former chief of staff, Iqbal Riza, who abruptly left the secretary general's office last winter after the Volcker investigation of Oil-for-Food found that Riza had shredded huge quantities of documents "of potential relevance" in Annan's office. Picco says he ended his advisory role to the Alliance in July 2005 — one month after Yakovlev's personal ties with IHC were exposed.

The new U.N. initiative was formally announced in July as the Alliance of Civilizations-with only Riza as Annan's top representative. Also in July, as FOX News reported at the time, Riza during the lead-up to the Alliance announcement was once again shredding large quantities of documents in his new office on the 10 floor of a building across the street from the secretariat.

Picco's Ties to Oil-for-Food

Making matters even murkier, Picco had another tie to Oil-for-Food. He advised David Chalmers, chairman of a Texas oil firm named Bayoilwhich did business with Saddam Hussein under Oil-for-Food. Chalmers and some of his associated were indicted in April on federal charges of allegedly paying kickbacks to Saddam's regime but Chalmers has denied the charges.

The Chalmers-Picco relationship was cited in May in a footnote in a minority report from Sen. Norm Coleman's Permanent Subcommittee on Investigations. This footnote described Chalmers as having sought advice from Picco on a number of occasions, from 1997-2003, in dealing with Oil-for-Food.

Bayoil documents related to Oil-for-Food and obtained by FOX suggest that the advisory relationship may have continued as Picco resumed doing work for the United Nations. In response to news stories about this relationship, Picco denied any wrongdoing in his dealings with Bayoil and declared that he simply advised Chalmers on how to comply with Oil-for-Food rules.

Picco's ties to Oil-for-Food also deepen as a result of his chairmanship of IHC. One of the companies who once dealt with the United Nations via IHC was a French company called SDMO, a producer of generating equipment. Along with supplying the U.N. itself, SDMO also sold Saddam $141 million worth of supplies under Oil-for-Food More on SDMO's Oil-for-Food activities may be included in a report expected later this month from the Volcker committee. So far, there have been no allegations of wrongdoing by SDMO.

A spokesman for Rep. Henry Hyde, whose Committee on International Relations has been investigating U.N. waste and corruption, noted that alleged "conflicts of interest such as this would be minimized by greater financial disclosure by U.N. executives" — one of the items in Hyde's proposed U.N. reform bill, which has been approved by the House.

In October 2000, while heading the Dialogue Among Civilizations, Picco said the project had been funded by contributions from non-governmental organizations, the private sector and voluntary contributions of member governments "without using one penny of U.N. money." But now the tangled web of his public and private connections under Annan's aegis raises questions about the spending of millions of U.N. dollars, if not more.

George Russell is executive editor of FOX News.