NEW UN RESOLUTION MUST TURN OVER US CONTROL OF IRAQ’S OIL REVENUES TO IRAQIS
May 2004

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New York, May 10, 2004—The new Iraqi interim government should assume sovereign authority over Iraq’s finances when it comes into force on June 30th, said the Open Society Institute.

As United Nations envoy Lakhdar Brahimi works to reach an agreement on an Iraqi caretaker government, UN Security Council members are drafting a resolution that will define key issues concerning the sovereignty of Iraq’s interim government, the Iraqi Transitional Authority. Although Iraq may lack the capacity to assume control of its own security and military forces on June 30th, it is critical that the interim government has full authority over the country’s oil revenues and reconstruction process.

“A country that controls neither its military nor its finances cannot be called sovereign,” said Svetlana Tsalik, director of the Open Society’s Revenue Watch Project.

This briefing makes recommendations on how the draft resolution should address the question of Iraq’s oil revenues.

Assert right of Iraqis to manage their natural resource revenues
The new UN Security Council resolution should assert the right of the Iraqi people to manage their own natural resources throughout the duration of the Iraqi Transitional Authority. It must also transfer control of the Development Fund for Iraq from the Coalition Provisional Authority to the interim government.

The Iraqi Transitional Authority after June 30 should have control over the allocation and expenditure of Iraq’s oil revenues, under the oversight of the International Advisory and Monitoring Board (IAMB). The Coalition Provisional Authority’s Program Review Board—the US-dominated body which currently controls spending of Iraq’s oil revenues—should be dissolved and replaced by an Iraqi board, which should in turn be audited by the IAMB. The Iraqi interim government should be encouraged to make public the minutes of its meetings in which spending allocations are made, as the Program Review Board had done under the CPA. This will reassure Iraqis, lenders, investors and aid donors that Iraq’s oil revenues are being managed transparently and in the best interests of the Iraqi people.

Adopt the tenets of the Extractive Industries Transparency Initiative
The new resolution should endorse the tenets of the Extractive Industries Transparency Initiative, (EITI) which has been supported by the G-8 governments, major international financial institutions and leading financial fund managers. EITI calls for reporting of payments made by extractive sector companies to host governments where they operate, and reporting by the host government of the revenues they receive from the companies. Many resource-rich countries such as Iraq have failed to translate that wealth into prosperity for their people—in no small part due to the capture of resource revenues by corrupt political elites. The international oversight body should use EITI as a guide to help the Iraqi Transitional Authority overcome this legacy of corruption.

Limit ability of transitional government to enter into long-term oil contracts
Long term contracting of Iraq’s oil and gas resources should not be undertaken by the Transitional Authority but be left to the next elected government of Iraq which will have greater legitimacy in the eyes of the Iraqi people to make such decisions.

Extend the IAMB’s mandate
The new resolution must also extend the mandate of the International Advisory and Monitoring Board, authorizing it to remain constituted and funded throughout 2004 and into 2005, if necessary, until a thorough audit of the Development Fund for Iraq has been completed. Per approval from the interim government, the IAMB should audit the interim government’s expenditure allocations until an elected government takes office. In addition, the resolution should require that the IAMB include at least two Iraqi voting members.

Coordinate IAMB audits with those led by Volcker Commission
Finally, the new resolution should ask the IAMB to coordinate its auditing work with the Independent Inquiry Committee into the Oil for Food Program (Volcker Commission), which is investigating the possible embezzlement of Iraqi funds under the UN Oil-for-Food Program. Since 1996 some $65 billion in Iraqi oil revenue has passed through the UN Oil-for-Food program. As per Resolution 1483, all Oil-for-Food assets not allocated by November 2003 must be turned over to the Development Fund for Iraq, and to date the UN Controller has transferred a total of US$8.1 billion. The IAMB and Volcker Commission must work together to account for all Oil-for-Food funds since the program’s inception in full, and ensure that Iraq recovers all assets owed to it by the international community.

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