The United Nations' oil-for-food program in Iraq was so corrupt that Saddam Hussein's government officials set specific bribe amounts on each oil delivery and set up bank accounts in Jordan to accept the illicit cash, says a Canadian oil executive who participated in the relief program.

"Did people in the UN know that Saddam was asking for surcharges or the Iraqi regime was asking for surcharges? They had to," said Arthur Millholland, president of Oilexco Ltd., a junior oil company based in Calgary.

"You can keep a secret between two people but you can't keep a secret between thousands."

This week, the UN launched a massive investigation into the $67-billion (U.S.) program that ran from 1996 up to the U.S.-led invasion of Iraq last year. The investigation is being headed by Paul Volker, former chairman of the U.S. Federal Reserve Board.

The venture was the largest relief effort ever undertaken by the UN and it was set up to ease the impact of sanctions imposed after the 1991 Persian Gulf war.

Recent reports by the U.S. government's General Accounting Office suggest Mr. Hussein's government siphoned off more than $10-billion from 1997 to 2002.

The investigation was prompted by the release of documents last January by the Iraqi Oil Ministry that listed 270 companies, agencies and individuals that allegedly received kickbacks under the oil-for-food program. This list included the director of the Office of Iraq Programs at the UN and a company tied to the son of UN Secretary-General Kofi Annan. Both have denied any wrongdoing.

Mr. Millholland's name was also on the list but he has denied receiving any kickbacks or paying bribes.

Oilexco signed a number of contracts under the program but only participated in two actual oil deliveries, in 1998 and 1999. Each involved about two million barrels.

Yesterday, Mr. Millholland said Iraqi officials did not ask for bribes at first and the program appeared to be having some success.

However, by late 1999 officials in Iraq's State Oil Marketing Organization, or SOMO, began asking him to pay "surcharges" as a condition for contracts. The bribe requests persisted throughout 2000, 2001 and 2002 and became more sophisticated, he added.

Iraq exported as much as 2.2 million barrels of oil a day as part of the oil-for-food effort.

Under the program, contracts to buy the oil were to be signed with SOMO but all money was supposed to be deposited with the UN.

Iraq was to use the cash to buy food and medicine under UN supervision. Mr. Millholland said the Iraqis demanded that surcharge payments go directly to SOMO.

The surcharges were 25 cents a barrel on Kirkuk, a blend of oil typically destined for Europe, and 30 cents a barrel on Basra light, a blend that went largely to North America, Mr. Millholland said. The Iraqis told him to deposit the surcharge into an account at the Jordan National Bank in Amman.

"The guys at SOMO apologized. They said, 'Arthur, this isn't us' and they would point to the ceiling. In other words it was coming from above, from Saddam, from the palace," Mr. Millholland recalled.

When he refused, "they became forceful [and said], 'Maybe if you pay it we will let you leave the country.' I said, 'No.' "

Mr. Millholland said at one point SOMO officials told him to give half of the proceeds Oilexco made on one oil contract to a group in the United States. He said he did not know the identity of the group but believed it consisted of sympathizers of the Iraqi government. "Not terrorists," he added.

The Iraqis "were really trying to find Western companies such as ours to break the sanctions."

He also said that nearly every company importing goods into Iraq had to pay up to 10 per cent in bribes to Iraqi officials. "Everybody knew about the payments. Anybody that was in the export or import business had to pay."

Other recent investigations into the program have uncovered hundreds of millions of dollars in alleged bribes paid to Iraqi officials and deposited in bank accounts in several countries.

Mr. Millholland has travelled to Iraq several times and he has been an outspoken critic of the sanctions and the U.S. occupation. He said he got Oilexco into the oil-for-food program as a way of helping people in the country and he resents any suggestion that he was an apologist for the Saddam regime.

He said he welcomed the UN review of the oil-for-food program. "It wasn't a total failure from a humanitarian perspective," Mr. Millholland said. "But the other side of it was the corruption of it.

The questions from the diplomatic side is, did they know about the corruption and overlook it and say that it was something that was inherent in the system and it was a lesser of two evils. In other words, if you have kids that are dying, do you stop the food going in to stop the corruption and cause more kids to die?"

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