WASHINGTON (DTN)--Eighty-seven percent of food contracts under the U.N. Oil for Food Program were "overpriced" and officials in the former Iraqi government of Saddam Hussein diverted $10.1 billion to themselves from oils sales and food purchases, a Defense Department agency told the Senate Foreign Relations Committee April 7.

This raises new questions about the high prices of Australian Wheat sold to Hussein's government and concerns about whether a new Iraqi government would engage in open and transparent purchasing of foreign food or expect kickbacks.

An Australian Embassy spokesman told DTN Australia was not among the eight countries a Defense Department official listed as those with the most contracts that were overpriced. He added that AWB Ltd., the successor to the Australian Wheat Board, continues to maintain it priced Wheat high because it was expensive to deliver.

However, a Defense Department official told DTN the absence of Australia from the list did not mean that AWB had not engaged in overpricing. The official said he had no conclusion on the Australian question because he had not yet "nosed in on" the Wheat contracts. Both the Government Accounting Office and defense officials said the kickbacks were hard to find because the Iraqis skimmed small amounts of money off many contracts.

Senate Foreign Relations Committee Chairman Richard Lugar, R- IN, and ranking member Joe Biden, D-DE, pressed Bush administration officials on how the Iraqi government will be organized after the turnover on June 30 and whether the U.S. government can be sure future Iraqi government agencies do not demand the same kind of kickbacks. Biden also said the U.N. or the U.S. government should release the names of companies and countries engaged in the contracting.

United Nations Secretary General Kofi Annan has ordered an investigation of the management of the Oil for Food Program. But U.S. Ambassador to the UN John Negroponte and Patrick Kennedy, another U.S. official at the United Nations, indicated that investigation may be limited because under the Oil for Food program regulations, the UN did not have authority over pricing and the contracts were negotiated directly between the suppliers and the Iraqi government.

Lugar told Negroponte it is very important that the UN investigation into this matter be credible because the U.S. government is considering giving the U.N. more power in Iraq. He also said the committee wants to find out "what it means to transfer sovereignty" and what the "checks and balances" will be under a new Iraqi government.

After State Department Iraq Reconstruction Coordinator Robin Raphel testified it is the administration's "hope and expectation" that new governmental institutions such as an Iraqi Board of Supreme Audit and inspectors general in each of the Iraqi ministries "will put down roots" and discourage corruption in the future.

"Why do you at this point only hope?" Biden asked. He also pointed out that when the next U.S president, be it George Bush or John Kerry, returns to the committee for further funding, questions about who is running Iraq and how they are preventing such corruption will have to be answered.

The State and Defense Departments are working together to set up a new embassy, Raphel said. She added the Bush administration is considering establishing an "international monitoring system" over Iraq government's spending of its oil income.

"That sounds like a real affront to sovereignty," Raphel said, "but it would give an international stamp of approval."

Lugar said the committee wants to find out "what it means to transfer sovereignty" and what the "checks and balances" will be under a new Iraqi government.

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