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Guide to Sanctions
8. What is the UN Compensation Commission?
After the Gulf War, the Security Council determined that Iraq was liable for any economic loss and damage resulting from its invasion of Kuwait. Consequently, the UN Compensation Commission (UNCC) was set up to oversee compensation claims, and the Security Council decided that 30% of Iraq's oil revenue should be paid into a Compensation Fund for this purpose. Eleven years on, both the amount paid in compensation and the procedure whereby claims are processed have become increasingly questioned, and compensation has become a bone of contention within the Security Council.
The magnitude of the sums that Iraq must pay in compensation is a cause of considerable concern. According to a November 2002 report by the Office of the Iraq Programme, by 31 October 2002, $16.3 billion of Iraq's revenues generated under oil for food had been diverted to the UNCC. Out of this sum, $278 million went to pay for the "operating expenses" of the UNCC, such as lawyers' fees (see Annex I, §2c). By contrast, the UN has stated that the total value of the humanitarian goods that have arrived in all of Iraq under the oil for food scheme by 30 September 2002 was $24.5 billion. There is perhaps some ambiguity over whether the programme should be called oil for food or 'oil for compensation'.
The international controversy over these payments started in June 2000 when the UNCC ruled that Iraq must pay $15.9bn in damages to the Kuwaiti Petroleum Corporation. France and Russia, backed by China, Tunisia and Ukraine, refused to ratify this decision. Eventually, a compromise was reached whereby the claim was awarded, while in exchange a reduction of the percentage allocated for compensation to 25% was formalised in Security Council Resolution 1330 of 4 December 2000. This reduction is not a new idea. As early as March 1999, the Security Council's Humanitarian Panel report recommended that "the Security Council could authorize -- possibly as a temporary measure -- reducing by an agreed percentage the revenue allocated to the United Nations Compensation Commission" (§54). More significantly, this was in fact included in §24 of an Anglo-Dutch draft resolution which preceded SCR 1284 (17 December 1999), and which proposed a reduction to 20% on a loanable basis.
The extra revenue generated by the reduction to 25% -- an estimated $275 million in phase XII of oil for food -- is, according to the Security Council, "to be used for strictly humanitarian projects to address the needs of the most vulnerable groups in Iraq" (§12). It is noteworthy that this is an implicit admission that reparations and humanitarian needs compete for scarce resources. This conflict was in fact foreseen already by SCR 687 (April 1991), which stated that the level of payment by Iraq should take "into account the requirements of the people of Iraq, Iraq's payment capacity ... and the needs of the Iraqi economy" (§19).
Such issues are bound to become even more contentious in the future, as the nature of claims being processed changes from the small individual claims, which have now all been dealt with, to large individual claims and claims by corporations, governments and international organisations.
By October 2002 the UNCC had made $43.6 billion of compensation awards and there were $172.6 billion of claims still to be resolved. If the level of awards for outstanding claims in each of the thirteen categories is the same as the level of awards made in each of the categories up until October 2002 Iraq will end up owing $117.7 billion in compensation. The newspaper 'Le Monde' concludes that if the present rate of payment continues, Iraq would not have paid off its debt (including interest) even by 2070.
In addition to awards made by the UNCC, Iraq has debt incurred prior to 1990, which was estimated to stand at $120 billion in 2001. While calculations differ, most observers agree with the words of Khaldun al-Naqeeb, a political science professor at Kuwait University, that the present arrangements ensure that "Iraq's economic future has been mortgaged for most of the coming century because of the hundreds of billions of dollars in claims for war reparations".
Michael E. Schneider, "How Fair and Efficient is the UNCC System? A Model to Emulate?", Journal of International Arbitration, 15(1), 1998.
Thomas R Stauffer, "Critical Review of UNCC Award For Lost Production And Lost Reserves", Middle East Economic Survey, Vol. 44, No. 5 (29 January 2001).
A much more extensive bibliography is on the UNCC's own website: this list of works provides more information on its history, operations and procedures.
This archive site is hosted by the Iraq Analysis Group, to whom queries should be directed