Oct. 27 (Bloomberg) -- DaimlerChrysler AG, Siemens AG, and Volvo AB are among 2,253 companies that paid illegal kickbacks to Iraq to win business from an aid program designed to allow Saddam Hussein to sell oil to buy food and medicine, former U.S. Federal Reserve chairman Paul Volcker said today in a report.

The European companies sold vehicles and electric-utility equipment to Iraq, according to the report issued in New York today on the $69.6 billion program created and administered by the United Nations as an exemption to oil trading sanctions imposed on Iraq after its 1990 invasion of Kuwait.

``Iraq's largest source of income from the program came from kickbacks paid by companies it selected to receive contracts for humanitarian goods,'' the final report of Volcker's 18-month, $30 million investigation said. It said Iraq derived $1.5 billion from kickbacks and $229 million in illegal surcharges from 139 oil traders.

Corruption in the Iraq aid effort has prompted a planned overhaul of UN management practices and threats from U.S. lawmakers to reduce American funding of the world body unless changes are carried out to improve accountability.

`Willing Cooperation'

``Saddam Hussein aggressively manipulated a well-intentioned program so that he could divert to his personal use billions of dollars that belonged to the Iraqi people,'' U.S. Ambassador to the UN John Bolton said in a statement. ``He was only able to accomplish this misdeed with the willing cooperation of UN officials, the acquiescence of some member states, and, as today's report indicates, the willingness of private companies and individuals to pay huge sums in bribes and kickbacks.''

Bolton said the report shows that ``management of the UN needs urgent, immediate reform'' and ``sanctions regimes need to be strengthened and improved.''

France's BNP Paribas SA, the bank chosen by the UN to handle payments under the program, didn't scrutinize money flows that investigators found were part of the corruption. The bank ``failed to implement an adequate system to identify such payments,'' Volcker's report said.

`Unjustified' Suggestion

``Surcharges have been identified in hindsight only with the benefit of the enormous efforts of the committee and the U.S. Central Intelligence Agency, both of which have had unprecedented access to records and officials of the former Iraqi regime,'' BNP said in a statement. ``The bank therefore believes that any suggestion that alleged deficiencies in its screening of payments contributed to illicit surcharges in connection with the program is unjustified.''

Investigation of the oil-for-food program has so far produced U.S. indictments against two Russian citizens, a Texas oilman, a Bulgarian living in the U.S. and a London oil trader.

The Volcker report said Iraq began the kickback scheme in 1999 ``to recoup purported costs it incurred to transport goods to inland destinations.'' Iraq required humanitarian contractors to pay these 10 percent fees, which exceeded transportation costs, directly to Iraqi-controlled bank accounts or to front companies that forwarded the money to the government.

About 60 percent of all companies involved in the oil-for- food program paid oil surcharges or kickbacks on humanitarian goods for Iraq totaling $1.8 billion.

DaimlerChrysler

DaimlerChrysler, the world's fifth-largest carmaker, paid $7,134 to Iraq in the process of fulfilling four contracts for vehicles valued at $5.2 million, Volcker said.

In an Oct. 14 letter to the panel, Daimler said it was ``unfair'' to say the company knowingly made any illegal payments to Iraq. Company executives had ``no knowledge'' of payments by an ``area manager,'' the letter said.

Volvo AB, Europe's largest truck maker, paid $535,000 in kickbacks in the process of selling 35 vehicles valued at $11.8 million, the report said. Volvo Vice President Edvard Carleson denied any knowledge of illegal payments in a letter to the Volcker panel.

Siemens, Europe's largest engineering company, paid $87,276 in kickbacks in its sale of turbine equipment to Iraq in 2000, the report said. Siemens said in an Oct. 17 letter to the Volcker panel that it ``cannot confirm'' the allegations and was ``puzzled and disappointed'' by them.

Weir

The report also said Scotland-based Weir Group Plc, the world's biggest maker of pumps for the mining industry, paid $7.5 million in kickbacks for sales of $78.7 million of equipment, according to the report.

Weir, whose chairman Robert Smith is a governor of the British Broadcasting Corp., said it made the payments in 2000 on 15 of 37 contracts. A company probe showed the cash was paid to an agent in addition to normal commissions at the request of unspecified Iraqi customers, Weir said in July.

The Volcker investigation presented detailed information on payments that passed through BNP. The probe found that BNP branches, subsidiaries and affiliates transferred about $10 million in surcharge payments to Iraqi-controlled accounts in Jordan, Lebanon and the United Arab Emirates.

Volcker has described the oil-for-food program as flawed from the start because it was a ``compact with the devil,'' referring to Hussein. Mismanagement and corruption by UN officials ``weakened'' the world body, he said in his final report Sept. 7 on its performance.

Annan's Failure

The UN Security Council and Secretary-General Kofi Annan knew about Hussein's corruption of the program and did little to stop the illegal activity, the Sept. 7 report from Volcker's investigation said.

Volcker said Annan was informed of kickbacks, oil surcharges and smuggling that allowed Hussein to skim about $13 billion from the Iraqi aid program. He didn't share that knowledge, confront Iraqi officials or take steps within the UN to address the problems, the report said.

``Corruption of the program could not have been nearly so pervasive if there had been effective management,'' Volcker said. ``The crucial point was in 2001 when the kickbacks and surcharges were instituted. There should have been a reaction and there wasn't.''

Benon Sevan, the former UN official who ran the program, is in his native Cyprus and can't be extradited should he be indicted. Volcker in an Aug. 8 report accused Sevan of taking kickbacks from a company for helping it secure contracts to buy Iraqi oil.

Texas Tie

The latest criminal accusations in connection with the Iraq program came Oct. 21, when Texas oilman Oscar Wyatt, who started Coastal Corp. with an $800 loan and sold it to El Paso Corp. in 2001 for $24 billion, was charged with bribing Iraqi officials in a scheme to corrupt the program. Wyatt pleaded innocent to the charges today.

A Virginia company admitted in a New York court this month that it paid $440,442 in kickbacks to Iraqi officials as part of the program. Midway Trading, based in Reston, Virginia, pleaded guilty to grand larceny and agreed to pay a $250,000 fine, according to Manhattan District Attorney Robert Morgenthau.

To contact the reporter on this story: Bill Varner at the United Nations at wvarner@bloomberg.net.

Last Updated: October 27, 2005 14:57 EDT