GUIDANCE: DFI-IAMB CONSULTATIONS, AUGUST 27

UNCLAS STATE 089304

SIPDIS
FOR GERMAIN AND FINERTY

E.O. 12958: N/A
TAGS: PREL UNSC IZ
SUBJECT: GUIDANCE: DFI-IAMB CONSULTATIONS, AUGUST 27


1. (U) USUN should draw from the following building blocks
(para 2) during August 27 UNSC consultations on the
Development Fund for Iraq (DFI) and the International
Advisory Management Board (IAMB).


2. (U) Begin building blocks:

-- The United States welcomes the first report of the
Secretary-General pursuant to paragraph 3 of resolution 1859
(2008).

-- UN Security Council Resolution 1859 (2008) carried forward
for one year the arrangements for the Development Fund for
Iraq (DFI),including the obligation to deposit proceeds from
export sales of oil and natural gas into the DFI, the
oversight function of the IAMB, and the obligation
(originally contained in resolution 1483 (2003)) on states to
extend certain immunities to petroleum, petroleum products,
and natural gas originating in Iraq and revenues from such
export sales as well as to the DFI. In anticipation of the
expiration of the arrangements at the end of 2009, the United
States is working with the Government of Iraq to continue the
arrangements, in particular, the immunities.

-- We note today our understanding that the bulk of
commercial claims inherited from the former regime have been
formally reduced and resolved, and that Iraq has made great
progress in settling sovereign debt. The United States is
exploring with the Government of Iraq a state-to-state
resolution of claims of U.S. victims of Saddam Hussein era
terrorism.

-- Resolution 1859 also extended the mandate of the IAMB,
whose audits of DFI accounts over the last four years have
consistently noted a serious lack of internal controls in
accounting for and managing the DFI, as well as the lack of
an adequate system for metering Iraqi oil production.

-- The IAMB has now met 25 times since 2003, including twice
in 2009. During the last meeting of the IAMB in Vienna on
July 22nd and 23rd, the results of the 2008 DFI audit were
reviewed. This report again highlighted key issues of
concern regarding weaknesses in controls over oil extraction
and use of the resources. The fact that poor internal
controls remain a significant concern and that the metering
of Iraqi oil production remains inadequate, frustrates all
serious efforts to accurately determine how much of Iraq's
oil revenue is being lost through theft, smuggling, or
leakage. We are concerned that this is one of the IAMB's
earliest recommendations from 2004 and it remains incomplete.
Accordingly, we note the need to implement comprehensive,
system-wide metering.

-- The successor organization to the IAMB - the Committee of
Financial Experts (COFE) - was established in 2007 to assume
the roles and responsibilities of the IAMB upon completion of
the IAMB mandate, as envisaged under UNSCR 1859. While the
United States recognizes the confidence the IAMB has in the
competence and capabilities of COFE, we are concerned whether
COFE has the skill set and independence that it needs to
have. Although COFE's initial mandate provides for its
independence, its current composition includes officials with
government ministry ties and its top official is the
President of the Board of Supreme Audit.

-- The United States welcomes COFE's close work with the
IAMB, as well as its increased role in the follow-up and
implementation of recommendations contained in the IAMB
commissioned independent audit reports. As preparations begin
to review the DFI and IAMB mandates at the end of this year,
it will be important to ensure COFE is prepared and capable
to succeed the IAMB as an effective, transparent oversight
mechanism.

-- The United States calls on the Government of Iraq to
implement the recommendations of the IAMB, and to stand ready
to support COFE's capacity to take over the tasks currently
entrusted to the IAMB.

-- It will also be important to ensure that a mechanism to
continue payments from Iraq's oil and gas export proceeds to
the United Nations Compensation Fund be considered, if Iraq
and Kuwait have not reached an agreed settlement of Iraq's
remaining UNCC payment obligations at that time. The United
States call on Iraq and other interested parties to continue
the discussion already begun under United Nations
Compensation Commission auspices on solutions to the issue of
outstanding compensation payments.

-- We welcome the next meeting of the IAMB, together with
COFE, which is expected in December 2009.

End building blocks.
CLINTON