<excerpt>Realizing it couldn't proceed file by file, the commission
processed the individual claims en masse, using statistical models to
assess, say, what a typical Bangladeshi worker would have earned. Most
claims were honored, though some were tossed out for insufficient
evidence.
</excerpt><<<<<<<<
>>>>
<excerpt>Tough questions arose. What was the proper recompense for
torture? For rape? For witnessing a rape? The commission determined that
someone significantly tortured would get $15,000, a rape victim $5,000,
and a witness to a rape $2,500.
</excerpt><<<<<<<<
THE WALL STREET JOURNAL.
MONDAY, AUGUST 18, 1997
Battle Plan: Firms World-Wide Seek Billions to Cover Their Gulf War
Losses --- A U.N. Panel Is Inundated By Voluminous Claims; Some Just Make
No Sense --- Can the Iraqis Pay the Bill?
By Neil King Jr. Staff Reporter of The Wall Street Journal
GENEVA -- Much of the detritus from the Persian Gulf War is now stored in
pristine Switzerland, thousands of miles from the blackened oil fields
and silent cemeteries of the Middle East.
Here, in a villa on the grounds of the old League of Nations, are mounds
of legal claims detailing war-related losses suffered by nearly 6,000
companies, representing a third of the world's nations. All told, the
claims exceed $82 billion.
But not a cent of that has been paid, for there are two big unknowns:
When will Iraq's oil industry start generating enough revenue to cover
the claims? And how quickly can a team of attorneys, accountants and
United Nations bureaucrats decide the merits of cases filed by companies
ranging from Texaco Corp. and United Technologies Co. to mom and pop
bakeries and restaurants in Kuwait?
The task has been given to the United Nations Compensation Commission, a
little-known agency that came to life after the allies' victory in 1991.
It already has performed one act of legal wizardry, settling more than a
million claims filed by individuals who suffered after Iraq invaded
Kuwait in August 1990.
The UNCC's next job is to handle the thousands of corporate and
government claims. It is a daunting task, says Jean-Claude Aime, the
Haitian-born U.N. diplomat in charge of the effort. "We're under strong
pressure to expedite our work, but the pressure is even stronger that we
not trip up." And, there are concerns about the overall mission. "This is
the first time as far as I know that the U.N. is engaged in retrieving
lost corporate assets and profits," he says. "I often wonder at the
correctness of that."
Multinationals like Bechtel Corp. and PepsiCo Inc. are but two of the 152
U.S. companies hoping to recoup $1.5 billion they say they lost when
Saddam Hussein sent his troops into Kuwait. The stakes elsewhere are much
steeper. In Kuwait, whose total claims exceed $130 billion, the UNCC's
decisions could roil the political waters. In Iraq, the specter of
massive awards raises concerns that its postwar punishment could drag on
for generations.
That said, companies will likely face some rude surprises as the process
gets rolling. A huge number of claims -- well over half, the UNCC figures
-- are too shoddy to process. Thousands will have to be reworked in a
hurry or tossed out. Others will collapse under scrutiny. And awards will
probably be a fraction of what most companies seek, with commission
officials hinting that 50% or less will be the norm.
"When the first batch of decisions comes in next year, they're going to
resonate loudly all over the world," says Michael Raboin, an American
attorney who is Mr. Aime's deputy. "Many might not like what they hear."
Then there is the question of how the claims will be paid. The money is
supposed to come from Iraq's oil, but the country has been stymied in
re-establishing its industry, and revenue is just now trickling in.
The unusual process had its genesis in the surrender Iraq signed just
seven months after invading Kuwait. The treaty required that some oil
revenue go toward settling claims to be judged by the newly established
UNCC.
The commission set out to be faster and more nimble than any similar body
before it. The Iran-U.S. Claims Tribunal, for example, has a much smaller
caseload, yet it is still trying to wrap up in The Hague, 17 years after
Ayatollah Khomeini's followers stormed the U.S. Embassy in Tehran.
The UNCC has a big advantage, though. While Iran won the right to defend
itself case by case, ensuring long delays, Iraq agreed to its guilt as a
condition for ending the war. Its voice in Geneva, by design, is almost
nil.
Critics say that the arrangement strips Iraq of its right to
self-defense. Perhaps, but it does give the UNCC freedom to assemble and
scrutinize claims, and award compensation, without being encumbered by
cross-examinations or briefs by defense counsel.
The commission decided to put individuals' claims first. "This gave our
work a human touch that other reparation bodies have lacked," says Mr.
Raboin, who also served as a top official at the Iran-U.S. tribunal. But
it devoured most of the next five years.
Claims poured in from around the world. Syria's came by ship to
Marseilles, France, and then by truck to Geneva -- a haul that took a
group of rugby players an hour to unload.
"It was a mess," says Ariaan Kroeskop, a wiry Dutchman who serves as UNCC
registrar. "As the boxes came in, we had to work overtime for months just
to catalogue them."
On a recent day, Mr. Kroeskop picks his way through a labyrinth of rooms,
with files stacked seven shelves high, at a storage site near the
airport. He plucks a dusty file at random from a shelf of boxes marked
"Bangladesh" and pulls out a claim scribbled in blue ink on two sheets of
paper. A worker seeks $950 in lost wages and $1,200 in lost personal
property. No receipts, no documentation.
"It's not much," says Mr. Kroeskop, "but it's typical."
Realizing it couldn't proceed file by file, the commission processed the
individual claims en masse, using statistical models to assess, say, what
a typical Bangladeshi worker would have earned. Most claims were honored,
though some were tossed out for insufficient evidence.
Tough questions arose. What was the proper recompense for torture? For
rape? For witnessing a rape? The commission determined that someone
significantly tortured would get $15,000, a rape victim $5,000, and a
witness to a rape $2,500.
Grim work though it was, the UNCC processed the cases at a clip that
earned it wide praise. The commission has so far decided that about $6
billion should be paid to individuals. Now it must tackle the corporate
claims, like the case of the Bekhme Dam project in far northeastern Iraq.
Bechtel of San Francisco oversaw what was meant to be the world's
seventh-largest dam, while Enka Insaat ve Sanayi AS of Istanbul and
Hidrogradnja Co. of the Bosnian capital of Sarajevo, the two main
contractors, did the heavy digging and building.
The project was a nightmare from the day it started in 1987. Crews had to
construct roads, lay power lines, build housing. It was "like a pioneer
camp," one Bechtel official said.
Then there were political problems. At the beginning, Iraq was still at
war with Iran, so builders could work only on one side of the river. Much
of the surrounding area was controlled by rebellious Kurds, who saw the
project as an attempt by Saddam Hussein to impose his might on their
territory. For the first year-and-a-half, vehicles en route to the site
needed military escorts, turning a 60-mile trip into a slog of several
days.
Yet by 1990, the worst of the work was done. The river had been diverted.
The materials and equipment were in place. What remained was building the
dam itself.
Then came the invasion of Kuwait. No one was allowed to leave the site
without permission. "By the end of the first week," says the Enka claim,
"a pervasive, enduring and crippling panic had set in among the Turkish
work force." Two weeks after the invasion, the first 1,200 workers were
allowed to leave. But Iraqi troops took the four American Bechtel
employees hostage as "human shields" and scattered them at strategic
sites around the country, not freeing them until mid-December.
As Iraqi troops moved south to Kuwait, Kurdish forces moved into the
area. Mass pillaging of the site began, and smugglers stole heavy
equipment and trucks.
The companies lost $150 million in equipment and many times that much in
unpaid bills and lost profits. So when the UNCC was set up, Charles
Brower, an attorney for the dam's builders, made sure his claim arrived
on the first filing day, in January 1993. In turn, his now is among the
first to be heard.
A blessing? Not entirely. After years of silence, the UNCC last month
shot back 50 pages of queries for more documents. "I've never seen
anything like it in my years of international arbitration," says Mr.
Brower, a senior partner at the White & Case law firm in Washington.
"It's as though the commission were acting as opposing counsel."
Then again, the dam's builders claim to have sustained losses of nearly
$1 billion. Commission officials say they must be rigorous and demanding.
The $1.5 billion sought by U.S. companies isn't huge -- five Russian
construction companies alone are seeking about the same -- but they come
from every nook and cranny of American corporate life.
ITT Corp.'s Sheraton chain wants around $25 million for losses sustained
after the three hotels it managed in Kuwait and Iraq were damaged or
destroyed. Two subsidiaries of oil-service provider Halliburton Co. seek
$35 million for looted equipment and other losses.
Some companies were partially reimbursed by insurance companies but say
they are owed more. Otis Elevator Co., for example, said it collected a
$1.9 million insurance claim, and is seeking $200,000 from the UNCC. Many
other companies had insurance that didn't cover war-related losses.
No country, of course, took a bigger hit than Kuwait, which has about
$100 billion in business and government claims. And nowhere is the
impatience more intense. To recognize that, the UNCC last year took up a
Kuwait Oil Co. claim early and awarded $610 million for costs racked up
in extinguishing the oil-well fires set by Iraqi troops.
But beyond Kuwait, sympathy for many corporate claimants begins to wane.
Says Mr. Aime, the commission's executive secretary: "Anyone going into
Iraq at that time, with the threat of war and upheaval, was clearly after
maximum profit. They would have built the risk into their price. Besides,
most of these companies will have written off the loss a long time ago.
Their survival will not depend on recovering money from the commission."
So what should the companies get? That depends on a slew of issues. Did
the losses spring directly from the invasion? Should lost profits count?
What is a used tractor really worth? And does the commission have the
luxury for so many questions?
International support for the effort won't last forever, officials say.
"Going claim by claim, line by line," says Mr. Aime, "would have us all
here for decades.
"Our responsibility now is to cut through the fat," he says, pacing his
sunny office as a peacock fans its feathers outside the villa once owned
by Napoleon's wife, Josephine. "Once we've been in existence for 10
years, people are going to have every right in the world to say, `What in
the hell have you been doing all this time?'"
David Muls is one of a small staff of lawyers who are supposed to be
cutting that fat. He isn't optimistic. "Take a look," he says, and throws
open a thick binder.
Mr. Muls oversees construction claims, of which there are about 550, many
as complex as the Bekhme Dam case.
One claim comes from an Italian company hoping to reclaim $117 million --
but for what isn't clear. The binders are stuffed with thousands of pages
of invoices in minuscule type, with hardly a sentence of explanation
thrown in.
"We call this `evidence salad,'" says Mr. Muls. "If we had five
accountants and two loss adjusters working on this claim full time,
maybe, just maybe, they might understand it at the end of a year."
He turns to another claim, from a company in the Arab Oil Emirates. Most
of its dozen pages are unintelligible, he says, and he can't figure out
how much is sought or why.
Indeed, most of the badly prepared claims come from the Middle East, Asia
or Eastern Europe, where lawyering isn't the science it is in the West.
But to begin rejecting them outright would raise a storm of protest
within the U.N. Egypt, whose 409 claims total around $500 million, has
already balked at any talk of wholesale rejections.
When Mr. Muls and other staffers finish their analyses, they will forward
recommendations to UNCC commissioners, who make rulings on compensation.
Those must be approved by the UNCC's governing council, whose mix is
identical to the 15 countries on the U.N. Security Council.
Then, the focus will shift to Iraq. The U.N. agreed after the war that
Baghdad would pay for damages it caused by turning 30% of its oil revenue
over to the UNCC -- a potentially enormous sum, considering that before
1990, Iraq exported $20 billion worth of oil a year. But under the U.N.
embargo, Iraq was unable to sell any oil until late 1996. Iraq now can
sell $2 billion worth of oil every six months, provided the proceeds are
used to buy food and humanitarian goods and to compensate the UNCC. The
first round of oil sales brought the UNCC $600 million, about a fourth of
which has been paid out so far; the second round of sales began this
month.
Individuals are to be paid first, then companies, and finally
governments, which have filed claims for $120 billion. How long it will
take depends largely on the sanctions. Under the current program, it
would take about five years to pay the sums already awarded to
individuals. Should the oil flow faster, so would the payments. There is
no interest charged on amounts due to the UNCC.
Some U.S. companies have all but forgotten their claims, but many others
say they count on being paid. "We have every expectation of making a full
recovery," says Jeff Berger, a spokesman at Bechtel.
Meanwhile, the process angers many Iraqis. Last March, the UNCC paid its
first awards while the U.N. itself was holding up Iraqi purchases of
humanitarian goods. The two events led to a burst of rage in Baghdad.
"Are there two organizations within the United Nations," steamed the
government newspaper Al-Jumhuriya, "one bone idle and negligent which
deals with Iraq, and another, very dynamic and competent, which deals
with those who seek compensation?"
There also are concerns that the payments could become too punitive,
especially for a country in such an unstable region. For some, it brings
to mind the bilateral agreements that sprang from the Treaty of
Versailles after World War I. Germany was required to pay huge
reparations to the Allies, leading to tremendous resentment and providing
fodder for Adolf Hitler's Nazi party.
Even the atmosphere of high expectations is cause for worry. A delegation
from Rwanda recently visited Mr. Aime to see if a UNCC-style commission
could be set up to help war victims in Central Africa. Another group came
from Bosnia.
But the Geneva process would be tough to apply to other wars, for a
simple reason: "These claims are here because Iraq has oil," he says. "If
Iraq didn't have oil, there would be no claims."
---Rohit Khare /// MCI Internet Architecture (BOS) /// khare@mci.net
Voice+Pager: (617) 960-5131 VNet: 370-5131 Fax: (617) 960-1009