Cablegate: Instructions to Lobby Costa Rica On Oil-for-Food

DE RUEHC #8209/01 2282259
O P 152253Z AUG 08



E.O. 12958: N/A

REF: A. USUN 366

1. (U) Summary and Action Request: On March 28, the Russian
Presidency of the UNSC circulated a draft letter to the
Secretary-General on closing down the OFF program. This
letter would have granted the Government of Iraq (GOI) 45
days to provide Confirmations of Arrival (COAs) for the
remaining Letters of Credit (LOCs) with Claims of Delivery
(CODs). Any LOCs for which the GOI did not provide a COA, or
did not provide evidence contesting the COD, would be paid
out to the supplier. The Costa Rican delegation subsequently
placed a hold on this letter (Ref A). Ambassador Khalilzad
agreed to not press the Costa Ricans to lift their hold until
after the UNSC received the next report of the UN Working
Group on OFF (Ref B). This report was issued on July 25th
and confirmed a lack of progress on the part of the GOI in
providing COAs for the remaining LOCs. From May 1 through
June 30, only 11 out of 143 outstanding LOCs with CODs were
provided COAs and paid out to the supplier. The provision of
COAs for other 132 LOCs, with an approximate aggregate worth
of US$273 million, remained outstanding.

2. Action Request: USUN is requested to re-circulate an
updated version of the March 28 draft letter to the
Secretary-General (para. 5). USUN and Embassy San Jose are
also requested to press the Government of Costa Rica (GOCR)
to lift its hold on this letter, drawing from the talking
points in paragraph 4. USUN and Embassy San Jose should
inform P-5 counterparts of this demarche and its outcome and
encourage them to approach the GOCR as well. The letter
enjoys the support of the P-5, and the Costa Ricans are
isolated in their reluctance to issue the letter. Therefore,
if the GOCR refuses to lift its hold, we will move forward
with adopting a resolution that contains the provisions in
the letter, thereby circumventing the need for consensus.
(Note: Letters from the UNSC must be passed by consensus,
while resolutions require a simple majority.)

3. Reporting and POC: USUN and Embassy San Jose are
requested to report the results of their demarches no later
than Friday, August 22. IO/UNP POC is Bridget Lines, at, or 202-647-7142.

4. Begin talking points:

-- UNSC members share a keen desire to wrap up the OFF
program, which officially ended in December 2007, and the UN
is anxious to complete its responsibility for managing the

-- The GOI has thus far made little progress in resolving the
outstanding Oil-for-Food payments, despite numerous
reassurances that greater attention would be devoted to the
issue. This lack of progress has been repeatedly noted by the
Secretary-General, most recently in his July 25th note.

-- We therefore believe that the most expeditious solution is
to place the burden of authentication on the GOI. If the GOI
would like to contest a supplier,s claim of delivery, there
are mechanisms in place for it do so. However, if the GOI
does not provide evidence to support their dispute of the
supplier,s claim, the contract will automatically be paid
out to the supplier at the end of the 45-day period. The OFF
program ended over eight months ago, and the Iraqis, lack of
progress in the intervening months indicates that such
measures are necessary to ensure that suppliers are repaid
for the delivery of their goods.

-- We read Costa Rica,s August 4 letter to the Security
Council Presidency, and would support a briefing by the
Secretariat to the Security Council on Oil-for-Food if that
would help Costa Rica drop its objections to the letter.

-- If the GOCR refuses to join consensus on the draft letter,
or if it continues to stall on this issue, we and the other
members of the P-5 are prepared to adopt a resolution which
would elicit the same effect as the transmission of the draft

5. Begin text of draft letter:

Dear Mr. Secretary-General,

I have the honor to inform you that your letters dated 11

STATE 00088209 002 OF 002

March and 25 July 2008 and the accompanying Notes concerning
the processing of letters of credit pertaining to the Oil for
Food Program have been brought to the attention of the
members of the Security Council.

Security Council members continue to welcome the ongoing work
of the United Nations Secretariat to bring a complete and
timely conclusion to all outstanding issues related to the
Oil for Food Program, which terminated on 31 December 2007.
In this regard, Council members express their concern at the
slow processing of authentication documents by the Government
of Iraq, and of the high number of outstanding letters of

Accordingly, members of the Council decide that the
Government of Iraq be given 45 days from the date of this
letter to confirm delivery of goods associated with all
letters of credit with outstanding claims of delivery, as
reported in the accompanying Note to your letter dated 25
July. The Government of Iraq should also issue and transmit
the necessary confirmations of arrival to the UN Secretariat
within this same period of 45 days, in order for payment to
be made under the relevant letters of credit. The Government
of Iraq may also provide relevant documentation to contest
the associated claims of delivery within this same period.
In the event that neither confirmations of arrival nor
documentation contesting the associated claims of delivery is
received within 45 days, Council members request the
Secretariat to instruct BNP Paribas to proceed with payment
to the supplier.

If the Government of Iraq provides relevant documentation
that substantiates the contested claims of delivery within
the 45 day period, Council members request that the dispute
be handled according to the dispute mechanism detailed in the
underlying contract. If no such mechanism exists, or the
parties decide not to rely on that mechanism, the dispute
should be solved through the use of an established
international arbitration mechanism agreed upon by the
supplier and the Government of Iraq.

Regarding the letters of credit with no claims of delivery
asserted by the supplier, Council members await the
conclusion of the UN Secretariat,s evaluation whether any or
all of these letters of credit can be cancelled, and endorse
the recommendation of cancellation. For any letter of credit
cancelled, Council members request that the associated funds
on deposit with the UN be made available to the Development
Fund for Iraq when all outstanding issues are resolved. For
those contracts where the UN Secretariat determines that the
letter of credit in question cannot or should not be
cancelled, the supplier should be asked to provide all
relevant supporting documentation that indicates contract
performance before the December 31, 2007 expiry of the

In the event that a company can produce such documentation,
Council members encourage the UN and the Government of Iraq
to follow the mechanisms outlined in the paragraphs above.
The Council members wish to recall that commercial disputes
in connection with the above letters of credit should be
handled in accordance with the dispute resolution mechanism
provided for in the underlying contract or, in the absence of
such a mechanism, through the use of an established
international arbitration mechanism agreed upon by the
supplier and the Government of Iraq.

Council members reiterate their call upon the Government of
Iraq to do its utmost, in liaison with the Secretariat of the
United Nations, to expedite the processing of the remaining
letters of credit. In this regard, Members of the Council
request a further progress report, to be issued by the
Working Group between the representatives of the Government
of Iraq, the Central Bank of Iraq, and the Secretariat, after
the expiration of the 45 day deadline outlined above.

The members of the Security Council also take note of the
possibility of transferring $100 million of unencumbered
funds to the Development Fund for Iraq (DFI). While Council
members recognize the availability, in principle, of such
funds for the transfer to the DFI in accordance with
resolution 1483 (2003), they recommend that all unencumbered
funds associated with the Oil for Food Programme remain in
the Iraq escrow account until such time as all outstanding
issues are resolved.

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