The United Nations Compensation Commission is a subsidiary organ of the United Nations Security Council. It was established by the Council in 1991 to process claims and pay compensation for losses resulting from Iraq's invasion and occupation of Kuwait. Compensation is payable to successful claimants from a special fund that receives a percentage of the proceeds from sales of Iraqi oil. 

The Security Council established Iraq's legal responsibility for such losses in its resolution 687 of 3 April 1991: 

" liable under international law for any direct loss, damage, including environmental damage and the depletion of natural resources, or injury to foreign Governments, nationals and corporations, as a result of Iraq's unlawful invasion and occupation of Kuwait". 

Resolution 687 (1991) was adopted five weeks after the suspension of the Allied Coalition forces' operations against Iraq. It was adopted under Chapter VII of the Charter of the United Nations, which concerns action with respect to threats to the peace, breaches of the peace and acts of aggression. A formal cease-fire between Iraq and the Allied Coalition forces was made dependent upon Iraq's acceptance of all of the provisions of the resolution. 

The provisions relating to compensation are in section E of resolution 687 (1991), wherein the Security Council created a fund to pay compensation for losses, damage and injury resulting directly from Iraq's invasion and occupation of Kuwait, and directed the Secretary-General to develop and present to the Security Council recommendations for setting up the fund as well as a commission to administer it. The Secretary-General was also directed to recommend mechanisms for determining the appropriate level of Iraq's contribution to the fund, taking into account the requirements of the people of Iraq, Iraq's payment capacity and the needs of the Iraqi economy. 

Three days after the adoption of resolution 687 (1991), Iraq, in a letter to the Secretary-General and the President of the Security Council, accepted the terms of the resolution, thereby accepting legal responsibility for damage directly caused to Governments, individuals and corporations by its invasion and occupation of Kuwait. On 2 May 1991, the Secretary-General presented to the Security Council his report on the compensation provisions of the resolution S/22559. The Secretary-General recommended that the proposed Compensation Commission take the form of a claims resolution facility that would verify and value the massive number of expected claims and administer the payment of compensation. The nature of the Commission would therefore be unique in the history of international efforts at post-war resolution. As the Secretary-General stated in his report: 

"the Commission is not a court or an arbitral tribunal before which the parties appear; it is a political organ that performs an essentially fact-finding function of examining claims, verifying their validity, evaluating losses, assessing payments and resolving disputed claims; it is only in this last respect that a quasi-judicial function may be involved."

The Secretary-General recommended that the Commission should function under the authority of the Security Council and that it should be comprised of a Governing Council, panels of Commissioners and a secretariat. On 20 May 1991, the Security Council adopted resolution 692 (1991), by which it established the UN Compensation Commission and the UN Compensation Fund in accordance with Part I of the Secretary-General's report, and decided to locate the Commission at the United Nations Office in Geneva. On 30 May 1991, in a note to the Security Council S/22661, the Secretary-General recommended that compensation to be paid by Iraq, through the Fund, should not exceed thirty per cent of the value of its exports of petroleum and petroleum products. In resolution 705 , adopted on 15 August 1991, the Security Council decided to accept the Secretary-General's recommendation. 

On the same day, the Security Council adopted resolution 706 (1991), which authorised the import by Member States of oil products originating from Iraq for a six-month period, up to a value of US$1.6 billion, in order to finance the United Nations operations mandated by resolution 687 (1991), including the UN Compensation Commission. 

Iraq, however, failed to take advantage of the resolution and ad hoc arrangements became necessary to ensure that the Commission could carry forward its work. These arrangements provided for the Commission's access to an amount advanced from the Working Capital Fund of the United Nations, to reimbursable voluntary contributions from Governments prior to and in accordance with resolution 778 (1992) and to the proceeds of Iraqi oil sold after the invasion of Kuwait that had since been frozen by various Governments. 

Early in 1995, new attempts were made to persuade Iraq to accept a scheme that would allow it to sell oil for humanitarian purposes. On 14 April of that year, the Security Council adopted resolution 986 that provided for thirty per cent of the proceeds of such sales to be allocated to the Compensation Fund. However, it was to be twenty months before the scheme came into effect during which time the Commission operated with restricted financing. Ultimately, however, in December 1996, the "oil-for-food" scheme envisaged in resolution 986 (1995) was finally launched and the Commission began to receive thirty per cent of the proceeds of Iraq's oil sales (reduced to 25 per cent pursuant to Security Council resolution 1330 (2000)) thereby permitting the Commission to continue its operations uninterrupted and, more importantly, to begin to make regular compensation payments to successful claimants.

On 22 May 2003, the Security Council adopted Resolution 1483 (2003), which, inter alia (a) lifted the civilian sanctions imposed on Iraq following its invasion of Kuwait in 1990; (b) requested the Secretary-General to terminate the "oil-for-food" programme within six months of the date of the adoption of the resolution; and (c) changed in paragraph 21 the level of proceeds of all export sales of Iraqi petroleum, petroleum products, and natural gas to be deposited into the Compensation Fund to 5 per cent. Security Council resolution 1546 (2004), adopted on 8 June 2004, provided for the continuation of the deposits of the proceeds referred to in paragraph 21 of resolution 1483 (2003). 

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