Payment Procedure

In its decision 17 of 24 March 1994, the Governing Council established basic principles for the distribution of compensation payments to successful claimants. This decision was made two months before the resolution of the first instalment of claims before the Commission. As stated in the Secretary-Generalís report of 2 May 1991, it was anticipated that the value of approved awards would far exceed the resources available in the Compensation Fund at any given time. The Governing Council therefore devised a mechanism for the allocation of available funds to successful claimants that gave priority to the three urgent categories of claims and which, within each category, would give equal treatment to similarly situated claims. Only when each successful claimant in categories "A", "B" and "C" had been paid an initial amount up to US$2,500 would payments commence for claims in other categories. Accordingly, the first phase of payment involved an initial payment of US$2,500 to each successful individual claimant in categories "A", "B" and "C". However, for humanitarian reasons, all category "B" claims were paid in full by the end of 1996. A total of US$3,252,337,997.09 was made available to 1,498,119 successful individual claimants in categories "A", "B" and "C" under the first phase of payments. 

In its decision 73 of 25 June 1999, the Governing Council adopted the mechanism for the second phase of payments. It determined that priority of payment will continue to be provided to individual claimants in categories "A" and "C", while meaningful compensation would also be provided to claimants in categories "D", "E" and "F". In accordance with this decision, payments of up to US$100,000 were subsequently made available to approved claims in all these categories in two rounds of payment comprising amounts of US$25,000 and US$75,000 respectively. A total of US$4,860,461,112.60 was made available to 870,816 claimants in categories "A", "C", "D", "E" and "F" under the second phase of payments. The payment of compensation in respect of claims in categories "A" and "C" was completed in this second phase, which came to an end in September 2000.

In its decision 100 , the Governing Council adopted the mechanism for the third phase of payments, which is scheduled to commence in October 2000. It determined that successful claimants in categories "D", "E" and "F" will receive an initial amount of up to US$5 million, in the order in which the recommended amounts have been approved. Subsequent payments of US$10 million will be made available for distribution to successful claimants in those categories of claims.

On 26 June 2003, the Governing Council adopted decision 197, which establishes a temporary payment mechanism following the adoption of Security Council resolution 1483 (2003). The temporary payment mechanism was extended in decision 227.
 


The Commission makes funds available to the Governments that originally submitted the claims, and these Governments are responsible for the distribution of compensation to successful claimants. In the absence of a Government willing or able to undertake this task, some claims of individuals have, as noted previously, been submitted with awards paid through international organizations. Governments and international organizations are required to distribute the funds made available by the Commission to successful claimants within six months of receiving payment and to report on payments made to claimants no later than three months thereafter. Any Government that receives compensation payments on behalf of claimants is required to submit reports to the Governing Council within a certain time describing its mechanisms for the making of payments to claimants and detailing the amount and date of payment. These reports enable the Commission to monitor the distribution of compensation. A computerized system aids the Commission in both the payment of awards and the monitoring of their distribution by Governments. 

Pursuant to Governing Council decision 48, money that is not distributed within twelve months (for example where a Government is unable to locate a claimant within twelve months of the receipt of award funds) must be returned to the Commission. Further payments to Governments and international organizations shall be suspended where Governments and international organizations fail to report on distribution of funds or fail to return undistributed funds on time. Where funds are returned to the Commission, the Commission will hold the returned amount until the claimant is located, at which time the money will be returned to the Government for distribution to the claimant. 

Under decision 18 of the Governing Council, Governments and international organisations may offset their costs of the handling of claims by deducting a small fee from payments made to claimants. In the case of awards payable to claimants in categories "A", "B" and "C", this processing fee should not exceed 1.5 per cent, in the case of awards payable to claimants in categories "D", "E" and "F", the processing fee should not exceed 3 per cent. The processing fee should be commensurate with the actual expenditure incurred and explanations are required to be provided in the reports for any deductions. 
 


In its decision 16, the Governing Council decided that interest shall be paid on successful claims from the date that the loss occurred until the date of payment at a rate sufficient to compensate the claimants for the loss of use of the principal during that period. However, the Governing Council has also decided that interest payments should be made, at rates to be eventually determined by the Council, only after the principal amount of all awards have been paid. The question of whether claimants in categories "D", "E" and "F" can be compensated for the costs of preparing their claims has not yet been decided by the Governing Council. Paragraph 16 of Governing Council decision 1 excludes the award of compensation for the costs of claim preparation for category "C" claims.
 


Previously funds had been made available to the Compensation Fund from the proceeds of the "oil-for-food" mechanism established by Security Council resolution 986 (1995) and subsequent resolutions.

The revenue derived from the oil sales authorized by resolution 986 (1995), which came into effect in December 1996, was deposited in a specially-created UN escrow account. The funds in the escrow account were used to meet the humanitarian needs of the Iraqi population, and to provide income into the Compensation Fund. The operating costs of the Commission are also paid from the Fund. The exact amount coming into the Compensation Fund each month depends on the quantity of oil sold by Iraq and the price of oil. 

The arrangements in Security Council resolution 986 (1995) were extended and modified by resolution 1111 (1997), resolution 1143 (1997), resolution 1153 (1998), resolution 1210 (1998), resolution 1242 (1999), resolution 1266 (1999), resolution 1275 (1999), resolution 1280 (1999), resolution 1281 (1999), resolution 1284 (1999), resolution 1293 (2000), resolution 1302 (2000), resolution 1330 (2000), resolution 1352 (2001), resolution 1360 (2001). resolution 1382 (2001), resolution 1409 (2002), resolution 1447 (2002), resolution 1454 (2002), resolution 1472 (2003) and resolution 1476 (2003). Resolution 1153 (1998) raised to US$5.256 billion the ceiling on total revenues that Iraq was authorized to generate through the sale of oil during a six-month period. Its provisions came into effect on 30 May 1998 with the Secretary-Generalís approval of the enhanced plan submitted by the Government of Iraq for the distribution of humanitarian supplies to the Iraqi people. The same ceiling of US$5.256 billion was applied in resolutions 1210 (1998) and 1242 (1999). Resolution 1284 (1999) removed the ceiling on total revenues that Iraq is authorized to generate through the sale of oil.

Currently, funds to pay the awards of compensation are drawn from the United Nations Compensation Fund which currently receives 5 per cent of the revenue generated from the export of Iraqi petroleum and petroleum products, pursuant to Security Council resolution 1483 of May 2003. Pursuant to the same resolution, sanctions imposed against Iraq under resolution 661 (1990) were lifted. In addition, the Secretary-General was requested to terminate the "oil for food" programmer within six months of the date of the adoption of the resolution, and the programmer has now been terminated.

A Development Fund for Iraq, which holds the proceeds of petroleum export sales from Iraq, as well as the remaining balances from the UN Oil-for-Food Program and other frozen Iraqi funds, was established (see paragraphs 12-14 of resolution 1483). In paragraphs 20 and 21 of resolution 1483, the Security Council decided that

"20.  [..] all export sales of petroleum, petroleum products, and natural gas from Iraq following the date of the adoption of this resolution shall be made consistent with prevailing international market best practices, to be audited by independent public accountants reporting to the International Advisory and Monitoring Board referred to in paragraph 12 above in order to ensure transparency, and decides further that, except as provided in paragraph 21 below, all proceeds from such sales shall be deposited into the Development Fund for Iraq until such time as an internationally recognized, representative government of Iraq is properly constituted;"

"21. [..] 5 per cent of the proceeds referred to in paragraph 20 above shall be deposited into the Compensation Fund established in accordance with resolution 687 (1991) and subsequent relevant resolutions and that, unless and internationally recognized, representative government of Iraq and the Governing Council of the United Nations Compensation Commission, in the exercise of its authority over methods of ensuring that payments are made into the Compensation Fund, decide otherwise, this requirement shall be binding on a properly constituted, internationally recognized, representative government of Iraq and any successor thereto;"


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