A UN official who held a pivotal post in the Oil-for-Food programme for Iraq has been exposed by a defector as a Russian spy who diverted almost half a billion dollars to top Russian officials in “one of the richest heists in world history”.

Alexandre Kramar, who set the price of Iraqi crude as a UN oil overseer from 1996 to 2003, was an undercover agent for Russia's foreign intelligence agency, the SVR, his former handler says.

The revelation throws new light on the UN Oil-for-Food scandal, which implicated dozens of politicians, diplomats and businessmen around the world, as well as the UN official overseeing the programme, and the son of the former UN Secretary-General Kofi Annan.

It provides fresh evidence of Russia's complicity in helping Saddam Hussein to circumvent UN sanctions imposed after the 1990 invasion of Kuwait. The crumbling of the UN embargo, which was designed to prevent Iraq from rebuilding its weapons of mass destruction, was one of the factors behind the US and British decision to go to war in 2003.

Despite Mr Kramar's central importance to the UN programme and longstanding suspicions about his conduct, his covert role as a Russian agent was missed by the UN investigation led by Paul Volcker, a former Chairman of the US Federal Reserve.

Mr Kramar has been unmasked by Sergei Tretyakov, the SVR's deputy station chief in New York from April 1995 until he defected on October 11, 2000.

Mr Tretyakov, who worked as a double-agent for the US for at least three years, tells his story in a book by the intelligence author and former Washington Post reporter Pete Earley, entitled Comrade J: The Untold Secrets of Russia's Master Spy in America After the End of the Cold War. As deputy station chief, Mr Tretyakov supervised all 60 SVR intelligence agents in Manhattan and oversaw the handling of more than 150 foreign sources working for the Russians.

Planting Mr Kramar in the UN was considered Mr Tretyakov's biggest coup. Earley writes that the UN oil overseer “diverted half a billion dollars from the programme into the pockets of top Russian government leaders in both the Yeltsin and Putin presidencies.

“Neither Yeltsin nor Putin made any effort to stop the thefts,” he adds. “The Putin Administration did, however, arrange for the SVR officer to be awarded one of the Russian Federation's highest civilian commendations, not because of bravery or honour, but for his role in pulling off one of the richest heists in world history.”

Established in 1996, the Oil-for-Food programme permitted Iraq to sell limited quantities of oil under strict supervision to raise money to import food, medicine and other humanitarian goods. The oil price was fixed by UN overseers, whose recommendations were invariably rubber-stamped by a sanctions committee made up of the 15 Security Council members.

The original panel of four UN oil overseers, who were Norwegian, American, French and Russian, set the barrel price close to the market rate. But when first the Norwegian, then the American and the French overseers stepped down, Mr Kramar in effect set the Iraqi oil price by himself. Russia blocked the appointment of replacement overseers, so he operated alone from June 1999 to August 2000.

Saddam's scam of using oil to buy influence around the world could not have worked if Iraqi oil had not been underpriced. With Mr Kramar in charge the UN oil price allowed a profit of as much as 35 cents per barrel, Earley writes. That means the recipient of a voucher for ten million barrels could make an instant $3.5million (£1.75million) selling the contract, without ever shipping a drop of oil. Earley estimates that Mr Kramar diverted up to $476million to 46 individuals or organisations in Russia.

Mr Kramar joined the UN from the Russian insurance firm Ingosstrakh, where he estimated the value of petroleum cargoes. But Mr Tretyakov, who recommended him as a KGB officer in the Soviet Union, says that he was actually a Russian intelligence agent codenamed “Comrade Sid” sent to New York to penetrate the UN.

Mr Kramar held secret meetings with his handler once a week at the SVR office in an apartment complex housing Russian diplomats, pretending he was shopping at the Russian shop there. Even though Mr Kramar was receiving a UN salary of $12,000 a month, the SVR paid all his expenses as well as an SVR salary.

“He was notoriously cheap,” Mr Tretyakov recalled. “If his wife bought cleaning supplies or even bath soap, he would bring me the receipts and demand reimbursement.”

Mr Kramar, however, was so ineffective in recruiting spies at the UN that Mr Tretyakov spoke to the SVR station chief in New York about getting him recalled. Mr Tretyakov's immediate boss told him that Mr Kramar had important friends in Moscow who were “extremely happy with what he was producing”. Once Mr Kramar controlled pricing, Iraq gave contracts for 85 million barrels to Russian presidential advisers and members of the Russian Presidential Council. When Mr Putin became President, one top adviser was retained.

On leaving the UN in 2003, Mr Kramar joined Zarubezhneft, the Russian oil firm that was Iraq's biggest single customer under the Oil-for-Food programme. The Times contacted him there this month but he did not respond to questions.

Maurice Lorenz, an American who served with Mr Kramar as a UN oil overseer, told The Times that he had warned the US Government after he left that the oil price was set too low.

“I did not think he was very clever. If he was, he was very good at not showing it,” he said. “It's possible he was so clever that people like me did not realise. But I do not think he had to be very smart to do what he did. My feeling is that it happened. He just went along. When he found out there was money to be made, he went along.”

Profits and payments

$69.4bn (£34.6bn) Total profit made by Oil-for-Food programme

$38.6bn (£19.2bn) Total humanitarian spending

$1.1bn (£0.5bn) Operating cost of the Oil-for-Food programme

$10.6bn (£5.3bn) Total illicit income of Saddam Hussein’s regime during the oil-for-food scandal from smuggling, surcharges on oil sales and illegal exports

270 Number of Iraqi politicians, UN officials and companies alleged by Iraqi newspaper investigation to have profited from Oil-for-Food programme

$178,187 (£88,769) Non-competition payments to Kofi Annan’s son Kojo during Oil-for-Food programme

Sources: UN; Iraq Survey Group; US Government; Volcker Commission

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