For months, the burly, bristling Armenian-Cypriot, known within the United Nations for both his bonhomie and bad temper, had insisted the talk of oil deals with former Iraqi leader Saddam Hussein and strange petroleum companies in Panama had nothing to do with him.

On January 21, however, the former head of the UN's Iraq oil-for-food program was confronted by proof of his deception by Paul Volcker. The former Federal Reserve chairman is leading the UN's investigation into a scheme from which Saddam skimmed off about US$2 billion (HK$15.6 billion) and bribed foreign allies.

Volcker's interim report, delivered last week, not only contained a damning verdict on the behavior of Sevan, an official long defended by UN secretary-general Kofi Annan, it also threw an unexpected new focus on the role of Annan's predecessor, Boutros Boutros-Ghali, as the unraveling scandal dragged in new names.

The meeting was the 13th time that Sevan had met the investigators since the allegations of financial abuse were first raised by Claude Hankes-Drielsma, a British banker who was advising the interim Iraqi government in Baghdad. Although it was an open secret at the UN that the oil-for-food scheme had been subject to surcharges and kickbacks for years, Annan had refused to launch an investigation until then.

On his first 12 visits, Sevan refused to discuss the specifics of the claims against him. But by this trip, the investigators had obtained his full telephone records after clearing his office files and computer disks (Sevan had previously provided the ``clean'' telephone data from his home).

These records proved that Sevan's claim to have spoken with Fakhry Abdelnour, the man who ran African Middle East Petroleum (AMEP), the Panamanian oil dealership, only once, by chance at an Opec meeting in Vienna in 1999, was demonstrably false.

Senior former Iraqi officials had already told the commission Sevan had solicited contracts for AMEP - claims Sevan denied, saying he barely knew Abdelnour, who also happens to be a nephew of Boutros-Ghali. This new set of telephone numbers showed several calls between the two men, who also sometimes conducted back-to-back conversations with Fred Nadler, Boutros-Ghali's brother-in-law.

The spotlight thrown on the relatives of Boutros-Ghali was one of the surprises of the interim report released last Thursday.

The former secretary-general's role in pushing the French bank preferred by the Iraqi authorities to administer the program's accounts also comes in for close scrutiny.

The second report by Volcker and his fellow commissioners, due out next month, will focus on the business links of Annan's son, Kojo, with Cotecna, the Swiss company that won the UN contract to oversee oil-for-food imports into Iraq in 1998. Kojo has said he played no part in Cotecna's Iraq work; Annan said he did not know Kojo stayed on Cotecna's payroll until a year ago.

Although Annan had done his best to avoid ordering an inquiry, the Volcker findings may yet help save his job - for now, at least. The UN is not a body in which the buck stops with the boss, and now, in the belligerent form of Benon Sevan, there is a senior official to blame. He was not, however, the only UN official singled out for criticism in the report.

So, too, was Joseph Stephanides, a fellow Cypriot who oversaw the selection of the program's major contractors. The report said the UN broke its own competitive tendering rules when it chose Lloyd's Register of London, Banque Nationale de Paris (BNP) of France and Saybolt, a Dutch company, to implement the scheme.

In particular, Stephanides is criticised for cooperating with British diplomats at the UN to ensure that Lloyd's Register, the 245-year-old inspection and risk management group, won the contract to oversee imports into Iraq. A lower tender was submitted by a French rival, but the UN decided the deal should go to Lloyd's since BNP had been awarded another key contract.

Sir John Weston, then head of the British mission, said on Friday he was operating under ``ministerial instructions'' from London in advising Lloyd's Register on the best tactics to win the contract. Suggestions that there was any improper behavior are based on ``ignorance of the practices of diplomatic missions,'' he added.

Lloyd's Register is furious that it has been dragged into the row and says its reputation has been damaged by the release of UN audits suggesting it overcharged. Executive chairman David Moorhouse said it was customary for British diplomats to be helpful to British firms seeking overseas contracts.

Carne Ross, the British diplomat in charge of Iraq policy at the UN at the time, said the program was ``deeply politicized'' and ``carved up'' between member states.

``It was our job to lobby for British companies and we did so extremely vigorously. Nobody in Britain would have expected any less of us,'' said Ross, who resigned from the diplomatic service last year. ``That is the way the UN operates and it seems a little harsh if Joseph Stephanides is carrying the can for this as a UN official.''

The Volcker committee's criticism of Sevan was scathing. It concluded he had solicited and received oil allocations of several million barrels on AMEP's behalf, helping the company to earn about US$1.5 million. Saddam's regime apparently believed he would help it ease economic restrictions in return. The committee also said Sevan failed to adequately explain the source of US$160,000 of extra income between 1999 and 2003 (he told them he was given the money by an aged aunt who died in Cyprus last year after falling down a lift shaft).

The committee said it ``continues to investigate'' whether he ``received personal or financial benefits'' for soliciting the oil deals for AMEP.

Even after the publication of the interim Volcker report, Sevan's status with the UN remains strangely blurred, and UN officials seem to have remarkable trouble defining it. Does he still have diplomatic immunity? Yes. Has he retired? Yes, but he still has the status of a contract employee, at US$1 per year, maintaining his immunity. Does he have a pension? Yes, but it is not yet being paid.

The UN press office had been speaking on Sevan's behalf until last week, when calls were referred to Eric Lewis, a Washington lawyer who issued a spirited defense. He said that ``Mr Sevan never took a penny'' and the commission had ``succumbed to massive political pressure'' to find a scapegoat.

There was no sign of Sevan at his Manhattan apartment block on Saturday. When The Sunday Telegraph tracked him down last year during a visit to see his aunt in hospital in Cyprus, he defiantly rejected all suggestions of impropriety against him and claimed he would be vindicated by the report.

Even if Annan escapes censure in Volcker's next report, he is not out of the woods. There are also five US congressional investigations into the oil-for-food scandal and UN mismanagement (as well as two criminal inquiries being conducted by federal and New York prosecutors).

In Republican-controlled Washington, where many politicians consider ``United Nations'' to be dirty words, Annan's role still faces intense scrutiny.

Nile Gardiner, a fellow at the Heritage Foundation, who has studied the scandal, said: ``The UN continues to display breathtaking arrogance with regard to the oil-for-food scandal. The organization does not seem to recognise the extent to which it has been damaged by this. Five major congressional investigations are looking at the role of Annan and any of them have the potential to force his resignation.''

The Volcker findings have provided fresh ammunition for prominent American critics of the UN. ``I am reluctant to conclude that the UN is damaged beyond repair, but these revelations certainly point in this direction,'' said Henry Hyde, the Republican chairman of the House International Relations Committee, one of the investigating panels.

At the UN, the fightback is being led by Mark Malloch Brown, the eloquent British official who Annan recently promoted to his chief of staff with a brief to ``renew'' the organization. ``Benon Sevan has been a lifelong colleague and a dear, dear friend,'' he said. ``But these are extremely serious charges of wrongdoing and no one will be shielded from prosecution. If there are criminal charges, the UN will fully cooperate and waive diplomatic immunity of staff members, whoever they are.''

Malloch Brown said the Volcker report was ``encouraging'' and a ``step in the right direction.'' But the report showed the UN bureaucracy would have done better at controlling Saddam's oil-for-food schemes if they had been allowed to do their jobs without the interference of the ``member nations,'' particularly those on the Security Council, he said.

The report also said the major source of Saddam's illicit money was not kickbacks but oil smuggling to Jordan and Turkey, to which the US and Britain turned a blind eye because the two countries were allies. ``Back off - that's the message to the member states,'' Malloch Brown declared boldly. ``They should look to the mote in their own eye because what has been revealed is a process of politicization.''

The famously haughty Boutros-Ghali was even blunter in his response after the report detailed how he ``acquiesced'' to the Iraqi authorities in the choice of BNP as the program's banker, despite apparently stronger competitive bids from others.

According to Weston, he did not get a second term, because he was not regarded as good enough for a second term. The former secretary-general called the allegations ``silly'' and dismissed the Volcker investigators as ``ignorant'' about the UN system.

In fact, the investigators have become all too well-informed about how the UN system operated - and the rest of the world is now learning fast.

THE SUNDAY TELEGRAPH