Confirming this after initial denials, Kofi Annan said he was 'surprised and disappointed' to hear that Cotecna Inspection SA -- which oversaw goods imported to Iraq under the UN program from February 1999 to November 2003 -- had paid his son $ 2,500 a month till a few months ago.

Both Cotecna and Kofi Annan had earlier said Kojo Annan had stopped working for the company in 1998, but the company continued to pay him the monthly stipend for another year to 'prevent him from working for competitors.'

Admitting that the payments to his son by a company on a UN contract had created an appearance of impropriety, Kofi Annan told reporters Monday that "I understand the perception problem for the UN, or the perception of conflict of interests and wrongdoing."

But while he had spoken to his son on the issue, he could not answer for him, he said.

"He is an independent businessman. He is a grown man, and I don't get involved with his activities and he doesn't get involved in mine."

The UN has appointed a commission of inquiry to investigate the payments to Kojo Annan.

In a attempt to soften the effect of sanctions after Iraq's invasion of Kuwait, the UN launched the oil for food program in 1996 to allow Baghdad to sell oil for essential goods under UN supervision.

But a recent report by the CIA's Iraq survey group says corruption and mismanagement allowed the Saddam Hussein regime to gather over $ 22 billion in funds beyond the UN's control.

The program, which was discontinued last year, is now the focus of several US federal, congressional as well as internal UN investigations.