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UNITED NATIONS (Reuters) - More than 2,000 of the foreign companies that did business with Iraq in the U.N. oil-for-food programme made illicit payments to Saddam Hussein's government, a report on the programme said on Thursday.

The U.N.-established Independent Inquiry Committee led by former U.S. Federal Reserve Chairman Paul Volcker reported that Saddam diverted some $1.8 billion (1 billion pounds) in kickbacks and surcharges.

The 500-page report is the final one from the panel, which has investigated the now-defunct programme for 19 months.

It detailed the manipulation of the programme by companies around the world as well as individuals, groups and governments and made clear that nearly half of all the companies that took part in the programme made illegal payments.

"By the year 2000 the imposition of kickbacks and surcharges by the Iraqi regime of Saddam Hussein brought about the emergence of illicit payments," the report said. "This irrevocably changed the nature of the programme."

The programme, which began in December 1996 and ended in 2003, was aimed at easing the impact of U.N. sanctions imposed in 1990 after Baghdad's troops invaded Kuwait. It achieved considerable success in feeding Iraqis, and allowed Iraq to sell oil in order to pay for food, medicine and other goods.