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Where has all the money gone?
By Ed Harriman
07/07/05 "LRB" -- -- On 12 April 2004, the Coalition Provisional
Authority in Erbil in northern Iraq handed over $1.5 billion in
cash to a local courier. The money, fresh $100 bills
shrink-wrapped on pallets, which filled three Blackhawk
helicopters, came from oil sales under the UN’s Oil for Food
Programme, and had been entrusted by the UN Security Council to
the Americans to be spent on behalf of the Iraqi people. The CPA
didn’t properly check out the courier before handing over the
cash, and, as a result, according to an audit report by the
CPA’s inspector general, ‘there was an increased risk of the
loss or theft of the cash.’ Paul Bremer, the American pro-consul
in Baghdad until June last year, kept a slush fund of nearly
$600 million cash for which there is no paperwork: $200 million
of this was kept in a room in one of Saddam’s former palaces,
and the US soldier in charge used to keep the key to the room in
his backpack, which he left on his desk when he popped out for
lunch. Again, this is Iraqi money, not US funds.
The ‘reconstruction’ of Iraq is the largest American-led
occupation programme since the Marshall Plan. But there is a
difference: the US government funded the Marshall Plan whereas
Donald Rumsfeld and Paul Bremer have made sure that the
reconstruction of Iraq is paid for by the ‘liberated’ country,
by the Iraqis themselves. There was $6 billion left over from
the UN Oil for Food Programme, as well as sequestered and frozen
assets, and revenue from resumed oil exports (at least $10
billion in the year following the invasion). Under Security
Council Resolution 1483, passed on 22 May 2003, all of these
funds were transferred into a new account held at the Federal
Reserve Bank in New York, called the Development Fund for Iraq (DFI),
so that they might be spent by the CPA ‘in a transparent manner
. . . for the benefit of the Iraqi people’. Congress, it’s true,
voted to spend $18.4 billion of US taxpayers’ money on the
redevelopment of Iraq. But by 28 June last year, when Bremer
left Baghdad two days early to avoid possible attack on the way
to the airport, his CPA had spent up to $20 billion of Iraqi
money, compared to $300 million of US funds.
The ‘financial irregularities’ described in audit reports
carried out by agencies of the American government and auditors
working for the international community collectively give a
detailed insight into the mentality of the American occupation
authorities and the way they operated, handing out truckloads of
dollars for which neither they nor the recipients felt any need
to be accountable. The auditors have so far referred more than a
hundred contracts, involving billions of dollars paid to
American personnel and corporations, for investigation and
possible criminal prosecution. They have also discovered that
$8.8 billion that passed through the new Iraqi government
ministries in Baghdad while Bremer was in charge is unaccounted
for, with little prospect of finding out where it went. A
further $3.4 billion earmarked by Congress for Iraqi development
has since been siphoned off to finance ‘security’.
That audit reports were commissioned at all owes a lot to Henry
Waxman, a Democrat and ranking minority member of the House of
Representatives Committee on Government Reform. Waxman voted in
favour of the invasion of Iraq. But since the war he’s been
demanding that the Bush administration account for its cost.
Within six months of the invasion, Waxman’s committee had
evidence that the Texas-based Halliburton corporation was being
grossly overpaid by the American occupation authorities for the
petrol it was importing into Iraq from Kuwait, at a profit of
more than $150 million. Waxman and his assistants found that
Halliburton was charging $2.64 a gallon for petrol for Iraqi
civilians, while American forces were importing the same fuel
for $1.57 a gallon.
Halliburton’s chairman, David Lesar, who took over from Dick
Cheney in July 2000, robustly defended his firm. But Waxman
raised another question: if Halliburton was being allowed to rip
off the Iraqi people, was the Bush administration allowing it to
milk the US government as well? Waxman’s committee instructed
Congress’s General Accountability Office to look into
Halliburton’s biggest contract in Iraq: providing virtually all
back-up facilities – from meals to laundry soap – to American
forces. LOGCAP (Logistics Civil Augmentation Programme)
contracts like this one are a product of the new ‘slimmed down’
American military, the quartermaster’s equivalent of Rumsfeld’s
‘invasion lite’. Rather than have uniformed troops peel potatoes
and scrub floors, base support services have been privatised and
contracted out so that, the idea goes, soldiers can get on with
the fighting. The contracts are paid on a cost-plus basis, which
allows the contractor to charge for what it has spent, then add
on a profit. LOGCAP contracts have not been put out to tender,
but rather awarded to a few US firms, the largest being
Halliburton and its subsidiary Kellogg, Brown & Root.
The GAO report of July 2004 found that in the first nine months
of the occupation, KBR was allowed a free hand in Iraq: a free
hand, for example, to bill the Pentagon without worrying about
spending limits or management oversight or paperwork. Millions
of dollars’ worth of new equipment disappeared. KBR charged $73
million for motor caravans to house the 101st Airborne Division,
twice as much as the army said it would cost to build barracks
itself; KBR charged $88 million for three million meals for US
troops that were never served. The GAO calculated that the army
could have saved $31 million a year simply by doing business
directly with the catering firms that KBR hired. In June 2004,
the GAO continued, ‘by eliminating the use of LOGCAP and making
the LOGCAP subcontractor the prime contractor, the command
reduced meal costs by 43 per cent without a loss of service or
quality.’
The GAO report makes clear that the Americans had given little
thought as to how they might prevent looting and rebuild Iraqi
society. They hadn’t even planned how they were going to
provision the US forces staying on in Iraq: ‘the Army Central
Command did not develop plans to use the [KBR] contract to
support its military forces in Iraq until May 2003’ – a month
after Saddam fell. Even then, this contract – with an estimated
value of $3.894 billion – did not adequately provide for dining
facilities, pest control, laundry services, morale, welfare and
recreation, troop transportation or combat support services at
the American bases hastily being built across Iraq. Stung by
Waxman’s revelations about Halliburton’s petrol profiteering,
and realising that KBR’s costs were spiralling out of control (LOGCAP
costs in Kuwait, Iraq and Afghanistan rose from a projected
yearly total of $5.8 billion in September 2003 to $8.6 billion
in January 2004), the army vice chief of staff ‘asked units to
control costs and look for alternatives to the LOGCAP contract’.
This was the first admission that the Pentagon could not afford
the occupation on top of the war.
At the same time, the Pentagon’s own auditors, the Defense
Contracts Audit Agency, went to Houston to have a look at KBR’s
books. They were not happy with what they found:
Our examination disclosed several deficiencies in KBR’s billing
system resulting in billings to the government that are not
prepared in accordance with applicable laws and regulations and
contract terms. We have also found system deficiencies resulting
in material invoicing misstatements that are not prevented,
detected and/or corrected in a timely manner.
They also found that ‘KBR also does not monitor the ongoing
physical progress of subcontracts or the related costs and
billings.’ When the auditors asked to see the files of payments
to subcontractors to back up the invoices KBR submitted to the
government, there weren’t any: ‘We found no such documents
included in KBR’s subcontract files, nor did we find any log of
subcontractor payments.’ So how did KBR work out its monthly
invoices to the government for its whopping $3.9 billion
contract? ‘The explanation begins with the costs on a
spreadsheet with no indication of where or how these costs are
accumulated.’ The auditors also wanted to know what happened to
the money the government had paid for those three million
non-existent meals:
Despite repeated requests over two months, KBR has not been able
to provide an adequate explanation or adequate documentation for
the payments to any DFAC [dining-hall] subcontractors. The
limited documentation that has been provided shows, for example,
that KBR has added ‘overage’ factors of 10 to 35 per cent to
each bill for one of the subcontractors. We still do not have an
adequate explanation of the ‘overage’ factor.
KBR’s response has been to tough it out. The company wrote to
the auditors saying that its position regarding the meals ‘had
been misquoted as well as misinterpreted’. The auditors, the
corporation said, knew full well that KBR had ‘established a
Tiger Team that is actively researching and analysing the facts
and circumstances surrounding each of its DFAC subcontracts’.
‘Tiger Teams’ are in-house investigative units. KBR’s Tiger Team
stayed at the five-star Kuwait Kempinski Hotel, where its
members ran up a bill of more than $1 million. This outraged the
army, whose troops were sleeping in tents at a cost of $1.39 a
day. The army asked the Tiger Team to move into tents. It
refused. As to how the Tiger Team ‘actively researched and
analysed the facts’, we have the sworn testimony that a KBR
employee gave to Congressman Waxman’s committee: ‘The Tiger Team
looked at subcontracts with no invoice and no confirmation that
the products contracted for were being used. Instead of
investigating further, they would recommend extending the
subcontract.’
The Pentagon auditors asked to see ‘evidence that KBR’s internal
audit department is functionally and organisationally
independent and sufficiently removed from management to ensure
that it can conduct audits objectively and can report its
findings, opinions and conclusions without fear of reprisal.’
KBR locked them out of its audit department. The auditors then
asked who did KBR’s audits. Halliburton, KBR wrote back. The
Pentagon auditors said that from then on KBR would have to
submit all bills to them ‘for provisional approval prior to
submission for payment’. Tough talk. But, despite all the
threats to withhold payment, and with several lawsuits pending,
KBR and Halliburton have now been paid more than $10 billion for
quartermastering US forces in Iraq.
One of KBR’s contracts was for transporting supplies between
American bases. Fleets of new Mercedes Benz trucks, costing
$85,000 each, travelled up and down Iraq’s central highways
every day, accompanied by armed US military escorts. If there
were no goods to transport, KBR dispatched empty lorries anyway,
and billed accordingly. The lorries didn’t carry replacement air
and oil filters, essential when driving in the desert. They
didn’t even carry spare tyres. If one broke down, it was
abandoned and destroyed so no one else could use it, and left
burning by the roadside. For fear of ambush, KBR drivers were
told not to slow down. ‘The truck in front of the one I was
riding ran a car with an Iraqi family of four off the road,’ a
KBR employee told Waxman’s committee. ‘My driver said that was
normal.’
American profligacy with Iraqi money has been, if anything, even
worse. According to the CPA’s own rules, the authority ‘was
expected to manage Iraqi funds in a transparent manner that
fully met the CPA’s obligations under international law
including Security Council Resolution 1483’. Despite repeated
efforts, however, it was only in October 2003, six months after
the fall of Saddam, that an International Advisory and
Monitoring Board (IAMB), with representatives from the United
Nations, the World Bank, the IMF and the Arab Fund for Economic
and Social Development, was established to provide independent,
international financial oversight of the CPA’s spending.
The IAMB then spent months trying to find auditors acceptable to
the US. The Bahrain office of KPMG was finally appointed in
April 2004. It was stonewalled. ‘KPMG has encountered resistance
from CPA staff regarding the submission of information required
to complete our procedures,’ they wrote in an interim report.
‘Staff have indicated . . . that co-operation with KPMG’s
undertakings is given a low priority.’ KPMG had one meeting at
the Iraqi Ministry of Finance; meetings at all the other
ministries were repeatedly postponed. The auditors even had
trouble getting passes for the Green Zone.
There was a good reason for the Americans to stall. At the end
of June 2004, the CPA would be disbanded and Bremer would leave
Iraq. The Bush administration wasn’t going to allow independent
auditors to be in a position to publish a report into the
financial propriety of its Iraqi administration while Bremer was
still answerable to the press. The report was published in July.
The auditors found that the CPA hadn’t kept accounts for the
hundreds of millions of dollars of cash in its vault, had
awarded contracts worth billions of dollars to American firms
without tender, and had no idea what was happening to the money
from the Development Fund for Iraq (DFI) which was being spent
by the interim Iraqi government ministries.
An Iraqi hospital administrator told me that, as he was about to
sign a contract, the American army officer representing the CPA
had crossed out the original price and doubled it. The Iraqi
protested that the original price was enough. The American
officer explained that the increase (more than $1 million) was
his retirement package. Iraqis who were close to the Americans,
had access to the Green Zone, or held prominent posts in the new
government ministries, were also in a position to benefit
enormously. Iraqi businessmen complain endlessly that they had
to offer substantial bribes to Iraqi middlemen just to be
allowed to bid for CPA contracts. Iraqi ministers’ relatives got
top jobs and fat contracts.
Hard evidence comes from a further series of audits and reports
carried out by the office of the CPA’s own inspector general
(CPA-IG). Set up in January 2004, it reported to Congress. Its
auditors, accountants and criminal investigators often found
themselves sitting alone at cafeteria tables in the Green Zone,
shunned by their compatriots. Their audit, published in July
2004, found that the American contracts officers in the CPA and
the Iraqi ministries ‘did not ensure that . . . contract files
contained all the required documents, a fair and reasonable
price was paid for the services received, contractors were
capable of meeting delivery schedules, or that contractors were
paid in accordance with contract requirements’.
Pilfering was rife. Millions of dollars in cash went missing
from the Iraqi Central Bank. Between $11 million and $26 million
worth of Iraqi property sequestered by the CPA was unaccounted
for. The payroll was padded with hundreds of ghost employees.
Millions of dollars were paid to contractors for phantom work:
$3,379,505 was billed, for example, for ‘personnel not in the
field performing work’ and ‘other improper charges’ on a single
oil pipeline repair contract. An Iraqi sports coach was paid
$40,000 by the CPA. He gave it to a friend who gambled it away
then wrote it off as a legitimate loss. ‘A complainant alleged
that Iraqi Airlines was sold at a reduced price to an
influential family with ties to the former regime. The
investigation revealed that Iraqi Airlines was essentially
dissolved, and there was no record of the transaction.’ Most of
the 69 criminal investigations the CPA-IG instigated related to
alleged ‘theft, fraud, waste, assault and extortion’. It also
investigated ‘a number of other cases that, because of their
sensitivity, cannot be included in this report’. At around this
time, 19 billion new Iraqi dinars, worth about £6.5 million,
were found on a plane in Lebanon which had been sent there by
the American-appointed Iraqi interior minister.
The IAMB, meanwhile, discovered that Iraqi oil exports were
unmetered. Neither the Iraqi State Oil Marketing Organisation
nor the American authorities could give a satisfactory
explanation for this. ‘The only reason you wouldn’t monitor them
is if you don’t want anyone else to know how much is going
through,’ one petroleum executive told me. Officially, Iraq
exported oil worth $10 billion in the first year of the American
occupation. Christian Aid has estimated that oil worth up to an
additional $4 billion may also have been exported and is
unaccounted for. If this is correct, it would have created an
off the books slush fund that both the Americans and their Iraqi
allies could use with impunity to cover expenditures they would
rather keep secret – among them the occupation costs, which were
rising far beyond what the Bush administration could comfortably
admit to Congress and the international community.
America’s situation in Iraq took a turn for the worse in April
2004, with the uprisings in Najaf and Fallujah, the Abu Ghraib
prison scandal and mass defections from the new Iraqi security
forces. ‘At the beginning of April,’ one of the audits says,
‘the Iraqi National Guard force held steady at around 32,000
personnel. Between 9 and 16 April this number dropped to a low
of 17,500.’ As for the police, ‘the Iraqi Ministry of Interior
has decided to reduce the number of police officers to 89,000’ –
from 120,000 – ‘by trimming from its rolls those who have proved
to be unsuitable.’ At the same time, ‘recent attacks on the
pipelines reduced exports in April to an average of 1.7 million
barrels per day and 1.4 million barrels per day in May. The
total could possibly be lower in June.’ That’s a million barrels
per day fewer than under Saddam. Across Iraq, hospitals and
schools were derelict, electricity was intermittent, and water
supplies were polluted.
The American response to the militant insurgency and to the loss
of their moral credentials at Abu Ghraib was a ‘hearts and
minds’ campaign. Law-abiding Iraqis were to be shown respect and
given buckets of money, while Bremer and the CPA prepared to
hand over the management of Iraq to an interim government picked
by the Americans. KBR’s lorry drivers were told not to run
Iraqis off the road. And millions of dollars in cash – most of
it Iraqi money – were handed out by American commanders in local
communities across Iraq in an attempt to buy friends. ‘The
Commanders’ Emergency Reconstruction Programme continues to be a
very effective programme . . . which has built trust and support
for the United States at grass roots level,’ the CPA-IG report
said. ‘As of 19 June 2004, the local commanders have spent
$364.6 million . . . on over 27,600 small projects . . .
repairing and refurbishing water and sewer lines, cleaning up
highways by removing waste and debris, transporting water to
remote villages, purchasing equipment for local police stations,
upgrading schools and clinics, purchasing school supplies,
removing ordnance from public spaces . . .’ It was too little
too late. With the concentration on big infrastructure projects
and contracts for American corporate cronies and Iraqi
businessmen ‘friends’, there had been little for ordinary Iraqis
to benefit from or to take part in. Rumsfeld knew by the
beginning of 2004 that his and Bremer’s management was in deep
trouble. ‘Iraqis are puzzled; they truly don’t know what the US
really intends for them. We haven’t communicated well. The
“story” has not been believed,’ a Personnel Assessment Team
reported to Rumsfeld on 11 February 2004. ‘We have in essence a
pick-up organisation in place to design and execute the most
demanding transformation in recent history.’
Last September was the crucial month. By then the US government
had spent $60 billion on the US forces in Iraq, and $1 billion
on the Iraqi security forces. The Americans knew that they were
widely hated. ‘In the war of ideas or the struggle for hearts
and minds . . . American efforts have not only failed, they may
also have achieved the opposite of what they intended’ was the
principal finding of the Pentagon’s Defense Science Board. The
answer was a big rethink – a strategic spending review. The
$18.4 billion Iraq Relief and Reconstruction Fund that Congress
had voted to rebuild Iraq, and which Bremer had left largely
untouched and possibly never intended to spend as mandated,
would be spent on counter-insurgency warfare directed by US
commanders and John Negroponte from the new US embassy in
Baghdad.
First, $3 billion was diverted from the budgets to restore
Iraq’s destroyed electricity supply, water supply and sewers to
security and law enforcement. The reduced electricity budget
(down from $5.6 billion to $4.4 billion) was to be spent
patching up neighbourhoods flattened by American fire power, and
electricity pylons and stations sabotaged by the insurgents. The
electricity supply had become one of the war’s main
battlegrounds.
This meant fewer large contracts for American and international
energy firms, which were further discouraged from staying in
Iraq as their personnel were attacked and the price of private
security soared. It also meant flickering lights and hours of
power cuts for ordinary Iraqis. Yet development and
reconstruction were officially deferred. Or, as the auditors put
it, ‘this redistribution of funds . . . appears to be generally
consistent with the stated management objective of
de-emphasising longer-term development projects as funds are
shifted toward more immediately realisable goals.’
‘The country’s widely failing sewage management infrastructure
and the sporadic availability of potable water,’ the auditors
wrote, ‘continue to pose health threats and tarnish overall
impressions of reconstruction achievements.’ Yet the water and
sanitation budget was cut almost in half, as long-term
development was again handed over to the Iraqi government so US
funds could be doled out to Iraqis in neighbourhoods where the
insurgents held sway and it was now unsafe for foreigners to go.
‘Initial plans to rehabilitate large portions of the country’s
water and wastewater system through the IRRF have been
curtailed,’ the auditors wrote. ‘Water resources and sanitation
sector funds have been reallocated to security, governance, debt
relief and efforts to boost Iraqi employment opportunities . . .
creating local water and wastewater projects to stimulate Iraqi
employment and deliver needed services to high-risk areas.’
The budget for employing Iraqis rose by more than 350 per cent,
to be spent largely on ‘local projects that will visibly impact
Iraqi communities before the 30 January 2005 national election’.
At the same time, ‘the construction sector saw the withdrawal of
the prime design-and-build road contractor from Iraq, reportedly
because of concern for personnel and site security.’ The
insurgents had forced a fundamental reshaping of US spending
priorities, further widened the no man’s land between themselves
and US troops, polarising Iraq, and assuming the initiative in
the war.
None of this has changed. In December 2004, the US Mission in
Iraq allotted an extra $457 million to keep the electricity
working and ‘to boost short-term employment through health,
electricity and water initiatives in Najaf, Samarra, Sadr City
and Fallujah. Together,’ the auditors reported, ‘the two
adjustments reflect a significant change in US spending
priorities.’
In March this year, a further $832 million ‘was reprogrammed for
management initiatives’, largely ‘for operations and maintenance
at various power and water plants, urgent work in the electrical
and oil sectors’ to repair sabotage damage, and to pay for
building contracts on which it had become extremely dangerous
and expensive to work. The most recent audit, issued in April,
reports that projects are running between 50 and 85 per cent
above the original estimated costs. The free-spending days are
over. Americans are having to divert increasing amounts of US
development money just to keep what remains of Iraq’s damaged
public utilities working, and to finance the Iraqi police and
army.
Six months into the occupation, in autumn 2003, the Americans
planned to transfer security to the Iraqi police and army so
they could ‘draw down US forces from Iraq’. The goal was to have
250,000 Iraqis in the security forces by the following summer.
However, as a GAO report submitted to Congress in March this
year explains, most of the recruits were neither vetted nor
properly trained. The result has been that the ‘Ministry of
Interior’s security forces committed numerous serious human
rights abuses’; the Iraqi police and army have been easily
infiltrated by former Ba’athists and other insurgents; and
morale is low.
As the GAO put it,
police and military units performed poorly during an escalation
of insurgent attacks against the Coalition in April 2004 . . .
Many Iraqi security forces around the country collapsed during
this uprising . . . units abandoned their posts and
responsibilities and in some cases assisted the insurgency . . .
Police manning a checkpoint in one area were reporting convoy
movements by mobile telephone to local terrorists. Police in
another area were infiltrated by former regime elements.
‘In response to the unwillingness of a regular army battalion to
fight Iraqi insurgents in Fallujah’, the Americans created a
special Iraqi Intervention Force. Then last autumn they decided
to beef up the Iraqi police service from 90,000 to 135,000, to
add 20 battalions to the Iraqi National Guard and double the
border guard. This February, the State Department glowingly
reported that almost 82,000 Iraqi police and 60,000 troops had
been trained.
These figures are grossly misleading. According to the GAO’s
March report to Congress ‘the reported number of Iraqi police is
unreliable because the Minister of the Interior does not receive
consistent and accurate reporting from the police forces around
the country. The data does not exclude police absent from duty.’
As for the army, ‘Ministry of Defense reports exclude the absent
military personnel from its totals. According to DOD officials,
the number of absentees is probably in the tens of thousands.’
Furthermore the State Department no longer reports on whether
Iraqi security forces have the required weapons, vehicles,
communication equipment and body armour. Bluntly, ‘US government
agencies do not report reliable data on the extent to which
Iraqi security forces are trained and equipped.’ The GAO further
found that the Iraqi police are being trained for ‘community
policing in a permissive security environment’ rather than
getting ‘paramilitary training for a high-threat hostile
environment’. It’s hardly surprising that close to 2000 Iraqi
police have been killed.
This is all horribly reminiscent of American policy in Vietnam.
American troops are staying in Iraq to stiffen Iraqi forces who
are dying in droves in an escalating counter-insurgency war that
neither the Americans nor the Iraqi forces are prepared for. The
Americans originally allocated $5.8 billion to build the Iraqi
security forces. In February this year, George Bush asked
Congress for another $5.7 billion to go towards this task.
What’s happened to the rebuilding of Iraqi society, and real
governance based on transparency and accountability? In the few
weeks before Bremer left Iraq, the CPA handed out more than $3
billion in new contracts to be paid for with Iraqi funds and
managed by the US embassy in Baghdad. The CPA inspector general,
now called the Special Inspector General for Iraq
Reconstruction, has just released an audit report on the way the
embassy has dealt with that responsibility. The auditors
reviewed the files of 225 contracts totalling $327 million to
see if the embassy ‘could identify the current value of paid and
unpaid contract obligations’. It couldn’t. ‘Our review showed
that financial records . . . understated payments made by
$108,255,875’ and ‘overstated unpaid obligations by
$119,361,286’. The auditors also reviewed the paperwork for a
further 300 contracts worth $332.9 million. ‘For 198 of 300
contracts, documentation was not available . . . to indicate
that contract execution was monitored for performance and
payment . . . Files did not contain evidence that goods and
services had been received for 154 contracts, that invoices had
been submitted for 169 contracts, or that payments had been made
for 144 contracts.’
Clearly the Americans see no need to account for spending the
Iraqis’ national income now any more than they did when Bremer
was in charge. Neither the embassy chief of mission nor the US
military commander replied to the auditors’ invitation to
comment. Instead, the US army contracting commander lamely
pointed out that ‘the peaceful conditions envisioned in the
early planning continue to elude the reconstruction efforts.’
This is a remarkable understatement. It’s also an admission that
Americans can’t be expected to do their sums when they are
spending other people’s money to finance a war.
Not only the Americans are guilty of a lack of accountability.
In January this year, the SIGIR issued a report detailing
evidence of fraud, corruption and waste by the Iraqi Interim
Government when Bremer was in charge. They found that $8.8
billion – the entire Iraqi Interim Government spending from
October 2003 through June 2004 – was not properly accounted for.
The Iraqi Office of Budget and Management at one point had only
six staff, all of them inexperienced, and few of the ministries
had budget departments. Iraq’s newly appointed ministers and
their senior officials were free to hand out hundreds of
millions of dollars in cash as they pleased, while American
‘advisers’ looked on. ‘CPA personnel did not review and compare
financial, budgetary and operational performance to planned or
expected results,’ the auditors explained. One ministry gave out
$430 million in contracts without its CPA advisers seeing any of
the paperwork. Another claimed to be paying 8206 guards, but
only 602 could be accounted for. There is simply no way of
knowing how much of the $8.8 billion went to pay for private
militias and into private pockets.
‘It’s remarkable that the inspector general’s office could have
produced even a draft report with so many misconceptions and
inaccuracies,’ Bremer said in his reply to the SIGIR report. ‘At
Liberation, the Iraqi economy was dead in the water. So CPA’s
top priority was to get the economy going.’ The SIGIR responded
by releasing another audit this April, an investigation into the
way Bremer’s CPA managed cash payments from the Development Fund
for Iraq in just one part of Iraq, the region around Hillah:
‘During the course of the audit, we identified deficiencies in
the control of cash . . . of such magnitude as to require prompt
attention. Those deficiencies were so significant that we were
precluded from accomplishing our stated objectives.’ They found
that CPA headquarters in Baghdad ‘did not maintain full control
and accountability for approximately $119.9 million’, and that
agents in the field ‘cannot properly account for or support over
$96.6 million in cash and receipts’. These agents were mostly
Americans in Iraq on short-term contracts. One agent’s account
balance was ‘overstated by $2,825,755, and the error went
undetected’. Another agent was given $25 million cash for which
Bremer’s office ‘acknowledged not having any supporting
documentation’. Of more than $23 million given to another agent,
there are only records for $6,306,836 paid to contractors. Many
of the American agents submitted their paperwork hours before
they headed to the airport. Two left Iraq without accounting for
$750,000 each; the money has never been found. CPA head office
cleared several agents’ balances of between $250,000 and $12
million without any receipts. One agent who did submit receipts,
on being told that he still owed $1,878,870, turned up three
days later with exactly that amount. The auditors thought that
‘this suggests that the agent had a reserve of cash,’ pointing
out that if his original figures had been correct, he would have
accounted to the CPA for approximately $3.8 million more than he
had been given in the first place, which ‘suggests that the
receipt documents provided to the DFI account manager were
unreliable’.
Staff at the CPA head office in Baghdad usually worked 12 hours
a day, seven days a week, often on three-month postings. They
didn’t trust the computer network so many of them put their
records on USB sticks and in private computer files that
couldn’t be opened by their replacements. At one point there was
only one officer at the CPA account manager’s office clearing
all the paying agents throughout Iraq. Paying agents in the
field often couldn’t get – let alone be bothered with – the
paperwork, which was frustrating for the honest ones and a boon
to their crooked colleagues. So where did the money go? You
can’t see it in Hillah. The schools, hospitals, water supply and
electricity, all of which were supposed to benefit from this
money, are in ruins. The inescapable conclusion is that many of
the American paying agents grabbed large bundles of cash for
themselves and made sweet deals with their Iraqi contacts.
And so it continues. The IAMB’s most recent audit of Iraqi
government spending, which is yet to be published, talks of
‘incomplete accounting’, ‘lack of documented justification for
limited competition for contracts at the Iraqi ministries’,
‘possible misappropriation of oil revenues’, ‘significant
difficulties in ensuring completeness and accuracy of Iraqi
budgets and controls over expenditures’, and ‘non-deposit of
proceeds of export sales of petroleum products into the
appropriate accounts in contravention of UN Security Council
Resolution 1483’.
Bremer re-established the Iraqi Board of Supreme Audit a month
before he left Baghdad. It is now said to have more than a
thousand auditors and support personnel spread throughout Iraqi
government ministries. A new Iraqi Commission on Public
Integrity, the equivalent of the FBI, is said to have 200 staff
and 15 US advisers. Yet according to the latest American
figures, of more than 3400 complaints, only about one in 50 has
been passed to the Commission on Public Integrity for possible
prosecution.
There is an explanation for this lack of activity. On Thursday,
1 July 2004, two days after Bremer left Baghdad, Ehsan Karim,
the new head of the Board of Supreme Audit, was killed by a bomb
as he left the Finance Ministry. Two weeks later, Sabir Karim
(no relation) was murdered in a drive-by shooting as he set off
for work at the Ministry of Industry, where he was in charge of
investigating corruption. A few weeks ago, another senior
official investigating corruption was murdered. The IAMB keeps
the names of its Iraqi delegates secret to keep them alive.
In the absence of any meaningful accountability, Iraqis have no
way of knowing how much of the nation’s wealth is being handed
out to ministers’ and civil servants’ friends and families or
funnelled into secret overseas bank accounts. Given that many
Ba’athists are now back in government, some of that money may
even be financing the insurgents.
Both Saddam and the US profited handsomely during his reign. He
controlled Iraq’s wealth while most of Iraq’s oil went to
Californian refineries to provide cheap petrol for American
voters. US corporations, like those who enjoyed Saddam’s favour,
grew rich. Today the system is much the same: the oil goes to
California, and the new Iraqi government spends the country’s
money with impunity.
Ed Harriman is a journalist and television documentary
film-maker.
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