U.S. Companies Profited As Iraqi Children Died
'Iraq was awash in cash. We played football with bricks of $100
At the beginning of the Iraq war, the UN entrusted $23bn of
Iraqi money to the US-led coalition to redevelop the country.
With the infrastructure of the country still in ruins, where has
all that money gone? Callum Macrae and Ali Fadhil on one of the
greatest financial scandals of all time
By Callum Macrae and Ali Fadhil
Guardian" -- -- In a dilapidated maternity and paediatric hospital in Diwaniyah, 100 miles south of Baghdad,
Zahara and Abbas, premature twins just two days old, lie
desperately ill. The hospital has neither the equipment nor the
drugs that could save their lives. On the other side of the
world, in a federal courthouse in Virginia, US, two men - one a
former CIA agent and Republican candidate for Congress, the
other a former army ranger - are found guilty of fraudulently
obtaining $3m (£1.7m) intended for the reconstruction of Iraq.
These two events have no direct link, but they are none the less
products of the same thing:
a financial scandal that in terms of
sheer scale must rank as one of the greatest in history.
At the start of the Iraq war, around $23bn-worth of Iraqi money
was placed in the trusteeship of the US-led coalition by the UN.
The money, known as the Development Fund for Iraq and consisting
of the proceeds of oil sales, frozen Iraqi bank accounts and
seized Iraqi assets, was to be used in a "transparent manner",
specified the UN, for "purposes benefiting the people of Iraq".
For the past few months we have been working on a Guardian Films
investigation into what happened to that money. What we
discovered was that a great deal of it has been wasted, stolen
or frittered away. For the coalition, it has been a catastrophe
of its own making. For the Iraqi people, it has been a tragedy.
But it is also a financial and political scandal that runs right
to the heart of the nightmare that is engulfing Iraq today.
Diwaniyah is a sprawling and neglected city with just one small
state paediatric and maternity hospital to serve its one million
people. Years of war, corruption under Saddam and western
sanctions have reduced the hospital to penury, so when last year
the Americans promised total refurbishment, the staff were
elated. But the renovation has been partial and the work often
shoddy, and where it really matters - funding frontline health
care - there appears to have been little change at all.
In the corridor, an anxious father who has been told his son may
have meningitis is berating the staff. "I want a good hospital,
not a terrible hospital that makes my child worse," he says. But
then he calms down. "I'm not blaming you, we are the same class.
I'm talking about important people. Those controlling all those
millions and the oil. They didn't come here to save us from
Saddam, they came here for the oil, and so now the oil is stolen
and we got nothing from it." Beside him another parent, a woman,
agrees: "If the people who run the country are stealing the
money, what can we do?" For these ordinary Iraqis, it is clear
that the country's wealth is being managed in much the same way
as it ever was. How did it all go so wrong?
When the coalition troops arrived in Iraq, they were received
with remarkable goodwill by significant sections of the
population. The coalition had control up to a point and, perhaps
more importantly, it had the money to consolidate that goodwill
by rebuilding Iraq, or at least make a significant start. Best
of all for the US and its allies, the money came from the Iraqis
Because the Iraqi banking system was in tatters, the funds were
placed in an account with the Federal Reserve in New York. From
there, most of the money was flown in cash to Baghdad. Over the
first 14 months of the occupation, 363 tonnes of new $100 bills
were shipped in - $12bn, in cash. And that is where it all began
to go wrong.
"Iraq was awash in cash - in dollar bills. Piles and piles of
money," says Frank Willis, a former senior official with the
governing Coalition Provisional Authority. "We played football
with some of the bricks of $100 bills before delivery. It was a
wild-west crazy atmosphere, the likes of which none of us had
The environment created by the coalition positively encouraged
corruption. "American law was suspended, Iraqi law was
suspended, and Iraq basically became a free fraud zone," says
Alan Grayson, a Florida-based attorney who represents
whistleblowers now trying to expose the corruption. "In a free
fire zone you can shoot at anybody you want. In a free fraud
zone you can steal anything you like. And that was what they
A good example was the the Iraqi currency exchange programme
(Ice). An early priority was to devote enormous resources to
replacing every single Iraqi dinar showing Saddam's face with
new ones that didn't. The contract to help distribute the new
currency was won by Custer Battles, a small American security
company set up by Scott Custer and former Republican
Congressional candidate Mike Battles. Under the terms of the
contract, they would invoice the coalition for their costs and
charge 25% on top as profit. But Custer Battles also set up fake
companies to produce inflated invoices, which were then passed
on to the Americans. They might have got away with it, had they
not left a copy of an internal spreadsheet behind after a
meeting with coalition officials.
The spreadsheet showed the company's actual costs in one column
and their invoiced costs in another; it revealed, in one
instance, that it had charged $176,000 to build a helipad that
actually cost $96,000. In fact, there was no end to Custer
Battles' ingenuity. For example, when the firm found abandoned
Iraqi Airways fork-lifts sitting in Baghdad airport, it
resprayed them and rented them to the coalition for thousands of
dollars. In total, in return for $3m of actual expenditure,
Custer Battles invoiced for $10m. Perhaps more remarkable is
that the US government, once it knew about the scam, took no
legal action to recover the money. It has been left to private
individuals to pursue the case, the first stage of which
concluded two weeks ago when Custer Battles was ordered to pay
more than $10m in damages and penalties.
But this is just one story among many. From one US controlled
vault in a former Saddam palace, $750,000 was stolen. In
another, a safe was left open. In one case, two American agents
left Iraq without accounting for nearly $1.5m.
Perhaps most puzzling of all is what happened as the day
approached for the handover of power (and the remaining funds)
to the incoming Iraqi interim government. Instead of carefully
conserving the Iraqi money for the new government, the Coalition
Provisional Authority went on an extraordinary spending spree.
Some $5bn was committed or spent in the last month alone, very
little of it adequately accounted for.
One CPA official was given nearly $7m and told to spend it in
seven days. "He told our auditors that he felt that there was
more emphasis on the speed of spending the money than on the
accountability for that money," says Ginger Cruz, the deputy
inspector general for Iraqi reconstruction. Not all coalition
officials were so honest. Last month Robert Stein Jr, employed
as a CPA comptroller in south central Iraq, despite a previous
conviction for fraud, pleaded guilty to conspiring to steal more
than $2m and taking kickbacks in the form of cars, jewellery,
cash and sexual favours. It seems certain he is only the tip of
the iceberg. There are a further 50 criminal investigations
Back in Diwaniyah it is a story about failure and incompetence,
rather than fraud and corruption. Zahara and Abbas, born one and
a half months premature, are suffering from respiratory distress
syndrome and are desperately ill. The hospital has just 14
ancient incubators, held together by tape and wire.
Zahara is in a particularly bad way. She needs a ventilator and
drugs to help her breathe, but the hospital has virtually
nothing. Her father has gone into town to buy vitamin K on the
black market, which he has been told his children will need.
Zahara starts to deteriorate and in desperation the doctor holds
a tube pumping unregulated oxygen against the child's nostrils.
"This treatment is worse than primitive," he says. "It's not
even medicine." Despite his efforts, the little girl dies; the
next day her brother also dies. Yet with the right equipment and
the right drugs, they could have survived.
How is it possible that after three years of occupation and
billions of dollars of spending, hospitals are still short of
basic supplies? Part of the cause is ideological tunnel-vision.
For months before the war the US state department had been
drawing up plans for the postwar reconstruction, but those plans
were junked when the Pentagon took over.
To supervise the reconstruction of the Iraqi health service, the
Pentagon appointed James Haveman, a former health administrator
from Michigan. He was also a loyal Bush supporter, who had
campaigned for Jeb Bush, and a committed evangelical Christian.
But he had virtually no experience in international health work.
The coalition's health programme was by any standards a failure.
Basic equipment and drugs should have been distributed within
months - the coalition wouldn't even have had to pay for it. But
they missed that chance, not just in health, but in every other
area of life in Iraq. As disgruntled Iraqis will often point
out, despite far greater devastation and crushing sanctions,
Saddam did more to rebuild Iraq in six months after the first
Gulf war than the coalition has managed in three years.
Kees Reitfield, a health professional with 20 years' experience
in post-conflict health care from Kosovo to Somalia, was in Iraq
from the very beginning of the war and looked on in astonishment
at the US management in its aftermath. "Everybody in Iraq was
ready for three months' chaos," he says. "They had water for
three months, they had food for three months, they were ready to
wait for three months. I said, we've got until early August to
show an improvement, some drugs in the health centres, some
improvement of electricity in the grid, some fuel prices going
down. Failure to deliver will mean civil unrest." He was right.
Of course, no one can say that if the Americans had got the
reconstruction right it would have been enough. There were too
many other mistakes as well, such as a policy of crude
"deBa'athification" that saw Iraqi expertise marginalised, the
creation of a sectarian government and the Americans attempting
to foster friendship with Iraqis who themselves had no friends
among other Iraqis.
Another experienced health worker, Mary Patterson - who was
eventually asked to leave Iraq by James Haveman - characterises
the Coalition's approach thus: "I believe it had a lot to do
with showing that the US was in control," she says. "I believe
that it had to do with rewarding people that were politically
loyal. So rather than being a technical agenda, I believe it was
largely a politically motivated reward-and-punishment kind of
Which sounds like the way Saddam used to run the country. "If
you were to interview Iraqis today about what they see day to
day," she says, "I think they will tell you that they don't see
a lot of difference".
· Dispatches: Iraq's Missing Billions produced by GuardianFilms
is broadcast tonight on Channel4 at 8pm.