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Billions over Baghdad
Between April 2003 and June 2004, $12 billion in U.S.
currency—much of it belonging to the Iraqi people—was
shipped from the Federal Reserve to Baghdad, where it was
dispensed by the Coalition Provisional Authority. Some of
the cash went to pay for projects and keep ministries
afloat, but, incredibly, at least $9 billion has gone
missing, unaccounted for, in a frenzy of mismanagement and
greed. Following a trail that leads from a safe in one of
Saddam's palaces to a house near San Diego, to a P.O. box in
the Bahamas, the authors discover just how little anyone
cared about how the money was handled.
By Donald L. Barlett and James B. Steele
09/06/07 -- - "Vanity
Fair" -- - October 2007 -- Hidden in
plain sight, 10 miles west of Manhattan, amid a suburban
community of middle-class homes and small businesses, stands
a fortress-like building shielded by big trees and lush
plantings behind an iron fence. The steel-gray structure, in
East Rutherford, New Jersey, is all but invisible to the
thousands of commuters who whiz by every day on Route 17.
Even if they noticed it, they would scarcely guess that it
is the largest repository of American currency in the world.
Officially, 100 Orchard Street is referred to by the acronym
eroc, for the East Rutherford Operations Center of the
Federal Reserve Bank of New York. The brains of the New York
Fed may lie in Manhattan, but xeroc is the beating heart of
its operations—a secretive, heavily guarded compound where
the bank processes checks, makes wire transfers, and
receives and ships out its most precious commodity: new and
used paper money.
On Tuesday, June 22, 2004, a tractor-trailer truck turned
off Route 17 onto Orchard Street, stopped at a guard station
for clearance, and then entered the eroc compound. What
happened next would have been the stuff of
routine—procedures followed countless times. Inside an
immense three-story cavern known as the currency vault, the
truck's next cargo was made ready for shipment. With storage
space to rival a Wal-Mart's, the currency vault can
reportedly hold upwards of $60 billion in cash. Human beings
don't perform many functions inside the vault, and few are
allowed in; a robotic system, immune to human temptation,
handles everything. On that Tuesday in June the machines
were especially busy. Though accustomed to receiving and
shipping large quantities of cash, the vault had never
before processed a single order of this magnitude: $2.4
billion in $100 bills.
Under the watchful eye of bank employees in a glass-enclosed
control room, and under the even steadier gaze of a video
surveillance system, pallets of shrink-wrapped bills were
lifted out of currency bays by unmanned "storage and
retrieval vehicles" and loaded onto conveyors that
transported the 24 million bills, sorted into "bricks," to
the waiting trailer. No human being would have touched this
cargo, which is how the Fed wants it: the bank aims to
"minimize the handling of currency by eroc employees and
create an audit trail of all currency movement from initial
receipt through final disposition."
Forty pallets of cash, weighing 30 tons, were loaded that
day. The tractor-trailer turned back onto Route 17 and after
three miles merged onto a southbound lane of the New Jersey
Turnpike, looking like any other big rig on a busy highway.
Hours later the truck arrived at Andrews Air Force Base,
near Washington, D.C. There the seals on the truck were
broken, and the cash was off-loaded and counted by Treasury
Department personnel. The money was transferred to a C-130
transport plane. The next day, it arrived in Baghdad.
That transfer of cash to Iraq was the largest one-day
shipment of currency in the history of the New York Fed. It
was not, however, the first such shipment of cash to Iraq.
Beginning soon after the invasion and continuing for more
than a year, $12 billion in U.S. currency was airlifted to
Baghdad, ostensibly as a stopgap measure to help run the
Iraqi government and pay for basic services until a new
Iraqi currency could be put into people's hands. In effect,
the entire nation of Iraq needed walking-around money, and
Washington mobilized to provide it.
What Washington did not do was mobilize to keep track of it.
By all accounts, the New York Fed and the Treasury
Department exercised strict surveillance and control over
all of this money while it was on American soil. But after
the money was delivered to Iraq, oversight and control
evaporated. Of the $12 billion in U.S. banknotes delivered
to Iraq in 2003 and 2004, at least $9 billion cannot be
accounted for. A portion of that money may have been spent
wisely and honestly; much of it probably wasn't. Some of it
was stolen.
Once the money arrived in Iraq it entered a free-for-all
environment where virtually anyone with fingers could take
some of it. Moreover, the company that was hired to keep
tabs on the outflow of money existed mainly on paper. Based
in a private home in San Diego, it was a shell corporation
with no certified public accountants. Its address of record
is a post-office box in the Bahamas, where it is legally
incorporated. That post-office box has been associated with
shadowy offshore activities.
Coalition of the Billing
The first shipment of cash to Iraq took place on April 11,
2003—it consisted of $20 million in $1, $5, and $10 bills.
It was arranged in small bills on the theory that these
could quickly be circulated into the Iraqi economy "to
prevent a monetary and financial collapse," as one former
Treasury official put it. Those were the days when American
officials worried that the gravest threat facing Iraq might
be low-grade civilian unrest in Baghdad. They didn't have a
clue as to the power of the insurgency that was to come. The
initial $20 million came exclusively from Iraqi assets that
had been frozen in U.S. banks as long ago as the Gulf War,
in 1990. Subsequent airlifts of cash also included billions
from Iraqi oil revenues controlled by the United Nations.
After the creation of the Development Fund for Iraq (D.F.I.)—a
kind of holding pit of money to be spent for "purposes
benefitting the people of Iraq"—the U.N. turned over control
of Iraq's oil billions to the United States.
When the U.S. military delivered the cash to Baghdad, the
money passed into the hands of an entirely new set of
players—the staff of the American-led Coalition Provisional
Authority. To many Americans, the initials C.P.A. would soon
be as familiar as those of long-established government
agencies such as D.O.D. or hud. But the C.P.A. was anything
but a conventional agency. And, as events would show, its
initials would have nothing in common with "certified public
accountant." The C.P.A. had been hastily created to serve as
the interim government of Iraq, but its legality and
paternity were murky from the start. The Authority was in
effect established by edict outside the traditional
framework of American government. Not subject to the usual
restrictions and oversight of most agencies, the C.P.A.
during the 14 months of its existence would become a sump
for American and Iraqi money as it disappeared into the
hands of Iraqi ministries and American contractors. The
Coalition of the Willing, as one commentator observed, had
turned into the Coalition of the Billing.
The first mention of the C.P.A. came on April 16, 2003, in a
so-called freedom message to the Iraqi people by General
Tommy R. Franks, commander of the coalition forces. A week
after mobs ransacked Iraq's National Museum of its
treasures, unchallenged by American troops, General Franks
arrived in Baghdad for a six-hour whirlwind tour. He met
with his commanders in one of Saddam Hussein's palaces, held
a video conference with President Bush, and then quickly
flew off. "Our stay in Iraq will be temporary," General
Franks wrote, "no longer than it takes to eliminate the
threat posed by Saddam Hussein's weapons of mass
destruction, and to establish stability and help Iraqis form
a functioning government that respects the rule of law."
With that in mind, General Franks wrote that he created the
Coalition Provisional Authority "to exercise powers of
government temporarily, and as necessary, especially to
provide security, to allow the delivery of humanitarian aid
and to eliminate weapons of mass destruction." Three weeks
later, on May 8, 2003, the U.S. and British ambassadors to
the United Nations sent a letter to the U.N. Security
Council, effectively delivering the C.P.A. to the United
Nations as a fait accompli.
The day before, President Bush had appointed L. Paul Bremer
III, a retired diplomat, as presidential envoy to Iraq and
the president's "personal representative," with the
understanding that he would become the C.P.A. administrator.
Bremer had held State Department posts in Afghanistan,
Norway, and the Netherlands; had served as an assistant to
Henry Kissinger and Alexander Haig; and had closed out his
diplomatic career in 1989 as ambassador-at-large for
counterterrorism. More recently, he had been the chairman
and chief executive officer of a crisis-management business
called Marsh Crisis Consulting. Despite his State Department
background, Bremer had been selected by the Pentagon, which
had elbowed aside all contenders for authority in
post-invasion Iraq. The C.P.A. itself was a creature of the
Pentagon, and it would be Pentagon personnel who did the
C.P.A.'s hiring.
Over the next year, a compliant Congress gave $1.6 billion
to Bremer to administer the C.P.A. This was over and above
the $12 billion in cash that the C.P.A. had been given to
disburse from Iraqi oil revenues and unfrozen Iraqi funds.
Few in Congress actually had any idea about the true nature
of the C.P.A. as an institution. Lawmakers had never
discussed the establishment of the C.P.A., much less
authorized it—odd, given that the agency would be receiving
taxpayer dollars. Confused members of Congress believed that
the C.P.A. was a U.S. government agency, which it was not,
or that at the very least it had been authorized by the
United Nations, which it had not. One congressional funding
measure makes reference to the C.P.A. as "an entity of the
United States Government"—highly inaccurate. The same
congressional measure states that the C.P.A. was
"established pursuant to United Nations Security Council
resolutions"—just as inaccurate. The bizarre truth, as a
U.S. District Court judge would point out in an opinion, is
that "no formal document … plainly establishes the C.P.A. or
provides for its formation."
Accountable really to no one, its finances "off the books"
for U.S. government purposes, the C.P.A. provided an
unprecedented opportunity for fraud, waste, and corruption
involving American government officials, American
contractors, renegade Iraqis, and many others. In its short
life more than $23 billion would pass through its hands. And
that didn't include potentially billions more in oil
shipments the C.P.A. neglected to meter. At stake was an
ocean of cash that would evaporate whenever the C.P.A. did.
All parties understood that there was a sell-by date, and
that it was everyone for himself. An Iraqi hospital
administrator told The Guardian of England that, when he
arrived to sign a contract, the army officer representing
the C.P.A. had crossed out the original price and doubled
it. "The American officer explained that the increase (more
than $1 million) was his retirement package." Alan Grayson,
a Washington, D.C., lawyer for whistle-blowers who have
worked for American contractors in Iraq, says simply that
during that first year under the C.P.A. the country was
turned into "a free-fraud zone."
Bremer has expressed general satisfaction with the C.P.A.'s
work while at the same time acknowledging that mistakes were
made. "I believe the C.P.A. discharged its responsibilities
to manage these Iraqi funds on behalf of the Iraqi people,"
he told a congressional committee. "With the benefit of
hindsight, I would have made some decisions differently. But
on the whole, I think we made great progress under some of
the most difficult conditions imaginable, including putting
Iraq on the path to democracy."
The Bottomless Vault
To be fair, the C.P.A. really did need money desperately,
and it really did need to start spreading it among the
traumatized Iraqi population. It also needed to jump-start
Iraq's basic services. As the C.P.A. demanded ever greater
amounts of cash, the pallets of $1, $5, and $10 bills were
soon replaced by bundles of $100 bills. During the C.P.A.'s
little more than a year of life, the New York Federal
Reserve Bank made 21 shipments of currency to Iraq totaling
$11,981,531,000. All told, the Fed would ship 281 million
individual banknotes, in bricks weighing a total of 363
tons.
After arriving in Baghdad, some of the cash was shipped to
outlying regions, but most of it stayed in the capital,
where it was delivered to Iraqi banks, to installations such
as Camp Victory, the mammoth U.S. Army facility adjacent to
the Baghdad airport, and to Saddam's former presidential
palace, in the Green Zone, which had become the home of
Bremer's C.P.A. and the makeshift Iraqi government. At the
palace the cash disappeared into a vault in the basement.
Few people ever saw the vault, but the word was that during
one short period it held as much as $3 billion. Whatever the
figure, it was a major repository of the banknotes from
America during the brief time the cash was under the care of
the C.P.A. The money flowed in and out rapidly. When someone
needed cash, a unit called the Program Review Board,
composed of senior C.P.A. officials, reviewed the request
and decided whether to recommend a disbursement. A military
officer would then present that authorization to personnel
at the vault.
Even those who picked up large sums usually did not actually
see the vault. Once a disbursement had been made, the cash
was brought to an adjoining room for pickup. This "secure
room," as one military officer called it, looked a lot like
a vault itself: a thick metal door at the entrance, with the
room beyond starkly furnished with only a table and chairs.
The table would be piled high with cash. An authorized
officer would sign papers for the money, then begin carting
it upstairs—sometimes in sacks or metal boxes—to the Iraqi
ministry or C.P.A. office that had requested it. Upon
turning over the cash, the officer would be required to
obtain a receipt—nothing more.
C.P.A. officials tried to keep a rough running tab on the
amount disbursed to individual Iraqi agencies such as the
Ministry of Finance ($7.7 billion). But there was little
detail, nothing specific, on how the money was actually
used. The system basically operated on "trust and faith," as
one former C.P.A. official put it. Once the cash passed into
the hands of the Iraqis or any other party, no one knew
where it went. The C.P.A. turned over $1.5 billion in cash
to Iraqi banks, for instance, but later auditors could
account for less than $500 million. The United Nations
retained a team of auditors to look over American shoulders.
They didn't see much, because they were largely cut off from
access while the C.P.A. held power. As a report by the
U.N.'s accounting consultant, KPMG, noted dryly, "We
encountered difficulties in performing our duties and
meeting with key C.P.A. personnel."
"There was corruption everywhere," said one former military
officer who worked with the C.P.A. in Baghdad in the months
after the invasion. Some of the Iraqis who were put in
charge of ministries after Saddam's fall had never run a
government agency before. Their inexperience aside, he said,
they lived in constant fear of losing their jobs or their
lives. All many cared about, he added, was taking care of
themselves. "You could see that a lot of them were trying
their best to get a quick retirement fund before they were
ousted or killed," he added. "You just get what you can
while you're in that position of power. Instead of trying to
build the nation, you build yourself."
Did any withdrawals from the vault pay for secret activities
by government personnel? It is an obvious possibility. Much
of the cash was clearly destined for American contractors or
Iraqi subcontractors. Sometimes the Iraqis came to the
palace to collect their cash; other times, when they were
reluctant to show up at the American compound, U.S. military
personnel had to deliver it themselves. One of the riskier
jobs for some U.S. military men was to fill up a car with
bags of cash and drive the money to contractors in Baghdad
neighborhoods, handing it over like a postal worker
delivering mail.
‘Fraud" was simply another word for "business as usual." Of
8,206 "guards" drawing paychecks courtesy of the C.P.A.,
only 602 warm bodies could in fact be found; the other 7,604
were ghost employees. Halliburton, the government contractor
once headed by Vice President Dick Cheney, charged the
C.P.A. for 42,000 daily meals for soldiers while in fact
serving only 14,000 of them. Cash was handed out from the
backs of pickup trucks. On one occasion a C.P.A. official
received $6.75 million in cash with the expectation he would
shell it out in one week. Another time, the C.P.A. decided
to spend $500 million on "security." No specifics, just a
half-billion dollars for security, with this cryptic
explanation: "Composition TBD"—that is, "to be determined."
The pervasiveness of this Why-should-I-care? attitude was
driven home in an exchange with retired admiral David
Oliver, the C.P.A.'s director of management and budget.
Oliver was asked by a BBC reporter what had happened to all
the cash airlifted to Baghdad:
Oliver: "I have no idea—I can't tell you whether or not the
money went to the right things or didn't—nor do I actually
think it's important."
Q: "Not important?"
Oliver: "No. The coalition—and I think it was between 300
and 600 people, civilians—and you want to bring in 3,000
auditors to make sure money's being spent?"
Q: "Yes, but the fact is that billions of dollars have
disappeared without a trace."
Oliver: "Of their money. Billions of dollars of their money,
yeah, I understand. I'm saying what difference does it
make?"
The difference it made was that some American contractors
correctly believed they could walk off with as much money as
they could carry. The circumstances that surround the
handling of comparatively small sums help explain the
billions that ultimately vanished. In the south-central
region of Iraq a contracting officer stored $2 million in a
safe in his bathroom. One agent kept $678,000 in an
unsecured footlocker. Another agent turned over some $23
million to his team of "paying agents" to deliver to
contractors, but documentation could be found for only $6.3
million of it. One project officer received $350,000 to fund
human-rights projects, but in the end could account for less
than $200,000 of it. Two C.P.A. agents left Iraq without
accounting for two payments of $715,000 and $777,000. The
money has never been found.
To Frank Willis, a senior adviser to the Iraqi
transportation ministry, the presence of so much cash
circulating so freely gave the Green Zone a "Wild West"
feel. A moderate Republican who worked for Reagan and voted
for George W. Bush, Willis spent many years in executive
roles in the State Department and the Department of
Transportation before leaving government service in 1985. He
was a top executive of a health institute in Oklahoma when,
in 2003, an old friend from Washington called and asked if
he would come to Iraq to help the C.P.A. get the various
transportation systems running again.
"You've got to be crazy," Willis told him at first. He says
he was talked into going for 30 days, but once in Baghdad
became caught up in the work and stayed for six grueling
months. Willis says he wasn't there a month before he felt
the way things were being done was "terribly wrong." One
afternoon he returned to his office to find piles and piles
of shrink-wrapped $100 bills stacked on a table. "This just
got wheelbarrowed in," one of his American colleagues
explained. "What do you think of two million bucks?" The
money had been "checked out" of Saddam's old vault in the
basement, two floors below, in order to pay a U.S.
contractor hired by the C.P.A. to provide security.
The neat bundles of cash looked almost like play money, and
the temptation to handle them was irresistible. "We were all
in the room passing those things around and having fun,"
Willis remembers. He and his colleagues played a game of
football, tossing the bricks back and forth. "You could spin
them but not throw a spiral," Willis says with a laugh. When
he called the American contractor to come get his money,
Willis advised him, "You better bring a gunnysack."
"Integrity Is a Core Principle"
The American contractor needing the gunnysack was a company
called Custer Battles. The name was derived not from Little
Big Horn but from the names of the company's owners, Scott
K. Custer and Michael J. Battles. Both were former army
rangers in their mid-30s, and Battles also had once been a
C.I.A. operative. The pair showed up on the streets of
Baghdad with the blessing of the White House at invasion's
end, looking for a way to do business. At the time, the only
American civilians who could gain access to the city were
those approved by President Bush's staff.
The Battles half of the team brought the White House access,
secured when Michael Battles became the G.O.P.-backed
candidate in the 2002 Rhode Island congressional primary for
the privilege of losing to the Democratic incumbent, Patrick
Kennedy. Battles not only lost the primary but was fined by
the Federal Election Commission for misrepresenting campaign
contributions. Nevertheless, he forged important political
connections. His contributors included Haley Barbour, the
longtime Washington power broker and former chairman of the
Republican National Committee, who is now governor of
Mississippi, and Frederic V. Malek, a former special
assistant to President Nixon, who survived the Watergate
scandal and went on to become an insider in the Reagan
administration and both Bush administrations.
The C.P.A. awarded Custer and Battles one of its first
no-bid contracts—$16.5 million to protect civilian aircraft
flights, of which at the time there were few, into Baghdad
International Airport. The company faced immediate
obstacles: Custer and Battles didn't have any money, they
didn't have a viable business, and they didn't have any
employees. Bremer's C.P.A. had overlooked these shortcomings
and forked over $2 million anyway, in cash, to get them
started, simply ignoring long-standing requirements that the
government certify that a contractor has the capacity to
fulfill a contract. That first $2 million cash infusion was
followed shortly by a second. Over the next year Custer
Battles would secure more than $100 million in Iraq
contracts. The company even set up an internal Office of
Corporate Integrity. "Integrity is a core principle of
Custer Battles' corporate values," Scott Custer stated in a
press release.
The U.S. business community was impressed by this upstart.
In May 2004, Ernst & Young, the global accounting firm,
announced the finalists for its New England Entrepreneur of
the Year Awards, honoring an ability "to innovate, develop,
and cultivate groundbreaking business models, products, and
services." Among the honorees were Scott Custer and Michael
Battles.
Four months later, in September 2004, the air force issued
an order barring Custer Battles from receiving any new
government contracts until 2009. The company had come to
epitomize the way business was done in Baghdad. Custer
Battles had billed the government $400,000 for electricity
that cost $74,000. It had billed $432,000 for a food order
that cost $33,000. It had charged the C.P.A. for leased
equipment that was stolen, and had submitted forged invoices
for reimbursement—all the while moving millions of dollars
into offshore bank accounts. In one instance, the company
claimed ownership of forklifts used to transport the
C.P.A.'s cash (among other things) around the Baghdad
airport. But up until the war the forklifts had been the
property of Iraqi Airways. They were "liberated," along with
the Iraqi people, following hostilities. Custer Battles
seized them, painted over the old name, and transferred
ownership to its offshore businesses. The forklifts were
then leased back to Custer Battles for thousands of dollars
a month, a cost that Custer Battles passed along to the
C.P.A. In 2006, a federal-court jury in Virginia ordered the
company to pay $10 million in damages and penalties for
defrauding the government. The jury found more than three
dozen instances of fraud in which Custer Battles used shell
companies in the Cayman Islands and elsewhere to manufacture
phony invoices and pad its bills. During the same period
Battles personally withdrew $3 million from the company
coffers as a kind of bonus—or, as he put it, "a draw." The
jury decision in the whistle-blower lawsuit was subsequently
overturned when the trial judge set the verdict aside,
pointing out that the C.P.A. was not in fact a
U.S.-government entity and hence Custer Battles could not be
tried under the federal fraud act. That decision is under
appeal.
The NorthStar Contract
How can billions of dollars simply vanish? Wasn't there any
accounting mechanism in place to keep track of the money?
La Jolla, California, is about as far away from Iraq in both
distance and mind-set as one can get. The house at 5468
Soledad Road is a two-story dwelling with six bedrooms and
five and a half baths, a typical California home of beige
stucco under a red tiled roof. The neighborhood is lush and
well kept. But in one respect 5468 Soledad is not a typical
suburban house at all.
On October 25, 2003, the C.P.A. awarded a $1.4 million
contract "to provide accountant and audit services" to help
"in the management and accounting of the Development Fund
for Iraq." In other words, the purpose was to help Bremer
and the C.P.A. keep tabs on the billions of dollars under
their control, and to help make sure that the money was
properly spent. The one-year C.P.A. contract was awarded to
a company called NorthStar Consultants.
When a request was made to the U.S. government for a copy of
this contract, officials at the Pentagon, which has
oversight, dragged their feet for weeks. The document they
eventually supplied had been strategically redacted. Nearly
all the information about the contractor had been blacked
out, including the name and title of the company officer who
had executed the contract, the name of the person to call
for information about the company, the last four digits of
the company's phone number, and the name of the
U.S.-government official who had awarded the contract in the
first place. But by cross-referencing public records and
other sources it was possible to fill in some of the missing
data. One path led to 5468 Soledad Road.
The house is owned by Thomas A. and Konsuelo Howell,
according to San Diego County records. The couple apparently
bought it new in 1999. State records indicate that several
companies operate from the house. One of them is called
International Financial Consulting, Inc., though it isn't
clear what this company actually does. Incorporated in 1998,
I.F.C. was described as a venture in "business consulting,"
according to papers Howell filed with the state. The Howells
are listed as the only directors.
Another company operating out of 5468 Soledad is called Kota
Industries, Inc., whose stated business is the "sale of
furniture, home furnishings, flooring," according to
California records. Numerous business directories in the San
Diego area ascribe similar activities to Kota, listing it as
a remodeling, repairing, or restoration contractor. One
directory describes its specialty as "kitchen, bathroom,
basement remodeling." Again, the Howells are the only
officers and directors.
In January 2004, in the business-names index of San Diego
County, Thomas Howell indicated that a third company was now
based at 5468 Soledad, noting that it was owned by
International Financial Consulting. This new company was
NorthStar.
How did someone whose line of work includes home remodeling
end up getting the contract to audit the billions being
airlifted to Iraq? Thomas Howell is 60; he and his wife have
lived in San Diego for at least two decades. Over the years,
the couple has also maintained addresses in Fort Lauderdale,
Florida, and Laredo, Texas. Neighbors describe the Howells
as pleasant, but can add little else. "I know them, but I
don't know what they do," said one. "That's all I can tell
you." Two others could say only that they saw the Howells
occasionally in the neighborhood. Were they aware that a
company with an Iraqi contract had operated from the house?
"Really?" said one. "No. I didn't know that."
Thomas Howell refuses to discuss the NorthStar contract in
detail. A telephone exchange with him, reached at 5468
Soledad Road, went as follows.
A woman answered, "Kota Industries."
"Could I speak with Mr. Thomas Howell?"
"May I ask who is calling?" the woman asked.
"My name is Jim Steele."
"Wait just a second," the woman said.
A few moments later, a man came on the line. "Tom Howell,"
he said.
"My name is Jim Steele, and I am a writer with the magazine
Vanity Fair. I would like to talk to you about NorthStar
Consultants."
Howell said, "Well, let me find a contact who can talk all
this stuff with you. What is your phone number, Jim?"
Howell repeated the number and added, "O.K. Let me get
somebody who can discuss all this stuff for you."
"I'd just like to make sure here. Aren't you president of
the company?"
"That's right," said Howell.
"But you can't … "
"Well, I'm not … I can't … You want to talk about the D.F.I.
[Development Fund for Iraq] and that sort of stuff?" asked
Howell.
"Well, yeah."
"O.K.," Howell replied, "I'll get someone who's authorized
to talk about all that. I'll have them give you a call or
I'll call you and give you their number."
"Is this the military or your lawyer?"
"The military," said Howell, abruptly ending the
conversation with "O.K. Thanks. Good-bye."
The next attempt was a visit to Howell's home the following
day. A stylishly dressed woman emerged from behind a locked
fence. "May I help you?" she asked. The woman confirmed that
she was Konsuelo Howell, and explained that it would be
impossible to speak with her husband. "He is out of the
country."
He never did call back with the name of a Pentagon official
"authorized" to speak about NorthStar. Nor did anyone from
the Pentagon call. When a Pentagon public-affairs officer
was queried about who might be able to discuss the contract,
the officer said she needed a name, which, as it turned out,
only Howell could provide. The Pentagon also failed to
respond to a request for the information deleted from the
NorthStar contract and the name of the person who had
ordered it deleted.
When Howell was contacted again, three months later, he
stated that the Department of Defense had told him that
"they didn't have anybody anymore specifically tasked with
answering these questions." As far as D.O.D. was concerned,
Howell added, the issue was "closed." Once again he refused
to discuss the NorthStar contract in any detail: "The way I
normally work with all my clients is: my work is
confidential," he said. "If they want to let it out, that's
fine. But I work for them. It's their business." Howell did
say that NorthStar was his one and only U.S. government
contract. How did he land it? "I saw it published on the
Web, that it was out for bids," he said.
As for how much auditing NorthStar really did in Iraq, the
missing billions provide the best answer. The company did
have personnel in Baghdad, though how many, and for how
long, and for what purpose, is not known—another point
Howell declines to discuss. Under the terms of C.P.A.
Regulation No. 2, signed by Bremer on June 15, 2003, money
coming into Iraq was supposed to be tracked by an
"independent certified public accounting firm." Howell was
not a certified public accountant, nor were any of the
people who worked for him. Bremer seems to have been unaware
of this detail. When he was asked at a congressional hearing
earlier this year about NorthStar, he answered, "I don't
know what kind of firm it was, other than it was an
accounting firm." Would it upset him, a congressman asked,
if he found out there were no accountants on NorthStar's
staff? "It would," Bremer answered, "if it were true."
It is true. And rather than reissue the contract to a
certified public accountant, someone in the government
contract office simply eliminated the requirement, thereby
making Howell eligible for the work.
The Baghdad-Bahamas Connection
When an unknown official at the Pentagon meticulously went
through the NorthStar contract and used a thick-tipped
marker to black out Thomas Howell's name, title, office
address, and phone number, he or she neglected to conceal
one of the most intriguing aspects of the contract:
NorthStar's mailing address. It was P.O. Box N-3813 in
Nassau, in the Bahamas.
High on a hill in Nassau, the main post office commands
panoramic views of the capital city—the pink stuccoed
Parliament building, bustling Bay Street with its hordes of
tourists, and, beyond it, the giant cruise ships that dock
in Nassau's harbor. Just as you enter the post office, on a
sprawling plaza beneath an overhang offering protection from
the tropical sun and rain, there stand row after row of
metal boxes, each bearing the capital letter N followed by a
series of numbers. These are the private post-office boxes
of Nassau. Because there is no home delivery in the city, it
is the way people in the capital get their mail.
Box N-3813, four inches wide by five inches high, looks like
all the other post-office boxes. It harbors many secrets
that its users want to keep. No one knows whether anyone at
the C.P.A. or the Pentagon questioned why one of its
contractors used an offshore post-office box. It is
undeniably true, however, that foreigners often use
post-office boxes in the Bahamas and other tax havens for
three purposes: to conceal assets, to avoid taxes, and to
launder money. NorthStar would not be at all unusual among
Iraq contractors in setting up its affairs this way.
Post-office boxes in tax havens around the world have been
flooded with contractor business based in Iraq.
Box N-3813, it turns out, has been the locus for all sorts
of transactions by Americans and others looking to move
money offshore. In addition to Howell's NorthStar, this
particular box also served as the address of record for a
man named Patrick Thomson and for his Bahamian business
called Lions Gate Management. Both figured prominently in
one of the more spectacular offshore frauds in recent years,
the collapse of Evergreen Security. The Caribbean-based
Evergreen enticed thousands of investors, many of them U.S.
retirees, to pour money into its so-called tax-sheltered
offshore funds, with the promise of handsome returns. Some
of the money came from hundreds of Caribbean trusts for
which Thomson acted as trustee. A Ponzi scheme masquerading
as a mutual fund, Evergreen siphoned $200 million from
investors in the United States and two dozen other
countries. One of its ringleaders was William J. Zylka, a
New Jersey "con artist who falsified his background,
credentials and wealth in order to perpetrate elaborate
schemes," according to court documents. He pocketed $27.7
million of Evergreen's money.
Throughout the looting of Evergreen, Thomson was one of the
firm's three directors. During that time he also arranged
for Howell to establish the same Nassau post-office box as
NorthStar's legal home. Identified in Nassau as a member of
one of Scotland's oldest publishing families, Thomson has
operated out of one or more office buildings in the heart of
Nassau for many years. Like most of those in the shadowy
world of offshore deals, he has generally kept a low
profile, the scandal over Evergreen Security being the one
great exception. Thomson incorporated NorthStar for Howell
in the Bahamas in January of 1998, as what is known as an
"international business company," or I.B.C. Despite their
impressive name, I.B.C.'s are little more than paper
operations. As a rule, they don't carry on any business;
they are empty vessels that can be used for anything. They
have no real chief executive officer or board of directors,
and they don't publish financial statements. An I.B.C.'s
books, if there are any, can be kept anywhere in the world,
but no one can inspect them. I.B.C.'s aren't required to
file annual reports or disclose the identity of their
owners. They're shells, operating in total secrecy. In the
last two decades, they have sprouted by the hundreds of
thousands in tax havens worldwide.
In a telephone interview, Thomson discussed with great
reluctance his role in creating NorthStar for Thomas Howell.
How did they meet?
"I believe I was introduced to him through a friend with
Citibank," Thomson replied. "I believe Howell used to work
for Citibank." He said it was his recollection that Howell
initially established NorthStar because of some consulting
work he was doing in the Far East, not the Middle East.
"This was before the Iraq war started," he noted. "All we
did was supply a company name." Thomson said he had had no
contact with Howell in years. He had heard that Howell was
in Iraq, but declined to discuss the matter further.
Turning Off the Spigot
By the spring of 2004 the clock was winding down for L. Paul
Bremer and the C.P.A. Within several months—on June 30—the
Authority was scheduled to turn government operations over
to the Iraqis, at least formally. There was palpable anxiety
among officials and contractors about what would happen
under the new Iraqi regime, and they launched an aggressive
effort to get as much money into the pipeline as possible.
On April 26, another shipment of cash-laden pallets, this
one holding $750 million, arrived at Baghdad International
Airport. On May 18 the Fed made a $1 billion shipment, which
was followed on June 22 by the biggest single shipment ever
made by the Fed anywhere—$2.4 billion. Another $1.6 billion
arrived three days later, bringing the total of cash
shipments to Iraq to $5 billion in the C.P.A.'s final three
months.
The C.P.A. sought to make one more huge withdrawal. On
Monday, June 28, as Bremer stole away from Baghdad
unannounced—two days ahead of the scheduled handover of
authority—another C.P.A. official put in hurried pleas to
the Federal Reserve Bank for an additional $1 billion
infusion, hoping to get the money before an Iraqi
provisional government came to power. Internal e-mails from
the Federal Reserve Bank show that the requests for money
came from Don Davis, an air-force colonel serving as the
C.P.A. comptroller and manager of the Development Fund for
Iraq. But the Fed would have no part of the plan. Because
Bremer had already "transferred authority (which is being
reported in the press as 10:26 a.m. in Baghdad)," a Fed
official explained, "the C.P.A. no longer had control over
Iraq's assets."
In one of his last official acts before leaving Baghdad,
Bremer issued an order—prepared by the Pentagon, he
says—declaring that all coalition-force members "shall be
immune from any form of arrest or detention other than by
persons acting on behalf of their Sending States."
Contractors also got the same get-out-of-jail-free card.
According to Bremer's order, "contractors shall be immune
from Iraqi legal process with respect to acts performed by
them pursuant to the terms and conditions of a Contract or
any sub-contract thereto." The Iraqi people, who had had no
say over Saddam Hussein's illegal conduct during his
dictatorship, would have no say over illegal conduct by
Americans in their new democracy.
And the "Sending State" itself is not interested in pursuing
misconduct. With the exception of a few low-level
individuals, the Bush administration's Justice Department
has resolutely avoided the prosecution of corporate fraud
stemming from the occupation of Iraq.
"In our fifth year in the war in Iraq," according to Alan
Grayson, the attorney for whistle-blowers, "the Bush
administration has not litigated a single case against any
war profiteer under the False Claims Act." This at a time,
Grayson told a congressional committee, when "billions of
dollars are missing and many billions more wasted." Grayson
knows what he is talking about. He represented the
whistle-blowers in the Custer Battles case brought under the
False Claims Act—a case in which the Justice Department
refused to get involved, and the only one that has gone to
trial.
There is no true method of calculating the human cost of the
war in Iraq. The monetary cost, grossly inflated by theft
and corruption, is another matter. One simple piece of data
puts this into perspective: to date, America has spent twice
as much in inflation-adjusted dollars to rebuild Iraq as it
did to rebuild Japan—an industrialized country three times
Iraq's size, two of whose cities had been incinerated by
atomic bombs. Understanding how and why this happened will
take many years—if understanding comes at all. There has
been no rush to explain even this one small part of the
story, that of the missing Iraqi billions. No one in the
U.S. government wants to talk about NorthStar Consultants,
much less about the money that disappeared. Bradford R.
Higgins was the C.P.A.'s chief financial officer, on loan
from the State Department, where he is assistant secretary
for resource management and chief financial officer. Higgins
says it was "a Department of Defense–managed operation"; he
says that "I don't know anyone at NorthStar" and that he did
not oversee its operations. The C.P.A.'s comptroller and
D.F.I. fund manager during the NorthStar days in 2003 was
air-force colonel Don Davis. Through the air-force
public-affairs office in the Pentagon, Davis declined to
comment. L. Paul Bremer III, who wrote a 400-page book on
his experiences as the C.P.A.'s administrator, stated in an
interview that he had no input in the decision to hire
NorthStar. He explained that "all of the contracting was
done, by order of the secretary of defense, by the
department of the army. They were our contracting arm … I
don't think I ever heard of NorthStar until some questions
came up after I left." Nor did he have any dealings with
NorthStar's Howell, he said. "If I met him, I have no memory
of it." Queries sent repeatedly to the army's public-affairs
desk in Baghdad and the Pentagon have gone unanswered, as
have those to the office of the secretary of defense.
The simple truth about the missing money is the same one
that applies to so much else about the American occupation
of Iraq. The U.S. government never did care about accounting
for those Iraqi billions and it doesn't care now. It cares
only about ensuring that an accounting does not occur.
Donald L. Barlett and James B. Steele are Vanity Fair
contributing editors.
Copyright © 2007 CondéNet. All rights reserved
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