[Peace-discuss] Iraq corruption

[Morton K. Brussel]

Detailed (long) article in The Guardian re. diversion of funds  
supposedly intended to help Iraq's people and infrastructure.
--mkb



Ed Harriman: 'So, Mr Bremer, where did all the money go'
Posted on Friday, July 08 @ 09:59:26 EDT
This article has been read 70 times.



At the end of the Iraq war, vast sums of money were made available to  
the US-led provisional authorities, headed by Paul Bremer, to spend  
on rebuilding the country. By the time Bremer left the post eight  
months later, $8.8bn of that money had disappeared.

By Ed Harriman, The Guardian

When Paul Bremer, the American pro consul in Baghdad until June last  
year, arrived in Iraq soon after the official end of hostilities,  
there was $6bn left over from the UN Oil for Food Programme, as well  
as sequestered and frozen assets, and at least $10bn from resumed  
Iraqi oil exports. Under Security Council Resolution 1483, passed on  
May 22 2003, all these funds were transferred into a new account held  
at the Federal Reserve Bank in New York, called the Development Fund  
for Iraq (DFI), and intended to be spent by the Coalition Provisional  
Authority (CPA) "! in a transparent manner ... for the benefit of the  
Iraqi people".

The US Congress also voted to spend $18.4bn of US taxpayers' money on  
the redevelopment of Iraq. By June 28 last year, however, when Bremer  
left Baghdad two days early to avoid possible attack on the way to  
the airport, his CPA had spent up to $20bn of Iraqi money, compared  
with $300m of US funds. The "reconstruction" of Iraq is the largest  
American-led occupation programme since the Marshall Plan - but the  
US government funded the Marshall Plan. Defence secretary Donald  
Rumsfeld and Paul Bremer have made sure that the reconstruction of  
Iraq is paid for by the "liberated" country, by the Iraqis themselves.

The CPA maintained one fund of nearly $600m cash for which there is  
no paperwork: $200m of it was kept in a room in one of Saddam's  
former palaces. 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 "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. Truckloads of dollars were handed out for which neither  
they nor the recipients felt they had 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 $8.8bn 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 has  
gone. A further $3.4bn appropriated by Congress for Iraqi development  
has since been siphoned off to finance "security".

Although Bremer was expected to m! anage Iraqi funds in a transparent  
manner, it was only in October 2003, six months after the fall of  
Saddam, that an International Advisory and Monitoring Board (IAMB)  
was established to provide independent, international financial  
oversight of CPA spending. (This board includes representatives from  
the United Nations, the World Bank, the IMF and the Arab Fund for  
Economic and Social Development.)

The IAMB first 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  
cooperation 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 to e! nter the Green Zone.

There appears to have been good reason for the Americans to stall. At  
the end of June 2004, the CPA would be disbanded and Bremer would  
leave Iraq. There was no way the Bush administration would want  
independent auditors to publish a report into the financial propriety  
of its Iraqi administration while the CPA was still in existence and  
Bremer at its head still answerable to the press. So the report was  
published in July.

The auditors found that the CPA didn't keep accounts of 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.

This lack of transparency has led to allegations of corruption. An  
Iraqi hospital administrator told me that when he came to sign a  
contract, the American army officer represent! ing 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 $1m) was his retirement package.

When the Iraqi Governing Council asked Bremer why a contract to  
repair the Samarah cement factory was costing $60m rather than the  
agreed $20m, the American representative reportedly told them that  
they should be grateful the coalition had saved them from Saddam.  
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 personally to benefit enormously. Iraqi businessmen  
complain endlessly that they had to offer substantial bribes to Iraqi  
middlemen just to be able to bid for CPA contracts. Iraqi ministers'  
relatives got top jobs and fat contracts.

Further evidence of lack of transparency comes from a series of  
audits and reports carried out by the CPA's own inspector g! eneral's  
office (CPAIG). Set up in January 2004, it reports to Congress. Its  
auditors, accountants and criminal investigators often found  
themselves sitting alone at cafe tables in the Green Zone, shunned by  
their CPA compatriots. Their audit, published in July 2004, found  
that the American contracts officers in the CPA and 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 $11m and $26m 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. Some $3,379,505 was billed, for  
example, for "personnel not in the field per! forming work" and  
"other improper charges" on just one oil pipeline repair contract.

Most of the 69 criminal investigations the CPAIG 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". One such case may  
have arisen when 19 billion new Iraqi dinars, worth about #6.5m, was  
found on a plane in Lebanon that had been sent there by the American- 
appointed Iraqi interior minister.

At the same time, the IAMB 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 $10bn worth of oil in the first year of the  
American occupation. Christian Aid has estimated that up to $4bn more  
may have been exported and is unaccounted for. If so, this would have  
created an off-the-books 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.

In the few weeks before Bremer left Iraq, the CPA handed out more  
than $3bn 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 (Sigir),  
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 $327m to see if the embassy "could identify the  
current value of paid and unpaid contract obligations".

It couldn't. "Our review showed th! at financial records ...  
understated payments made by $108,255,875" and "overstated unpaid  
obligations by $119,361,286". The auditors also reviewed the  
paperwork of a further 300 contracts worth $332.9m: "Of 198 contract  
files reviewed, 154 did not contain evidence that goods and services  
were received, 169 did not contain invoices, and 14 did not contain  
evidence of payment."

Clearly, the Americans see no need to account for spending 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.

L! ack of accountability does not stop with the Americans. 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 $8.8bn - 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 most of  
the ministries had no 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 $430m in contracts without its CPA  
advisers seeing any of the paperwork. Another claimed to be paying  
8,206 guards, but only 602 coul! d be found. There is simply no way  
of knowing how much of the $8.8bn has gone 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 has responded by releasing another audit this April, an  
investigation into the way Bremer's CPA managed cash payments from  
Iraqi funds 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 ! $119.9m", and that agents in the  
field "cannot properly account for or support over $96.6m in cash and  
receipts". The 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 $25m cash for  
which Bremer's office "acknowledged not having any supporting  
documentation". Of more than $23m given to another agent, there are  
only records for $6,306,836 paid to contractors.

Many of the American agents submitted their paperwork only hours  
before they headed to the airport. Two left Iraq without accounting  
for $750,000 each, which has never been found. CPA head office  
cleared several agents' balances of between $250,000 and $12m 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 o! ut that if his original figures  
had been correct, he would have accounted to the CPA for  
approximately $3.8m more than he had been given in the first place,  
which "suggests that the receipt documents provided to the DFI  
account manager were unreliable".

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 these funds, 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 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".

In the absence of any meaningful accountability, Iraqis have no way  
of knowing how much of the nation's wealth is being used for  
reconstruction and how much 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 national wealth with impunity.

. Bremer maintained one slush fund of nearly $! 600m in cash for  
which there is no paperwork: $200m of it was kept in a room in one of  
Saddam's former palaces

. 19 billion new Iraqi dinars, worth about #6.5m, was found on a  
plane in Lebanon that had been sent there by the new Iraqi interior  
minister

. One ministry claimed to be paying 8,206 guards, but only 602 could  
be found

. One American agent was given $23m to spend on restructuring; only  
$6m is accounted for

This is an edited version of an article that appears in the current  
issue of the London Review of Books (lrb).

(c) Guardian Newspapers Limited 2005

Reprinted from The Guardian:
http://www.guardian.co.uk/Iraq/Story/0,2763,1522983,00.html 
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