Where has all the money gone?

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Tue, 27 Sep 2005 19:32:26 EDT

Where has all the money gone?

 

 

http://www.lrb.co.uk/index.php

 

 

London Review Of Books

 

 

LRB | Vol. 27 No. 13 dated 7 July 2005 | Ed Harriman

 

 

Where has all the money gone?

Ed Harriman follows the auditors into Iraq

 

US House of Representatives Government Reform Committee Minority Office

| Link: http://www.democrats.reform.house.gov/

 

US General Accountability Office

| Link: http://www.gao.gov/

 

Defense Contract Audit Agency

| Link: http://www.dcaa.mil/

 

International Advisory and Monitoring Board

| Link: http://www.iamb.info/

 

Coalition Provisional Authority Inspector General

| Link: http://www.cpa-ig.com/

 

Special Inspector General for Iraq Reconstruction

| Link: http://www.sigir.mil/

 

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. (then

why is gas more $$ here than in any other state? Washington DC is the

only place that gas is more)

 

Ed Harriman is a journalist and television documentary film-maker.

 

From the LRB letters page: [ 4 August 2005 ] James Hamilton-Paterson.