Iraq: One of the Greatest Financial Scandals of All Time

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Iraq: One of the Greatest Financial Scandals of All Time

Tue, 21 Mar 2006 13:10:38 -0800

 

 

 

 

 

http://www.truthout.org/docs_2006/032106A.shtml

 

 

" Iraq Was Awash in Cash. We Played Football With Bricks of $100 Bills "

By Callum Macrae and Ali Fadhil

The Guardian UK

 

Monday 20 March 2006

 

At the beginning of the Iraq war, the UN entrusted $23bn of Iraqi

money to the US-led coalition to redevelop the country. With the

infrastructure of the country still in ruins, where has all that money

gone? Callum Macrae and Ali Fadhil on one of the greatest financial

scandals of all time.

 

In a dilapidated maternity and paediatric hospital in Diwaniyah,

100 miles south of Baghdad, Zahara and Abbas, premature twins just two

days old, lie desperately ill. The hospital has neither the equipment

nor the drugs that could save their lives. On the other side of the

world, in a federal courthouse in Virginia, US, two men - one a former

CIA agent and Republican candidate for Congress, the other a former

army ranger - are found guilty of fraudulently obtaining $3m (£1.7m)

intended for the reconstruction of Iraq. These two events have no

direct link, but they are none the less products of the same thing: a

financial scandal that in terms of sheer scale must rank as one of the

greatest in history.

 

At the start of the Iraq war, around $23bn-worth of Iraqi money

was placed in the trusteeship of the US-led coalition by the UN. The

money, known as the Development Fund for Iraq and consisting of the

proceeds of oil sales, frozen Iraqi bank accounts and seized Iraqi

assets, was to be used in a " transparent manner " , specified the UN,

for " purposes benefiting the people of Iraq " .

 

For the past few months we have been working on a Guardian Films

investigation into what happened to that money. What we discovered was

that a great deal of it has been wasted, stolen or frittered away. For

the coalition, it has been a catastrophe of its own making. For the

Iraqi people, it has been a tragedy. But it is also a financial and

political scandal that runs right to the heart of the nightmare that

is engulfing Iraq today.

 

Diwaniyah is a sprawling and neglected city with just one small

state paediatric and maternity hospital to serve its one million

people. Years of war, corruption under Saddam and western sanctions

have reduced the hospital to penury, so when last year the Americans

promised total refurbishment, the staff were elated. But the

renovation has been partial and the work often shoddy, and where it

really matters - funding frontline health care - there appears to have

been little change at all.

 

In the corridor, an anxious father who has been told his son may

have meningitis is berating the staff. " I want a good hospital, not a

terrible hospital that makes my child worse, " he says. But then he

calms down. " I'm not blaming you, we are the same class. I'm talking

about important people. Those controlling all those millions and the

oil. They didn't come here to save us from Saddam, they came here for

the oil, and so now the oil is stolen and we got nothing from it. "

Beside him another parent, a woman, agrees: " If the people who run the

country are stealing the money, what can we do? " For these ordinary

Iraqis, it is clear that the country's wealth is being managed in much

the same way as it ever was. How did it all go so wrong?

 

When the coalition troops arrived in Iraq, they were received with

remarkable goodwill by significant sections of the population. The

coalition had control up to a point and, perhaps more importantly, it

had the money to consolidate that goodwill by rebuilding Iraq, or at

least make a significant start. Best of all for the US and its allies,

the money came from the Iraqis themselves.

 

Because the Iraqi banking system was in tatters, the funds were

placed in an account with the Federal Reserve in New York. From there,

most of the money was flown in cash to Baghdad. Over the first 14

months of the occupation, 363 tonnes of new $100 bills were shipped in

- $12bn, in cash. And that is where it all began to go wrong.

 

" Iraq was awash in cash - in dollar bills. Piles and piles of

money, " says Frank Willis, a former senior official with the governing

Coalition Provisional Authority. " We played football with some of the

bricks of $100 bills before delivery. It was a wild-west crazy

atmosphere, the likes of which none of us had ever experienced. "

 

The environment created by the coalition positively encouraged

corruption. " American law was suspended, Iraqi law was suspended, and

Iraq basically became a free fraud zone, " says Alan Grayson, a

Florida-based attorney who represents whistleblowers now trying to

expose the corruption. " In a free fire zone you can shoot at anybody

you want. In a free fraud zone you can steal anything you like. And

that was what they did. "

 

A good example was the the Iraqi currency exchange programme

(Ice). An early priority was to devote enormous resources to replacing

every single Iraqi dinar showing Saddam's face with new ones that

didn't. The contract to help distribute the new currency was won by

Custer Battles, a small American security company set up by Scott

Custer and former Republican Congressional candidate Mike Battles.

Under the terms of the contract, they would invoice the coalition for

their costs and charge 25% on top as profit. But Custer Battles also

set up fake companies to produce inflated invoices, which were then

passed on to the Americans. They might have got away with it, had they

not left a copy of an internal spreadsheet behind after a meeting with

coalition officials.

 

The spreadsheet showed the company's actual costs in one column

and their invoiced costs in another; it revealed, in one instance,

that it had charged $176,000 to build a helipad that actually cost

$96,000. In fact, there was no end to Custer Battles' ingenuity. For

example, when the firm found abandoned Iraqi Airways fork-lifts

sitting in Baghdad airport, it resprayed them and rented them to the

coalition for thousands of dollars. In total, in return for $3m of

actual expenditure, Custer Battles invoiced for $10m. Perhaps more

remarkable is that the US government, once it knew about the scam,

took no legal action to recover the money. It has been left to private

individuals to pursue the case, the first stage of which concluded two

weeks ago when Custer Battles was ordered to pay more than $10m in

damages and penalties.

 

But this is just one story among many. From one US controlled

vault in a former Saddam palace, $750,000 was stolen. In another, a

safe was left open. In one case, two American agents left Iraq without

accounting for nearly $1.5m.

 

Perhaps most puzzling of all is what happened as the day

approached for the handover of power (and the remaining funds) to the

incoming Iraqi interim government. Instead of carefully conserving the

Iraqi money for the new government, the Coalition Provisional

Authority went on an extraordinary spending spree. Some $5bn was

committed or spent in the last month alone, very little of it

adequately accounted for.

 

One CPA official was given nearly $7m and told to spend it in

seven days. " He told our auditors that he felt that there was more

emphasis on the speed of spending the money than on the accountability

for that money, " says Ginger Cruz, the deputy inspector general for

Iraqi reconstruction. Not all coalition officials were so honest. Last

month Robert Stein Jr, employed as a CPA comptroller in south central

Iraq, despite a previous conviction for fraud, pleaded guilty to

conspiring to steal more than $2m and taking kickbacks in the form of

cars, jewellery, cash and sexual favours. It seems certain he is only

the tip of the iceberg. There are a further 50 criminal investigations

under way.

 

Back in Diwaniyah it is a story about failure and incompetence,

rather than fraud and corruption. Zahara and Abbas, born one and a

half months premature, are suffering from respiratory distress

syndrome and are desperately ill. The hospital has just 14 ancient

incubators, held together by tape and wire.

 

Zahara is in a particularly bad way. She needs a ventilator and

drugs to help her breathe, but the hospital has virtually nothing. Her

father has gone into town to buy vitamin K on the black market, which

he has been told his children will need. Zahara starts to deteriorate

and in desperation the doctor holds a tube pumping unregulated oxygen

against the child's nostrils. " This treatment is worse than

primitive, " he says. " It's not even medicine. " Despite his efforts,

the little girl dies; the next day her brother also dies. Yet with the

right equipment and the right drugs, they could have survived.

 

How is it possible that after three years of occupation and

billions of dollars of spending, hospitals are still short of basic

supplies? Part of the cause is ideological tunnel-vision. For months

before the war the US state department had been drawing up plans for

the postwar reconstruction, but those plans were junked when the

Pentagon took over.

 

To supervise the reconstruction of the Iraqi health service, the

Pentagon appointed James Haveman, a former health administrator from

Michigan. He was also a loyal Bush supporter, who had campaigned for

Jeb Bush, and a committed evangelical Christian. But he had virtually

no experience in international health work.

 

The coalition's health programme was by any standards a failure.

Basic equipment and drugs should have been distributed within months -

the coalition wouldn't even have had to pay for it. But they missed

that chance, not just in health, but in every other area of life in

Iraq. As disgruntled Iraqis will often point out, despite far greater

devastation and crushing sanctions, Saddam did more to rebuild Iraq in

six months after the first Gulf war than the coalition has managed in

three years.

 

Kees Reitfield, a health professional with 20 years' experience in

post-conflict health care from Kosovo to Somalia, was in Iraq from the

very beginning of the war and looked on in astonishment at the US

management in its aftermath. " Everybody in Iraq was ready for three

months' chaos, " he says. " They had water for three months, they had

food for three months, they were ready to wait for three months. I

said, we've got until early August to show an improvement, some drugs

in the health centres, some improvement of electricity in the grid,

some fuel prices going down. Failure to deliver will mean civil

unrest. " He was right.

 

Of course, no one can say that if the Americans had got the

reconstruction right it would have been enough. There were too many

other mistakes as well, such as a policy of crude " deBa'athification "

that saw Iraqi expertise marginalised, the creation of a sectarian

government and the Americans attempting to foster friendship with

Iraqis who themselves had no friends among other Iraqis.

 

Another experienced health worker, Mary Patterson - who was

eventually asked to leave Iraq by James Haveman - characterises the

Coalition's approach thus: " I believe it had a lot to do with showing

that the US was in control, " she says. " I believe that it had to do

with rewarding people that were politically loyal. So rather than

being a technical agenda, I believe it was largely a politically

motivated reward-and-punishment kind of agenda. "

 

Which sounds like the way Saddam used to run the country. " If you

were to interview Iraqis today about what they see day to day, " she

says, " I think they will tell you that they don't see a lot of

difference " .

 

(No, the majority say that it is much worse)

 

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