“Free Fraud Zone”

We’ve known for some time that the Iraq “reconstruction” effort was doomed by incompetence and corruption, and that billions of dollars are unaccounted for. But there are some details in today’s Guardian that stunned even me.

Let’s start here:

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”.

I may have read that before, but I wasn’t aware of it. Anyway, we’ve got $23 billion in Iraqi money —

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.”

Sorta gives “play money” a new meaning.

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.

The Guardian provides examples of fraud perpetrated by contractors like Custer Battles, a security company set up by Scott Custer and former Republican Congressional candidate Mike Battles.

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.

Remarkably — well, no, not remarkably, as we’re talking about the Bushies here — the U.S. government has done nothing to recover any of this money. It has been left to private individuals to sue Custer Battles for damages. So far Custer Battles has been ordered to cough up more than $10 million in damages and penalties.

And Custer Battles was merely a drop in an ocean of corruption. Iraq became a cash free-for-all. “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.

And then there is good, old-fashioned Bushie cronyism. Jobs were awarded on the basis of loyalty to Bush rather than on the basis of experience. So those that weren’t stealing were wasting money out of sheer ignorance. One of the most mind-boggling examples of this (not mentioned in The Guardian article) was putting the $13 billion reconstruction budget in the hands of recent college graduates with no relevant experience. These people were hired because they’d posted their resumes at the Heritage Foundation. (A Pentagon spokesman said there was “no organized effort to hire Republicans.” Snort.) Ariana Eunjung Cha wrote in the Washington Post (May 23, 2004),

Several had impressive paper credentials, but in the wrong fields. Greco was fluent in English, Italian and Spanish; Burns had been a policy analyst focused on family and health care; and Ledeen had co-founded a cooking school. But none had ever worked in the Middle East, none spoke Arabic, and few could tell a balance sheet from an accounts receivable statement.

“The group’s primary responsibility was to hand out money,” Eunjung Cha wrote.

The Guardian provides another example:

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.

Even now, three years later, the Iraqi health service is a shambles, and many hospitals lack basic medicine and equipment. But here’s the kicker:

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.

See Riverbend for details. Back to The Guardian:

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”.

In addition to the $23 billion in Iraqi money that was supposed to be used for reconstruction, Congress allocated more than $20 billion in American taxpayer money for Iraqi reconstruction. What has $43 billion dollars accomplished? It’s hard to know from here, because what the U.S. government says and what non-government observers say are, um, not in the same ball park. This recent Scripps Howard article, which blames the insurgency for the fact reconstruction has “stalled,” says the Iraq Project and Contracting Office in Baghdad started out with a list of 5,000 necessary infrastructure projects.

Of those, 2,750 have been started and more than 2,000 have been completed, said [Retired Rear Adm. David J.] Nash, now president of the government group of a major construction company, BE&K Inc.

“Rather than this constant din you hear that nothing has happened, that’s not true,” he said, pointing to the weekly reconstruction update that shows completion of 825 schools, 302 police facilities and 13 hospitals among other successes.

It may be that these facilities are now beautiful and functioning well, but I’m sure you’ve heard the anecdotes about school “reconstruction” that amounted to little more than a coat of paint. As I said, it’s really hard to get an accurate picture of what’s going on over there. The Scripp Howard article continues,

The shortfalls in infrastructure were detailed in a recent report by Stuart Bowen Jr., special inspector general for Iraq reconstruction.

Of 136 water sector projects, only 49 will be completed, and most of those involving sewerage, irrigation, drainage and dams have been canceled. Of 425 electricity projects, only 300 will be completed and only 2,200 megawatts of additional power will be delivered instead of the 3,400 megawatts that had been planned, Bowen told senators last month.

One interesting omission from the Scripps Howard article is mention of the $23 billion in Iraqi money. It only talks about the $20 billion in American money. It’s like the $23 billion never existed.

This is from a February 17 Reuters article by Sue Pleming, “Rice grilled over Iraq rebuilding pace, costs“:

With water, sewer and electricity services below prewar levels in Iraq, a leading Democrat told U.S. Secretary of State Condoleezza Rice on Thursday that patience was waning over the pace and cost of rebuilding efforts.

Congress has given more than $20 billion for projects aimed at improving Iraq’s dilapidated infrastructure and winning over Iraqis with better utility services, and Rice told lawmakers that conditions were better.

But in three key areas — access to drinking water, electricity and sewer service — Iraqis are worse off than before the U.S.-led invasion in March 2003, according to statistics released last week by the U.S. special inspector general for Iraq reconstruction.

I love Condi’s response:

Rice, who had told the committee more Iraqis had access to sewerage and water services than before, argued that what the United States had improved was “capacity” and the United States had made a difference.

“I think this may be an issue of whether we are talking about delivery or capacity. We have increased the capacity for clean water for several million Iraqis,” she said.

Awesome. The woman has a genius for bullshit.

Last week, the special inspector general for Iraq rebuilding, Stuart Bowen, told Congress that only 32 percent of Iraqis had access to potable water versus 50 percent before March 2003. The share of Iraqis with access to sewer service had dropped to 20 percent from 24 percent prewar.

Before the war, Iraq had the capacity to produce about 4,500 megawatts of power, while the capacity was now 3,995 megawatts, the inspector general said.

As I said, many are blaming the insurgency for the problems with reconstruction. But it’s my understanding that the slowness of reconstruction is a major cause of the insurgency. It’s not the only reason, but if Iraq had been reconstructed competently and efficiently it would have made an enormous difference.

20 thoughts on ““Free Fraud Zone”

  1. http://radamisto.blogspot.com/2005/06/363-tons.html

    363 TONS!!!
    (Hat tip GWPDA, a commenter at Atrios)

    Worries Raised on Handling of Funds in Iraq
    · A hearing details the transfer of $2.4 billion in $100 bills to Baghdad in 2004 and the billions more sent before. U.S. oversight is questioned.
    By T. Christian Miller, LA Times Staff Writer
    June 22, 2005

    WASHINGTON — It weighed 28 tons and took up as much room as 74 washing machines. It was $2.4 billion in $100 bills, and Baghdad needed it ASAP. The initial request from U.S. officials in charge of Iraq required the Federal Reserve Bank of New York to decide whether it could open its vault on a Sunday, a day banks aren’t usually open.
    “Just when you think you’ve seen it all,” read one e-mail from an exasperated Fed official. “Pocket change,” said another e-mail. Then, when the shipment date changed, officials had to scramble to line up U.S. Air Force C-130 cargo planes to hold the money. They did, and the $2,401,600,000 was delivered to Baghdad on June 22, 2004. It was the largest one-time cash transfer in the history of the New York Fed.
    Both Republicans and Democrats appeared taken aback by the volume of cash sent to Iraq: nearly $12 billion over the course of the U.S. occupation from March 2003 to June 2004, said a report by Rep. Henry A. Waxman (D-Los Angeles), who had reviewed e-mails and documents subpoenaed from the bank. The cash — a total of 363 tons, generated mostly from oil revenues — was Iraqi funds that had been held in trust by the Federal Reserve under the terms of a United Nations resolution.

  2. You may already know this…but Kate O’Beirne’s hubby was responsible for the hiring of many of those geniuses who were in charge of ‘reconstuction.’ Makes me cringe everytime I hear her pontificating about Bush/the war/reconstruction et al….but then I remember SHAME is a word missing from their worldview.

  3. Gee, Maha, you have just made my day. As I am enclosing a check with my 2005 tax return, I am really comforted by the fact thaat my tax dollars are put to such good use.

  4. As an American Indian, I coulda told you so. White man (and, now, black woman) speak with forked tongue.

  5. “We have increased the capacity for clean water” = “Now everyone is very, very thirsty.”

    Maha, with regard to the vanishing billions, they were not only playing football with “bricks” of hundreds, they were driving around Baghdad in pickup trucks, pitching bales of shrink-wrapped hundred-dollar bills over the tailgate like so many bales of hay on a cattle-ranch in Godforsaken, TX.

    And as to the Gummint not having lifted a finger against Custer Battles — at one point, the Gummint was pushing the theory that it was never a party to any of this in the first place because the CPA was not a US agency. I think they eventually abandoned that theory (probably in favor of the current “we can do whatever we want because we can do whatever we want” theory) … but that’s an example of their “thinking” on this.

    Kind regards,
    Dog, etc.

    Incidentally, $1.5 million in hundreds would weigh only about 30 pounds and would fit in a Halliburton case…

  6. America today, in the eyes of the world: arrogant preemptive war bullies, torturers, and thieves, stealing resource monies from innocent Iraqis who had to live under Saddam and sanctions for years.
    I hope America’s good name will return when we get rid of and punish the lawless immoral Bush administration.

    Maha, you do such a good job with your blog in the way you pull information together. Kudos to you, once again.

  7. Not to worry about your taxes going to Iraq. That’s all borrowed money going there. Your taxes are going into someones sheltered account or to build more prisons. Not that prisons are more cost effective than low-income housing but campaign donors build and maintain them so…

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  9. And that Guardian film is by a man named Ali Fadhil. You remember him, Maha? I know you do.
    The raid on Dr Fadhil’s house took place while he was making the film and photos of the damage are included.

    One lowlight of the film was a visit to the maternity and paediatric hospital in Diwaniah, which has been ‘refurbished’ at a cost of over a million dollars by a US contractor, subcontracted to an Iraqi contractor. The walls are freshly painted, but there’s raw sewage in the kitchen, dirty water leaking up from the floor of an operating room, leaking pipes and uneven floors with more pools of dirty water, basic medicines and supplies are missing and the neonatal unit is still stuck with fourteen thirty-year-old incubators held together with string and plasters. Sometimes they have to put two or three babies in the same incubator, and they haven’t got any breathing masks or oxygen regulators. Two premature babies died while Dr Fadhil was visiting — they could have survived if the hospital had basic equipment. Oh, and during the 1980s Iraq had the best health system in the Middle East and was seen in neighbouring countries as a model to be emulated.

  10. My heart breaks for the Iraqi people. We have destroyed their homes, schools and hospitals and their hope for a decent future. Impeachment is too good for Bush. He should be tried in the international courts for war crimes.

  11. I hear that the Katrina funds also are providing a good meal for connected contractors. There’s a trickle down mechanism in place that gives a piece of the pie to paper pushing sub-contractors so that at the level of performance there is a 10 cents on the dollar earning alloted for the Mexicans who do the job.

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