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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