From The Guardian, 3/20/06:
http://www.guardian.co.uk/Iraq/Story/0,,1734939,00.html
'Iraq was awash in cash. We played football with bricks of $100 bills'
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
Monday March 20, 2006
The Guardian
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 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".
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So many lives and so much money scattered by the winds of Bush's war.
Harry
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