Global Trends by Martin Khor

Monday 10 October 2005

In Iraq, where did all the money go?

The well-publicised Iraq oil-for-food scandal which the UN is embroiled in may eventually be seen as small compared to the financial unaccountability under the US-led authority that ruled the country and the subsequent interim government.  Many billions of dollars were unaccounted for, and dubious contracts uncovered, helping to explain the lack of reconstruction work.


When the subject of corruption in Iraq is brought up, most people relate this to the oil-for-food scandal which the United Nations is embroiled in.

The system which the UN supervised, in which Iraq was allowed to sell some oil in exchange for imports of food, has been the subject of investigations amid allegations of wrong doing, including by UN staff.   

The UN Secretary General was found to have personally done no wrong with regard to a UN contract given to a company in which he son was linked.  But he accepted responsibility for lack of proper management over the scheme, and some high-level UN staff found guilty of misdeeds were asked to leave.

The episode left the UN and especially Kofi Annan in a weakened position, especially in relation to a United States administration bent on reforming the UN to their own liking.

Recent news reports show, however, that much larger scandals of mismanagement of funds have taken place in Iraq under the US administration that ruled the country and the Iraqi interim government that took over.

The reports tell a story of almost unbelievable unaccountability and corruption, and help explain why the infrastructure of Iraq, destroyed during and after the war, remains so poor and why reconstruction lags so far behind.

An article by Ed Harriman in The Guardian on 7 July showed how at the end of the Iraq war, vast sums of money were made available to the Coalition Provisional Authority (CPA) led by the US and headed by Paul Bremer, the American pro consul in Iraq. 

By the time he left the post and the country eight months later in June last year, US$8.8 billion of that money had disappeared or was unaccounted for, according to the article.

When Bremmer arrived soon after the official end of the war, there was $6 billion left over from the oil-for-food programme and frozen assets and at least $10 billion from resumed Iraqi oil exports.  These funds were transferred to the CPA to spend “for the benefit of the Iraqi people.” 

The US Congress also voted to spend $18.4 billion to redevelop Iraq.  When Bremmer left, the CPA had spent up to $20 billion of Iraqi money compared to $300 million of US funds.

Several reports from auditors working for international agencies and the US government have shown massive financial irregularities.

The CPA maintained a fund of $600 million cash for which there is no paperwork, and $200 million of it was kept in an office room.  The US soldier in charge kept the key to the room in his backpack, left on his desk when he went for lunch.

The auditors have so far referred over a hundred contracts involving billions of dollars paid to American personnel and companies for criminal investigation.  They also found that $8.8 billion is unaccounted for.

The audit reports concluded that the CPA did not keep accounts of the cash in its vault, had awarded contracts worth billions to US firms without tender and had no idea what happened to money from the development fund spent by the interim Iraqi government ministries.

Harriman himself was told by an Iraqi hospital administrator that when he came to sign a contract, an American army officer representing the CPA crossed out the original price and doubled it.  When the Iraqi protested that the original price was enough, the American explained the increase (more than $1 million) was his retirement package.

When the Iraqi Governing Council asked Bremmer why a contract to repair a cement plant cost $60 million rather than the agreed $20 million, he reportedly said they should be grateful the coalition saved them from Saddam Hussein.

The CPA’s own inspector general’s office, which reports to Congress, found the authorities did not ensure files had the required documents, or that a fair price was paid for services or contractors were paid in line with the contracts.

In the few weeks before Bremer left Iraq, the CPA handed out over $3 billion in new contracts.  The CPA inspector general’s report reviewed 225 of these contracts worth $327 million, and found understated payments made by $108 million and overstated unpaid obligations by $119 million.  

Other audit reports found millions of dollars in cash missing from the Iraqi Central Bank, $11-26 million of Iraqi property sequestered by the CPA was unaccounted for, and millions of dollars were paid to contractors for phantom work.  Iraqi currency worth 6.5 million pounds sterling was found on a plane to Lebanon sent there by the American-appointed Iraqi interior minister.

Another audit report found that $8.8 billion, the entire Iraqi interim government spending from October 2003 to June 2004, was not properly accounted for.  One ministry gave out $430 million in contracts without the CPA advisers seeing any paperwork.

Yet another report found that American agents in the field could not account for $96 million.  One agent’s account was overstated by $2.8 million, another agent was given $23 million without supporting documents and another agent had records of only $6.3 million paid to contractors out of $23 million given to him.

“So where did the money go?,” asked Harriman.  “The schools, hospitals, water supply and electricity which were supposed to benefit from these funds 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.”

Another report on 19 September in the London-based paper, The Independent, showed the financial scandals continued after the CPA closed.  Iraq’s Finance Minister Ali Allawi told the newspaper that one billion dollars had been plundered from Iraq’s defence ministry.

Most of the money was supposedly spent buying arms from Poland and Pakistan.  Allawi said the contracts were peculiar as there was no bidding, they were signed with a Baghdad-based company and not with the foreign suppliers, and the money was paid upfront.

Military equipment obtained from the contracts were in poor shape, and machine guns bought for $3500 each consisted in reality of poor copies worth only $200 each, while 16 cents were paid for bullets worth 4 to 6 cents.

An audit report on the Defence Ministry showed $500 million missing but the amount may be twice that, according to the Finance Minister.  The money missing from all ministries appointed by the US in June 2004 may be close to $2 billion.

He said $500-600 million allegedly disappeared from the electricity, transport interior and other ministries.   Commented The Independent report:  “This helps to explain why the supply of electricity to Baghdad has been so poor since the fall of Saddam Hussein 29 months ago despite claims by the US and subsequent Iraqi governments that they are doing everything to improve power generation.”