Where did the money go in Iraq?

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  • Monday, 10 Oct 2005

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 his 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 July 7 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$8.8bil (RM33.2bil) of that money had disappeared or was unaccounted for, according to the article. 

When Bremer arrived soon after the official end of the war, there was US$6bil (RM22.6bil) left over from the oil-for-food programme and frozen assets and at least US$10bil (RM37.7- bil) 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 US$18.4bil (RM69.3- bil) to redevelop Iraq. When Bremer left, the CPA had spent up to US$20bil (RM75.4bil) of Iraqi money compared to US$300mil (RM1.1bil) 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 US$600mil (RM2.3bil) cash for which there is no paperwork, and US$200mil (RM753.8mil) 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 US$8.8bil 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 US$1mil or RM3.7mil) was his retirement package. 

When the Iraqi Governing Council asked Bremer why a contract to repair a cement plant cost US$60mil (RM226.1- mil) rather than the agreed US$20mil (RM75.4mil), 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 US$3bil (RM11.3bil) in new contracts. The CPA inspector-general’s report reviewed 225 of these contracts worth US$327mil (RM1.2bil), and found understated payments made by US$108mil (RM407mil) and overstated unpaid obligations by US$119- mil (RM448.5mil). 

Other audit reports found millions of dollars in cash missing from the Iraqi Central Bank, US$11-26mil (RM41.5 to RM98mil) of Iraqi property sequestered by the CPA was unaccounted for, and millions of dollars were paid to contractors for phantom work. Iraqi currency worth £6.5mil (RM43.1mil) was found on a plane to Lebanon sent there by the American-appointed Iraqi interior minister. 

Another audit report found that US$8.8bil, the entire Iraqi interim government spending from October 2003 to June 2004, was not properly ac- counted for. One ministry gave out US$430mil (RM1.6bil) in contracts without the CPA advisers seeing any paperwork. 

“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 Sept 19 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 US$1bil (RM3.7bil) 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 US$3,500 (RM13,191) each consisted in reality of poor copies worth only US$200 (RM754) each, while 16 cents (60 sen) were paid for bullets worth 4 to 6 cents (15 to 23 sen). 

An audit report on the Defence Ministry showed US$500mil (RM1.8bil) 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 US$2bil (RM7.5bil). 

Commented The Independent's 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.” 

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