Thieves of Baghdad

August 25 2004

Thieves of Baghdad

by pv vivekanand

PARALLEL to the mounting crises the US-led military coalition is facing in post-Iraq are the emerging details of a multi-billion dollar scam that could put to shame the Arabian tale, The Thief of Baghdad.
The outstanding difference is that the scam is not a tale; the thieves are many, they are not Iraqi but American, and the money involved was indeed Iraqi.
This is what has emerged from audit reports of the accounts of the Coalition Provisional Authority (CPA) that was disbanded on June 28.
Paul Bremer, who headed the CPA, and his entourage flew out of Baghdad on the same day, leaving behind what American auditors now determine as misuse of proceeds of Iraqi oil exports to benefit American contractors, with the major beneficiary being none other than Halliburton.
In 11 reports drawn up since June, auditors from CPA inspector-general Stuart Bowen's team have reported a pattern of spending which an ambiguity that left the door open not only for gross wastage but also for corruption.
Scrutinising the accounts of money spent in Iraq, the Defence Contract Audit Agency, the General Accounting Office (the investigative arm of the US Congress), and Bowen's team have singled out Halliburton for its pricing and spending practices.
However, seen from the Middle Eastern vantage point, a line has to be drawn between American money and Iraqi money being spent in Iraq. American money, whether spent or pilfered in Iraq, is an American problem, but not so with Iraqi money that belongs to the people of Iraq.
Yet to be revealed is whether members of the dissolved Iraqi Governing Council (IGC) were party to the scam. Surely, observers point out, some of them should have benefited from the hundreds of millions of dollars flying around. Probably, an expanded investigation by an independent authority might bring out some names.
There were three sources of funding — war chests as some commentators call them — for the war and occupation of Iraq. The first was $65 billion directly allocated as military spending by the US Congress and administered by the US Defence Department. It was American taxpayer's money.
The second was $18.4 billion, also approved by the US Congress, but administered by the CPA. Again, it was American taxpayer's money and supposed to be spent on reconstruction of Iraq along with $16 billion or so pledged by other countries.
The third was the Development Fund for Iraq, which represented proceeds from Iraq's oil exports and leftover money from the oil-for-food programme that the UN ran in co-ordination with the Saddam Hussein regime. The fund handled about $20 billion by the time the CPA was disbanded when the US handed over "sovereignty" to the interim government in late June.
From the first war chest, the Pentagon has overspent the military spending allocation of $65 billion by $12 billion and now the Bush administration is seeking an additional $25 billion. Since the money represented strictly American money, let us leave that to the American taxpayer to figure out and wonder why the war against Iraq and occupation of that country cost an average American family $3,500 so far.
From the $18.4 billion allocation for reconstructing Iraq, the CPA spent only two per cent. Why? The answer is simple: Allocating American funds for reconstruction projects in Iraq has riders, including a transparent tendering system that starts with prequalification of bidders and the whole works.
The CPA could not touch that money without going through the complicated process involving competitive bidding subject to scrutiny and inspections throughout.
The catch is with the third source: According to the auditors, the CPA seems to have violated the guidelines and procedures by dipping its hand deep into the Development of Iraq Fund — which is strictly Iraqi money — and paid contractors, mainly Hallyburton. The money from the fund should have been used only for running the administration of Iraq and should not have been used to pay contractors.
Pratap Chatterjee of the UK-based Corporate Watch (www.corporatewatch.org) has written extensively about how Iraqi or US Congress-appropriated funds were being spent in Iraq.
He notes that the Pentagon was not unable to explain just how Halliburton gained possession of Iraqi funds when neither the US Congress nor the Iraqi government authorised their transfer to Halliburton in the first place.
A yet-to-be released audit report, unveiled in the American media, says that the auditors found that $8.8 billion allocated by the CPA from the Development Fund for Iraq could have been misappropriated. The findings have prompted three American senators to demand that US Defence Secretary Donald Rumsfeld account for the money.
The auditors first classified the $8.8 billion as "missing" and tried to trace the money.
The auditors found that had Bremer allocated the money to Halliburton, to the CPA itself and Iraqi ministries for "administrative expenses" including salaries of hundreds of thousands of government employees – including pensioners —  teachers, medical staff and administrators as well as to fund Iraqi security and police forces.
But then, the accounts of the CPA as well as that of the ministries were "padded." An example was the existence of 74,000 "security guards" on the CPA payroll, where the auditors discovered that the actual number was not even one third of that figure. Obviously, Bremer's top American aides had a lot to do with that padding, as American commentators assert.
CPA accounts showed equipment worth tens of millions of dollars were bought with the money, but there was no trace of the items bought. The auditors reportedly found that some of the equipment existed only in paper while others were bought but spirited away to unknown destinations.
A classic example was a giant generator bought for nearly $750,000 which could not be located. The auditors traced it to the stores of Halliburton, in which US Vice-President Dick Cheney owns a million shares. Halliburton immediately explained that its officials had misplaced or forgotten to turn in the receipts to the correct people.
In mid-June, shortly before Bremer left Iraq, an unexplained haste was seen in allocating funds, with reports suggesting that the CPA was rushing to dispose of whatever funds are left from the Iraqi oil proceeds in order not to have to hand over the funds to the interim government.
The US-controlled Programme Review Board was in charge of
managing Iraq's finances. In the second week of June, it approved the expenditure of nearly $2 billion for reconstruction projects from the Development Fund for Iraq.
At that time questions were raised why the $2 billion additional funding for projects for which the US Congress
has already allocated funds from American taxpayer's
money.
For example, $500 million were earmarked for Iraqi security forces, even though Congress allocated $3.2 billion for the same purpose (and where the UN estimates the cost to be less than $2.5 billion); $315 million are allocated for the electricity sector despite a $5.5 billion Congress appropriation for the same sector (UN estimate $4 billion); and $460 million are allocated to the oil sector where the US Congress has allocated $1.7 billion.
Experts who keep a close watch on Iraqi oil sales and funds questioned why these allocations were not made when the 2004 Iraqi budget was adopted and subsequently revised in March.
The interim government is dutybound under UN Security Council 1546 of June 8 not to raise questions and honour all outstanding obligations against the Development Fund for Iraq made before June 30.
The experts pointed out at that time that American corporate giants with rebuilding contracts in occupied Iraq are being
benefited by the additional funds with the interim government having no say in the affair.
Halliburton has been in the eye of the storm since the beginning. It has billions of worth of contracts from the defence department to provide meals, accommodation, laundry and Internet connections for American soldiers in Iraq as well as fuel to the US military has been found to have overcharged the Pentagon by hundreds of millions of dollars.
The allegations led to a Pentagon announcement that it would withhold payment of 15 per cent of all Halliburton invoices until the company offers satisfactory explanations. But the next day, the Pentagon corrected itself and Hallyburton had two weeks of grace to meet the demand.
Non-governmental organisations working in Iraq have raised complaints of gross mismanagement of funds by the CPA.
Britain's charity group Christian Aid said in June that at least $20 billion in oil revenues and other Iraqi funds intended to rebuild the country have disappeared from CPA bank accounts.
Three Democrat senators, Ron Wyden of Oregon, Byron L Dorgan of North Dakota and Tom Harkin of Iowa, have demanded a "full, written account" of the money that was channelled to Iraqi ministries and authorities by the CPA.
"We are requesting a full, written account of the $8.8 billion transferred earlier this year from the CPA to the Iraqi ministries, including the amount each ministry received and the way in which the ministry spent the money," said the letter.
Now Rumsfeld has to answer the Democrat senators' questions.
One of the questions Rumsfeld is likely to asked is whether he was aware that Cheney was continuing to receive money from Halliburton although he is not at its helm anymore.
The Guardian newspaper of Britain reported in March 2003 that Halliburton is still making annual payments of upto $1 million classified as "deferred compensation."
According to the Guardian, when Cheney left Halliburton in 2000 to become George Bush's running mate, he instructed the company to pay him his settlement dues him over five years, possibly for tax reasons.
Cheney sold most of his Halliburton shares when he left the company, but retained stock options worth about $8 million and arranged to pay any profits to charity, according to the newspaper.
In June this year, Time magazine cited a Pentagon email dated March 5, 2003, indicating that Cheney was directly involved in the selection of Halliburton for a major contract in Iraq.
The email, said to be sent by an official for the Army Corps of Engineers, saying that the contract for construction of oil pipelines in Iraq was approved by Under Secretary of Defence for Policy Douglas Feith “contingent on informing WH (White House) tomorrow. We anticipate no issues since action has been coordinated w VP’s (Vice President’s) office.” Time noted that the Army Corps of Engineers is responsible for allocating contracts, and thus the email suggests that Halliburton was awarded the deal in coordination with Cheney’s office.
The contract was given to Halliburton three days later without any bids from other companies.
Cheney has denied any involvement in the contract process.
One his spokesman denied that the email implied any direct involvement of Cheney.
Halliburton has admitted to overcharging by $6 million on its contracts to supply meals to US soldiers. It drew up invoices and got paid for meals that were never eaten and never cooked.
According to Time reporter Jyoti Thottam, “Why would a company like Halliburton, which, after all, runs a successful oil-field-services business far removed from Iraq, agree to stay there? Profits. Iraq contracts have added $5.7 billion to Halliburton’s revenues since January 2003, accounting for almost all the company’s growth at a time when it was struggling with $4 billion in asbestos claims. The fact is, war is one of Halliburton’s specialties.”
Halliburton, which already has contracts worth $17 billion in Iraq, is one of five large US corporations - the others are the Bechtel Group, Fluor Corp, Parsons Corp, and the Louis Berger Group vying for contracts in the war-torn country. None of the other companies has been cited in an Iraq scandal yet.
Bechtel has contracts worth about $2 billion in Iraq. They include rehabilitation of Iraq’s power, water and sewage systems that were destroyed in the war, rehabilitation of airports, and the dredging of the Umm Qasr port, repair and reconstruction of hospitals, schools, government buildings and irrigation and transportation systems.
Indeed, Iraq sounds more like the fabled cave of the 40 thieves that Alibaba stumbled upon. But what it contains is not loot but national wealth that belongs to the people of Iraq, who are still left without proper water and power supply and means to make a living despite the tens of billions of dollars spent purportedly to make their life better.