Profits of war

March 16, 2006


THE US has spent at least $250 billion in the invasion and occupation of Iraq since March 2003. This figure does not include about $18 billion allocated for a $35 billion fund for reconstruction of the country. Another $20 billion in proceeds from Iraqi oil sales have also been spent, but with little to show in terms of improvement of basis services for the people of Iraq. Today, the lot of the people of Iraq is much worse than the pre-war conditions. US officials continue to insist that there is indeed tangible improvement in services, but what they actually mean is that some Iraqis get four hours of interrupted power supply (never mind that they had more than interrupted 12 hours of supply prior to the war).
Where did the money that was supposed to have been spent on reconstructing Iraq disappear? No one seems to have a clear answer except that there was a gross misuse of funds and that there is a dark area while determining how much of Iraqi money was "spent" on projects (most of them only on paper) and how much came from US-allocated funds. However, one thing is abundantly clear: American corporates with close links to the powerful politicians in Washington have made a killing in Iraq, not only from American funds but also from Iraqi money. Some of the billion-dollar contracts handed down to US giants are seen tailor-made to suit the contractors' interests, and several instances of overcharging have been reported, but these were only scratches on the surface, given the massive amounts already been handed out.

FIGURES on how much money the US has spent on the Iraq war keep changing. The only figure one could go by is based on recorded allocations that the US Congress has made (these do not include independent Pentagon spending), but the actual costs are deemed to be much higher than the official figures.
In October 2005, a report published by the Congressional Research Service (CRS) concluded that $251 billion had been obligated or appropriated for the Iraq war by March 31, 2006.
Compare that figure with independent estimates that the US would have spent or committed itself to spending about $2 trillion by the end of 2007. This figure includes long-term costs such as insurance and heath-care expenses for wounded veterans.
The $251 billion figure does not include soldiers' regular pay, but combat pay is included.
From the day the US went to war against Iraq in early 2003, critics have been pointing out that the administration of President George W Bush was not only serving the "strategic geopolitical interests" of the US and Israel but also catering to the greedy paws of American corporates, particularly those close to the Republican camp.
Now three years later, it is widely reported that American corporates made and are continuing to make a lot of money from the war, but no one seems to know how much.
By definition and nature, details of defence and military contracts are supposed to be kept confidential and unrestricted access to the figures is limited to a handful of people.
One of the main features of some contracts is that they are negotiated deals, more often than not on the basis of cost plus. This means that the designated contractor supplies the goods and services as requisitioned by the US military and sends an invoice to the Pentagon certifying that the amount involved was the "actual cost" and does not include any "margin" for the contractor.
The Pentagon asks no questions and pays the contractor the invoice amount plus a seven-to-12 per cent, depending on the nature of the goods and services.
An example is the cost of a "regular military meal" supplied to the US soldiers in Iraq. The contractor charges $65 per meal delivered to US military bases in Iraq, and then collects a margin over that amount.
The price goes down to $45 per meal when cooked and supplied within a military camp without involving "transport" costs.
Says investigative journalist Pratap Chatterjee, who keeps a watch on corporate misconduct, around the world: "Private contractors work on what’s known as a 'cost-plus' basis, getting paid for costs plus a small profit. On top of that they can receive a bonus based on a per cent of the contract’s total value. The more a company spends, the more it makes, which creates a natural incentive to overcharge. Private contractors aren’t being held accountable for either their spending or their work quality. They can’t be court-martialed, obviously, nor has any company yet been prosecuted—only a few individuals for really blatant fraud."
As allegations fly that someone, somewhere siphoned off $1 billion that were supposed to have been spent on building Iraq's security forces, the reality is also emerging that someone, someone had also channelled away billions of dollars of Iraqi oil money that should have been spent on rebuilding the shattered country.
As looting erupted in Baghdad and cities and towns elsewhere in the country following the collapse of the Saddam Hussein regime in April 2003, the favourite  term used to describe the looters was "Ali Baba," the Arabian tales character who stole from the loot of a gang of thieves. Few gave a second thought that the name was perhaps misused since Ali Baba could not be described as a thief in a broader sense.
US officials have confirmed that key rebuilding projects in Iraq have ground to a halt because American money is running out and security has diverted funds intended for electricity, water and sanitation.
As a result, according US bureaucrats, projects to rebuild the country's infrastructure have been downsized, postponed or abandoned because the $24 billion budget approved by Congress has been dwarfed by the scale of the task.
The website CorpWatch reported in April 2005 that the US cut the funding for water projects in Iraq from $4.3 billion to $2.3 billion—“with further cuts planned for the future.” Those “further cuts” were another $1.1 billion.
The reconstruction of water facilities is vital in delivering clean water to the 80 per cent of families in rural areas that use unsafe drinking water. The postwar sewage systems must also be reconstructed, which according to a UN report, “seeps to the ground and contaminates drinking water systems.”
The UN development agency conducted a study, entitled Iraq Living Conditions Survey 2004. The study found that 23 percent of children in Iraq suffer from chronic malnutrition, while nine per cent of Iraqi children experienced diarrhea, a leading “childhood killer,” in the two weeks prior to the survey.
With the insurgency showing all signs of gathering strength, it is apparent that the US has little interest in focusing seriously on rebuilding Iraq since the belief has set in that the battle for the hearts and minds of Iraqi has already been lost.
The net sum of conclusions emerging from various auditing reports, official and unofficial, about the American funds spent, both for continuing the war and to rebuild Iraq, is that there had been a systematic pattern of spending that benefited none other than private American companies which are given no-bid contracts.
It was reported as far back as October 2003 that basic reconstruction in Iraq would cost less than half the amount requested by the Bush administration from the US Congress.
A joint report prepared by the United Nations and World Bank estimated that $9 billion were needed for reconstruction in Iraq in 2004 where as the amount that the US government had sought from Congress was $18.6 billion.
Beyond that, the Bush administration had estimated that $55 billion will be needed for Iraqi reconstruction between 2004 and 2007. While there was no comparable UN/World Bank estimate, independent think-tanks estimated the requirement at less than half that amount.
Where did the money disappear?
Today, very few people actually seem to know how much was actually spent in reconstructing Iraq although there is little sign of any reconstruction. Iraqis continue to suffer from water and power shortages and there is little in the way of employment opportunities except perhaps in the high-risk security forces.
The pattern of mismanagement of funds was established in the audit reports of the accounts of the Coalition Provisional Authority (CPA) that was disbanded on June 28, 2004.
But that was not American money. It was Iraqi money, and no one seems to be bothered anymore to hold to account those who misappropriated it.
Paul Bremer, who headed the CPA, left behind what turned out to be a gross misuse of proceeds of Iraqi oil exports to benefit American contractors, with the major beneficiary being Halliburton, the company which was once headed by US Vice-President Dick Cheney.
There were three sources of funding 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 June 2004.
The first war chest was further replenished by another $87 billion, but the bulk of it was earmarked for direct military spending.
From the $18.4 billion allocation for reconstructing Iraq, the CPA spent only two per cent since allocating American funds for reconstruction projects in Iraq had many riders and it was easier to dipping into the Development of Iraq Fund — which was strictly Iraqi money.
Halliburton has admitted to overcharging on some of its contracts. 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.
Top among the American companies having Iraq-related contracts are:
Aegis Defence Services, BearingPoint, Inc., Bechtel, BKSH and Associates , CACI International and Titan Corporation, Custer Battles, Halliburton Lockheed Martin, Loral Satellite and Qualcomm
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.
San Francisco-based Bechtel had been given tens of millions to repair Iraq's schools. Yet many schools remain untouched, and several schools that Bechtel claims to have repaired are in shambles. One "repaired" school was overflowing with unflushed sewage; a teacher at the school also reported that "the American contractors took away our Japanese fans and replaced them with Syrian fans that don't work" —  billing the US government for the work (The Centre for Media and Democracy).
"A handful of well-connected corporations are making a killing off the devastation in Iraq," observes Chris Kromm, publisher of Southern Exposure, a report about war profiteering in Iraq. "The politics and process behind these deals have always been questionable. Now we have first-hand evidence that they're not even doing their jobs."
Halliburton received $1.6 billion in Iraqi oil proceeds under a contract to import fuel and repair oil fields. According to US auditors, Halliburton's overcharges under this contract are more than $218 million.
A security firm, Custer Battles, received over $11 million in Iraqi funds, including over $4 million in cash. The company has been barred from receiving federal contracts and faces a False Claims Act lawsuit for multiple fraudulent billings.
A federal jury on March 9 this year ordered Custer Battles to pay nearly $10 million in damages and penalties for defrauding the government on its work in Iraq.
"Americans are fighting and dying in Iraq," said Alan Grayson, the lead attorney for two whistle-blowers who brought the civil suit on behalf of the government. "Companies like Custer Battles go there with the idea of stuffing their pockets with cash. This jury of eight people heard the evidence and were repelled by it."
Custer Battles was accused used fake invoices, forgery and shell companies in the Cayman Islands to run up millions of dollars in profits.
Another misuse of funds came to light when it was found that over $600 million in cash was shipped from Baghdad to four regions in Iraq to allow commanders flexibility to fund local reconstruction projects. An audit of one of the four regions found more than 80 per cent of the funds could not be properly accounted for and that over $7 million in cash was missing.
CPA officials gave over $8 billion in cash to Iraqi ministries. Auditors have found significant funds paid to "ghost employees" and billion-dollar discrepancies in some expenditures.
"These problems evince a lack of concern for people in Iraq," says Brian J. Foley, a professor at Florida Coastal School of Law. "They and their land are being treated as a profit centre for businesses well-connected to our government."
Transparency International stated in its Global Corruption Report 2005 that foreign contractors should abide by anti-corruption laws and that the revenues streaming in from Iraq oil “needed to be much more transparent and accountable.”
Transparency International’s chairman Peter Eigen said: “Corruption doesn't just line the pockets of political and business elites, it leaves ordinary people without essential services and deprives them of access to sanitation and housing,
Transparency International directly criticised the US for awarding companies contracts in a process that was “secretive and favoured a small number of firms.” As this corruption became more commonplace, the resistance towards the occupation surged.
Remi Kanazi writes on sccop.co.nz:
"Instead of starting a massive campaign to empower and employ the Iraqi people, the Bush administration protected US corporate interests, including close administration allies such as Halliburton and Bechtel. Figures of unemployment in Iraq reach as high as 60 per cent. If the US heavily integrated Iraqi companies and workers from the outset, the reconstruction process would have stimulated the Iraqi economy. Nearly 60 percent of Iraqis rely on food handouts. The average Iraqi income in 2004 was $800 compared with $3,000 in the 1980s. In the 1990s, the UN sanctions severely weakened the Iraqi economy only to then have the US invasion exacerbate the dilemma."
The net picture that emerges from Iraq today is: The US is unwilling to accept it is fighting a war it cannot win and is determined to stay on, and is spending billions of dollars to the benefit of American corporates. Meanwhile, the suffering and uncertainties of the people of Iraq are mounting every day.