[Clips] "Cashpaks": Money for Nothing

R.A. Hettinga rah at shipwright.com
Mon Oct 17 13:15:14 PDT 2005

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 Add a fifth horseman to the infocalypse: US Iraq contractors.



 October 24, 2005 Issue
 The American Conservative

 Money for Nothing

 Billions of dollars have disappeared, gone to bribe Iraqis and line
 contractors' pockets.

 by Philip Giraldi

 The United States invaded Iraq with a high-minded mission: destroy
 dangerous weapons, bring democracy, and trigger a wave of reform across the
 Middle East. None of these have happened.

 When the final page is written on America's catastrophic imperial venture,
 one word will dominate the explanation of U.S. failure-corruption.
 Large-scale and pervasive corruption meant that available resources could
 not be used to stabilize and secure Iraq in the early days of the Coalition
 Provisional Authority (CPA), when it was still possible to do so.
 Continuing corruption meant that the reconstruction of infrastructure never
 got underway, giving the Iraqi people little incentive to co-operate with
 the occupation. Ongoing corruption in arms procurement and defense spending
 means that Baghdad will never control a viable army while the Shi'ite and
 Kurdish militias will grow stronger and produce a divided Iraq in which
 constitutional guarantees will be irrelevant.

 The American-dominated Coalition Provisional Authority could well prove to
 be the most corrupt administration in history, almost certainly surpassing
 the widespread fraud of the much-maligned UN Oil for Food Program. At least
 $20 billion that belonged to the Iraqi people has been wasted, together
 with hundreds of millions of U.S. taxpayer dollars. Exactly how many
 billions of additional dollars were squandered, stolen, given away, or
 simply lost will never be known because the deliberate decision by the CPA
 not to meter oil exports means that no one will ever know how much revenue
 was generated during 2003 and 2004.

 Some of the corruption grew out of the misguided neoconservative agenda for
 Iraq, which meant that a serious reconstruction effort came second to
 doling out the spoils to the war's most fervent supporters. The CPA brought
 in scores of bright, young true believers who were nearly universally
 unqualified. Many were recruited through the Heritage Foundation website,
 where they had posted their risumis. They were paid six-figure salaries out
 of Iraqi funds, and most served in 90-day rotations before returning home
 with their war stories. One such volunteer was Simone Ledeen, daughter of
 leading neoconservative Michael Ledeen. Unable to communicate in Arabic and
 with no relevant experience or appropriate educational training, she
 nevertheless became a senior advisor for northern Iraq at the Ministry of
 Finance in Baghdad. Another was former White House Press Secretary Ari
 Fleischer's older brother Michael who, though utterly unqualified, was
 named director of private-sector development for all of Iraq.

 The 15-month proconsulship of the CPA disbursed nearly $20 billion,
 two-thirds of it in cash, most of which came from the Development Fund for
 Iraq that had replaced the UN Oil for Food Program and from frozen and
 seized Iraqi assets. Most of the money was flown into Iraq on C-130s in
 huge plastic shrink-wrapped pallets holding 40 "cashpaks," each cashpak
 having $1.6 million in $100 bills. Twelve billion dollars moved that way
 between May 2003 and June 2004, drawn from accounts administered by the New
 York Federal Reserve Bank. The $100 bills weighed an estimated 363 tons.

 Once in Iraq, there was virtually no accountability over how the money was
 spent. There was also considerable money "off the books," including as much
 as $4 billion from illegal oil exports. The CPA and the Iraqi State Oil
 Marketing Board, which it controlled, made a deliberate decision not to
 record or "meter" oil exports, an invitation to wholesale fraud and black

 Thus the country was awash in unaccountable money. British sources report
 that the CPA contracts that were not handed out to cronies were sold to the
 highest bidder, with bribes as high as $300,000 being demanded for
 particularly lucrative reconstruction contracts.

 The contracts were especially attractive because no work or results were
 necessarily expected in return. It became popular to cancel contracts
 without penalty, claiming that security costs were making it too difficult
 to do the work. A $500 million power-plant contract was reportedly awarded
 to a bidder based on a proposal one page long. After a joint commission
 rejected the proposal, its members were replaced by the minister, and
 approval was duly obtained. But no plant has been built.

 Where contracts are actually performed, their nominal cost is inflated
 sufficiently to provide handsome bribes for everyone involved in the
 process. Bribes paid to government ministers reportedly exceed $10 million.

 Money also disappeared in truckloads and by helicopter. The CPA reportedly
 distributed funds to contractors in bags off the back of a truck. In one
 notorious incident in April 2004, $1.5 billion in cash that had just been
 delivered by three Blackhawk helicopters was handed over to a courier in
 Erbil, in the Kurdish region, never to be seen again. Afterwards, no one
 was able to recall the courier's name or provide a good description of him.

 Paul Bremer, meanwhile, had a slush fund in cash of more than $600 million
 in his office for which there was no paperwork. One U.S. contractor
 received $2 million in a duffel bag. Three-quarters of a million dollars
 was stolen from an office safe, and a U.S. official was given $7 million in
 cash in the waning days of the CPA and told to spend it "before the Iraqis
 take over." Nearly $5 billion was shipped from New York in the last month
 of the CPA. Sources suggest that a deliberate attempt was being made to run
 down the balance and spend the money while the CPA still had authority and
 before an Iraqi government could be formed.

 The only certified public-accounting firm used by the CPA to monitor its
 spending was a company called North Star Consultants, located in San Diego,
 which was so small that it operated out of a private home. It was
 subsequently determined that North Star did not, in fact, perform any
 review of the CPA's internal spending controls. Today, no one can account
 for billions of those dollars or even suggest how the money was spent. And
 as the CPA no longer exists, there is also little interest in re-examining
 its transparency or accountability.

 Bremer escaped Baghdad by helicopter two days before his proconsulship
 expired to avoid a possible ambush on the road leading to the airport,
 which he had been unable to secure. He has recently been awarded the
 Presidential Medal of Freedom, an honor he shares with ex-CIA Director
 George "Slam-dunk" Tenet.

 Considerable fraud has been alleged regarding American companies, much of
 which can never be addressed because the Bush administration does not
 regard contracts with the CPA as pertaining to the U.S. government, even
 though U.S. taxpayer dollars were involved in some transactions.

 Many of the contracts for work in Iraq were awarded on a cost-plus basis,
 in which an agreed-upon percentage of profit would be added to the actual
 costs of performing the contract. Such contracts are an invitation to
 fraud, and unscrupulous companies will make every effort to increase their
 costs so that the profits will also increase proportionally.

 Halliburton, Vice President Dick Cheney's former company, has a no-bid
 monopoly contract with the Army Corps of Engineers that is now estimated to
 be worth $10 billion. In June 2005, Pentagon contracting officer Bunny
 Greenhouse told a congressional committee that the agreement was the "most
 blatant and improper contracting abuse" that she had ever witnessed, a
 frank assessment that subsequently earned her a demotion.

 Halliburton has frequently been questioned over its poor record keeping,
 and critics claim that it has a history of overcharging for its services.
 In May 1967, a company called RMK/BRJ could not account for $120 million in
 materiel sent to Vietnam and was investigated several times for
 overcharging on fuel. RMK/BRJ is now known as KBR or Kellogg, Brown and
 Root, the Halliburton subsidiary that has been the focus of congressional,
 Department of Defense, and General Accountability Office investigations.
 Defense Contract Audit Agency auditors have questioned Halliburton's
 charges on a $1.6 billion fuel contract, claiming that the overcharges on
 the contract exceed $200 million. In one instance, the company charged the
 Army more than $27 million to transport $82,000 worth of fuel from Kuwait
 to Iraq. Halliburton has also been accused of billing the Army for 42,000
 daily meals for soldiers, though it was only actually serving 14,000. In
 another operation, KBR purchased fleets of Mercedes trucks at $85,000 each
 to re-supply U.S. troops. The trucks carried no spare parts or even extra
 tires for the grueling high-speed run across the Kuwaiti and Iraqi deserts.
 When the trucks broke down on the highway, they were abandoned and
 destroyed rather than repaired.

 Responding to complaints, Halliburton refused to permit independent
 auditing and inspected itself using so-called "Tiger Teams." One such team
 stayed at the five-star Kuwait Kempinski Hotel while it was doing its
 audit, running up a bill of more than $1 million that was passed on to U.S.

 Another U.S. firm well connected to the Bush White House, Custer Battles,
 has provided security services to the coalition, receiving $11 million in
 Iraqi funds including $4 million in cash in a sole-source contract to
 supply security at Baghdad International Airport. The company had never
 provided airport security before receiving the contract. It also received a
 $21 million no-bid contract to provide security for the exchange of Iraqi
 currency. It has been alleged that much of the currency "replaced" by
 Custer Battles has never been accounted for. The company also allegedly
 took over abandoned Iraqi-owned forklifts at the airport, repainted them,
 and then leased them back to the airport authority through a company set up
 in the Cayman Islands. Custer Battles reportedly set up a number of shell
 companies in offshore tax havens in Lebanon, Cyprus, and the Cayman Islands
 to handle the cash flow.

 Two former company managers turned whistleblowers have charged that the
 company defrauded the U.S. government of at least $50 million. The Bush
 administration's Justice Department has only reluctantly, and under
 pressure from a Newsweek exposi, supported the rights of the plaintiffs in
 the case. The White House has indicated that it is not interested in
 assisting other investigations of fraud in Iraqi contracting, preferring to
 regard the CPA as a "multinational entity" and thereby limiting its
 vulnerability in American courts.

 Another American contractor, CACI International, which was involved in the
 Abu Ghraib interrogations, was accused by the GAO in April 2004 of having
 failed to keep records on hours of work that it was billing for and of
 routinely upgrading employee job descriptions so that more could be charged
 per employee per hour. Both are apparently common practices among
 contractors in Iraq, and audits routinely determine that there is little in
 the way of paperwork to support billings. The GAO report also confirms that
 many private security contractors in Iraq have been charging the U.S.
 government exorbitant fees for their services, frequently because the
 contracts allow security costs to be rolled into the overall cost of the
 contract without being itemized. In one case, contract security guards were
 effectively being billed at $33,000 per guard per month while the average
 rate for a security specialist worked out to between $13,000 and $20,000
 per month.

 The CPA also spread its largesse around the U.S. armed forces, distributing
 over $600 million in cash to four regional commanders to fund
 reconstruction projects as part of the Commanders' Emergency Response
 Program. An audit of one region disclosed that 80 percent of the funds
 could not be accounted for, and more that $7 million in cash was missing.
 It is widely believed that many of the contracting agents working under the
 regional commands literally stole the money. In one reported instance, an
 American contracting officer doubled the price of a multimillion-dollar
 contract and brazenly explained that the extra money would be for his
 retirement fund.

 Unfortunately, the corruption of the occupation outlived the departure of
 Paul Bremer and the demise of the CPA. A recent high-level investigation of
 the Iraqi interim government concluded that the corruption is now so
 pervasive as to be irreversible. One prominent businessman estimates that
 95 percent of all business activity involves some form of bribery or
 kickback. The bureaucrats and fixers who live off of bribery are referred
 to by ordinary Iraqis as "Ali Babas," named after the character in The
 Thousand and One Nights who was able to access riches from a treasure cave
 by saying "open sesame." For the average Iraqi businessman, there was
 formerly only one hand out, that of Saddam's designated minion. Now every
 hand is out. The educated and entrepreneurial are leaving the country in
 droves, as is most of the beleaguered Christian minority. Huge government
 appropriations are approved by Iraqi lawmakers and then simply disappear.
 Meanwhile, life for the average Iraqi does not improve, and oil production,
 water supplies, and electricity generation are all at lower levels than
 they were when the U.S. took control in 2003. The only thing that everyone
 knows is that all the money is gone and daily life in Iraq is worse than it
 was under Saddam Hussein.

 The undocumented cash flow continued long after the CPA folded. Over $1.5
 billion was disbursed to interim Iraqi ministries without any accounting,
 and more than $1 billion designated for provincial treasuries never made it
 out of Baghdad. More than $430 million in contracts issued by the Petroleum
 Ministry were unsupported by any documentation, and $8 billion were given
 to government ministries that had no financial controls in place. Nearly
 all of it disappeared, spent on "payroll," wages for "ghost employees" in
 the Ministries of the Interior and Defense. In one case, an Army brigade
 receiving money to support 2,200 men was found to have fewer than 300
 effectives. 602 actual guards at the Ministry of the Interior were billed
 as more than 8,200 for payroll purposes.

 Iraqi Airways carried 2,400 employees even though it had not operated for
 over a year and had no planes. The airline itself was sold to an
 unidentified buyer without any paperwork to show for how much it was sold
 and what assets were included. It has been alleged that the buyer might
 well have been Pentagon favorite Ahmad Chalabi.

 Nearly all payrolls in the national guard and national police were also
 inflated, leading to uncertainty over how large the security forces
 actually were-still an open question. Absentees from the nominal rolls of
 police and soldiers provided by government ministries are believed to
 number in the tens of thousands, and as the United States Congress has
 figured out, frequently cited figures on available trained manpower are
 largely imaginary.

 Even the "coalition of the willing" partners have been quick to cash in.
 Polish helicopters purchased as part of a $300 million deal with arms maker
 Bumar Ltd. were found to be obsolete, largely unflyable, and were actually
 rejected by the Iraqis. Bullets purchased from Poland by the Defense
 Ministry cost three times the normal international price. Five Polish
 peacekeepers have been arrested for demanding $90,000 in bribes. Both
 British and American soldiers have also demanded bribes from shopkeepers
 and travelers.

 In yet another instance of take-it-while-you-can, a senior Interior
 Ministry official flew to Beirut in a helicopter accompanied by $10 million
 in newly printed Iraqi dinars. He has yet to return. Interim Iraqi
 President Iyad Allawi's Defense Minister Hazem Shaalan transferred $500
 million to a bank account in Lebanon, allegedly to buy weapons, in a case
 that continues to be murky. Shaalan is reportedly vacationing abroad and
 has not returned to Iraq. A Bremer favorite at the Defense Ministry, Ziad
 Tareq Cattan, was responsible for a number of shady arms-procurement deals.
 A warrant has been issued for his arrest, an unusual occurrence, and he is
 avoiding detention by staying with family in Erbil in Kurdistan.

 Countless billions will never be accounted for, and the full cost of
 corruption has yet to be tallied. Sources report that much of the money
 that was designated for the development of a national army and police force
 is actually going to units that are exclusively Kurd or Shi'ite in
 expectation of a day of reckoning over the country's oil supplies. The
 Kurds have made no secret of their desire to continue their
 autonomy-bordering-on-independence and have stated that they regard Kirkuk
 as their own. The Shi'ites have possession of the oil-producing region to
 the south and are using their control of the Interior Ministry to fill
 police ranks with their own pro-Iranian Badr Brigade members as well as
 militiamen drawn from radical cleric Moqtada al-Sadr's Mehdi Army. The
 Sunnis are the odd men out, virtually guaranteeing that, far from becoming
 the model democracy the U.S. set out to build, Iraq will descend deeper
 into chaos-aided in no small part by the culture of corruption we helped to
 fortify.  ?

 Philip Giraldi, a former CIA Officer, is a partner in Cannistraro
 Associates, an international security consultancy.

 R. A. Hettinga <mailto: rah at ibuc.com>
 The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
 44 Farquhar Street, Boston, MA 02131 USA
 "... however it may deserve respect for its usefulness and antiquity,
 [predicting the end of the world] has not been found agreeable to
 experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
 Clips mailing list
 Clips at philodox.com

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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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