[Clips] "Cashpaks": Money for Nothing
R.A. Hettinga
rah at shipwright.com
Mon Oct 17 13:15:14 PDT 2005
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Date: Mon, 17 Oct 2005 16:14:25 -0400
To: Philodox Clips List <clips at philodox.com>
From: "R.A. Hettinga" <rah at shipwright.com>
Subject: [Clips] "Cashpaks": Money for Nothing
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Add a fifth horseman to the infocalypse: US Iraq contractors.
Cheers,
RAH
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<http://www.amconmag.com/2005/2005_10_24/print/coverprint.html>
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
marketeering.
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.
taxpayers.
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.
--
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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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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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