The Cash Shrink-Wrap Iraq War

This week’s hearings in the US Congress seem to have cast more shadows than light on the US management of reconstruction programs in post-war Iraq.

Yesterday, the House Oversight and Government Reform Committee chaired by Rep. Henry Waxman (D-Calif.) concluded four days of hearings into issues relating to US oversight and military contracts in Iraq, as part of their wider investigation into “waste, fraud and abuse of taxpayers’ dollars”.

One of the more staggering revelations centers on the $12 billion that went missing on the watch of former Ambassador Paul Bremer, who presided over the Coalition Provisional Authority (CPA) in Iraq between May 2003 and June 2004. While questions about the missing billions focused on theft and corruption, it was also suggested that some of the money may have ended up in the hands of the Iraqi insurgency, which has so far claimed the lives of 3,118 US troops.

The committee heard that the US Federal Reserve shrink-wrapped 363 tons of $100 bills into brick-shaped bundles and shipped them off to the Green Zone in Baghdad. “Who in their right minds would send 360 tons of cash into a war zone?” asked Mr Waxman. “But that’s exactly what our government did.”

Mr Bremer conceded that there had been little in the way of accounting procedures or accountability, but he said that only a cash economy existed in post-war Iraq. “The country was in chaos and the banking system was a shambles,” he said. “We had to simplify the contracting rules. Such regulations are simply not designed to deal with wartime conditions.”

Mr Bremer handed the cash over to the Iraqi Finance Ministry, who then doled it out to other ministries, where up to 90 percent of the staff were “ghost employees” – people who either weren’t actually on the staff, or simply did not exist.

Mr Bremer continued to provide the funds for these government payrolls, despite his knowing that they were bogus, because he feared the Iraqis might become unruly and start rioting. He said the Bush Administration had no clear strategy for Iraq after the fall of Saddam Hussein.
From the outset, Mr Bremer also stressed that it was Iraqi money, not American tax dollars, that had disappeared. The missing billions had come from the proceeds of Iraqi oil exports, surplus dollars from the UN oil-for-food program and frozen bank accounts and assets from Saddam Hussein’s government.

Stuart Bowen, Special Inspector General for Iraq Reconstruction, testified that President Bush had designated this collective fund the ‘Development Fund of Iraq’ (DFI) and ordered that it be held in trust by the US to provide for Iraq’s reconstruction. Regulations were adopted governing oversight of the money’s disbursement and its use by the Iraqi government. However, an audit confirmed that the CPA ignored these provisions and failed to implement sufficient oversight.
During the hearings, Mr Waxman also raised questions regarding US reliance on private military contractors, who have been given “an unprecedented role in providing security services” during the war in Iraq. He said that in the “indecipherable world of contractors and subcontractors … sorting out overheads, subcontracts, sub-subcontracts, profit and performance have been nearly impossible.”

In one example, Halliburton subsidiary Kellogg Brown Root (KBR), the largest military contractor in the US, could not account for $22.3 million it had been paid in two audits conducted in 2004.

The sub-subcontracting process, in which several companies tack on overhead charges, often doubles costs to US taxpayers. Mr Waxman cited one case in which Blackwater had paid employees $600 a day to perform work, yet the final charges further up the line had been $1,500 a day because several layers of subcontractors had tacked on their charges to the primary contractor.

Despite the considerable profit margins permitted in cost-plus military contracts in Iraq, relatives of Blackwater employees who were killed in Fallujah in 2004, before their bodies were burned and dragged through the streets, accused the company of sending the men on dangerous missions while not providing them with equipment such as armor, maps, heavy machine guns or rear gunners.

“When the decision was made to save millions of dollars by not buying armored vehicles, our husbands, fathers and sons were killed,” said Kathryn Helvenston-Wettengel, whose son Stephen ‘Scott’ Helvenston was killed in the attack.

Other relatives who testified said that Blackwater had promised the men $600 a day but then did not honor commitments to protect them according to the terms of their contracts. However, Andrew Howell, general counsel for Blackwater, has argued that Blackwater abided by its contractual obligations.

The privatization of war fighting reflects the Bush administration’s mission to downsize government in an effort to achieve efficiencies. The Pentagon has estimated that there are now about 100,000 contractors in Iraq, along with the 132,000 US troops currently deployed.

However, privatization has come under fire because hiring contractors is increasingly costly and lacks accountability.

“This is a rent-an-army out there,” said Rep. Jim Webb (D-Va.), a Vietnam veteran. “Wouldn’t it be better for this country if those tasks, particularly the quasi-military gun fighting tasks, were being performed by active-duty military soldiers in terms of cost and accountability?”

Meanwhile, illegal activities within the military were highlighted on Wednesday when Deputy Attorney General Paul McNulty announced that three Army Reserve officers, a US contractor and an American businessman had been indicted on a total of 25 charges including bribery, conspiracy, wire fraud, money laundering and transporting stolen property.

Referring to the shrink-wrapped stacks of cash shipped into the Green Zone, Mr McNulty said, “These defendants actually took bricks of stolen cash ... and smuggled them out of Iraq and back to the United States for their own personal use.”

It has also been alleged that the reservists helped to steer military contracts worth millions of dollars to the US contractor who is now their co-defendant.