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December 9, 2004

Mishandled Money Plagued US-Ruled Iraq


by Jim Lobe

U.S. management of the Iraqi economy was plagued by irregularities, corruption, failures, and the mishandling of billions of dollars, according to analysts and multiple recent audits.

Sloppy accounting and lax oversight of contracts were routine under the now defunct U.S.-led Coalition Provisional Authority (CPA), which handled Iraq's reconstruction funds and left blueprints for the economy that the current interim U.S.-backed government follows.

The CPA was in full control of the Iraqi economy after the U.S.-led invasion in March 2003 until June 2004, when the U.S.-installed leadership took over.

Hundreds of U.S. officials and experts, both from the government and the private sector, still hold prominent positions in Iraqi ministries or are working in advisory roles, and remain the real force behind the country's economic policies.

"The legacy of CPA accounting practices is a poor model for present and future Iraqi governments," said Julie McCarthy, acting director of Iraq Revenue Watch, a New York-based group that monitors the country's finances.

"The fact that Iraq's public institutions began to take shape in this climate of negligence raises serious concerns about the viability of the current Iraqi government's financial management systems," added McCarthy in the group's latest report, issued earlier this week.

Iraq Revenue Watch is funded by former Wall Street guru George Soros, who reportedly spent $18 million of his own money during the last U.S. election campaign to try to prevent President George W. Bush from retaining his post.

The group says that under the CPA's watch, hundreds of irregularities were permitted in the payment of funds for the reconstruction of Iraq. The U.S. government also failed to set up a transparent financial management system for the occupied nation, it argues.

Other independent watchdog groups have corroborated those statements.

In October 2004, the United Nations International Advisory and Monitoring Board (IAMB) said in its latest report [.pdf] it found many examples of malpractice during the last six months of the CPA's term as the guardian of Iraq's economy.

IAMB auditors say those irregularities included lack of competitive bidding for large contracts, missing contract information, payments for contracts that had not been supervised, and, in some cases, outright theft.

The occupation authority oversaw the disbursement of more than $4 billion in Iraqi revenues during its tenure, noted the board.

The IAMB's audit also showed the CPA did not take sufficient measures to monitor and control oil smuggling during the latter stages of its term, despite being advised by the board in March 2004 to install metering equipment.

As a result, the CPA admitted to IAMB auditors it was "unable to reliably estimate the amounts of petroleum and petroleum products that were illegally exported for the period from Jan. 1 to June 28, 2004."

The board's audit also says that during the last half year of its tenure the CPA did little to ensure that all proceeds from oil sales actually ended up in the Development Fund for Iraq. The fund was authorized by a UN Security Council resolution to safeguard and monitor the nation's oil revenues and other money earmarked for reconstruction.

Corruption in the U.S. handling of the Iraqi economy was also documented in the findings of reports by the CPA's inspector general (CPA-IG).

In its third report to Congress, also submitted in October, it cited numerous aberrations in the CPA's management of Iraqi revenues.

These include a case in which a contract was entered into against the explicit objections of the only Iraqi representative to the spending board.

Other examples include the CPA using reconstruction funds for purposes forbidden by statutory laws under the occupation. In one instance, $1.4 million in Iraqi funds was unlawfully allocated for a weapons buyback program that the U.S. government was supposed to pay for.

The report also points to a disbursement of $1.4 billion, in the CPA's final days, to the Iraqi Ministry of Finance under the budget line item "transfer payments."

The inspector general says auditors were "unable to obtain further analysis or information regarding the intended utilization of this budget line item."

In more than 110 cases, concerning work worth more than $19 million, reports or other supporting documentation that should have described the services received for contracts signed and payments made could not be found, added the CPA-IG.

"As shown by these audits and others, the legacy of CPA accounting practices is a poor model for present and future Iraqi governments," said Iraq Revenue Watch in its report.

"It represents a failure to demonstrate by example the importance of transparent and responsible management and expenditure of public revenues."

The financial conduct of the U.S. occupation of Iraq has been widely criticized by many observers.

They say that Washington has run afoul of long-standing international bidding and accounting rules to benefit U.S. companies or firms close to the administration of President George W. Bush.

For instance, Halliburton, a giant U.S. company that was awarded $8.2 billion worth of contracts from the Defense Department to provide support services such as meals, shelter, laundry, and Internet connections for U.S. soldiers in Iraq, has been accused of overcharging for those services.

The company, once headed by Vice President Dick Cheney, remains the focus of both a criminal investigation into alleged fuel price gouging and a recent Federal Bureau of Investigation (FBI) probe into possible favorable treatment from the Bush administration. Halliburton officials deny the allegations and say they are cooperating with all inquiries.


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  • Jim Lobe, works as Inter Press Service's correspondent in the Washington, D.C., bureau. He has followed the ups and downs of neo-conservatives since well before their rise in the aftermath of the September 11, 2001 attacks.

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