Global Policy Forum

Baghdad's 'Missing' Billions


By Mark Gregory

November 9, 2006

When Saddam Hussein's regime was toppled in April 2003, Iraq was in a mess, despite its oil wealth. Decades of conflict and sanctions had wrecked the infrastructure of roads, power stations, schools and hospitals. When US President George W Bush announced the war had ended, he promised the US would help to rebuild Iraq, saying: "Now that the dictator's gone we and our coalition partners are helping Iraqis to lay the foundations of a free economy."

Since then, huge sums have gone towards reconstruction. The US has spent $36bn of its own money. More controversially it has also spent $22bn of Iraqi cash. These Iraqi funds were controlled by the Americans during the year-long occupation that followed the war. They consisted mainly of Iraqi oil revenues and leftover cash from the oil-for-food programme - the pre-war sanctions regime run by the United Nations. The money was in the Development Fund for Iraq, set up by the UN as the war ended.

'A huge scandal'

In hearings on Capitol Hill in Washington, Democratic congressman Henry Waxman has emerged as the most vocal critic of the US' record on reconstruction. In particular, Mr Waxman says proper accounting procedures were ignored when large sums of Iraqi cash were handed over by the Coalition Provisional Authority (CPA) - the US-led body that ran Iraq immediately after the war - to get Iraqi ministries functioning again. "I think we're looking at a huge scandal. The CPA handed over $8.8bn in cash to the Iraqi government even though that new government had no security or accounting system. "No one can account for it. We don't know who got that money," Mr Waxman said.

Stuart Bowen is the special inspector general for Iraq reconstruction. His task is to follow the paper trail - and after more than 100 investigations his work paints a grim picture of waste and mismanagement. Mr Bowen said billions of dollars were shrink-wrapped in plastic and flown out of the US to Baghdad. "It was $2bn a flight, and I know of at least six flights," he said. Mr Bowen said some of the cash went to pay the salaries of thousands of "ghost employees", or Iraqi civil servants who did not actually exist.

'Spending to save lives'

As the planes landed with their hefty bundles of greenbacks, they became the responsibility of a man named David Oliver. Mr Oliver was in Baghdad in the summer of 2003 as the CPA's first head of finance. He helped establish the financial framework, but resisted pressure to bring in outside auditors.

As head of finance at the time surely he must know what happened to the $8.8bn? "I have no idea, I can't tell you whether or not the money went to the right things or didn't - nor do I actually think it is important," he said. Yes, but the fact is that billions of dollars have disappeared without trace." Of their money. Billions of dollars of their money disappeared, yes I understand, I'm saying what difference does it make?"

That may seem an astonishingly complacent statement. But it made no difference to Mr Oliver because he felt there were more pressing priorities. "There were 1,600 British-trained auditors in Iraq, so why lay another infrastructure that was American and designed for a completely different culture and different set of circumstances?"

He said premature babies in intensive care units were dying during power outages because hospitals had no back-up power supplies. "I chose to give that money to the Iraqis, they got the power working within eight days in the major hospitals in Baghdad," he said. By following US procurement and audit procedures it would have taken 30 or 40 days before the problem was even looked at, he said. In his view it was more important to save lives to get things done than worry about accounting procedures.

'On America's watch'

Andy Bearpark was in charge of infrastructure and development at the CPA. It was his job to supervise reconstruction, but he says never in his career had he come across such a lack of preparation. "The plan had to be created at the same time as it was being implemented. Everything to do with the CPA was being invented from scratch, from a zero base," he said.

In this atmosphere of improvisation and chaos, it is perhaps not surprising that accounting procedures took a back seat. Not long after arriving in Baghdad, Mr Bearpark recalls being handed a huge dossier on the long-term rebuilding of Iraq. It had been drawn up by the US construction company, Bechtel. "The figures they came up with was about $20bn. But these things were being done amazingly quickly. The time pressure was something I'd never, ever experienced before," he said. "I remember being given that Bechtel assessment... and having something like three hours to say: 'Is this a good idea or a bad idea?'"

But while most of the corruption allegations centre on the Iraqi money, the financial chaos also extended to projects financed by US taxpayers. One early contract - to Halliburton - aroused great controversy because it appeared to bypass normal rules. It was awarded without any process of bidding for it.

So what have we got? Allegations of impropriety in the awarding of contracts in the US, chaos at the occupation authority that ran post-war Iraq and large sums of Iraqi oil money disappearing apparently without any record of how it was spent.

And all this on America's watch.

More Information on Iraq
More Information on the Development Fund for Iraq
More Information on the Reconstruction of Iraq
More Information on Corporate Contracts


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