IRAQ: How Iraq's Future Went Up in Smoke

Inside a meeting room in Baghdad's "Green Zone" - the guarded administrative centre of occupied Iraq - US officials were demanding $10 million of Iraqi money to pay for a museum documenting Saddam Hussein's atrocities. It was June 2004, and with only weeks to go before the interim Iraqi Government assumed power, they told their coalition partners that America's top man in Iraq, administrator Paul Bremer, had a personal commitment to the project.

But not everyone was convinced.

Earlier, the June 2 meeting had heard requests from Australia's board representative, senior diplomat Neil Mules, and his British counterpart, Yusaf Samiullah, that no new spending be considered "due to an inadequacy of funds" unless the projects were vital to national security. A museum, they argued, was not a priority. Eventually, after some protest, the Americans gave up on the idea. It was a rare victory.

As the group responsible for overseeing infrastructure spending in occupied Iraq, the US-dominated Coalition Provisional Authority (CPA) program review board had enormous power. And they used it. As the handover deadline approached, the US officials on the board had gone on a spending spree, directing billions from the Development Fund for Iraq to projects that were in many cases poorly planned or had already received substantial US taxpayer funding commitments.

These allocations were made after the CPA had already released Iraq's 2004 budget.

All up, the CPA spent nearly $20 billion of the $23.34 billion of Iraqi funds it had under its control for 13 months.

In contrast, just $300 million of the US taxpayer funding commitment of $18.4 billion for Iraq's reconstruction had been spent by June 2004.

Iraq Revenue Watch, a monitoring organisation set up by US billionaire George Soros, had this to say about the CPA's management of Iraqi money at the time the coalition forces handed control of the country back to Iraqis: "The CPA's drive to spend Iraq's money while it still has the chance remains a mystery ... It is possible that the commitment of massive amounts of Iraq's oil revenues to reconstruction projects, no matter how poorly conceived, will be used to justify cutting back future US funds for reconstruction."

Documents recording the CPA's program review board meetings in April, May and June last year show Australia and Britain, through Neil Mules and Yusef Samiullah, objected to or questioned many of the US proposals but were unable to prevent hundreds of millions being spent on questionable projects.

Exactly what Australia and Britain thought of many US proposals we will never know. A KPMG audit of the CPA, done at the request of the UN, found the program review board regularly failed to keep proper minutes of meetings, accurately record motions and voting tallies.

Examples of projects Mr Mules and his British counterpart were concerned about include an extra $500 million for Iraq's security forces, unspecified oil projects that received $460 million, electricity sector projects worth $315 million and $41 million for a hazardous waste dump.

Worse still is the billions of dollars the CPA and US auditors cannot account for. In a report earlier this year, Stuart Bowen jnr, the Pentagon's Special Inspector-General for Iraq Reconstruction, found a massive $8.8 billion of Development Fund for Iraq money could not be accounted for. He blamed the US-led coalition.

The $8.8 billion was reported to have been spent on Iraqi ministry salaries, operating and capital expenditures, as well as reconstruction projects. But auditors were unable to verify where the money went. Of $120 million sent to one region for use by US authorities, $96.6 million couldn't be accounted for. In one case, $7.2 million in $100 notes disappeared.

Mr Bowen also raised the possibility that thousands of "ghost employees" were on an unnamed Iraqi ministry's payroll. "CPA staff identified at one ministry that although 8206 guards were on the payroll, only 602 guards could be validated," his report states.

Other examples of CPA mismanagement or corruption involve the theft of millions in cash and sequestered Iraqi property and the overpayment of American contractors. In one case, a US contractor was overpaid $18 million for work no one can be sure was done because no records were kept.

Former CPA official Franklin Willis this year told the US Senate of sackfuls of cash being "tossed about like footballs" and huge cash payments made to contractors out of the back of pick-up trucks, in scenes reminiscent of the Wild West.

The CPA also failed to correctly meter Iraqi oil production, making it impossible to calculate exactly how much oil revenues the country earned in 2003 and 2004.

In response to Mr Bowen's scathing audit, Mr Bremer and the US Defence Department said the report was littered with errors. Mr Bremer chided Mr Bowen for expecting conventional levels of accountability, saying that "given the situation the CPA found in Iraq at liberation, this is an unrealistic standard".

Of the money that investigators have been able to track, much of it has gone to US corporations in reconstruction contracts awarded by CPA officials without facing competition from other firms.

Halliburton, the Texas oil services company that was run by Dick Cheney until he decided to run for vice-president in 2000, has been the biggest beneficiary of Iraqi funds, receiving $1.6 billion for the importation of fuel, assessing damaged oil fields and repairs to oil facilities. Last month, a United Nations monitoring board recommended the US Government repay Iraq as much as $208 million for contracting work assigned to Halliburton subsidiary Kellogg, Brown & Root. The work was paid for with Iraqi oil proceeds, but the board said it was either done at inflated prices or done poorly.

In May this year, the UN board noted "with regret" that Pentagon auditors had tried to hide from it more than $200 million in apparent overcharges in contracts paid for with Iraqi oil money and awarded on a non-competitive basis to Halliburton.

An American security firm with Republican Party ties, Custer Battles, also received large amounts of Iraqi money through contracts awarded by the CPA. One of the company's principals, Michael Battles, was a Republican candidate for Congress in 2002. It received more than $40 million in contracts from the CPA to provide security services. However, its performance has been marred by accusations of fraud and overcharging.

In one case, Custer Battles allegedly seized forklifts from Baghdad airport abandoned by Iraqi Airways, repainted them to cover the Iraqi Airways markings, claimed they were owned by a Cayman Islands shell company created by Custer Battles and submitted a bill to US officials to lease the same forklifts as part of its Baghdad airport security contract. The company is facing a federal lawsuit and is barred from receiving government contracts.

Another former US CPA official has been accused by the US Justice Department of accepting $546,000 in illegal payments for steering more than $13 million in contracts last year to an American businessman.

US investigators are investigating another 50 cases of potential criminal activity in the spending of Iraqi and American reconstruction funds.

Prominent Californian Democrat Henry Waxman has pursued the Bush Administration over America's role in administering Iraq's oil revenues. Mr Waxman pointed out that five separate congressional committees this year had investigated UN mismanagement of its Oil for Food program, with more than 12 hearings held. Until June this year, not one hearing in Congress had been held into the CPA's administration of the Development Fund for Iraq. When US audit agencies did finally report on the CPA's handling of Iraqi cash, Mr Waxman said "an appalling level of incompetence, mismanagement, waste, fraud and greed" was found.

So far, the elected Iraqi Government has refrained from publicly criticising the US-led coalition about its management of Iraq's oil revenues. But behind the scenes, there is anger about the way their money has been squandered.

One official spoke anonymously on the grounds that criticism could affect his relationship with the US embassy. "(They) came here and spent a lot of our money but very little of theirs."