Worries Raised on Handling of Funds in Iraq
A hearing
details the transfer of $2.4 billion in $100 bills to Baghdad in 2004
and the billions more sent before. U.S. oversight is questioned.
By T. Christian Miller
Times Staff Writer
June 23, 2005
WASHINGTON — It weighed 28 tons and took up as much room as 74 washing
machines. It was $2.4 billion in $100 bills, and Baghdad needed it ASAP.
The initial request from U.S. officials in charge of Iraq required the
Federal Reserve Bank of New York to decide whether it could open its
vault on a Sunday, a day banks aren't usually open.
"Just when you think you've seen it all," read one e-mail from an
exasperated Fed official.
"Pocket change," said another e-mail.
Then, when the shipment date changed, officials had to scramble to line
up U.S. Air Force C-130 cargo planes to hold the money. They did, and
the $2,401,600,000 was delivered to Baghdad on June 22, 2004.
It was the largest one-time cash transfer in the history of the New
York Fed.
Disclosure of the frantic transfer in the final days of U.S. control
over Iraq came during a daylong hearing Tuesday that indicated growing
worry from Congress over U.S. oversight of spending in Iraq.
Both Republicans and Democrats appeared taken aback by the volume of
cash sent to Iraq: nearly $12 billion over the course of the U.S.
occupation from March 2003 to June 2004, said a report by Rep. Henry A.
Waxman (D-Los Angeles), who had reviewed e-mails and documents
subpoenaed from the bank.
The cash — a total of 363 tons,
generated mostly from oil revenues — was Iraqi funds that had been held
in trust by the Federal Reserve under the terms of a United Nations
resolution.
The June 2004 money transfer was needed to run
the country as the interim Iraqi government took over from the U.S.-led
Coalition Provisional Authority, officials said.
Rep.
Christopher Shays ( R-Conn.), chairman of the House national security
subcommittee, criticized the Pentagon's handling of the money known as
the Development Fund for Iraq.
"It's very clear that … we didn't have systems in place to account" for
the funds, he said.
"It doesn't mean they weren't spent well, but, given my sense of human
temptation, I suspect some of it was, frankly, taken," Shays said.
"I can't believe that all this cash just floating around all went
perfectly to the right place."
Those concerns were echoed by Democrats on the panel, who criticized
Halliburton Co., the oil services firm once run by Vice President Dick
Cheney.
Democrats repeatedly have questioned the use of the
Iraqi funds to pay Halliburton, pointing to Pentagon audits that found
the company might have overcharged as much as $200 million for fuel and
other purchases.
And lawmakers from both parties criticized the
Pentagon for failing to turn over complete copies of the audits to a
U.N. board that monitored the Iraqi funds.
There was "hardly any accountability," Rep. Dennis J. Kucinich (D-Ohio)
said.
"In effect, we were handing out $100 bills on contracts like candy."
Defense Department officials at the hearing acknowledged weaknesses in
the system but said that much of the money had been handed over to
Iraqi officials, who then spent it on governmental expenses, such as
worker salaries.
Prior audits by Stuart W. Bowen Jr., the
special inspector general for Iraq reconstruction, found that more than
$8.8 billion in such funds could not be properly accounted for.
"There were observable results of what that money was spent on," said
Joseph Benkert, deputy director for the Pentagon's Iraq reconstruction
office.
"Salaries for hundreds of thousands of government
employees were paid. We know for a fact that the government workers
were paid. Government ministries operated. We know that they operated.
Various projects were done on behalf of those ministers, and we know
what those projects are."
Defense officials defended their
deletion of information from audits related to Halliburton's
performance that had been turned over to the International Advisory and
Monitoring Board, appointed by the U.N. to oversee the spending of
Iraqi funds.
They acknowledged that Halliburton had requested
that information in the audits be withheld, including allegations that
the firm had spent too much money in purchasing fuel. By law,
contractors can request that the government withhold any proprietary
information from release.
Halliburton said that KBR, a
subsidiary firm, had requested the removal of information considered
sensitive, but that final approval for the redactions rested with the
government.
"Any attempt to criticize KBR for its role in this
perfectly normal and legal part of the contracting process is
unfounded," Cathy Mann, a Halliburton spokeswoman, said in an e-mail.
"Our requests for redaction were just that — requests. These redactions
were ultimately reviewed and evaluated by [the government], and some
were accepted and some were overruled."
Bowen, who testified at the hearing, said investigations were
continuing into the spending of Iraqi funds.
He said that at least three cases of possible fraud involving the funds
were recently referred for criminal prosecution to the Justice
Department. The cases stemmed from spending by U.S. officials at an
outpost in Hillah, Iraq, south of Baghdad.
"This was an enormously challenging situation," Bowen said.
"Inevitably in such an environment, with so much cash, and such an
enormous task and limited resources … there were inefficiencies, and we
found them."
