US Firms Suspected of Bilking Iraq Funds

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http://www.truthout.org/docs_2006/041706J.shtml

 

US Firms Suspected of Bilking Iraq Funds

By Farah Stockman

The Boston Globe

 

Sunday 16 April 2006

 

Millions missing from program for rebuilding.

 

Washington - American contractors swindled hundreds of millions of

dollars in Iraqi funds, but so far there is no way for Iraq's

government to recoup the money, according to US investigators and

civil attorneys tracking fraud claims against contractors.

 

Courts in the United States are beginning to force contractors to

repay reconstruction funds stolen from the American government. But

legal roadblocks have prevented Iraq from recovering funds that were

seized from the Iraqi government by the US-led coalition and then paid

to contractors who failed to do the work.

 

A US law that allows citizens to recover money from dishonest

contractors protects only the US government, not foreign governments.

 

In addition, an Iraqi law created by the Coalition Provisional

Authority days before it ceded sovereignty to Iraq in June 2004 gives

American contractors immunity from prosecution in Iraq.

 

" In effect, it makes Iraq into a 'free-fraud zone,' " said Alan

Grayson, a Virginia attorney who is suing the private security firm

Custer Battles in a whistle-blower lawsuit filed by former employees.

A federal jury last month found the Rhode Island-based company liable

for $3 million in fraudulent billings in Iraq.

 

Even the United Nations panel set up to monitor the use of Iraq's

seized assets has no power to prosecute wrongdoers.

 

" The Iraqi people are out of luck, the way it stands right now, "

said Patrick Burns, spokesman for Taxpayers Against Fraud, a watchdog

group that helps US citizens file cases such as the Custer Battles action.

 

Iraqi leaders, paralyzed by political deadlock in forming a new

government, have so far made no formal complaint about funds that were

paid out to dishonest contractors. But US officials say the need for

Iraq to recoup the stolen money has become more urgent as it faces a

budget shortfall of billions of dollars.

 

The problem has become so acute that an interagency working group,

which includes officials from the State Department and the Department

of Justice, has been set up to try to come up with a mechanism to

return the funds, according to two US officials who are involved.

 

The issue dates to the earliest days after the March 2003

invasion, when US officials thought Iraqi money would cover the costs

of reconstruction. As the Coalition Provisional Authority took control

just after the fall of Saddam Hussein, it seized Iraq's oil revenues,

money found in bank accounts and in Hussein's palaces, and the balance

from the UN's oil-for-food program.

 

The coalition ultimately controlled more than $20.7 billion in

Iraqi funds. The money was deposited into an account called the

Development Fund for Iraq, or DFI, which was set up, in the words of

the US administrator at the time, L. Paul Bremer III, " for the benefit

of the Iraqi people. "

 

The fund represented the first cash reservoir US officials turned

to as they worked to rebuild roads, bridges, and clinics. It carried

fewer restrictions than the $18.4 billion in US funds appropriated

around that time for reconstruction because those funds could only be

used in ways designated by Congress.

 

But the Coalition Provisional Authority lacked basic controls and

accounting procedures to keep track of the billions in Iraqi money it

was doling out to contractors, according to a series of audits issued

in 2005 and 2006 by the Special Inspector General for Iraq

Reconstruction, a temporary office set up by Congress to oversee the

use of reconstruction funds. One review of the files relating to 198

separate contracts found that 154 contained no evidence that goods or

services promised by contractors were ever received, according to an

April 2005 audit by the inspector general.

 

In some cases, contractors were paid twice for the same job. In

others cases, they were paid for work that was never done.

 

In June 2004, the Coalition Provisional Authority handed power and

control of the DFI back to an Iraqi government. By then, the coalition

had spent or disbursed about $14 billion of the Iraqi fund on

reconstruction projects and on the administration of the government,

according to the audits.

 

Among the contracts paid for out of the Iraqi fund was

Halliburton's controversial no-bid contract to restore Iraq's oil

infrastructure, worth $2.4 billion. The Pentagon's auditors found $263

million in excessive or unsubstantiated costs for importing gasoline

into Iraq, but the Pentagon said in February that it had agreed to pay

a Halliburton subsidiary all but $10 million of the contested charges.

 

The special inspector general's investigations have resulted in

the arrests of five suspects on criminal charges and is investigating

60 more cases involving alleged fraud and corruption in Iraq involving

both US and DFI funds, according to James Mitchell, a spokesman for

the inspector general.

 

In addition, at least seven more cases against contractors have

been filed in US civil courts under the federal False Claims Act,

according to two private lawyers who have personal knowledge of the

suits. The act, which dates to the Civil War, allows citizens to sue

on behalf of the government when they suspect fraud in federal

contracting. The cases are currently under seal until the Justice

Department investigates them to determine whether the government will

join the suit.

 

The cases eventually could help the US Treasury recover hundreds

of millions of dollars from corrupt contractors, according to Grayson,

the attorney suing Custer Battles, the first such case to reach the

courts and become public.

 

But the False Claims Act has not helped Iraq. Last month, a

federal judge in Virginia ruled that it only protects the US

government from fraud and that the United States suffered no direct

economic loss from fraud involving Iraqi funds.

 

The result is a victory for American taxpayers, but a loss for

Baghdad: In the first phase of the fraud claim involving Custer

Battles, the jury ruled in March that the company should pay triple

damages to the US Treasury for the $3 million it was paid for

delivering a fleet of trucks that didn't work and old, spray-painted

Iraqi cranes that were passed off as new imports. But the company,

which has denied the charges in court and in other statements, does

not have to repay any of the $12 million that came from the

Development Fund for Iraq on the same contract, according to the

judge's ruling.

 

Grayson said the injustice surrounding wasted Iraqi funds has

helped fuel the insurgency.

 

" The DFI was essentially treated as a 'slush fund' for various

quasi-military projects, run by US contractors over whom Iraqis had no

control, " he said. " Like a colonial power, the Bush administration

took Iraq's oil money, and wasted it. The Iraqis well know that.

That's one reason why they're shooting at US soldiers. "

 

Representative Henry A. Waxman, Democrat of California, has urged

the administration to repay Iraq for the money paid to Custer Battles.

" This was Iraqi money, and it should be returned to the Iraqi people, "

he said in a statement.

 

The Justice Department, which is pursuing criminal cases against

contractors, says there is a chance that Iraq eventually could receive

some restitution.

 

In February, Robert J. Stein Jr., a North Carolina man who issued

contracts on behalf of the Coalition Provisional Authority, pleaded

guilty to conspiring with at least three others to steal more than $2

million from the Iraqi fund. The money, earmarked for refurbishing a

police academy and library in the town of Hillah, was spent on

expensive cars, machine guns, jewelry; hundreds of thousands of

dollars in cash was also smuggled into the United States.

 

As part of a plea deal, Stein has agreed to pay $3.6 million in

restitution, but Bryan Sierra, a spokesman for the Department of

Justice, said it is too early to say whether Iraq will receive the

money as part of that deal.

 

" It is possible that some of the money could go back to the

Development Fund for Iraq, " he said. " But that hasn't been determined

yet. "

 

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