September 12, 2007

The Big Iraq Heist

Beyond the war and the deaths and destruction happening in that country, the biggest story waiting to be told about the post-George W Bush Iraq is the billions of dollars that just disappeared. This is a story that has never gotten the exposure it deserves. In June 2006, I wrote a piece about the investigation that had been opened about the missing cash: "Iraq was awash in cash".

As with so many investigations conducted inside the Bush administration, this story was written about a few times, but didn't amount to much as the big papers just yawned and went to sleep and the Republican Congress indicated that they didn't believe it was their job to perform oversight. Since the Democrats have taken over, Rep. Henry Waxman has been conducting some hearings about the missing cash, yet it seems that the major advance on the story has been how little we've been able to find out about how this happened.

Enter two of my favorite financial investigative reporters: Donald Barlett and James Steele to help uncover some important new clues. Winners of two Pulitzer Prizes, Barlett and Steele became famous in the 1990s for their ability to write about the economy in a way that a layman could understand.

Recently they turned their sights to finding out what happened to all that missing cash which they wrote up in this month's Vanity Fair.

On Tuesday, June 22, 2004, a tractor-trailer truck turned off Route 17 onto Orchard Street, stopped at a guard station for clearance, and then entered the eroc compound. What happened next would have been the stuff of routine—procedures followed countless times. Inside an immense three-story cavern known as the currency vault, the truck's next cargo was made ready for shipment. With storage space to rival a Wal-Mart's, the currency vault can reportedly hold upwards of $60 billion in cash. Human beings don't perform many functions inside the vault, and few are allowed in; a robotic system, immune to human temptation, handles everything. On that Tuesday in June the machines were especially busy. Though accustomed to receiving and shipping large quantities of cash, the vault had never before processed a single order of this magnitude: $2.4 billion in $100 bills.

Under the watchful eye of bank employees in a glass-enclosed control room, and under the even steadier gaze of a video surveillance system, pallets of shrink-wrapped bills were lifted out of currency bays by unmanned "storage and retrieval vehicles" and loaded onto conveyors that transported the 24 million bills, sorted into "bricks," to the waiting trailer. No human being would have touched this cargo, which is how the Fed wants it: the bank aims to "minimize the handling of currency by eroc employees and create an audit trail of all currency movement from initial receipt through final disposition."

Forty pallets of cash, weighing 30 tons, were loaded that day. The tractor-trailer turned back onto Route 17 and after three miles merged onto a southbound lane of the New Jersey Turnpike, looking like any other big rig on a busy highway. Hours later the truck arrived at Andrews Air Force Base, near Washington, D.C. There the seals on the truck were broken, and the cash was off-loaded and counted by Treasury Department personnel. The money was transferred to a C-130 transport plane. The next day, it arrived in Baghdad.

That transfer of cash to Iraq was the largest one-day shipment of currency in the history of the New York Fed. It was not, however, the first such shipment of cash to Iraq. Beginning soon after the invasion and continuing for more than a year, $12 billion in U.S. currency was airlifted to Baghdad, ostensibly as a stopgap measure to help run the Iraqi government and pay for basic services until a new Iraqi currency could be put into people's hands. In effect, the entire nation of Iraq needed walking-around money, and Washington mobilized to provide it.

In the accompanying Q&A, they talk about how they came to break the story and the fact that despite all the cash, almost none went to help the Iraqis.

Steele: No, no—we're still waiting for that. It hasn't happened yet. The thing here is, nobody wants to talk about it in any way. And it does raise the question: Is there something beyond the waste, the fraud, and the basic corruption? Was some of this money used for purposes we can't even imagine? You just don't know. Because of the unique nature of the Coalition Provisional Authority, which wasn't an entity of the United States government and wasn't an entity of the United Nations, it was not subject to the normal auditing and budgetary constraints of a lot of our defense programs. There was even less oversight with them than in the usual process, and that's why the fraud was so rampant, and the corruption, and so forth. Add to that the chaos in Baghdad and Iraq that first year. Oh gosh, that must seem like the good ol' days now. The other thing that struck us is that nobody in any kind of official capacity seems to be upset by this. And that's amazed us as much as anything.

It seems like they must have been willingly not watching the money.
Steele: Yes.

Barlett: You noticed! The question is, where did it go? Did they put someone in charge of the money who they knew would not look at it too closely? Or did they put someone in charge of the money who channeled it into certain areas that the government doesn't want you to know about?

Steele: Everybody we talked to who was over there didn't think any of the money that was actually turned over to the Iraqis got to people.

I think it would be very interesting and important to understand what that money was buying.

Barlett and Steele have traced the scam to the Bahamas and a mysterious company named NorthStar. As they conclude in their piece, the size of the theft is astonishing and yet no one seems to know or care about it.

There is no true method of calculating the human cost of the war in Iraq. The monetary cost, grossly inflated by theft and corruption, is another matter. One simple piece of data puts this into perspective: to date, America has spent twice as much in inflation-adjusted dollars to rebuild Iraq as it did to rebuild Japan—an industrialized country three times Iraq's size, two of whose cities had been incinerated by atomic bombs. Understanding how and why this happened will take many years—if understanding comes at all. There has been no rush to explain even this one small part of the story, that of the missing Iraqi billions. No one in the U.S. government wants to talk about NorthStar Consultants, much less about the money that disappeared. Bradford R. Higgins was the C.P.A.'s chief financial officer, on loan from the State Department, where he is assistant secretary for resource management and chief financial officer. Higgins says it was "a Department of Defense–managed operation"; he says that "I don't know anyone at NorthStar" and that he did not oversee its operations. The C.P.A.'s comptroller and D.F.I. fund manager during the NorthStar days in 2003 was air-force colonel Don Davis. Through the air-force public-affairs office in the Pentagon, Davis declined to comment. L. Paul Bremer III, who wrote a 400-page book on his experiences as the C.P.A.'s administrator, stated in an interview that he had no input in the decision to hire NorthStar. He explained that "all of the contracting was done, by order of the secretary of defense, by the department of the army. They were our contracting arm … I don't think I ever heard of NorthStar until some questions came up after I left." Nor did he have any dealings with NorthStar's Howell, he said. "If I met him, I have no memory of it." Queries sent repeatedly to the army's public-affairs desk in Baghdad and the Pentagon have gone unanswered, as have those to the office of the secretary of defense.

With Barlett and Steele we are starting to understand what has happened. But we need more answers and we need someone to be held accountable.

Posted by Mary at September 12, 2007 01:29 AM | Iraq | Technorati links |