How the US sent $12bn in cash to Iraq. And watched it vanish

By David Pallister, The Guardian

Special flights brought in tons of banknotes which disappeared into the war zone
 

An armed guard poses beside pallets of $100 bills in Baghdad. Almost $12bn in cash was spent by the US-led authority 

February 2007--The US flew nearly $12bn in shrink-wrapped $100 bills into Iraq, then distributed the cash with no proper control over who was receiving it and how it was being spent.

The staggering scale of the biggest transfer of cash in the history of the Federal Reserve has been graphically laid bare by a US congressional committee.

In the year after the invasion of Iraq in 2003 nearly 281 million notes, weighing 363 tons, were sent from New York to Baghdad for disbursement to Iraqi ministries and US contractors.

Using C-130 planes, the deliveries took place once or twice a month with the biggest of $2,401,600,000 on June 22 2004, six days before the handover.

Details of the shipments have emerged in a memorandum prepared for the meeting of the House committee on oversight and government reform which is examining Iraqi reconstruction.

Its chairman, Henry Waxman, a fierce critic of the war, said the way the cash had been handled was mind-boggling.

"The numbers are so large that it doesn't seem possible that they're true.

Who in their right mind would send 363 tonnes of cash into a war zone?"

The memorandum details the casual manner in which the US-led Coalition Provisional Authority disbursed the money, which came from Iraqi oil sales, surplus funds from the UN oil-for-food program and seized Iraqi assets.

"One CPA official described an environment awash in $100 bills," the memorandum says.

"One contractor received a $2m payment in a duffel bag stuffed with shrink-wrapped bundles of currency.

Auditors discovered that the key to a vault was kept in an unsecured backpack.

"They also found that $774,300 in cash had been stolen from one division's vault.

Cash payments were made from the back of a pickup truck, and cash was stored in unguarded sacks in Iraqi ministry offices.

One official was given $6.75m in cash, and was ordered to spend it in one week before the interim Iraqi government took control of Iraqi funds."

The minutes from a May 2004 CPA meeting reveal "a single disbursement of $500m in security funding labelled merely 'TBD', meaning 'to be determined'."

The memorandum concludes: "Many of the funds appear to have been lost to corruption and waste ... thousands of 'ghost employees' were receiving pay checks from Iraqi ministries under the CPA's control.

Some of the funds could have enriched both criminals and insurgents fighting the United States."

According to Stuart Bowen, the special inspector general for Iraq reconstruction, the $8.8bn funds to Iraqi ministries were disbursed "without assurance the monies were properly used or accounted for".

But, according to the memorandum, "he now believes that the lack of accountability and transparency extended to the entire $20bn expended by the CPA."

To oversee the expenditure the CPA was supposed to appoint an independent certified public accounting firm.

"Instead the CPA hired an obscure consulting firm called North Star Consultants Inc.

The firm was so small that it reportedly operates out of a private home in San Diego."

Mr Bowen found that the company "did not perform a review of internal controls as required by the contract."

However, evidence before the committee suggests that senior American officials were unconcerned about the situation because the billions were not US taxpayers' money.

Paul Bremer, the head of the CPA, reminded the committee that "the subject of today's hearing is the CPA's use and accounting for funds belonging to the Iraqi people held in the so-called Development Fund for Iraq.

These are not appropriated American funds.

They are Iraqi funds.

I believe the CPA discharged its responsibilities to manage these Iraqi funds on behalf of the Iraqi people."

Bremer's financial adviser, retired Admiral David Oliver, is even more direct.

The memorandum quotes an interview with the BBC World Service.

Asked what had happened to the $8.8bn he replied: "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's important."

"But the fact is billions of dollars have disappeared without trace."

Mr Bremer, whose disbanding of the Iraqi armed forces and de-Ba'athification program have been blamed as contributing to the present chaos, told the committee: "I acknowledge that I made mistakes and that with the benefit of hindsight, I would have made some decisions differently.

Our top priority was to get the economy moving again.

The first step was to get money into the hands of the Iraqi people as quickly as possible."

Millions of civil service families had not received salaries or pensions for months and there was no effective banking system.

"It was not a perfect solution," he said. "Delay might well have exacerbated the nascent insurgency and thereby increased the danger to Americans."