Thursday, June 30, 2011

More On Iraq’s Missing Billions In Reconstruction Funds

In its April 2011 report to Congress, the Special Inspector General for Iraq Reconstruction noted that $6.6 billion in Iraqi funds that were used by the Coalition Provisional Authority was unaccounted for. In June, the story hit the media when the Inspector General Stuart Bowen talked to the Los Angeles Times about it. It was immediately misinterpreted, and repeated again and again that most of this money could have been stolen when in fact, it was simply lost in poor record keeping. Since then, Iraqi officials have revealed that even more money is missing.
Speaker Nujafi said that $18.7 bil was missing from Iraq's reconstruction funds
In mid-June, Speaker of the Iraqi parliament Osama Nujafi told al-Jazeera that the real amount of missing funds was $18.7 billion. Baghdad then created a special investigative body to find the money that included members of the Foreign Affairs, Finance, and Justice Ministries, the Central Bank of Iraq, and the Financial Inspection Office, with Deputy Premier Rowsch Nouri Shaways as its leader.

How thorough this investigation will be is a matter of concern. The Special Inspector General for Iraq Reconstruction (SIGIR) is still looking into the matter. It went to the New York Federal Reserve Bank where Iraq’s oil revenues have been held since the 1990s when the United Nations’ Oil For Food Program was created. SIGIR could not get access to the files because Baghdad would not give them permission. The Inspector General Bowen said that he was frustrated with the Iraqi government for stepping in his way. With such a large amount of money involved, Baghdad should be asking for as much help as possible to find out where it went. The SIGIR was also the first group to find that the money was unaccounted for. Instead, Iraq is blocking its inquiry.

Baghdad has also threatened to sue the United States for the $18.7 billion. In 2003, the United Nations passed a resolution giving the Coalition Provisional Authority (CPA) legal authority over Iraq’s oil revenue. Since the money went missing under its watch, it is legally responsible for it. Inspector General Bowen said that he expects a lawsuit soon as a result. This plays on the theme that the funds have been stolen or misappropriated, when in reality it was mostly spent in Iraq to pay for salaries and pensions of public workers, and went to reconstruction projects, which was the CPA’s main priority at that time. Why the money can’t be found is because the CPA had little to no oversight over its spending. This was made worse by the fact that it was in crisis mode and flew in billions of dollars in cash from the New York Federal Reserve into Baghdad, which was then handed out, usually with little paperwork and oversight.

More money could very well come up missing in the future. In July 2010, a SIGIR audit found that the Pentagon kept so few records of how it spent Iraqi funds that it could not account for $8.7 billion. In March 2011, Speaker Nujafi announced that $38-$40 billion in reconstructions funds was missing from Iraq’s books. Again, most of this money was expended, but American and Iraqi officials did not keep track of it. None of this will likely be found since the paper record is so poor. When Iraq fell apart after the 2003 invasion, the United States went into crisis mode and tried to keep everything running using Iraq’s oil money without the necessary oversight. When the CPA disbanded in 2004, and the Pentagon took control, things did not get better as it did not have the personnel or capacity to handle such a large amount of money, and didn’t follow its own accounting rules. Finally, the Iraqi government has proven to be just as incompetent, and doesn’t know what its done with a large chunk of its revenues either. The root cause of all these problems was the fact that the U.S. went into Iraq with no real post-war plans. It had a rosy vision of what Iraq would be like, and when reality did not meet those expectations it tried to throw money at the problem. Iraq on the other hand, had to rebuild all of its institutions with the fall of Saddam Hussein, and still lacks the capacity to handle its funds. It is this lack of bookkeeping not theft, which is the real story.


Ali, Ghassan, “A ministerial committee to recover the lost money and property,” Radio Free Iraq, 6/23/11

Epstein, Reid, “N.Y. Fed mum on missing Iraq billions,” Politico, 6/22/11

Al Jazeera, “Missing Iraq cash ‘as high as $18bn,’” 6/19/11

Richter, Paul, “Missing Iraq money may have been stolen, auditors say,” Los Angeles Times, 6/13/11

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 4/30/11

Werman, Marco, "The Case of Missing $6 Billion In Iraq," The World, 6/14/11


Aymenn Jawad Al-Tamimi said...

"It was immediately misinterpreted, and repeated again and again that most of this money could have been stolen when in fact, it was simply lost in poor record keeping."

Very true. Incidentally, Joel, do you know if any media outlets have realized this point?

Joel Wing said...

Media coverage has been inconsistent. Even some reports that have the headline saying the money was stolen then point out that it is probably just lost in the paperwork.

Steve Donnelly, AICP said...

Money as a weapon. Scattered everywhere by the pallet load, like air dropped mines.

Now, we are trying to de-mine?

As serious forensic exercise might identify categories of uses, but little in the way of end-use documentation.

Joel Wing said...

They're lucky if they can find much of anything. Heck, Baghdad said it doesn't even know where $38-$40 bil has gone since 2005, and they want to track this other amount spent during the CPA years. The Pentagon has supposedly launched 2-3 audits since 2005 and can't find where the money went, I don't think the Iraqis will do much better.

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