Corruption in Iraq Reconstruction

No one seems to have been punished and none of the money recovered. You would think that the American people would demand that heads roll for this misuse of taxpayer funds.

Iraq: follow the money
by Joy Gordon
April 14, 2007

Le Monde Diplomatique
US agencies in Iraq claim that extraordinary sums have been spent on reconstruction projects; that thousands have been completed and that many more are under way. But the cash (some of which was Iraq’s own) has gone to shady contractors who have done a bad job or none at all.







The video downloads showed scenes of soldiers donating a generator to a health clinic or delivering shoes to Iraqi children. The soldiers said: “We came over to help the people of Iraq.” The people said: “Last year Fallujah looked like a demolition zone. Now I can see improvements everywhere. It is very beautiful in Fallujah”. Or: “This is a great day for my village. The coalition forces are doing great things here.”



The United States agency Usaid publishes Iraq Reconstruction Weekly Update: Reporting Progress and Good News, which presents reconstruction as a stream of projects doing wonders to improve the lives of admiring and grateful Iraqis. The US Defence Department and the agencies involved seem to be describing an alternative reality in their reports of progress. A recent update boasted that the department had spent $10.5bn so far for 3,500 projects, nearly all of which had been started and 80% completed (1).



Independent auditors have repeatedly pointed out that reports from these agencies are exaggerated or false. The State Department reported that 64 water and sanitation projects were complete and 185 were in progress; the Government Accountability Office (GAO) said the claims were hugely exaggerated. The State Department could not even provide GAO auditors with a list of the completed projects, making it impossible to evaluate them (2). Again and again the agencies have been criticised for their incompetence.



A project for the construction of 150 urgently needed health clinics was a disaster. After two years and $186m, only six were completed — and the agency reduced the contractor’s obligation to providing only 20 public health centres, instead of 150 (3). When the contractor delivered medical equipment, none of the US government agencies involved inspected it or kept an inventory. When the auditors looked at the goods, it was obvious without even opening the crates that nearly half were damaged or had other problems. The equipment sat in a warehouse and there was no plan to distribute it (4).



On the Baghdad Police College, which was a $72m contract, the construction was so poor that the auditor found: “The government’s quality assurance programme was essentially non-existent in monitoring the contractor’s performance” (5).



Worst-case scenario



The failure of reconstruction is underestimated as a cause for the larger failure of the US in Iraq. When the US toppled Saddam Hussein in 2003, there was optimism and appreciation in Iraq; the hope was that the US occupation would be brief and Iraq would then be left to run its own affairs. But the occupation turned out to be the worst-case scenario. Reconstruction was botched and it quickly became clear that the US had no intention of leaving.



In summer 2003 the occupation authorities handed out massive contracts to US corporations for construction projects, but nothing actually materialised. There was little electricity for fans in the summer heat, or to operate water and sewage treatment plants, or provide refrigeration for critical medicines. The humanitarian situation deteriorated immediately. Without adequate water treatment, there were epidemics of dysentery and water-borne diseases.



The disappointment was all the worse because the Iraqis believed that US, with its wealth and might, could fix anything if it chose. Comparisons were made with Saddam’s regime: after the massive bombing during the first Gulf war in 1991 destroyed all Iraq’s infrastructure (bridges, roads, electrical generators, telecommunications, factories, oil refineries), the Saddam regime instituted an emergency reconstruction campaign. Using jerry-rigged contraptions or cannibalising parts from one plant to get another one operating, electricity was back on within weeks.



Every engineer in Iraq, including nuclear physicists, was sent out to rebuild bridges. Within three months the telephone system was reconstructed. Whereas, when there was an electricity blackout in New York City in 2003, people over in Baghdad joked: “Let’s hope they’re not waiting for the Americans to fix it.”



US officials refer to Saddam’s government as a kleptocratic regime. But that description applies just as much to the reconstruction under the US. The initial reconstruction was done through the Development Fund of Iraq, which included all income from oil exports and leftover money from the Oil for Food programme (6). It was entirely under the control of the occupation authority, which used Iraqi money to sign large contracts with US contractors and a few companies which belonged to US allies. The authority could also sign contracts extending beyond the occupation, which any successor Iraqi government would then be obliged to pay.



During the 14 months of the occupation, the DFI contained a total of $21bn. At the end of those months the US had spent $18bn and committed Iraq’s successor government to pay billions more, much of it to US companies.



Stories of the mismanagement of these funds are legendary. On 29 June 2003 the US handed over control of the fund to the interim Iraqi government. In the two weeks before that, the US had airlifted $5bn in shrink-wrapped packages of $100 bills to Iraq, and had handed them out like candy. There were pictures of contractors arriving carrying duffle bags to hold the money; the US authorities not only didn’t count the money before handing it over, they didn’t even weigh it. $1.4bn was handed out, with no explanation or records other than the entry “Transfer of Funds”. The single largest amount that could not be accountedfor was $8.8bn transferred from the US-run Coalition Provisional Authority (CPA) to Iraqi ministries.



Hundreds of irregularities



All this has been documented by auditors, including those from US agencies. The DFI was audited by outside accountants KPMG and later Ernst & Young, hired by the UN international advisory monitoring board. Its report from December 2004 noted that there were “hundreds of irregularities” in the CPA’s contracting process, including missing contract information and payment for contracts that had not been supervised.



A typical KPMG audit for 2004 found 37 cases involving $185m of contracts where files could not be located; there were 111 cases with no documentation for services performed under the contracts (7). Another audit found that the Halliburton subsidiary firm, Kellogg, Brown & Root, had “significantly and systematically” violated US federal contracting rules by providing false information about its costs (8). Despite this, KBR’s contracts were repeatedly expanded and renewed.



As reconstruction projects were completed, stories emerged of terrible incompetence and neglect. The US awarded a contract to renovate Al-Hillah General Hospital, south of Baghdad, to include the installation of four new elevators. The project officer signed a certificate of completion, authorising full, immediate payment even though the project was not completed. Three months later an elevator crashed, killing three people. The contractor had never installed new elevators, only badly renovated the existing ones (9).



In another case, the contractor responsible for construction at Al-Sumelat water plant had done such incompetent work that the plant could not produce drinkable water: the pipeline was installed in three unusable segments, none of them connected to the main (10). There have been dozens more incidents involving shoddy work, goods that were never delivered or equipment that never worked.



The US agencies have tried to justify the slowness of reconstruction by referring to the poor condition of Iraq at the time of the 2003 “liberation”: “US projects have helped Iraq stabilise its oil production and recover from decades of neglect under the previous regime” (11). “Before April 2003 many of the country’s water treatment plants were in serious disrepair, and the wastewater treatment plants were either completely inoperable or only partially operational” (12). “The Iraqi healthcare system had not been funded or managed in a sustainable, systematic manner for at least two decades before liberation” (13).



But Iraq was in such poor condition not because of the neglect by the regime but because the US and its allies bombed its infrastructure in the 1991 war. Then the US used its veto on the Security Council for 13 years to block Iraq from importing any equipment to rebuild industry, agriculture, electricity production or the other things necessary for the functioning of an industrialised society.



The rationale behind the harsh economic sanctions was that the Iraqi regime would lose its legitimacy; the Iraqi people would see the state for the corrupt regime it was. The hardship would cause such desperation that the Iraqi people would rise up against Saddam and overthrow the regime. It did not happen under Saddam, but it is happening under the US occupation.



The abject failure to provide electricity and water, and to restart the economy, and the plundering by US companies, have all contributed to the insurgency that demands the departure of foreign troops.



Original text in English Joy Gordon is a professor of philosophy at Fairfield University, Connecticut



(1) Iraq Reconstruction Report, Washington, 6 February 2007.

(2) Government Accountability Office report GAO-05-876, Washington.

(3) Testimony of Stuart W Bowen Jr, Special Inspector General for Iraq Reconstruction (Sigir), 28 September 2006.

(4) “Review of the medical equipment purchased for the primary healthcare centres associated with Parsons Global Services,” Sigir 06-025, 28 July 2006.

(5) Bowen testimony, 18 January 2007.

(6) The Oil for Food programme was started in 1995 by UN Security Council resolution 986 and approved by Iraq in 1996: Iraq could export $2bn of oil every six months; this reached $5.2bn in 1998; 53% of the proceeds were to buy food and medicine, the rest was taken as reparation for victims of the 1991 Gulf war and to finance the management of the programme. In 2004 politicians in the US accused the UN of corruption in running the programme.

(7) “Development Fund for Iraq: Report of Factual findings in connection with Disbursement for the Period 1 January 2004 through 28 June 2004,” KPMG Bahrain, September 2004.

(8) Representative Henry A Waxman, “New Information about Halliburton contracts”, a report to Democratic members of the House Government Reform Committee, Washington, 10 March, 2004.

(9) Sigir report 05-023, “Management of RRRP contracts in south-central Iraq”.

(10) Sigir report to US Congress, July 2005.

(11) Quarterly update to Congress—2207 report, October 2006.

(12) Ibid.

(13) Ibid.