Iraq Kurds Shortchanged, They Say, by Massive U.S. Cash Drop

The $100 bills were all new. They came wrapped in plastic and loaded on wooden pallets. Altogether, the money weighed 15 tons, enough to fill three U.S. military helicopters. It totaled $1.4 billion.

In a little-known operation during the final days of the U.S.-run Coalition Provisional Authority, American military helicopters flew the shipment of cash to Irbil, Iraqi Kurdistan’s largest city.

U.S. troops were waiting on the ground at the airport to unload the money and take it under heavy guard to the headquarters of the province’s central bank in the city’s core.

The cash payment, which was approved by outgoing U.S. administrator L. Paul Bremer III, was delivered on June 23, 2004, five days before he returned sovereignty to a new Iraqi government in Baghdad and left the country. The money, which came out of prewar oil revenue, was given to top officials with Iraq’s two Kurdish provincial governments.

“For us it was so strange,” said Rashid Taher, director of finance in Irbil province. “We received it as cash at the airport. Paul Bremer delivered it to us, and we still have the money.”

Kurdistan officials say the secret, last-minute shipment highlighted the sometimes-questionable handling of billions of dollars by the United States during the 14 months Bremer ran Iraq.

They say the cash was only part of the $4 billion the region was owed under the United Nations oil-for-food program. And they contend that Bremer improperly used Kurdistan’s remaining $2.6-billion share of the U.N. fund for other purposes during his administration of Iraq.

Mahmoud Othman, an Iraqi Kurd who served on the U.S.-appointed Governing Council during the Bremer era, charged that airlifting $1.4 billion in cash to Irbil was an attempt to win the silence of Kurdish leaders after Bremer had squandered the rest of the money. Othman has called for an investigation into the handling of the funds.

“He did this, which is not normal, because he himself had made a mess,” said Othman, who serves in the transitional Iraqi National Assembly.

“He had spent part of the $4 billion, and he had to do this to keep their mouths shut about it.”

Efforts to reach Bremer, who has said little in public since leaving Iraq, were unsuccessful.

A former top official of the CPA, who did not want to be identified because he was not authorized to speak on behalf of the defunct agency, confirmed that the transfer took place and put the amount at $1.6 billion.

He said the CPA considered the payment a fair distribution of Iraqi oil revenue received during the Bremer-led provisional government.

The Kurds’ contention that they were owed a total of $4 billion, he said, was unfounded.

“I don’t know anybody in the CPA or the Iraqi Ministry of Finance who thought that the higher figure was realistic,” the official said. The payment “represented the CPA’s view of what was equitable relative to the Kurds.”

He said the money was not delivered to Irbil until late June because oil-for-food funds had not been released by the U.N. until that spring, when the CPA received $2.5 billion.

The International Advisory and Monitoring Board, which was responsible for overseeing the Development Fund for Iraq under the CPA, said its auditor, the private firm KPMG, looked at the transfer in advance and approved it.

“IAMB reviewed the transfer to the Kurds and found it properly accounted for,” said Bill Murray, a spokesman for the board.

After the money arrived, the finance ministers of the two Kurdistan provinces, Irbil and Sulaymaniya, split it according to the size of their populations. Irbil kept $798 million and Sulaymaniya received $602 million, Kurdish officials say.

Sulaymaniya’s share was trucked 3 1/2 hours over the mountains to its capital city, also called Sulaymaniya, in a convoy protected by a large detachment of Kurdistan’s battle-hardened peshmerga soldiers.

In a region where corruption is endemic, the unpublicized delivery of such a large amount of cash might seem an invitation to embezzlement.

Late last year, some Kurdish officials and international bankers discussed the possibility of putting some of the money into a Swiss account, said a source in the international banking community who requested anonymity.

A Washington firm employed by Kurdish officials met with representatives of international banks to see if there was a way to transport the money safely out of the country, the source said. In the end, however, the Kurds apparently were unable to find an international bank willing to handle the transfer.

Officials in Kurdistan deny that any meeting took place with foreign bankers to discuss moving the cash. They insist that all the money remains in Kurdistan.

In Irbil, officials said their $798-million share remained untouched at their central bank and would be spent on projects such as dams and power stations.

In Sulaymaniya, officials said they had begun spending their money on similar public works projects but would not discuss how much had been disbursed or to whom. Deputy Finance Minister Dilshad Othman said the province provides an accounting of its expenditures only one day of the year, Dec. 31.

“The money is in safe hands and will be spent transparently,” he said.

Finance officials in both provinces noted that an audit by KPMG established that all of the cash remained in the two capitals.

“An auditing team came from America,” said the deputy minister, who is from the same clan as Mahmoud Othman but is not closely related. “They reviewed our papers and they made sure that the right procedures have been followed. They even took photos of the money.”

The oil-for-food program was set up under the auspices of the United Nations in 1995 to ensure that, despite international economic sanctions, Iraq received sufficient food supplies from abroad in exchange for limited sales of its oil.

Under Saddam Hussein, the revenue was spent in Arab parts of Iraq but not in Kurdistan, which had operated autonomously after the Persian Gulf War in 1991.

Kurdistan’s share of the fund was set at 13%. At least $4 billion accrued in Kurdistan’s name, Kurdish officials say, and some contend that the amount could be as much as $5.5 billion.

After the U.S.-led invasion of Iraq in 2003 and Bremer’s appointment as the nation’s administrator, Bremer took over the handling of the fund.

In an audit of the CPA this year, the special inspector general for Iraq reconstruction said Bremer’s agency had mishandled billions of dollars earmarked for the country’s development, including $2.5 billion from the oil-for-food program.

The $2.5 billion was spent without being included in a CPA budget, the audit concluded.

Mahmoud Othman, the former Governing Council member, applauded efforts by U.S. Rep. Henry A. Waxman (D-Los Angeles) to continue investigating the handling of funds under the Coalition Provisional Authority.

“There are some illegalities, some irregularities,” he said. “I think Congress should investigate because whenever the Governing Council talked to Bremer about how much was spent, he would say, ‘This is not your business because this is American money, and I am only accountable to the Congress.’ ”

For many in Kurdistan, which had struggled in isolation for more than a decade before Hussein’s ouster, receiving any money from the oil-for-food program was welcome.

“From our perspective, any amount that came to Kurdistan is a victory for us,” said Taher, the Irbil finance director. The region will continue trying to obtain more money from past oil revenue, he said, but he fears it is a “hopeless effort.”

“We don’t know even where the money is,” he said. “There is a shadow over this subject.”

The 2004 payment was delivered in cash, Kurdistan officials said, because the banking system is so primitive that it was not possible to make a bank transfer of that magnitude. Banks in Kurdistan today still cannot process credit card payments, and businesses here deal in cash -- American dollars or Iraqi dinars.

“You know in Iraq there is no effective bank network. The main problem of Iraq in the field of finance is money transfer,” Dilshad Othman said. “We believe that when we are able to create a modern banking network in Iraq, then we will be able to rebuild our economy effectively.”

Kurdistan officials said the money was transported by helicopter because it was the safest method in the war-torn country.

Even today, payments from the central government in Baghdad are delivered in cash, but now the U.S. military does not provide helicopters and the money must be delivered by road from Baghdad two or three times a month.

At times, convoys carrying the money have been attacked by insurgents.

“In the beginning they were transferring money by helicopters, but unfortunately right now they do not help this way,” said Sulaymaniya Finance Minister Bayez Talabani. “For security reasons we have a big problem transferring money. It is a big danger, but no solution has been found.”

For Mahmoud Othman, the U.S. administration’s handling of Iraqi funds has encouraged new levels of corruption that in the long run pose as much of a threat to Iraq’s stability as the insurgent violence that has swept the country.

“Iraq has been dealt with as a business, not as a country or a people,” he said. “Many people have gotten very rich at the expense of the poor Iraqi people and the American taxpayers.”

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Paddock reported from Irbil and Miller from Washington.