Billions in Iraqi reconstruction money finally accounted for

A federal audit has finally accounted for nearly $6.6 billion in Iraqi reconstruction money that seemed to have disappeared after the U.S.-led invasion of Iraq, ending a mystery that highlighted the chaos of the early days of the U.S. occupation.

The Pentagon flew the Iraqi cash under its control to Baghdad in planeloads of shrink-wrapped bundles of $100 bills in 2003 and 2004. But its failure to keep complete records showing where the money went fueled concern that some or all of it had been stolen.

After a burst of unflattering publicity in the spring, officials of the Central Bank of Iraq and the U.S. Federal Reserve gave investigators access to their records, helping them determine that most of the money had been turned over to Iraqi authorities.

The audit, by the Special Inspector General for Iraq Reconstruction, concludes that “sufficient evidence exists showing almost all” of the money was properly transferred to the Central Bank of Iraq.

Still, the audit found cases in which money remained unaccounted for or proper procedures were violated.

The auditor, for example, has been unable to explain what happened to $217 million that was delivered to U.S. Defense officials to be kept in a vault in the basement of a presidential palace in Baghdad. The audit also cites a case in December 2003 in which U.S. authorities turned over $150 million in cash to the Iraqi finance minister at the Baghdad international airport, a violation of Iraqi rules.

The report appears likely to defuse what had become a delicate issue between the U.S. and Iraqi governments. Iraqi officials approached the United Nations this spring to denounce the disappearance as a “financial crime” and demand that Washington make restitution.

The $6.6 billion was part of a total pot of $21 billion in Iraqi funds that the U.S. Coalition Provisional Authority controlled when reconstruction began. U.S. authorities, seeking to move forward quickly with rebuilding efforts, often disbursed money with spotty record-keeping. The money came from sales of Iraqi oil and other government assets and from the U.N.-administered oil-for-food program that was imposed during the regime of Saddam Hussein. Much of the money had been held by the Federal Reserve Bank of New York.

The inspector general conducted audits on the missing money both this year and last, trying to find out where it was when the Coalition Provisional Authority closed its doors in the spring of 2004 as the Iraqis reclaimed sovereignty.

Stuart Bowen, the inspector general, said in an interview that he would present his findings next month to a committee of top Iraqi officials in Baghdad to try to satisfy their concerns. The Iraqis “have been eagerly awaiting our results,” he said.

How the Iraqi money was handled after it was turned over to Iraqi authorities is an issue for the Iraqis, not his office, Bowen said. But he noted that audits had repeatedly shown that reconstruction funds had been disbursed improperly in Iraq, so it is fair to assume that some of the money has been lost to corruption.

“Corruption has been a continuous problem in Iraq,” he said.

The inspector general is still investigating how Defense officials spent $2.8 billion the Iraqis gave them for other reconstruction projects.

paul.richter@latimes.com