Iraq Funds Are Focus of 27 Criminal Inquiries

Times Staff Writer

A comprehensive examination of the U.S.-led agency that oversaw the rebuilding of Iraq has triggered at least 27 criminal investigations and produced evidence of millions of dollars’ worth of fraud, waste and abuse, according to a report by the Coalition Provisional Authority’s inspector general.

The report is the most sweeping indication yet that some U.S. officials and private contractors repeatedly violated the law in the free-wheeling atmosphere that pervaded the multibillion-dollar effort to rebuild the war-torn country.

More than $600 million in cash from Iraqi oil money was spent with insufficient controls. Senior U.S. officials manipulated or misspent contract money. Millions of dollars’ worth of equipment could not be located, the report said.

“We found problems in the CPA’s financial management, procurement practices and operational controls,” Stuart W. Bowen Jr., the inspector general, wrote in the report. “These results are not surprising: The CPA faced a variety of daunting challenges, including extremely hazardous working conditions.”

The report raises anew questions surrounding the occupation government under Ambassador L. Paul Bremer III, who turned over control in June to an interim Iraqi government.


The coalition’s failures continue to haunt the country today as Iraqis struggle with security issues and infrastructure problems with electricity, transportation and water.

The Times has reported on several cases in which a small circle of former Republican administration officials had drawn scrutiny for their actions in Iraq, including a deputy undersecretary of Defense under investigation by the FBI in connection with a telecommunications contract. In another case, officials have said, a former senior U.S. advisor conducted negotiations with a family connected to Saddam Hussein to form a new Iraqi airline.

Former CPA officials and contracting experts said they were surprised at the number of criminal investigations described in Bowen’s report. They noted that criminal corruption charges in the U.S. involving federal contracting were rare.

The CPA has disbanded, and Pentagon officials did not return calls for comment.

Iraq was “a much more Wild West environment. It’s a wartime environment,” said Steven Kelman, a Harvard professor and contracting expert. “I wouldn’t be surprised if, psychologically, some folks have the idea that they’re risking their lives under difficult conditions. They justify that they’re entitled to a salary increase.”

The report cited several criminal cases under investigation, though it provided no names and few details.

In one case, a senior U.S. advisor “manipulated” the contracting system to award a $7.2-million security contract. The contract was later voided and the money returned.

In another incident, a contractor billed $3.3 million for nonexistent personnel working on an oil pipeline repair contract. A security contractor guarding the pipeline overcharged the CPA by $20,000. Both incidents are under criminal investigation.

In another example, a military assistant to a Pentagon employee gambled away part of a $40,000 grant issued to help coach an Iraqi sports team, the report found.

“In the early days, there was no record keeping. They were flushed with money and seized assets. People just didn’t follow established procedures,” said Charles Krohn, a former CPA official. “You were dealing with inexperienced people who didn’t understand that there’s always a day of reckoning.”

Besides the more than two dozen criminal cases under investigation by the inspector general, about 35 other matters have been referred to other U.S. agencies for further investigation, said James Mitchell, an inspector general spokesman.

He did not know how many of the criminal cases involved U.S. citizens, or what actions the other agencies have taken in regard to the referrals.

So far, he said, none of the criminal investigations has resulted in a prosecution.

“It’s only been a short time that we’ve been in business,” Mitchell said.

The CPA inspector general’s office began in January and has more than 100 employees continuing investigations.

Many of the report’s findings concern the handling of Iraqi oil revenue, which was placed into a special account called the Development Fund for Iraq. All told, more than $20 billion passed through the account, which was not subject to the same stringent contracting and accounting rules as U.S. government money.

Several former CPA officials interviewed in the past have said the development fund was seen as a way to get quick approval for reconstruction projects without the hassle of burdensome contracting regulations.

Many of the former officials have also acknowledged that they frequently suspected or were told that officials used the money to pay bribes or buy favors for allies and family members.

“It’s just like anybody who wanted something would get it [through the development fund] and then the money would go out,” one former CPA official said. “Some people were working the system, trying to figure out how to get their hands on a lot of loose cash lying around.”

CPA officials have vigorously defended their handling of the Iraqi money, saying that all actions were taken transparently. A recent United Nations audit largely backed up that assessment, with U.N. officials raising concerns that not all of the money that entered the fund could be adequately tracked.

Several of the CPA departments criticized by the report objected to the findings. In one case, inspectors questioned the location of $18.6 million worth of property owned by the CPA. Most of the material, including electric generators and cars, was later found.

Other CPA officials acknowledged the problems, but said that improvements were made as time passed.

“It is important to recognize that during the time frame this audit covered, [development fund] procedures were continuously being improved and modified,” said U.S. Air Force Col. Don D. Davis, the CPA’s former comptroller. “In fact, many of the findings identified in this report were already being addressed by this staff.”