|$1.9 Billion of Iraq's Money Goes to U.S. Contractors
By Ariana Eunjung Cha
Washington Post Staff Writer
Wednesday, August 4, 2004; Page A01
Halliburton Co. and other U.S. contractors are being paid at least $1.9
billion from Iraqi funds under an arrangement set by the U.S.-led occupation
authority, according to a review of documents and interviews with government
agencies, companies and auditors.
Most of the money is for two controversial deals that originally had been
financed with money approved by the U.S. Congress, but later shifted to
Iraqi funds that were governed by fewer restrictions and less rigorous
For the first 14 months of the occupation, officials of the Coalition
Provisional Authority provided little detailed information about the Iraqi
money, from oil sales and other sources, that it spent on reconstruction
contracts. They have said that it was used for the benefit of the Iraqi
people and that most of the contracts paid from Iraqi money went to Iraqi
companies. But the CPA never released information about specific contracts
and the identities of companies that won them, citing security concerns, so
it has been impossible to know whether these promises were kept.
The CPA has said it has awarded about 2,000 contracts with Iraqi money. Its
inspector general compiled records for the major contracts, which it defined
as those worth $5 million or more each. Analysis of those and other records
shows that 19 of 37 major contracts funded by Iraqi money went to U.S.
companies and at least 85 percent of the total $2.26 billion was obligated
to U.S. companies. The contracts that went to U.S. firms may be worth
several hundred million more once the work is completed.
That analysis and several audit reports released in recent weeks shed new
light on how the occupation authority handled the Iraqi money it controlled.
They show that the CPA at times violated its own rules, authorizing Iraqi
money when it didn't have a quorum or proper Iraqi representation at
meetings, and kept such sloppy records that the paperwork for several major
contracts could not be found. During the first half of the occupation, the
CPA depended heavily on no-bid contracts that were questioned by auditors.
And the occupation's shifting of projects that were publicly announced to be
financed by U.S. money to Iraqi money prompted the Iraqi finance minister to
complain that the "ad hoc" process put the CPA in danger of losing the trust
of the people.
Kellogg Brown & Root Inc., a subsidiary of Halliburton, was paid $1.66
billion from the Iraqi money, primarily to cover the cost of importing fuel
from Kuwait. The job was tacked on to a no-bid contract that was the subject
of several investigations after allegations surfaced that a subcontractor
for Houston-based KBR overcharged by as much as $61 million for the fuel.
Harris Corp., a Melbourne, Fla., company, got $48 million from the Iraqi oil
funds to manage and update the formerly state-owned media network, taking
over from Science Applications International Corp. of San Diego. The new
television and radio services and newspaper have been widely criticized as
mouthpieces for the occupation and symbols of the failures of the
reconstruction effort. When it was being financed with U.S.-appropriated
funds, the contract drew scrutiny because of questionable expenses,
including chartering a jet to fly in a Hummer H2 and a Ford pickup truck for
the program manager's use.
Fareed Yaseen, one of 43 ambassadors recently appointed by Iraq's
government, said he was troubled that the Iraqi money was managed almost
exclusively by foreigners and that contracts went predominantly to foreign
"There was practically no Iraqi voice in the disbursements of these funds,"
Yaseen said in a phone interview from Baghdad, where he is awaiting his
Even Iraqi officials who served in the government while the CPA was in
charge complained they had little say in the use of their own country's
money. Mohammed Aboush, who was a director general in the oil ministry
during the occupation, said he and other Iraqi officials were not consulted
about expanding the KBR contract. But he said he informed his American
"advisers" at the CPA that the Iraqis felt KBR's performance had been
inadequate and that he'd prefer that another company take over its work.
Aboush said that he was ignored and that he believes the decision to go with
KBR was political. "I am old enough to know the Americans and their
interests and they are not always the same interests as the Iraqi
interests," he said.
U.S. officials contend the CPA was faithful to the terms of a United Nations
resolution that gave the United States authority to manage the Iraq oil
money during the occupation. "We believe that contracts awarded with Iraqi
funds were for the sole benefit of the Iraqi people, without exception,"
Brig. Gen. Stephen M. Seay, head of contracting activity for the successor
to the CPA's office, wrote in a response to a critical CPA inspector general
report released last week.
The CPA identified the best company for each job, said Army Lt. Col. Joseph
M. Yoswa, a Defense Department spokesman. He said shortcomings in the
contract-award process should be looked at in the context of the volatile
work environment in Iraq, where the need for speed and security were
Critics of the CPA accused the occupation authority of using Iraqi money to
bypass U.S. contracting rules on competition, oversight and monitoring for
"With American firms charging 10 times as much as Iraqi firms for
construction work, with sole-source contracts being awarded, with
allegations of money-wasting . . . is it likely that the CPA was doing its
best to ensure Iraqi money was spent in Iraqi interests? It doesn't look
like it," said Anthea Lawson, an analyst for Christian Aid, a nonprofit
group that has been investigating the spending of Iraqi oil money.
Svetlana Tsalik, director of the Iraq Revenue Watch project of the Open
Society Initiative think tank, said there were few clear distinctions
between which pot of money -- U.S. or Iraqi -- the CPA would use to pay for
reconstruction. "Whenever it had expenses that looked unpalatable for the
U.S. public they would just dip into Iraqi funds," Tsalik said.
While it ran Iraq, the CPA had at its disposal at least $45 billion -- the
biggest reconstruction fund since the Marshall Plan rebuilt Europe after
World War II. The money included $22 billion that Congress appropriated in
two supplemental spending bills, and $23 billion in two Iraqi accounts, one
holding proceeds from oil sales and the other seized assets, including
frozen overseas bank accounts from the Hussein years.
In most cases, to spend congressionally appropriated funds, CPA officials
had to coordinate with officials in Washington, keep detailed records,
advertise contracts widely and conform to waiting periods for bids to come
in. Some of the money was held up by a turf war between the Pentagon and the
State Department over who controlled the reconstruction.
It was simpler to use the Iraqi money.
Nearly all the Iraqi assets were held in what was known as the Development
Fund for Iraq. It was used primarily to support Iraqi government ministries
by paying salaries and expenses, according to budget documents. But some of
the fund was used to pay private contractors for reconstruction projects.
The main restriction on spending the money was that it be used for the
benefit of the Iraqi people.
To get access to the funds, all that was usually needed was the
recommendation of an entity called the Program Review Board, made up of 10
members and a chairman, according to former CPA officials. The final
authorization required a single signature -- that of L. Paul Bremer, the
occupation's top civil administrator.
CPA officials have acknowledged that contracts were sometimes shown to a
just a few bidders and that winners were picked within days. Several of the
large contracts that went to U.S. companies, for example, were awarded with
no competition, including a $16.8 million contract awarded to Custer Battles
LLC of McLean to provide security for the main U.S. military base in
Baghdad, and a $15.6 million contract for police radios awarded to Motorola
Inc. of Schaumburg, Ill., the CPA inspector general's compilation shows.
Iraqi company executives have complained since the first days of the
occupation that the process favored U.S. firms. They said in interviews that
they could not get through the heavily guarded gates of the occupation
headquarters in the Green Zone to meet with contracting officers. They also
said the process was so secretive that they had to bribe CPA translators to
get information about what requests for bids were coming up.
In April, the CPA announced that contracts worth less than $500,000 awarded
from the Iraq oil fund should go only to Iraqi companies.
The biggest contract obligation paid with Iraqi money went to KBR. The
oil-services company's work began in early 2003, before the war with Iraq
began, when the U.S. Army Corps of Engineers gave it a no-bid contract worth
as much as $7 billion to repair Iraq's oil infrastructure. There were fears
that Hussein would set the oil fields ablaze, and the U.S. government
believed that it needed a contractor lined up to go in right behind invasion
The first tasks KBR performed under the contract -- training for and
advising on a safe shutdown of oil facilities, pre-positioning spill
equipment and preparing repair plans -- were paid for with U.S. funds.
But in fall 2003, the occupation was confronted by a different kind of oil
problem. It had become clear that pipeline sabotage was causing a shortage
and the occupation authority decided that it had to import fuel to prevent a
Meanwhile, some members of Congress expressed their disapproval of using
more U.S. money for KBR's no-bid contract. In meetings on Nov. 11 and Nov.
29 in Baghdad, the CPA authorized tapping Iraqi funds to import fuel and fix
the distribution system, according to minutes of CPA meetings. The task was
added to KBR's contract and no new bids were sought, even though the funding
In all, KBR was paid $2.53 billion, $1.64 billion of which came from the
Iraqi funds, according to an analysis for The Washington Post by Andre
Verloy, a researcher for the Center for Public Integrity.
Verloy said the commingling of U.S. and Iraqi money to pay for tasks under a
single contract raises significant oversight issues. "It is often difficult
enough to find out where the money is coming from, but if U.S. taxpayer
funds are used alongside Iraqi money, who has the ultimate oversight?" he
said. "Can Congress oversee work funded with Iraqi assets? Should U.S.
government agencies even pay U.S. companies with Iraqi money?"
The CPA also shifted the funding source for several other contracts.
As U.S. money for Stevedoring Services of America Inc.'s contract to manage
the port of Umm Qasr began to dwindle, CPA officials on March 6 authorized
an infusion of Iraqi money to keep the company in place until the transfer
of authority. Sometime this spring, a few months into Harris Corp.'s media
contract, the CPA stopped using Defense Department money to pay Harris and
began charging the Iraqi oil funds.
On April 24, a little over a month after complaints by a losing bidder of
political favoritism and a flawed contracting process prompted the U.S. Army
to cancel a $327 million contract funded by U.S. money to Nour USA Ltd. of
Vienna, the CPA awarded the company a different contract from Iraqi money.
The new $9.9 million contract was for supplying the Iraqi security forces
Two recently released audits point to numerous problems with the procedures
the CPA used to account for, authorize and disburse Iraqi money.
The United Nations, in a report dated July 15, noted that metering of oil
extracted from Iraq was not functioning so it was impossible to tell whether
all of it had been accounted for. The U.N. report also criticized the CPA's
program review board for authorizing funds in at least 10 cases when it
lacked a quorum. The audit also noted that only one of the review board
members was Iraqi, and he had attended only two of the 43 meetings held by
December 2003. "Controls were insufficient to provide reasonable assurance .
. . whether all [Iraqi oil-funded] disbursements were made for the purposes
intended," the audit concluded.
The CPA's inspector general found in audits released last week that the
occupation failed to establish "effective funds controls and accountability"
for hundreds of millions of dollars that were held in cash. In fact, the
investigative unit said, the keys to one of the safes that held the cash was
"kept in the disbursing officer's unattended backpack."
It also studied 60 disbursements from assets seized from the former regime
and found that no documentation existed for five of them, totaling $99.1
million in payments. Paperwork had not been properly filled out for items
such as furniture, carpets and vases, meaning, the inspector general said,
that the CPA was not able to ensure that the assets "would be available for
the use and benefit of the Iraqi people."
Special correspondent Omar Fekeiki in Baghdad contributed to this report.