$8.7 Billion Missing – NGOs Blame Lack of Accountability

The NGO Coordination Committee in Iraq (NCCI) has issued the following statement regarding the $8.7 billion of Iraqi funds that cannot be accounted for:

Last week, the US Special Inspector General for Iraq Reconstruction (SIGIR) issued an audit stating that the Pentagon cannot account for 96 percent of $9.1 billion that was set aside for reconstruction and humanitarian relief in Iraq after the 2003 US-led invasion. While the audit accused the US Department of Defense (DoD), the administrator of these funds, of “lax oversight” and “weak control”—rather than outright fraud—the Iraqi government may attempt to take legal action in the coming months and recover these funds. The missing $8.7 billion is critically needed to improve basic services like water, electricity and food security amongst the most vulnerable Iraqi populations.

The Development Fund for Iraq (DFI) was created in May 2003 by the Coalition Provisional Authority (CPA), the American occupation administration that handled all governmental affairs—including reconstruction and humanitarian relief—in Iraq post-invasion. On 22nd May 2003, the UN Security Council Resolution 1483 recognized the DFI under the following terms:

“The DFI shall be used in a transparent manner [by the CPA] to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq’s infrastructure, for the continued disarmament of Iraq, and for the costs of Iraqi civilian administration, and for other purposes benefiting the people of Iraq.”

Using the CPA as a conduit, the DoD primarily administered the DFI between 2003-2004. When the CPA was disbanded in June 2004, the Iraqi transitional government authorized the DoD to continue overseeing the DFI until December 2007.

In administering the DFI, the CPA and DoD allocated most of the funds to private American companies and contractors to implement reconstruction programmes. In this process, the DoD failed to follow the US Department of Treasury’s guidelines established for all US agencies operating in Iraq. Namely, the DoD did not create required bank accounts for the funds or designate any organization as the executive agent to manage their usage. This “breakdown in controls” made funds vulnerable to “undetected loss” and “inappropriate uses” according to the audit.

Some of the DFI funds were certainly spent in Iraq, yet the extent to which the unaccounted money was lost to waste and corruption is entirely speculative. After the 2003 invasion, “Iraq was awash in cash—in dollars and bills. [There were] piles and piles of money,” said Frank Willis, a former CPA official. More than $12 billion in cash was transferred to Iraq in the first fourteen months. According to Alan Grayson, a whistleblower working with other lawyers to further expose the CPA’s corruption, “American law was suspended, Iraqi law was suspended, and Iraq basically became a free fraud zone.” Another audit of the DFI in 2009 exposed cases of bribery, fraud and money laundering involving several DoD and CPA officials.

The SIGIR’s audit brings another alarming issue to light: The DoD is likely holding and spending DFI funds today— at least $34.3 million according the auditors’ rough estimates—although the US is no longer vested with any legal authority to do so. Since 2007, the Iraqi Ministry of Finance supposedly assumed full control over managing the DFI funds. However, the DoD cannot locate most of the DFI funds that seem to have vanished in the Iraqi government’s and Pentagon’s bureaucracies.

The DFI includes Iraqi oil and natural gas revenues, surplus funds from the UN Oil-for-Food Program (1995-2003), and frozen Iraqi assets that were seized from the previous Ba’ath government. The untraceable $8.7 billion derives from the Iraqi people and their government’s resources, rather than foreign donors or the US government. Since the audit’s findings were released, Sabah Al-Saedi, chairman of the Integrity Committee in Iraq’s parliament, has publically suggested that “Iraq should take legal action to get back huge amounts of money [that disappeared from the DFI].” He elaborated that the Iraqi government urgently needs this money “for rebuilding the country and providing services for this poor nation.”

Since the invasion, US funds have provided more than $50 billion for major reconstruction projects in Iraq. Paradoxically, many of the same humanitarian concerns from 2003 persist. Regional experts, such as Patrick Cockburn, still concur that “no country in the world needs more investment [for economic growth and humanitarian operations] than Iraq.” This begs the question: Why was the occupying force charged with overseeing the delivery of major funds earmarked for recovery in the first place?

Iraq now ranks seventh in the 2010 Failed States Index, faces an ongoing power vacuum, and has multiple vulnerable areas in dire need of humanitarian assistance. The Iraqi people continue to await the restoration of their nation’s overburdened national electricity grid, reconstruction of adequate water treatment facilities, and attention to a number of other lingering, unmet basic needs. Tensions in Iraq are still mounting as money fails to translate into tangible results or improve basic standards of living. As usual, it is the Iraqi people who must pay the price for corruption in relief programs, similar to what was experienced during the Oil-for-Food Programme established by another UN Security Council resolution (1995-2003).

This audit’s findings come at a time of waning donor support from nations which were formerly key funders of Iraq’s humanitarian sector, including the US and the United Kingdom (UK). As Mercy Corps and NCCI discussed in a recent joint policy brief, funding shortages are threatening many UN agencies’ and NGOs’ ability to continue or expand long-term humanitarian relief operations in Iraq. The audit further highlights that Iraqis did not receive adequate support for humanitarian relief and reconstruction. Donor support for Iraqi civilians, especially from the US and UK, is not only necessary; it is also an ethical obligation.

Moreover, Iraq needs more than an increase in funding. Future funding should also be characterized by a high level of accountability and transparency. Humanitarian actors must ensure that effective Monitoring and Evaluation (M&E) programmes track financial transactions and assess progress of humanitarian relief operations in Iraq to prevent future mismanagement of Iraqi humanitarian relief funds on such a large scale.

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