U.S. Attorney Gets 3 Cases in Iraq Fraud Probe

By Griff Witte
Washington Post Staff Writer
Wednesday, June 22, 2005

The inspector general monitoring reconstruction in Iraq told Congress yesterday that he has presented evidence of three potential fraud cases to federal prosecutors in Alexandria.

The cases stem from an audit released last month that found that nearly $100 million intended for reconstruction projects in south-central Iraq could not be properly accounted for. The audit reported that criminal investigators were looking into the matter.

Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction, said publicly for the first time yesterday that his office gave the information to the U.S. attorney for the Eastern District of Virginia. Bowen would not provide details of the cases, which have the potential to set precedents in the largely untested legal realm of crimes committed by U.S. civilians in Iraq.

"If we uncover information with respect to a contractor who has misappropriated or fraudulently expropriated . . . dollars, then we will pursue that as a U.S. crime," Bowen said.

Bowen spoke at a House subcommittee hearing focused on U.S. handling of the Development Fund for Iraq (DFI), the successor to the United Nations' oil-for-food program. The multibillion-dollar fund, which is composed of Iraqi oil revenue and other Iraqi assets, was run by the U.S.-led Coalition Provisional Authority until last year. That fund is separate from the $18 billion that Congress earmarked in late 2003 for rebuilding Iraq.

An inspector-general report in January faulted the CPA for not implementing adequate controls over $8.8 billion in DFI money. As a result, the report concluded, "there was no assurance that the funds were used for the purposes mandated."

Rep. Henry A. Waxman (D-Calif.), a longtime critic of spending in Iraq, released his own report on U.S. management of DFI funds yesterday. "What we found was an appalling level of incompetence, mismanagement, waste, fraud and greed," he said.

Waxman depicted a post-invasion Iraq awash in $100 bills, all withdrawn from the DFI account at the Federal Reserve Bank in New York, collected in packs worth $1.6 million and flown to Baghdad for use in establishing government ministries and paying contractors.

"With so much cash arriving in Iraq, you might think that extensive precautions would be taken to account for the funds. But exactly the opposite happened: U.S. officials used virtually no financial controls to safeguard the Iraqi funds," Waxman said.

While agreeing that the money was not properly managed, Bowen sought to temper any suggestion that there was widespread malfeasance. "We have investigations going on with respect to fraud . . . but our audits point primarily to inefficiencies," he said.

One major recipient of DFI money, Halliburton Corp., was a point of contention between subcommittee members and Pentagon officials yesterday. Subcommittee members objected to the fact that Pentagon officials had heavily redacted internal Defense Department audits before providing them to a U.N. board charged with monitoring the DFI program. The audits found more than $200 million in questioned charges that Halliburton had passed to the government, primarily on a no-bid contract for importing fuel.

Pentagon officials said they relied on the company's suggestions for deciding what parts of the audits to redact because they didn't want Halliburton's proprietary information made public. House members from both parties objected to that reasoning.

"Overcharges to the government are not trade secrets," said Rep. Carolyn B. Maloney (D-N.Y.).

Rep. Christopher Shays (R-Conn.), chairman of the House Government Reform Committee's subcommittee on national security, emerging threats and international relations, said the redactions "regretfully, very regretfully, make it appear DOD has something to hide. This undermines our international standing and, even more importantly, harms our efforts in Iraq."

Shays said he has repeatedly "begged" the Pentagon to provide Congress with the documents underlying its decision to black out parts of the audits. Yesterday, he threatened to seek a subpoena if the documents aren't provided by Monday.

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