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Money as a Weapon
A modest program to put cash in Iraqis' hands stretches its mandate with big projects.

By Dana Hedgpeth and Sarah Cohen
Washington Post Staff Writers
Monday, August 11, 2008

In the five-year struggle to finish the war in Iraq, military leaders and their troops have said a particular weapon is among the most effective in their arsenal:

American cash.

Soldiers walk the streets carrying thousands of dollars to pay Iraqis for doorways battered in American raids and limbs lost during firefights. Sheiks appeal to commanders to use larger pools of money locked away in Humvees and safes at military bases for new schools, health clinics, water treatment plants and generators, knowing that the military can bypass Iraqi and U.S. bureaucratic hurdles.

Army documents show that $48,000 was spent on 6,000 pairs of children's shoes; an additional $50,000 bought 625 sheep for people described in records as "starving poor locals" in a Baghdad neighborhood. Soldiers ordered $100,000 worth of dolls and $500,000 in action figures made to look like Iraqi Security Forces. About $14,250 was spent on "I Love Iraq" T-shirts. More than $75,000 sent a delegation to a women's and civil rights conference in Cairo. And $12,800 was spent for two pools to cool bears and tigers at Zawra Park Zoo in Baghdad.

The money comes from the Commander's Emergency Response Program, which has so far spent at least $2.8 billion in U.S. funds. It is not tied to international standards of redevelopment or normal government purchasing rules. Instead, it is governed by broad guidelines packaged into a field manual called "Money as a Weapon System."

The program is intended for short-term, small-scale "urgent humanitarian relief and reconstruction." But as the broader $50 billion effort to rebuild Iraq with big infrastructure projects runs dry, CERP is by default taking on more importance as a reconstruction program, something it may not be equipped to do in a coordinated, nationwide way.

A review by The Washington Post of a government database detailing more than 26,000 CERP records, along with congressional documents and audits, plus interviews with troops and their commanders who have worked on the projects, reveals a program that has evolved beyond its original goals. It has often been used for large projects that can take years to complete, is largely divorced from other reconstruction efforts and lacks the structure needed for overseers to know how well the program works.

About $1 billion of the money spent so far has gone to 605 projects that exceed the Army's definition of "small scale," or more than $500,000 each. And $880 million was spent on projects that took longer than 6 months, considered the definition of "short term" by many commanders.

Government auditors have also found problems with record keeping. In one case, the Army couldn't fully account for $135 million in CERP payments. Auditors and other experts complain that they are unable to judge whether CERP is effective.

Soldiers and their commanders say the program works because there is little red tape, allowing them to fill immediate needs in their assigned towns and cities. On Capitol Hill and in the Pentagon, the program has become a "sacred cow," as one government auditor calls it. Few will openly criticize the popular program for fear of alienating the troops. CERP was recently given an additional $1.2 billion -- to be split between Iraq and Afghanistan -- according to a July report by the Office of the Special Inspector General for Iraq Reconstruction. That money brings the program's total to $3.5 billion. Lawmakers also have proposed to exempt it from restrictions on the spending for large reconstruction projects in Iraq in the future.

But after reports last week that the Iraqi government is running a budget surplus of up to $50 billion, two U.S. senators -- John W. Warner (R-Va.) and Carl M. Levin (D-Mich.), chairman of the Armed Services Committee -- have asked the secretary of defense to review CERP oversight and regulations and said they want Iraq to shoulder more of the rebuilding costs. Warner said he is particularly concerned about a $33 million hotel, office and retail complex at Baghdad International Airport, a project that he said is "far exceeding the purpose" of CERP.

"We never had in mind that it would be for major development," said Warner, who was one of the original supporters for funding CERP. "This was to help our troops fight the counterinsurgency and to help civilians get on their feet. It is looking like it is a bank for development."

Gen. Peter W. Chiarelli, who is vice chief of staff for the U.S. Army and in 2006 served as commanding general of the Multi-National Corps -- Iraq, said that he and commanders in the field have all seen violent incidents in certain areas decline when CERP spending goes up.

He said CERP is, in fact, a reconstruction program in addition to being a counterinsurgency weapon. After the firefights of the initial invasion, Chiarelli said, "you've then got somebody coming around to a commander, handing him a bag of $25,000 cash and saying to go rebuild Iraq."

But Chiarelli added that the military may not be equipped to maintain the schools, clinics and water projects it builds with CERP money. In one case in 2005, he said, he brought water to 220,000 houses in the Sadr City section of Baghdad using CERP funds. But when he went back a year later to check on whether the program had been expanded to more houses, it hadn't. "The problem is follow-through," he said.

Hearts and Minds

When Army Gen. David H. Petraeus led the 101st Airborne Division's occupation of Mosul and northern Iraq in 2003, posters hung in barracks reading, "What have you done to win Iraqi hearts and minds today?" Then he and his troops started spending money -- $58 million from an early CERP fund that came from seized Iraqi assets.

Petraeus, now the top U.S. commander in Iraq, was well-schooled in the use of money in counterinsurgency. He wrote his Princeton University dissertation on the lessons of Vietnam, where the U.S. military used a tool for "pacification" that looked a lot like CERP.

At the start of the U.S. occupation, many of Iraq's villages experienced few results from the large-scale rebuilding efforts managed from Baghdad. But a quick influx of cash from soldiers to fix urgent problems brought goodwill, military leaders and experts said.

"You can't shoot yourself out of an insurgency," said Marine Col. John A. Koenig, who oversaw $160 million worth of CERP projects in Anbar province last year. "A rifle only gets you so far. It shows you have some force. CERP allows you to develop our answer to al-Qaeda."

The program gives military leaders the flexibility to move quickly in an unstable, cash-only war zone. One litmus test, according to the field manual, which covers CERP and other military spending programs: "Would use of funds embarrass [the Defense Department] if shown on '60 Minutes'?" There are some restrictions, but by design, officers have broad discretion for small purchases.

Since the beginning of the program, CERP money has also been used to help compensate for the damage of war. The military calls these "condolence" payments and says they are "symbolic gestures" to families of Iraqis killed or injured in the war. The military is quick to say it is not accepting blame and is not trying to place a value on life.

Maj. Dana Hyatt, a fifth-grade social studies teacher in Connecticut who served in Haditha two years ago as a Marine reservist, said he was permitted to pay $500 for the loss of a leg or an arm. He paid up to $2,500 for a death -- a value that was written in the regulations.

Once a week, usually Tuesday afternoons, he walked from the military's operating base to the main intersection near the Euphrates River to hear Iraqis' stories. He'd spend the next day squaring the complaints with hospital and military records. On Thursdays, Hyatt and three armed Marines returned with banded stacks of American cash in plastic Ziploc bags.

"We'd set up shop," said Hyatt, who was a civil affairs officer for the 3rd Battalion, 1st Marines. "They knew I was the money guy." He gave $100 to a father who said his young son had fallen off a curb and broke his leg when U.S. planes swooped in low.

So far, nearly $50 million in condolence payments has gone to the families of killed and injured Iraqis. Last year, the United States paid $1.6 million to families of those injured in what documents call a "horrific" improvised explosive device attack in central Baghdad, documents show.

Property damage has brought smaller payments. Col. Joe Rice, an Army reservist who has served three tours in Iraq, said soldiers in his unit peeled off $50 for a ruined door of an Iraqi's house. A couch or window was worth $25. Residents "were amazed we would help them," Rice said of his most recent tour, in Baghdad. "They just weren't used to someone taking care of them, helping them."

The tactic was similar to the way Hezbollah operates in Lebanon, said Koenig, who was an adviser to one of the Marine generals in charge of large-dollar CERP projects. "Hezbollah shows up after an Israeli airstrike with cash and fixes the neighborhood," he said. Iraqi insurgents, including al-Qaeda in Iraq, "never did that," he said. "They would come in and take charge of an area, but they didn't come back and say, 'We're going to help you out here.' "

Paying outright bribes is prohibited. But in Iraq, nepotism is a common practice and can help keep projects and troops safe.

Now-retired Army Lt. Col. John A. Nagl, who served in Khalidiyah in 2004, hired a local contractor for $20,000 to build a new barracks for the Iraqi national guard. But the project was repeatedly bombed, and workers couldn't finish it. Nagl said he told an Iraqi commander of his problem.

"He tells me: 'It so happens my brother is a contractor. You hire him; my soldiers will provide the security,' " Nagl said. He hired the commander's brother, Iraqis guarded the site while it was under construction, and it was finished. "I didn't have to have as many Americans out there," said Nagl, who later went on to write the foreward to the Army's new counterinsurgency manual. "The barracks got built. You're using cash in a way that kept American soldiers alive."

But when CERP funds have been used for far bigger projects, the results can be problematic. Management and accountability of large contracts can be difficult for military personnel who are fighting a war, said James "Spike" Stephenson, a former U.S. Agency for International Development director in Iraq. "Their major job became not just fighting the war but becoming the de facto reconstruction guys. But they're not trained to run and sustain them. They are learning it on the battlefield."

Outside Kirkuk, in northern Iraq, an $8.3 million water treatment project completed in February with CERP funds took more than two years and was $1.7 million over budget -- and it is not far from another water treatment system that USAID paid $4.1 million to build two years ago, according to a top State Department official involved in the broader reconstruction efforts. He spoke on condition of anonymity because he did not want to undermine his relationships with his colleagues.

When auditors for the Office of the Special Inspector General for Iraq Reconstruction examined 173 projects of all sizes from 2006, they could find only 122 files. Many of the rest were missing key documents. In May, Pentagon auditors said they couldn't fully account for how $135 million of CERP money, mostly funds funneled through South Korean and Polish coalition forces, was used. It often takes months to enter CERP projects in the database that is supposed to track them. That database is missing key elements for one-sixth of the money, such as the year, location or the amount actually spent.

"You have this question of what is the money really trying to achieve," said Ginger Cruz, principal deputy inspector general for Iraq reconstruction. "When it was a little money, that was one thing. Now that we're talking $3.5 billion with another pot of $1 billion coming down the road, that's a lot of money."

Creating Jobs

With unemployment hovering at 60 percent in some areas of Iraq, CERP's highest priority is creating local jobs.

Along the highway leading to Baghdad International Airport, long considered one of the most dangerous roads in the country because of the constant threat of improvised explosive devices, workers were hired to paint a $900,000 mural depicting the progression of Iraq from fishing villages with seagulls and boats to oil refineries. Millions more were spent to plant and cultivate date palms, a crop decimated over the past two decades. Installing awnings worth $687,000 in a market in Baghdad was justified partly because, documents say, "adding the awnings will create 35 jobs for 3 months."

In the violence-prone city of Ramadi, Army Capt. Nathan Strickland and his battalion used CERP money to hire day laborers to clear away trash and rubble. The military strategy: Get young men to pick up shovels instead of guns.

Strickland and his fellow soldiers offered Iraqis $8 a day -- comparable to what a garbageman for the city would make but not more because Iraqi officials said that if the United States paid more, none of their workers would show up for government jobs. But when few showed up for one of Strickland's work programs, others figured out why. Another U.S. military unit was offering $10 because it didn't want to bother counting out one-dollar bills. "It wasn't synced together," Strickland said. "Everyone was trying to figure out how to do it on their own."

The largest jobs program began in 2007. Sons of Iraq, as it is now called, has paid more than 100,000 Iraqis $5 to $26 per day to guard checkpoints and patrol neighborhoods. The United States has spent more than $250 million on the program so far, records show.

Petraeus has told Congress that "the salaries paid to the Sons of Iraq alone cost far less than the cost savings and vehicles not lost due to the enhanced security in local communities."

But members of Congress, military strategists and government auditors said the problem is that there is no obvious way to end the program.

In their latest report, auditors at the special inspector general's office said the program is considered a "temporary security measure" but that only 14,000 Sons of Iraq members have transitioned to become part of the Iraqi Security Force.

"The Iraqi government should be stepping up to the plate to pay them," said Raymond F. DuBois, who is a senior adviser at the Center for Strategic and International Studies and was a top Pentagon official under former defense secretary Donald H. Rumsfeld. "You've got to figure out a way to keep them on your side with the payroll, or you inject uncertainty into the situation and some of them will find employment elsewhere on the black market."

Lawmakers have begun to question CERP's seemingly endless funding. They say Iraq has failed to spend enough of its budget, which consists mainly of oil revenue, on its own reconstruction. In May, the House of Representatives proposed capping future CERP funding at twice the level the Iraqi government pitched in.

In a Senate hearing this spring, Levin recalled a recent trip to a base near Diyala. He said a senior U.S. military officer told him of a successful garbage-collection program, paid for with CERP money, and the thanks he received from an Iraqi official, who added, "As long as you are willing to pay for the cleanup, why should we?"

Will the 'Rush' Last?

David Kilcullen, who has advised Petraeus on counterinsurgency strategy and who examined CERP last year, said the payouts are like dealing heroin -- "easy development money that undercuts our efforts to improve their financial governance." He warned that the projects are a "rush" that often doesn't last.

After spending more than $270 million in CERP money on schools, hospitals and health clinics, the U.S. government cannot say how many are in use and how many have been abandoned or attacked again, according to the Government Accountability Office.

One Ramadi health-care clinic became an al-Qaeda weapons cache, according to a senior officer in the region, whose unit found enough small arms, machine guns, IED components, rocket-propelled grenades and mortar rounds at the clinic to fill a small SUV. In Baghdad, soldiers recently hired Iraqis to rebuild a school in the violent Dora neighborhood for the third time after it was repeatedly attacked.

Redevelopment experts say the military is ill-equipped to check in on how CERP projects are sustained. The Pentagon has addressed the issue in recent changes to CERP regulations. Among the changes: Requiring commanders to have a "formal, highly visible transfer" of projects to Iraqi control. A May update to the "Money as a Weapon System" manual tells commanders to work directly with the local government to guarantee that Iraq will accept the work once it's done.

The problem is persistent. Earlier this year, in the northern province of Irbil, two schools reviewed by the Office of the Special Inspector General for Iraq Reconstruction included no provision for handover to the provincial government.

Last year, auditors found that a water treatment plant near Mosul that had been repaired with $237,000 in CERP funds and then transferred to the local government was not working months later because it had no electricity.

At a sewage treatment plant in Baghdad, the inspector general's auditors found that when a new U.S. commander arrived in the area and discovered that the plant had no power, he would use CERP money to pay for a generator. That happened three times.

"So at the end of the day, they've paid for the same generator three different times," said Cruz, the deputy inspector general for reconstruction. "Nobody's been there long enough to follow through."

When auditors for the Government Accountability Office surveyed commanders, they were told that many projects executed by their predecessors had been abandoned by the Iraqi government, been vandalized or simply disappeared. There is no requirement for regular monitoring of earlier projects, the GAO said, so there was no way to assess the success of the projects.

"We're Army guys," said Strickland, who helped distribute CERP money in Ramadi. "We're not civil engineers. We're not economists. We can't gut-check a lot of these programs."

"It's not their mission," said Gordon Adams, a former top international relations official for the Office of Management and Budget who has testified recently before Congress on Iraq reconstruction efforts. He said he doubts that the military should ever build schools or health clinics or other facilities that don't contribute to security improvements. "They've got a fairly Wild West approach to development. . . . If you build a clinic, that clinic needs medical support; it needs supplies. In six months, how is that going to be provided? It's not long-term development, to the degree it's development at all."

Staff writer Amit R. Paley and special correspondent K.I. Ibrahim in Baghdad contributed to this report. A special Washington Post correspondent reported from Anbar province. Staff researcher Julie Tate contributed from Washington.

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