Iraq reconstruction has lessons on tackling corruption - US inspector

by Stella Dawson | | Thomson Reuters Foundation
Thursday, 2 May 2013 11:09 GMT

A view of a bridge under construction in Alawi district in central Baghdad, August 21, 2011. REUTERS/Mohammed Ameen

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The U.S. reconstruction effort in Iraq was riddled with fraud, waste and abuse, and setting up a single agency to plan and implement such projects would save billions of dollars, says Special Inspector General Stuart Bowen.

WASHINGTON (Thomson Reuters Foundation) – The biggest lesson on preventing corruption for the United States from its $60 billion reconstruction of Iraq is that one agency needs to be in charge of planning and management, the top oversight  officer says.

Iraq was the largest ever foreign aid program at that time, exceeding the Marshall Fund for Europe after World War II, yet its results pale in comparison.

Ten years after the invasion, electricity in Iraq is available only a few hours a day, many hospitals are in poor condition and medical supplies remain severely depleted, telephone service is patchy and some new U.S.-funded buildings sit half finished.

About 15-20 percent of the U.S. money spent on reconstruction has disappeared in corruption, waste or mismanagement, and money laundering today is a major problem, Stuart Bowen Jr., the Special Inspector General for Iraq Reconstruction, said in an interview. 

U.S. rebuilding was ad hoc at best and the results were extremely mixed, he said.

His investigators surveyed a cross-section of projects valued at $2.1 billion and found major deficiencies in almost 40 percent of them. Water projects, security and health care were the worst. Of the billions of dollars unaccounted for and 637 investigations launched,  $1.61 billion has been saved through audits, $191 million recovered and 82 people convicted, his final report “Learning from Iraq” shows.  

The results look small against the scale of waste. Bowen said security problems and threats to the lives of his investigators limited his work, which wraps up in September.    

Similar problems of fraud and waste confront the rebuilding of Afghanistan, an even costlier program. The U.S. has invested $100 billion in development aid there to date and pledged more money after its troops withdraw in December 2014.

To improve results, Bowen recommends that one central agency be appointed to plan and deliver post-conflict programs, known in Washington as Stabilization and Reconstruction Operations (SRO). It would report directly to the heads of the Department of Defense, Department of State and the White House’s National Security Council, which each have a strategic role in decision making, diplomacy and defense. 

“It requires integration, an integrated capacity for planning, overseeing and reconstruction,” Bowen said.

That was absent in Iraq, where the State Department planned the rebuilding and the military managed the contracts, a task for which they were unprepared, he said.  After the invasion, initial rebuilding focused on large-scale infrastructure projects, but Iraqis were not consulted on priorities, leaving many disaffected, and then a rising insurgency forced U.S. officials to switch some funds from construction to policing. Bowen called this “adhocracy, a mess.” 

“It is clear when you engage in SRO you need to do three things – establish the rule of law by investing in police, judiciary, military;  start projects small and modestly and fully embrace, engage and understand what the country needs by consulting with as many people as possible; and thirdly, control corruption or it will become a cancer,”  he said.

Iraqi officials, from the prime minister on down, who were interviewed by the Inspector General’s office for its final report said there had been little consultation with Iraqis or attention to corruption within U.S. ranks and contractors.  

Rather there was a “triangle of political patronage” among political parties, government officials and sectarian groups, the report quoted Abdul Basit Turki al-Sae’ed, the acting governor of Iraq’s central bank , as saying.  This lethal axis tainted reconstruction and fomented a brew of terrorism and corruption that has poisoned the country, he said.   

Blaming corruption and upheaval in Iraq today on the United States is overblown, Bowen said, but within such comments lie important truths about the way the programs were handled. 

The military reimbursed contractors for costs based upon receipts submitted plus a commission, with receipts at times literally rubber stamped in bulk without inspection, and it offered contracts without clear time limits and deliverables.  “It amounted to an open cheque book,” said Bowen.  He recommends fixed-cost contracts.

Between 2003 and 2004, more than $10 billion in cash was flown into Iraq by military aircraft in bundles of $100 bills, shrink-wrapped on large pallets, and these funds were mismanaged, his report states. In this environment, the practice of contractors inflating costs was widespread.

For instance, Anham LLC based in Vienna, Va., won a $300 million contract to operate and maintain two warehouse and distribution centres near Baghdad and a port city. An audit found egregious over-billing -- $900 charged for a $7.05 control switch, a 12,666 percent markup, and $80 for a $1.41 drain pipe , a 5,574 percent markup, the report says.  Yet Anham continues to receive U.S. defense contracts.

EXPERT AGENCY                                                                                                   

A single government agency, costing $25 million a year to run and expert in how to run and manage contracts in post-conflict regions, would reap significant dividends in preventing fraud, waste and abuse and making rebuilding efforts far more effective, Bowen said.

As long as the United States maintains its role as policeman to the world – a role it has played repeatedly, in Grenada, Kuwait, the Balkans, Iraq and Afghanistan, and likely will play again – an agency is needed, he said.   

Spending fresh money, however, is a hard sell in Washington, which is cutting government spending by $85 billion this year. Asked if he is making any headway, Bowen said: “No, no, not yet. But there is interest on Capitol Hill, particularly in the Senate.”  The discussion may gain momentum if the United States plans reconstruction aid for Syria after its civil war ends, he said.

“It is a small investment for a big payoff,” he said.

The hard lessons from Iraq offer valuable insights for multi-lateral institutions such as the United Nations and the World Bank when they invest in post-conflict zones.  “The lesson from Iraq is to develop a more agile, adaptable, effective toolbox for rapid implementation and stabilization operations,” Bowen said.

In practical terms, he said this toolbox means establishing the following elements -- security and justice by training  up police, prosecutors and the judiciary;  a sound financial system to limit money laundering opportunities and manage budgets;  transparency over how projects are decided upon and accountability for how the money is spent to limit corruption.      


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