THIEF OF BAGDAD
BUSH Billions over
Baghdad
Between
April 2003 and June, 2004, $12 billion in U.S. currency-much of it
belonging to the Iraqi people - was shipped from the Federal Reserve to
Baghdad, where it was dispensed by the Coalition Provisional Authority. Some of
the cash went to pay for projects and keep ministries afloat, but, incredibly,
at least $9 billion has gone missing, unaccounted for, in a frenzy of
mismanagement and greed. Following a trail that leads from a safe in one of
Saddam’s palaces to a house near San Diego, to a P.O. box in the Bahamas,
the authors discover just how little anyone cared about how the money was
handled.
Hidden in plain sight, 10 miles west of Manhattan, amid a suburban
community of middle-class homes and small businesses, stands a fortress-like
building shielded by big trees and lush plantings behind an iron fence. The
steel-gray structure, in East Rutherford, New Jersey, is all but invisible to
the thousands of commuters who whiz by every day on Route . Even if they
noticed it, they would scarcely guess that it is the largest repository of
American currency in the world.
Officially,
100 Orchard Street is referred to by the acronym EROC, for the East
Rutherford Operations Center of the Federal Reserve Bank of New York. The
brains of the New York Fed may lie in Manhattan, but eroc is the beating heart
of its operations-a secretive, heavily guarded compound where the bank
processes checks, makes wire transfers, and receives and ships out its most
precious commodity: new and used paper money.
Pallets
of American currency arriving in Baghdad.
On
Tuesday, June 22, 2004, a tractor-trailer truck turned off Routeonto Orchard
Street, stopped at a guard station for clearance, and then entered the eroc
compound. What happened next would have been the stuff of routine-procedures
followed countless times. Inside an immense three-story cavern known as the
currency vault, the truck’s next cargo was made ready for shipment. With
storage space to rival a Wal-Mart’s, the currency vault can reportedly hold
upwards of $60 billion in cash.Human beings don’t perform many functions inside
the vault, and few are allowed in; a robotic system, immune to human
temptation, handles everything. On that Tuesday in June the machines were
especially busy.Though accustomed to receiving and shipping large quantities of
cash, the vault had never before processed a single order of this magnitude:
$2.4 billion in $100 bills.
Under
the watchful eye of bank employees in a glass-enclosed control room, and under
the even steadier gaze of a video surveillance system, pallets of
shrink-wrapped bills were lifted out of currency bays by unmanned “storage and
retrieval vehicles” and loaded onto conveyors that transported the 24 million
bills, sorted into “bricks,” to the waiting trailer. No human being would have
touched this cargo, which is how the Fed wants it: the bank aims to “minimize
the handling of currency by eroc employees and create an audit trail of all
currency movement from initial receipt through final disposition.”
Forty
pallets of cash, weighing 30 tons, were loaded that day. The tractor-trailer
turned back onto Routeand after three miles merged onto a southbound lane of
the New Jersey Turnpike, looking like any other big rig on a busy highway.
Hours later the truck arrived at Andrews Air Force Base, near Washington, D.C.
There the seals on the truck were broken, and the cash was off-loaded and
counted by Treasury Department personnel. The money was transferred to a C-130
transport plane. The next day, it arrived in Baghdad.
That
transfer of cash to Iraq was the largest one-day shipment of currency in the
history of the New York Fed. It was not, however, the first such shipment of cash
to Iraq. Beginning soon after the invasion and continuing for more than a year,
$12 billion in U.S. currency was airlifted to Baghdad, ostensibly as a stopgap
measure to help run the Iraqi government and pay for basic services until a new
Iraqi currency could be put into people’s hands. In effect, the entire nation
of Iraq needed walking-around money, and Washington mobilized to provide it.
What
Washington did not do was mobilize to keep track of it. By all accounts, the
New York Fed and the Treasury Department exercised strict surveillance and
control over all of this money while it was on American soil. But after the
money was delivered to Iraq, oversight and control evaporated. Of the $12
billion in U.S. banknotes delivered to Iraq in 2003 and 2004, at least $9
billion cannot be accounted for. A portion of that money may have been spent
wisely and honestly; much of it probably wasn’t. Some of it was stolen.
Once
the money arrived in Iraq it entered a free-for-all environment where virtually
anyone with fingers could take some of it. Moreover, the company that was hired
to keep tabs on the outflow of money existed mainly on paper. Based in a
private home in San Diego, it was a shell corporation with no certified public
accountants. Its address of record is a post-office box in the Bahamas, where
it is legally incorporated.That post-office box has been associated with
shadowy offshore activities.
Coalition of the Billing
The first
shipment of cash to Iraq took place on April 11, 2003-it consisted of $20 million
in $1, $5, and $10 bills. It was arranged in small bills on the theory that
these could quickly be circulated into the Iraqi economy “to prevent a monetary
and financial collapse,” as one former Treasury official put it. Those were the
days when American officials worried that the gravest threat facing Iraq might
be low-grade civilian unrest in Baghdad. They didn’t have a clue as to the
power of the insurgency that was to come. The initial $20 million came
exclusively from Iraqi assets that had been frozen in U.S. banks as long ago as
the Gulf War, in 1990. Subsequent airlifts of cash also included billions from
Iraqi oil revenues controlled by the United Nations. After the creation of the
Development Fund for Iraq (D.F.I.)-a kind of holding pit of money to be spent
for “purposes benefitting the people of Iraq”-the U.N. turned over control of
Iraq’s oil billions to the United States.
When the U.S. military delivered the cash to Baghdad, the money
passed into the hands of an entirely new set of players-the staff of the
American-led Coalition Provisional Authority. To many Americans, the initials
C.P.A. would soon be as familiar as those of long-established government
agencies such as D.O.D. or hud. But the C.P.A. was anything but a conventional
agency. And, as events would show, its initials would have nothing in common
with “certified public accountant.” The C.P.A.had been hastily created to serve
as the interim government of Iraq, but its legality and paternity were murky
from the start. The Authority was in effect established by edict outside the
traditional framework of American government. Not subject to the usual
restrictions and oversight of most agencies, the C.P.A. during the 14 months of
its existence would become a sump for American and Iraqi money as it
disappeared into the hands of Iraqi ministries and American contractors. The
Coalition of the Willing, as one commentator observed, had turned into the
Coalition of the Billing.
The
first mention of the C.P.A. came on April 16, 2003, in a so-called freedom
message to the Iraqi people by General Tommy R. Franks, commander of the
coalition forces. A week after mobs ransacked Iraq’s National Museum of its
treasures, unchallenged by American troops, General Franks arrived in Baghdad
for a six-hour whirlwind tour. He met with his commanders in one of Saddam
Hussein’s palaces, held a video conference with President Bush, and then
quickly flew off. “Our stay in Iraq will be temporary,” General Franks wrote,
“no longer than it takes to eliminate the threat posed by Saddam Hussein’s
weapons of mass destruction, and to establish stability and help Iraqis form a
functioning government that respects the rule of law.” With that in mind,
General Franks wrote that he created the Coalition Provisional Authority “to
exercise powers of government temporarily, and as necessary, especially to
provide security, to allow the delivery of humanitarian aid and to eliminate
weapons of mass destruction.” Three weeks later, on May 8, 2003, the U.S. and
British ambassadors to the United Nations sent a letter to the U.N. Security
Council, effectively delivering the C.P.A. to the United Nations as a fait
accompli.
The
day before, President Bush had appointed L. Paul Bremer III, a retired
diplomat, as presidential envoy to Iraq and the president’s “personal
representative,” with the understanding that he would become the C.P.A.
administrator. Bremer had held State Department posts in Afghanistan, Norway,
and the Netherlands; had served as an assistant to Henry Kissinger and Alexander
Haig; and had closed out his diplomatic career in 1989 as ambassador-at-large
for counterterrorism. More recently, he had been the chairman and chief
executive officer of a crisis-management business called Marsh Crisis
Consulting. Despite his State Department background, Bremer had been selected
by the Pentagon, which had elbowed aside all contenders for authority in
post-invasion Iraq. The C.P.A. itself was a creature of the Pentagon, and it
would be Pentagon personnel who did the C.P.A.’s hiring.
Over
the next year, a compliant Congress gave $1.6 billion to Bremer to administer
the C.P.A. This was over and above the $12 billion in cash that the C.P.A. had
been given to disburse from Iraqi oil revenues and unfrozen Iraqi funds. Few in
Congress actually had any idea about the true nature of the C.P.A. as an
institution. Lawmakers had never discussed the establishment of the C.P.A.,
much less authorized it-odd, given that the agency would be receiving taxpayer
dollars. Confused members of Congress believed that the C.P.A. was a U.S.
government agency, which it was not, or that at the very least it had been
authorized by the United Nations, which it had not. One congressional funding
measure makes reference to the C.P.A. as “an entity of the United States Government”-highly
inaccurate. The same congressional measure states that the C.P.A. was
“established pursuant to United Nations Security Council resolutions”-just as
inaccurate. The bizarre truth, as a U.S. District Court judge would point out
in an opinion, is that “no formal document . plainly establishes the C.P.A. or
provides for its formation.”
Accountable
really to no one, its finances “off the books” for U.S.government purposes, the
C.P.A. provided an unprecedented opportunity for fraud, waste, and corruption
involving American government officials, American contractors, renegade Iraqis,
and many others. In its short life more than $23 billion would pass through its
hands. And that didn’t include potentially billions more in oil shipments the
C.P.A. neglected to meter. At stake was an ocean of cash that would evaporate
whenever the C.P.A. did. All parties understood that there was a sell-by date,
and that it was everyone for himself. An Iraqi hospital administrator told The
Guardian of England that, when he arrived to sign a contract, the army officer
representing the C.P.A. had crossed out the original price and doubled it. “The
American officer explained that the increase (more than $1 million) was his
retirement package.” Alan Grayson, a Washington, D.C., lawyer for
whistle-blowers who have worked for American contractors in Iraq, says simply
that during that first year under the C.P.A. the country was turned into “a
free-fraud zone.”
Bremer
has expressed general satisfaction with the C.P.A.’s work while at the same
time acknowledging that mistakes were made. “I believe the C.P.A. discharged
its responsibilities to manage these Iraqi funds on behalf of the Iraqi
people,” he told a congressional committee. “With the benefit of hindsight, I
would have made some decisions differently.But on the whole, I think we made
great progress under some of the most difficult conditions imaginable,
including putting Iraq on the path to democracy.”
The Bottomless Vault
To be
fair, the C.P.A. really did need money desperately, and it really did need to
start spreading it among the traumatized Iraqi population.It also needed to
jump-start Iraq’s basic services. As the C.P.A.demanded ever greater amounts of
cash, the pallets of $1, $5, and $10 bills were soon replaced by bundles of
$100 bills. During the C.P.A.’s little more than a year of life, the New York
Federal Reserve Bank made 21 shipments of currency to Iraq totaling
$11,981,531,000. All told, the Fed would ship 281 million individual banknotes,
in bricks weighing a total of 363 tons.
After arriving in Baghdad, some of the cash was shipped to
outlying regions, but most of it stayed in the capital, where it was delivered
to Iraqi banks, to installations such as Camp Victory, the mammoth U.S.Army
facility adjacent to the Baghdad airport, and to Saddam’s former presidential
palace, in the Green Zone, which had become the home of Bremer’s C.P.A. and the
makeshift Iraqi government. At the palace the cash disappeared into a vault in
the basement. Few people ever saw the vault, but the word was that during one
short period it held as much as $3 billion. Whatever the figure, it was a major
repository of the banknotes from America during the brief time the cash was
under the care of the C.P.A. The money flowed in and out rapidly. When someone
needed cash, a unit called the Program Review Board, composed of senior
C.P.A.officials, reviewed the request and decided whether to recommend a
disbursement. A military officer would then present that authorization to
personnel at the vault.
Even
those who picked up large sums usually did not actually see the vault. Once a
disbursement had been made, the cash was brought to an adjoining room for
pickup. This “secure room,” as one military officer called it, looked a lot
like a vault itself: a thick metal door at the entrance, with the room beyond
starkly furnished with only a table and chairs. The table would be piled high
with cash. An authorized officer would sign papers for the money, then begin
carting it upstairs-sometimes in sacks or metal boxes-to the Iraqi ministry or
C.P.A. office that had requested it. Upon turning over the cash, the officer
would be required to obtain a receipt-nothing more.
C.P.A.
officials tried to keep a rough running tab on the amount disbursed to individual
Iraqi agencies such as the Ministry of Finance ($7.7 billion). But there was
little detail, nothing specific, on how the money was actually used. The system
basically operated on “trust and faith,” as one former C.P.A. official put it.
Once the cash passed into the hands of the Iraqis or any other party, no one
knew where it went.The C.P.A. turned over $1.5 billion in cash to Iraqi banks,
for instance, but later auditors could account for less than $500 million.The
United Nations retained a team of auditors to look over American shoulders.
They didn’t see much, because they were largely cut off from access while the
C.P.A. held power. As a report by the U.N.’s accounting consultant, KPMG, noted
dryly, “We encountered difficulties in performing our duties and meeting with
key C.P.A. personnel.”
“There
was corruption everywhere,” said one former military officer who worked with
the C.P.A. in Baghdad in the months after the invasion. Some of the Iraqis who
were put in charge of ministries after Saddam’s fall had never run a government
agency before. Their inexperience aside, he said, they lived in constant fear
of losing their jobs or their lives.All many cared about, he added, was taking
care of themselves. “You could see that a lot of them were trying their best to
get a quick retirement fund before they were ousted or killed,” he added. “You
just get what you can while you’re in that position of power. Instead of trying
to build the nation, you build yourself.”
Did
any withdrawals from the vault pay for secret activities by government
personnel? It is an obvious possibility. Much of the cash was clearly destined
for American contractors or Iraqi subcontractors.Sometimes the Iraqis came to
the palace to collect their cash; other times, when they were reluctant to show
up at the American compound, U.S. military personnel had to deliver it
themselves. One of the riskier jobs for some U.S. military men was to fill up a
car with bags of cash and drive the money to contractors in Baghdad
neighborhoods, handing it over like a postal worker delivering mail.
‘Fraud”
was simply another word for “business as usual.” Of 8,206 “guards” drawing
paychecks courtesy of the C.P.A., only 602 warm bodies could in fact be found;
the other 7,604 were ghost employees.Halliburton, the government contractor
once headed by Vice President Dick Cheney, charged the C.P.A. for 42,000 daily
meals for soldiers while in fact serving only 14,000 of them. Cash was handed
out from the backs of pickup trucks. On one occasion a C.P.A. official received
$6.75 million in cash with the expectation he would shell it out in one
week.Another time, the C.P.A. decided to spend $500 million on “security.” No
specifics, just a half-billion dollars for security, with this cryptic
explanation: “Composition TBD”-that is, “to be determined.”
The
pervasiveness of this Why-should-I-care? attitude was driven home in an
exchange with retired admiral David Oliver, the C.P.A.’s director of management
and budget. Oliver was asked by a BBC reporter what had happened to all the
cash airlifted to Baghdad:
Oliver:
“I have no idea-I can’t tell you whether or not the money went to the right
things or didn’t-nor do I actually think it’s important.”
Q: “Not important?”
Oliver:
“No. The coalition-and I think it was between 300 and 600 people, civilians-and
you want to bring in 3,000 auditors to make sure money’s being spent?”
Q: “Yes, but the fact is that billions of dollars have disappeared
without a trace.”
Oliver:
“Of their money. Billions of dollars of their money, yeah, I understand. I’m
saying what difference does it make?”
The
difference it made was that some American contractors correctly believed they
could walk off with as much money as they could carry. The circumstances that
surround the handling of comparatively small sums help explain the billions
that ultimately vanished. In the south-central region of Iraq a contracting
officer stored $2 million in a safe in his bathroom. One agent kept $678,000 in
an unsecured footlocker. Another agent turned over some $23 million to his team
of “paying agents” to deliver to contractors, but documentation could be found
for only $6.3 million of it. One project officer received $350,000 to fund
human-rights projects, but in the end could account for less than $200,000 of
it. Two C.P.A. agents left Iraq without accounting for two payments of $715,000
and $777,000. The money has never been found.
To
Frank Willis, a senior adviser to the Iraqi transportation ministry, the
presence of so much cash circulating so freely gave the Green Zone a “Wild
West” feel. A moderate Republican who worked for Reagan and voted for George W.
Bush, Willis spent many years in executive roles in the State Department and
the Department of Transportation before leaving government service in 1985. He
was a top executive of a health institute in Oklahoma when, in 2003, an old
friend from Washington called and asked if he would come to Iraq to help the
C.P.A. get the various transportation systems running again.
“You’ve
got to be crazy,” Willis told him at first. He says he was talked into going
for 30 days, but once in Baghdad became caught up in the work and stayed for
six grueling months. Willis says he wasn’t there a month before he felt the way
things were being done was “terribly wrong.” One afternoon he returned to his
office to find piles and piles of shrink-wrapped $100 bills stacked on a table.
“This just got wheelbarrowed in,” one of his American colleagues explained.
“What do you think of two million bucks?” The money had been “checked out” of Saddam’s
old vault in the basement, two floors below, in order to pay a U.S. contractor
hired by the C.P.A. to provide security.
The
neat bundles of cash looked almost like play money, and the temptation to
handle them was irresistible. “We were all in the room passing those things
around and having fun,” Willis remembers. He and his colleagues played a game
of football, tossing the bricks back and forth. “You could spin them but not
throw a spiral,” Willis says with a laugh. When he called the American contractor
to come get his money, Willis advised him, “You better bring a gunnysack.”
“Integrity Is a Core
Principle”
The
American contractor needing the gunnysack was a company called Custer Battles.
The name was derived not from Little Big Horn but from the names of the
company’s owners, Scott K. Custer and Michael J.Battles. Both were former army
rangers in their mid-30s, and Battles also had once been a C.I.A. operative.
The pair showed up on the streets of Baghdad with the blessing of the White
House at invasion’s end, looking for a way to do business. At the time, the
only American civilians who could gain access to the city were those approved
by President Bush’s staff.
The Battles half of the team brought the White House access,
secured when Michael Battles became the G.O.P.-backed candidate in the 2002
Rhode Island congressional primary for the privilege of losing to the
Democratic incumbent, Patrick Kennedy. Battles not only lost the primary but
was fined by the Federal Election Commission for misrepresenting campaign
contributions. Nevertheless, he forged important political connections. His
contributors included Haley Barbour, the longtime Washington power broker and
former chairman of the Republican National Committee, who is now governor of
Mississippi, and Frederic V. Malek, a former special assistant to President
Nixon, who survived the Watergate scandal and went on to become an insider in
the Reagan administration and both Bush administrations.
The
C.P.A. awarded Custer and Battles one of its first no-bid contracts-$16.5
million to protect civilian aircraft flights, of which at the time there were
few, into Baghdad International Airport. The company faced immediate obstacles:
Custer and Battles didn’t have any money, they didn’t have a viable business,
and they didn’t have any employees. Bremer’s C.P.A. had overlooked these
shortcomings and forked over $2 million anyway, in cash, to get them started,
simply ignoring long-standing requirements that the government certify that a
contractor has the capacity to fulfill a contract. That first $2 million cash
infusion was followed shortly by a second. Over the next year Custer Battles
would secure more than $100 million in Iraq contracts. The company even set up
an internal Office of Corporate Integrity.“Integrity is a core principle of
Custer Battles’ corporate values,” Scott Custer stated in a press release.
The
U.S. business community was impressed by this upstart. In May 2004, Ernst &
Young, the global accounting firm, announced the finalists for its New England
Entrepreneur of the Year Awards, honoring an ability “to innovate, develop, and
cultivate groundbreaking business models, products, and services.” Among the
honorees were Scott Custer and Michael Battles.
Four
months later, in September 2004, the air force issued an order barring Custer
Battles from receiving any new government contracts until 2009. The company had
come to epitomize the way business was done in Baghdad. Custer Battles had
billed the government $400,000 for electricity that cost $74,000. It had billed
$432,000 for a food order that cost $33,000. It had charged the C.P.A. for
leased equipment that was stolen, and had submitted forged invoices for
reimbursement-all the while moving millions of dollars into offshore bank
accounts. In one instance, the company claimed ownership of forklifts used to
transport the C.P.A.’s cash (among other things) around the Baghdad airport.
But up until the war the forklifts had been the property of Iraqi Airways.They
were “liberated,” along with the Iraqi people, following hostilities. Custer
Battles seized them, painted over the old name, and transferred ownership to
its offshore businesses. The forklifts were then leased back to Custer Battles
for thousands of dollars a month, a cost that Custer Battles passed along to
the C.P.A. In 2006, a federal-court jury in Virginia ordered the company to pay
$10 million in damages and penalties for defrauding the government. The jury
found more than three dozen instances of fraud in which Custer Battles used shell
companies in the Cayman Islands and elsewhere to manufacture phony invoices and
pad its bills. During the same period Battles personally withdrew $3 million
from the company coffers as a kind of bonus-or, as he put it, “a draw.” The
jury decision in the whistle-blower lawsuit was subsequently overturned when
the trial judge set the verdict aside, pointing out that the C.P.A. was not in
fact a U.S.-government entity and hence Custer Battles could not be tried under
the federal fraud act.That decision is under appeal.
The NorthStar Contract
How can
billions of dollars simply vanish? Wasn’t there any accounting mechanism in
place to keep track of the money?
La Jolla, California, is about as far away from Iraq in both
distance and mind-set as one can get. The house at 5468 Soledad Road is a
two-story dwelling with six bedrooms and five and a half baths, a typical
California home of beige stucco under a red tiled roof. The neighborhood is
lush and well kept. But in one respect 5468 Soledad is not a typical suburban
house at all.
On
October 25, 2003, the C.P.A. awarded a $1.4 million contract “to provide
accountant and audit services” to help “in the management and accounting of the
Development Fund for Iraq.” In other words, the purpose was to help Bremer and
the C.P.A. keep tabs on the billions of dollars under their control, and to
help make sure that the money was properly spent. The one-year C.P.A. contract
was awarded to a company called NorthStar Consultants.
When
a request was made to the U.S. government for a copy of this contract,
officials at the Pentagon, which has oversight, dragged their feet for weeks.
The document they eventually supplied had been strategically redacted. Nearly
all the information about the contractor had been blacked out, including the
name and title of the company officer who had executed the contract, the name
of the person to call for information about the company, the last four digits
of the company’s phone number, and the name of the U.S.-government official who
had awarded the contract in the first place. But by cross-referencing public
records and other sources it was possible to fill in some of the missing data.
One path led to 5468 Soledad Road.
The
house is owned by Thomas A. and Konsuelo Howell, according to San Diego County
records. The couple apparently bought it new in 1999. State records indicate
that several companies operate from the house. One of them is called
International Financial Consulting, Inc., though it isn’t clear what this
company actually does. Incorporated in 1998, I.F.C. was described as a venture
in “business consulting,” according to papers Howell filed with the state. The
Howells are listed as the only directors.
Another
company operating out of 5468 Soledad is called Kota Industries, Inc., whose
stated business is the “sale of furniture, home furnishings, flooring,”
according to California records. Numerous business directories in the San Diego
area ascribe similar activities to Kota, listing it as a remodeling, repairing,
or restoration contractor. One directory describes its specialty as “kitchen,
bathroom, basement remodeling.” Again, the Howells are the only officers and
directors.
In
January 2004, in the business-names index of San Diego County, Thomas Howell
indicated that a third company was now based at 5468 Soledad, noting that it
was owned by International Financial Consulting. This new company was NorthStar.
How
did someone whose line of work includes home remodeling end up getting the
contract to audit the billions being airlifted to Iraq?Thomas Howell is 60; he
and his wife have lived in San Diego for at least two decades. Over the years,
the couple has also maintained addresses in Fort Lauderdale, Florida, and
Laredo, Texas. Neighbors describe the Howells as pleasant, but can add little
else. “I know them, but I don’t know what they do,” said one. “That’s all I can
tell you.” Two others could say only that they saw the Howells occasionally in
the neighborhood. Were they aware that a company with an Iraqi contract had
operated from the house? “Really?” said one. “No. I didn’t know that.”
Thomas
Howell refuses to discuss the NorthStar contract in detail. A telephone
exchange with him, reached at 5468 Soledad Road, went as follows.
A
woman answered, “Kota Industries.”
“Could
I speak with Mr. Thomas Howell?”
“May
I ask who is calling?” the woman asked.
“My
name is Jim Steele.”
“Wait
just a second,” the woman said.
A
few moments later, a man came on the line. “Tom Howell,” he said.
“My
name is Jim Steele, and I am a writer with the magazine Vanity Fair.
I
would like to talk to you about NorthStar Consultants.”
Howell
said, “Well, let me find a contact who can talk all this stuff with you. What
is your phone number, Jim?”
Howell
repeated the number and added, “O.K. Let me get somebody who can discuss all
this stuff for you.”
“I’d
just like to make sure here. Aren’t you president of the company?”
“That’s
right,” said Howell.
“But
you can’t . “
“Well,
I’m not . I can’t . You want to talk about the D.F.I.
[Development
Fund for Iraq] and that sort of stuff?” asked Howell.
“Well,
yeah.”
“O.K.,”
Howell replied, “I’ll get someone who’s authorized to talk about all that. I’ll
have them give you a call or I’ll call you and give you their number.”
“Is this the military or
your lawyer?”
“The
military,” said Howell, abruptly ending the conversation with “O.K.
Thanks. Good-bye.”
The
next attempt was a visit to Howell’s home the following day. A stylishly
dressed woman emerged from behind a locked fence. “May I help you?” she asked.
The woman confirmed that she was Konsuelo Howell, and explained that it would
be impossible to speak with her husband. “He is out of the country.”
He
never did call back with the name of a Pentagon official “authorized” to speak
about NorthStar. Nor did anyone from the Pentagon call. When a Pentagon
public-affairs officer was queried about who might be able to discuss the
contract, the officer said she needed a name, which, as it turned out, only
Howell could provide. The Pentagon also failed to respond to a request for the
information deleted from the NorthStar contract and the name of the person who
had ordered it deleted.
When
Howell was contacted again, three months later, he stated that the Department
of Defense had told him that “they didn’t have anybody anymore specifically
tasked with answering these questions.” As far as D.O.D. was concerned, Howell
added, the issue was “closed.” Once again he refused to discuss the NorthStar
contract in any detail: “The way I normally work with all my clients is: my
work is confidential,” he said.“If they want to let it out, that’s fine. But I
work for them. It’s their business.” Howell did say that NorthStar was his one
and only U.S.government contract. How did he land it? “I saw it published on
the Web, that it was out for bids,” he said.
As
for how much auditing NorthStar really did in Iraq, the missing billions
provide the best answer. The company did have personnel in Baghdad, though how
many, and for how long, and for what purpose, is not known-another point Howell
declines to discuss. Under the terms of C.P.A. Regulation No. 2, signed by
Bremer on June 15, 2003, money coming into Iraq was supposed to be tracked by
an “independent certified public accounting firm.” Howell was not a certified
public accountant, nor were any of the people who worked for him. Bremer seems
to have been unaware of this detail. When he was asked at a congressional
hearing earlier this year about NorthStar, he answered, “I don’t know what kind
of firm it was, other than it was an accounting firm.” Would it upset him, a
congressman asked, if he found out there were no accountants on NorthStar’s
staff? “It would,” Bremer answered, “if it were true.”
It
is true. And rather than reissue the contract to a certified public accountant,
someone in the government contract office simply eliminated the requirement,
thereby making Howell eligible for the work.
The Baghdad-Bahamas
Connection
When an
unknown official at the Pentagon meticulously went through the NorthStar
contract and used a thick-tipped marker to black out Thomas Howell’s name,
title, office address, and phone number, he or she neglected to conceal one of
the most intriguing aspects of the contract:
NorthStar’s mailing address. It was P.O. Box N-3813 in Nassau, in
the Bahamas.
High
on a hill in Nassau, the main post office commands panoramic views of the
capital city-the pink stuccoed Parliament building, bustling Bay Street with
its hordes of tourists, and, beyond it, the giant cruise ships that dock in
Nassau’s harbor. Just as you enter the post office, on a sprawling plaza
beneath an overhang offering protection from the tropical sun and rain, there
stand row after row of metal boxes, each bearing the capital letter N followed
by a series of numbers. These are the private post-office boxes of Nassau.
Because there is no home delivery in the city, it is the way people in the
capital get their mail.
Box
N-3813, four inches wide by five inches high, looks like all the other
post-office boxes. It harbors many secrets that its users want to keep. No one
knows whether anyone at the C.P.A. or the Pentagon questioned why one of its
contractors used an offshore post-office box.It is undeniably true, however,
that foreigners often use post-office boxes in the Bahamas and other tax havens
for three purposes: to conceal assets, to avoid taxes, and to launder money.
NorthStar would not be at all unusual among Iraq contractors in setting up its
affairs this way.Post-office boxes in tax havens around the world have been
flooded with contractor business based in Iraq.
Box
N-3813, it turns out, has been the locus for all sorts of transactions by
Americans and others looking to move money offshore. In addition to Howell’s
NorthStar, this particular box also served as the address of record for a man
named Patrick Thomson and for his Bahamian business called Lions Gate
Management. Both figured prominently in one of the more spectacular offshore
frauds in recent years, the collapse of Evergreen Security. The Caribbean-based
Evergreen enticed thousands of investors, many of them U.S. retirees, to pour
money into its so-called tax-sheltered offshore funds, with the promise of
handsome returns. Some of the money came from hundreds of Caribbean trusts for
which Thomson acted as trustee. A Ponzi scheme masquerading as a mutual fund,
Evergreen siphoned $200 million from investors in the United States and two
dozen other countries. One of its ringleaders was William J. Zylka, a New
Jersey “con artist who falsified his background, credentials and wealth in
order to perpetrate elaborate schemes,” according to court documents. He
pocketed $27.7 million of Evergreen’s money.
Throughout
the looting of Evergreen, Thomson was one of the firm’s three directors. During
that time he also arranged for Howell to establish the same Nassau post-office
box as NorthStar’s legal home. Identified in Nassau as a member of one of
Scotland’s oldest publishing families, Thomson has operated out of one or more
office buildings in the heart of Nassau for many years. Like most of those in
the shadowy world of offshore deals, he has generally kept a low profile, the
scandal over Evergreen Security being the one great exception. Thomson
incorporated NorthStar for Howell in the Bahamas in January of 1998, as what is
known as an “international business company,” or I.B.C. Despite their
impressive name, I.B.C.’s are little more than paper operations. As a rule,
they don’t carry on any business; they are empty vessels that can be used for
anything. They have no real chief executive officer or board of directors, and
they don’t publish financial statements. An I.B.C.’s books, if there are any,
can be kept anywhere in the world, but no one can inspect them. I.B.C.’s aren’t
required to file annual reports or disclose the identity of their owners.
They’re shells, operating in total secrecy. In the last two decades, they have
sprouted by the hundreds of thousands in tax havens worldwide.
In
a telephone interview, Thomson discussed with great reluctance his role in
creating NorthStar for Thomas Howell. How did they meet?
“I
believe I was introduced to him through a friend with Citibank,” Thomson
replied. “I believe Howell used to work for Citibank.” He said it was his
recollection that Howell initially established NorthStar because of some
consulting work he was doing in the Far East, not the Middle East. “This was
before the Iraq war started,” he noted. “All we did was supply a company name.”
Thomson said he had had no contact with Howell in years. He had heard that
Howell was in Iraq, but declined to discuss the matter further.
Turning Off the Spigot
By the
spring of 2004 the clock was winding down for L. Paul Bremer and the C.P.A.
Within several months-on June 30-the Authority was scheduled to turn government
operations over to the Iraqis, at least formally.There was palpable anxiety
among officials and contractors about what would happen under the new Iraqi
regime, and they launched an aggressive effort to get as much money into the
pipeline as possible. On April 26, another shipment of cash-laden pallets, this
one holding $750 million, arrived at Baghdad International Airport. On May 18
the Fed made a $1 billion shipment, which was followed on June 22 by the
biggest single shipment ever made by the Fed anywhere-$2.4 billion. Another
$1.6 billion arrived three days later, bringing the total of cash shipments to
Iraq to $5 billion in the C.P.A.’s final three months.
The C.P.A. sought to make one more huge withdrawal. On Monday,
June 28, as Bremer stole away from Baghdad unannounced-two days ahead of the
scheduled handover of authority-another C.P.A. official put in hurried pleas to
the Federal Reserve Bank for an additional $1 billion infusion, hoping to get
the money before an Iraqi provisional government came to power. Internal
e-mails from the Federal Reserve Bank show that the requests for money came
from Don Davis, an air-force colonel serving as the C.P.A. comptroller and
manager of the Development Fund for Iraq. But the Fed would have no part of the
plan. Because Bremer had already “transferred authority (which is being
reported in the press as 10:26 a.m. in Baghdad),” a Fed official explained,
“the C.P.A. no longer had control over Iraq’s assets.”
In
one of his last official acts before leaving Baghdad, Bremer issued an
order-prepared by the Pentagon, he says-declaring that all coalition-force
members “shall be immune from any form of arrest or detention other than by
persons acting on behalf of their Sending States.” Contractors also got the
same get-out-of-jail-free card.According to Bremer’s order, “contractors shall
be immune from Iraqi legal process with respect to acts performed by them
pursuant to the terms and conditions of a Contract or any sub-contract
thereto.” The Iraqi people, who had had no say over Saddam Hussein’s illegal
conduct during his dictatorship, would have no say over illegal conduct by
Americans in their new democracy.
And
the “Sending State” itself is not interested in pursuing misconduct.With the
exception of a few low-level individuals, the Bush administration’s Justice
Department has resolutely avoided the prosecution of corporate fraud stemming
from the occupation of Iraq.
“In
our fifth year in the war in Iraq,” according to Alan Grayson, the attorney for
whistle-blowers, “the Bush administration has not litigated a single case
against any war profiteer under the False Claims Act.” This at a time, Grayson
told a congressional committee, when “billions of dollars are missing and many
billions more wasted.” Grayson knows what he is talking about. He represented
the whistle-blowers in the Custer Battles case brought under the False Claims
Act-a case in which the Justice Department refused to get involved, and the
only one that has gone to trial.
There
is no true method of calculating the human cost of the war in Iraq. The
monetary cost, grossly inflated by theft and corruption, is another matter. One
simple piece of data puts this into perspective: to date, America has spent
twice as much in inflation-adjusted dollars to rebuild Iraq as it did to
rebuild Japan-an industrialized country three times Iraq’s size, two of whose
cities had been incinerated by atomic bombs. Understanding how and why this
happened will take many years-if understanding comes at all. There has been no
rush to explain even this one small part of the story, that of the missing
Iraqi billions. No one in the U.S. government wants to talk about NorthStar
Consultants, much less about the money that disappeared. Bradford R. Higgins
was the C.P.A.’s chief financial officer, on loan from the State Department,
where he is assistant secretary for resource management and chief financial
officer. Higgins says it was “a Department of Defense-managed operation”; he
says that “I don’t know anyone at NorthStar” and that he did not oversee its
operations. The C.P.A.’s comptroller and D.F.I. fund manager during the
NorthStar days in 2003 was air-force colonel Don Davis. Through the air-force
public-affairs office in the Pentagon, Davis declined to comment. L. Paul
Bremer III, who wrote a 400-page book on his experiences as the C.P.A.’s
administrator, stated in an interview that he had no input in the decision to
hire NorthStar. He explained that “all of the contracting was done, by order of
the secretary of defense, by the department of the army. They were our
contracting arm .I don’t think I ever heard of NorthStar until some questions
came up after I left.” Nor did he have any dealings with NorthStar’s Howell, he
said. “If I met him, I have no memory of it.” Queries sent repeatedly to the
army’s public-affairs desk in Baghdad and the Pentagon have gone unanswered, as
have those to the office of the secretary of defense.
The
simple truth about the missing money is the same one that applies to so much
else about the American occupation of Iraq. The U.S. government never did care
about accounting for those Iraqi billions and it doesn’t care now. It cares
only about ensuring that an accounting does not occur.
Also
on VF.com: a Q&A
with Barlett and Steele.
by
Donald L. Barlett and James B. Steele October 2007, Also on VF.com: a
Q&A with Barlett and SteeleBy Peter van Agtmael/Polaris (desert), Konstantin
Inozemtsev/Alamy (money). Donald L. Barlett and James B. Steele are Vanity
Fair contributing editors.