Billions over Baghdad ~ hehe where's the $$$ at folks ...just went puff HUH ...funny if We The People "handled" Our $$$ that way ...how much ya wanna bet ole big evil three letter "irs" would haul We's the peeps the fuck off ta ......jail humm ??? no shit ! Oops but fucking BILLIONS just gooooooooooooooooooooooo ...puff yea yep yup just fucking fall's OFF the face of ta Earth ... ( & maybe just maybe off ta 'nother planet) where's ALLLLLLL the $$$$$ ....folks ? ...
Illustration by John Blackford. By Peter van Agtmael/Polaris (desert), Konstantin Inozemtsev/Alamy (money).
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.
Also on VF.com: <a href="/politics/features/2007/10/iraq_qanda200710">a QA with Barlett and Steele.
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
17. 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 <
spanclass="sc">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 < spanclass="sc">xeroc 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. [#image:
/photos/56cda87874aa723d5e3c0577]||||||Pallets of American currency
arriving in Baghdad. On Tuesday, June 22, 2004, a tractor-trailer truck
turned off Route 17 onto Orchard Street, stopped at a guard station for
clearance, and then entered the < spanclass="sc">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 < spanclass="sc">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 Route 17 and 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 < spanclass="sc">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."
< h4>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." <
h4>"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. < h4>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. < h4>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. < h4>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 href="/politics/features/2007/10/iraq_qanda200710">a QA with
Barlett and Steele. Donald L. Barlett and < b>James B. Steele are
Vanity Fair contributing editors.
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