Pentagon can't account for nearly $2 billion in Iraqi funds

Peter Dejong/AP

A federal audit that found the Defense Department cannot account for nearly $2 billion in Iraqi funds is likely to fuel Baghdad's interest in pursuing a claim against Washington for failing to handle its money responsibly, the special inspector-general for Iraq reconstruction Stuart Bowen told National Journal.

An audit published on Sunday investigated the roughly $3 billion the Iraqi government gave the Defense Department to pay bills for contracts the Coalition Provisional Authority awarded before it dissolved in 2004. Most of these funds were deposited into an account at the Federal Reserve Bank of New York.  Even though DOD was responsible for maintaining the proper documentation, it could only account for $1 billion of the money. 

"Its systematic of the poor record keeping that was rife throughout the early stages of the reconstruction effort," Bowen, who has conducted three other major audits into the original pot of roughly $21 billion in Iraqi funds the U.S. managed in 2003 and 2004, said.

The latest audit, released weeks after the last U.S. troops pulled out of the country, could stoke tensions between Washington and Baghdad.  "There have been threats in the past by the Iraqi government that they may seek recompense in the form of filing against the United States for what they view as an abuse of fiduciary duty," Bowen said.

"I expect this latest report will simply increase interest on their side in filing such a claim... [and] fuel the continued concern on the part of the government of Iraq about the failure of the reconstruction program managers to maintain adequate records regarding the use of Iraqi funds."

Bowen traveled to Iraq in November to brief a special commission created by Iraqi Prime Minister Nuri al-Maliki, formed last year to obtain a complete accounting for all Iraqi funds deposited in the accounts at the Federal Reserve Bank of New York. The committee aims to return any unspent funds still under U.S. control to Iraq.  Iraq's Justice Minister, during a private meeting, indicated the Iraqis continue to explore the possibility of filing a claim, Bowen said.

In recent weeks, Baghdad has begun hassling Western contractors, many of them hired to train and assist Iraqi security forces, even temporarily detaining dozens on the pretense their visas are invalid.  This has disrupted the movement of supplies and personnel around the country. Bowen says his own staff in-country has had some challenges with food supplies and he's heard accounts of "meager offerings" at the American embassy because of interference with convoys that have been held up due to instability.

All that's just an "inconvenience," Bowen said. The bigger worry amid the turmoil and violence ongoing in the country is for the success of the State Department's police development program in Iraq, which has had difficulty moving personnel around the country to train Iraqis. "That of course means that the program is not succeeding certainly at the levels hoped for yet," he said.

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