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New Standard: Iraq Occupation Ran On Policy of Corruption, Witnesses Say

by Brian DominickThe New Standard
February 15th, 2005

Witnesses testifying at a special Congressional hearing yesterday told Democratic lawmakers about severe and rampant mishandling of American and Iraqi funds managed by the former US-run occupation government, as well as censorship and manipulation of Iraqi media in the service of pro-American propaganda.

One former senior advisor to the Coalition Provisional Authority (CPA), the organization established to administer the US occupation of Iraq during the first year following the March 2003 invasion, testified that massive amounts of freshly minted American cash were distributed regularly to Iraqi ministries and American companies.

On at least one known occasion, cash was handed to a private US mercenary firm, ostensibly to be spent on its operations in Iraq, though the cash was not properly accounted for once it was paid. Former CPA employee Frank Willis said that company, Custer Battles, was handed $2 million in shrink-wrapped $100 bills in his presence, and he displayed a photograph taken just moments before the handing over to prove it.

A lawyer attended the hearings to represent two former associates of Custer Battles who declined at the last minute to testify in person for fear of retribution from both the mercenary firm and the Bush administration. Alan Grayson said his clients have filed a sealed claim against Custer Battles alleging, in part, that the company accepted $15 million from the CPA to provide security for Iraq's civilian airline, which was in fact grounded for the duration of the contract and in no need of the company's services.

The hearing was called by Senator Byron Dorgan (D-North Dakota), chairperson of the Democratic Policy Committee, in lieu of oversight activities that should have been held by Congressional committees with actual jurisdiction over US policy toward Iraq, in Dorgan's view.

Senator Harry Reid (D-Nevada) and Representative Henry Waxman (D-California) joined Dorgan on the committee, which heard testimony from four witnesses, including two who worked in Iraq and personally witnessed what they termed the misuse of Iraqi and American monies intended for reconstruction-related projects. The committee members said the hearing was inspired by a recent report by the inspector general for Iraqi reconstruction, which found nearly $9 billion in mismanaged or missing funds that were supposedly under CPA control.

Theft By Any Other Name

Grayson read from an internal memo compiled by a Custer Battles field manager, which drew damning conclusions about Custer Battles' top executives, apparently regarding the company's fulfillment of a $21 million contract to guard the exchange of Iraq's Saddam Hussein-era currency for US-minted bills in late 2003 and early 2004. Based on information provided by one of Grayson's clients, the memo stated:

Indicated in this report are enormous areas of discrepancies and irregularities that lend themselves to criminal fraud. A broader issue of criminal intent has become evident. The documents are prima facia evidence of a course of conduct consistent with criminal activity and intent. The concerns and issues raised by [whistleblower Pete Baldwin], in his response to my email, significantly reinforces my concern that criminal activity transpired here on the money exchange project.

The memo goes on to cite "a clear and definite pattern of deception and misrepresentation" and recommends, "Further discussions and decisions concerning the [money exchange] project should be coordinated through the corporate criminal defense attorney."

In his testimony, Grayson mistakenly referred to the author of that memorandum as Custer Battles' "corporate integrity officer." But according to a New York Times article published last October, it was only after that memo was written that the man who penned it, Peter Miskovich, found himself promoted from a field manager to the position of corporate integrity officer. At that point, Miskovich recanted the findings reported in his memo and revised attribution of blame to individual lower-level employees, insisting that neither Scott Custer nor Mike Battles, the company's founders, "was involved in the questionable conduct." Prior to his change in title, Miskovich oversaw the money exchange project, reported the Times.

Assistant US Attorney Richard Sponseller, according to Grayson, has suggested that any fraud committed against the CPA should not be equated with theft from the United States, since the CPA was an international organization. But when President George Bush signed the CPA's original funding mandate, it clearly referred to the organization as "an entity of the United States."

Custer Battles has reached the same conclusion about its own lack of culpability, but for different reasons. The company's lawyers told CorpWatch, a website that monitors the activity of war profiteers, that the claim against them should be dismissed because the money allegedly stolen was rightfully that of Iraqis, not Americans.

Grayson told the committee that the Bush administration has so far declined to respond to the claim he filed on behalf of the two men previously affiliated with Custer Battles.

Grayson pointed out that for a full year after the federal government had conclusive evidence that Custer Battles was committing crimes against the United States, the CPA continued to award hefty contracts to the firm. Finally, on September 30, 2004, the US Air Force placed Custer Battles on a government blacklist under a code that excludes contracting with organizations involved in "fraud, antitrust violations, embezzlement, theft, forgery, bribery, false statements or any other offenses indicating a lack of business integrity."

In an October 2004 press release, Custer Battles denied all claims of misconduct and speculated that the two ex-associates, identified as former employee Pete Baldwin and contractor Bob Isakson, filed their claim as "a last ditch effort to achieve a competitive edge over [Custer Battles]." Isakson runs a disaster relief firm that Custer Battles said competes with it for contracts.

A 'Public Diplomacy Operation'

Journalist Mark North, who covered the invasion for National Public Radio and was employed by the CPA to train Iraqi journalists to report for the US-founded Iraq Media Network (IMN), told the hearing that CPA officials regularly directed and censored the activities of the TV news station. He said "a laundry list of CPA activities" was handed down to dictate subject matter with which to replace stories Iraqi journalists preferred to report, such as those pertaining to the problems of post-war life in the embattled country.

"The original plan for IMN seems to have been jettisoned by CPA officials who were more interested in managing news for Iraqis and Americans," North told the committee. He said the CPA made the Iraqi media operation into "another Voice of America," referring to the US government-run propaganda outlet that broadcasts to millions of people in foreign countries. He said CPA officials told him IMN was to be "a public diplomacy operation" for the occupation authorities.

North testified that on occasion, CPA officials specifically ordered stories critical of the occupation and its effects to be cut and insisted that IMN run stories about positive work undertaken by occupation forces.

News content was not the only problem North reported. A labor conflict also arose during his four-month involvement at IMN. "For the first two months, the local staff of about 200 journalists and technicians were not paid their salaries," North said. "Finally, they went on strike. CPA would not negotiate. Striking staffers were told to go back to work, or the US Army would remove them from the studios."

North also told the committee that of the ten American journalists and engineers hired to train Iraqis, all quit within six months. Additionally, the Iraqi hired as news director "was forced to resign," North testified. Ahmed Al-Rikaby had dismissed five employees North described as "troublemakers and Baathists," but the American corporation that oversaw IMN hired them back and reprimanded Al-Rikaby. IMN was established by a Pentagon contractor called Scientific Applications International Corp, which specializes in military gear and programs.

Furthermore, while private American contractors were lavishly wasting CPA funds on five-star hotels in Kuwait and unnecessary supplies in Baghdad, the Iraq Media Network lacked even basic equipment. According to North, a request for just $200 with which to print a journalism training manual in Arabic was never fulfilled. North said he had to use his only day off to teach a journalism course.

While the committee members and witnesses repeatedly affirmed their support for the US mission in Iraq and did not suggest the activities in questions were necessarily systemic, each witness testified that the corrupt activities were carried out as a matter of policy, and no one suggested questionable transactions were contrary to CPA regulations.

Senator Reid speculated that the problems raised by witnesses at the hearing represented "just the tip of the iceberg."

The White House had no comment on Monday, but a Pentagon spokesperson told the LA Times that the occupation authority tried its best to run on the level. "The CPA was operating under extraordinary conditions from its inception to mission completement," Army Lt. Col. Joseph Yoswa said. "Throughout, the CPA strived earnestly for sound management, transparency and oversight."



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