IRAQ: Australia Challenged US over $20 Billion in War Spoils

Neil Mules, Australia's former ambassador in Iraq, protested against or questioned many projects that US officials from the Coalition Provisional Authority proposed in the weeks before it handed control of Iraq and its finances to an interim government in June last year.

Mr Mules objected at meetings of the CPA's Program Review Board. The board also had seven US, one British and two Iraqi members.

It authorised reconstruction spending using the Development Fund for Iraq, an account holding Iraq's oil revenue, assets from Saddam Hussein's regime and cash from the UN oil-for-food program.

Recent UN and US Government investigations found the CPA grossly mismanaged Iraq's money. A US inspector found that $US8.8 billion of Iraqi funds the CPA disbursed to ministries could not be accounted for. The inspector said "severe inefficiencies and poor management" hampered administration of the funds.

Minutes of the board's June 2004 meeting show Mr Mules and Britain's member, Yusuf Samiullah, were concerned that inadequate funds would be left for the Iraqis. They called for no new proposals to be approved unless they were "urgent and a matter of national security". But the US representatives argued that this was not in keeping with the board's charter.

When the interim government took control on June 28 last year, the Development Fund for Iraq had little more than $US3 billion left in it. The CPA had spent more than $US19 billion of Iraqi funds in 13 months.

The 2003 UN Security Council resolution that allowed coalition forces to control Iraqi funds stipulated that money had to be spent in a "transparent manner to meet the humanitarian needs of the Iraqi people".

Board documents - described by UN-appointed auditors KPMG as incomplete records that failed to include proper minutes and voting tallies and had insufficient details of spending proposals - reveal a dramatic increase in CPA spending in the weeks leading to the handover of government.

In just one meeting, on May 15 last year, the US-led board allocated $US2 billion of Iraqi money to poorly planned projects involving the oil and electricity sectors, and security.

The documents show Mr Mules, who is now Australia's ambassador in Mexico, and Dr Samiullah, objected to a US plan to use $US500 million from the fund to beef up security services.

The US Congress had already allocated $US3.2 billion for the same purpose.

Other US proposals that concerned Mr Mules included:

■A plan to spend $US775 million on the oil and electricity sectors, despite US Government allocations - $US5.5 billion for electricity and $US1.7 billion for oil - largely unspent.

■A plan to spend $US2.2 million buying pistols and ammunition when US funding had been requested. The board was told the US contract was under legal review, making it impossible to give a delivery date.

■A request for $US41 million to build a hazardous waste disposal facility. Mr Mules wanted to know how much waste came from coalition forces and asked why should Iraqis pay to "clean up coalition waste".

Australia and Britain were successful in having a proposal to allocate $US10 million of Iraqi money for a museum to record the "atrocities of the previous regime" withdrawn.

US investigators last month charged former CPA officials with fraud. Up to 50 other cases are being investigated.

Of the Iraqi money that can be tracked, more than $US1.9 billion was awarded to US companies that did not have to compete for the work.

A UN audit board last month recommended the US repay Iraq up to $US208.5 million for work by Halliburton subsidiary Kellogg Brown & Root. It said the work, paid for with Iraqi oil money, was either overpriced or done poorly. Halliburton, the company US Vice-President Dick Cheney was chief executive of until 2000, is a major donor to the Republican Party. It has won more than $US900 million in Iraqi-funded contracts without competing for them.

Mr Mules declined to answer questions from The Age. The Foreign Affairs Department also refused to answer questions about whether Mr Mules had alerted the Government to his concerns or whether the Government had raised his concerns with the US.

A spokesman said Australia had played a "constructive role in an effort to ensure quality control and the most appropriate use of funds".

He said it was important to place deliberations in context because funds were "urgently needed for critical rehabilitation work".

But British charity Christian Aid, which has worked in Iraq since 1992, said CPA information was "woefully inadequate". "What has the coalition got to hide by not making such information available for Iraq's own money?" its head of policy, Helen Collinson, said.

"Is it putting the cash to the best use for the people of Iraq? Or is it still rewarding US companies with lucrative contracts?"

WHERE THE MONEY WENT

$23.34 billion Funds under coalition provisional authority control

$19.64 billion Funds spent by CPA

$3.69 billion Funds transferred from CPA to interim Iraqi government

HOW $2 BILLION WENT IN A DAY
Committed by US-led program review board on May 15, 2004

Iraq property claims commission $180m
Revenue stabilisation account $125m
Victim's compensation fund $25m
Public distribution system $200m
Stand-up iraqi security forces $500m
Electricity sector $315m
Oil infrastructure rebuilding $460m
Agriculture reconstruction $65m
State-owned enterprise rehab $50m
Vocational training $65m
TOTAL $1.985bn