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Iraq: The Corruption Quandary

Reports of financial mismanagement going back to Paul Bremer's provisional government (file photo) Iraq's transitional government has issued arrest warrants for former Defense Minister Hazim al-Sha'lan and 23 other officials for the misappropriation of more than $1 billion during the administration of the interim government that ruled Iraq from June 2004 until April. Al-Sha'lan has denied any role in the corruption scandal and has claimed that the allegations are politically motivated by the current Iraqi government and Iran.

According to media reports, between 28 June 2004 and 13 February 2005 the Defense Ministry under al-Sha'lan signed 89 contracts worth $1.271 billion. Hadi al-Amiri, a member of Iraq's Integrity Commission, said last month that a contract worth $949 million was signed with a firm identified as Al-Ayn Company. The firm was paid in full in advance, he said, and the ministry failed to secure guarantees from the firm on the contract.

Another contract worth $226.8 million was reportedly signed for the purchase of 24 new helicopters, of which only four were delivered to Iraq. Other outdated helicopters in disrepair, he said, were also marked for delivery by the contractor -- which is in a former Soviet republic. According to al-Amiri, the second contract was also paid in full without guarantees. The contractor now wants to replace the undelivered helicopters with technical instruments and equipment, "Al-Zaman" reported on 19 September.

Allegations Could Thwart Comeback

Former Prime Minister Iyad Allawi's party, the Iraqi National Accord, has claimed that the scandal is part of a campaign by Iranian-supported political parties in Iraq to smear secular parties such as Allawi's, which object to Iran's growing influence in Iraq. The scandal threatens to thwart a potential comeback by Allawi to move back to the forefront of Iraq's political landscape in December elections after he and his party were largely kept from power in the current transitional government.

While he has not been directly linked to the corruption allegations, if such transgressions occurred under his administration Allawi and his party would be marred by the scandal. Allawi has worked to position himself for a comeback on the political scene in December's elections, and media reports have indicated that he is pursuing an alliance with Kurdish parties in the next Iraqi government.

Allawi has called on the Iraqi government to publicly open the corruption files. Allawi expressed concern that the al-Ja'fari government will use the scandal for political gain, telling Al-Sharqiyah television in an interview aired on 2 October: "Just as there are accusations [against the interim government], we also have accusations against ministers in the current government who abused power and misused state funds. But we do not come to announce this and talk in this matter on television, in the press, and other media."

Allawi has defended his administration of the interim government, telling Al-Sharqiyah in a 22 September interview that his administration did everything in its power to combat corruption. "We referred a number of ministries to investigation. We also adopted important decisions on the nature of contracts. I recall, for example, issuing a decision stating that any contract of more than $5 million must be referred to a higher economic committee made up of a number of ministers. It banned signing agreements of a higher ceiling. Contracts amounting to less than $5 million [were] handled by a ministerial committee headed by the minister," he said. Meanwhile, Hadi al-Amiri told "Al-Zaman" that the Defense Ministry's own committee had rejected the contract with Al-Ayn Company, the daily reported on 19 September, leaving it unclear as to how the contract was approved.

The allegations of corruption at the Defense Ministry go far beyond the illicit contracts. Al-Amiri said that charges have been filed against one Defense Ministry official for some 60 million dinars ($40,827) paid to ghost employees. One ministry officer put his three-year-old daughter on the payroll and, another, his seven-year-old son.

Accusations Against Other Ministries

While the Defense Ministry scandal may amount to the largest misuse of public funds, at least five other ministries face allegations of corruption, including the interior, public works, trade, oil, and electricity ministries. According to Integrity Commission officials, the committee has identified more than 1,100 cases of administrative corruption and crimes.

There are at least 450 cases under investigation at the Interior Ministry, including investigations into officers who funneled equipment and other property to insurgent groups. Trade Ministry employees are under investigation for selling off goods from the ration-card program -- some of which have ended up in neighboring states, or for replacing goods with lower-quality substitutes. There are also discrepancies within Oil Ministry accounts and investigators are looking into reports of widespread oil smuggling across Iraq's borders.

The Public Works Ministry has been under investigation for months, and Minister Nisreen Barwari was accused in a 3 October National Assembly session of failing to cooperate with the Inspector General's office. Barwari, who has admitted to at least two cases of corruption in her ministry, has said that the inspector general was the uncooperative one, adding that he did not accept explanations presented to him by the ministry.

Lack Of Controls Hampers Reforms

The blame for Iraq's corruption scandal cannot be laid entirely on the Allawi administration. Improper control mechanisms, poor accounting procedures, and inexperience coupled with a huge influx of money into Iraq after the fall of Saddam Hussein's regime made it impossible for the Coalition Provisional Authority (CPA) to track disbursements. According to a report ( issued in 2004 by the International Advisory and Monitoring Board for Iraq (IAMB), $5 billion in reconstruction funds disbursed by the CPA in the first half of 2004 were unaccounted for, including $1.4 billion deposited into a Kurdistan Regional Government bank account in northern Iraq.

In the same audit, the IAMB discovered that the Finance Ministry was maintaining two sets of accounting records -- "manual records for transactions post-hostilities [the U.S.-led invasion] and computerized records representing the continuation of the official records." The IAMB found significant discrepancies when reconciling the two sets of accounting records. "The accounting systems at the Iraqi ministries, including their divisions, were primarily manual-based with limited computerization," the report noted.

The Inspector General for Iraq Reconstruction, Stuart W. Bowen Jr., concluded in a 30 January report to the U.S. Congress that some $9 billion in funds earmarked for the reconstruction of Iraq went unaccounted for due to inefficiencies and bad management by the CPA between April 2003 and 28 June 2004. "The CPA did not establish or implement sufficient managerial, financial, and contractual controls to ensure that [Development Fund for Iraq] funds were used in a transparent manner," Bowen said. CPA Administrator Paul Bremer responded to the report by saying the auditors presumed "the coalition could achieve a standard of budgetary transparency and execution that even peaceful Western nations would have trouble meeting within a year, especially in the midst of a war," reported on 30 January.

In addition to poor accounting procedures, it appears that ministries are either unaware of, or ignore, proper contracting procedures, leading to systematic chaos. Inspector generals assigned to review contracting procedures at ministries are ineffective due to staffing shortages and incompetence. Reports indicate that inspector generals may also face intimidation and, in some cases, are unable to work without government interference.

It is not surprising that Iraq's postwar administrations have been marred by chaos and corruption, whether in the CPA, the interim government, or likely, what has yet to be revealed about the administration of the current transitional government.

The CPA, by all accounts, was unprepared to administer the enormous influx of cash coming from outside in the form of donor aid, unfrozen Hussein-era assets, and millions of dollars left over from UN oil-for-food funds, which were doled out to ministries with outdated accounting practices, little to no oversight, and almost certainly, records maintained in a foreign language. And, as Bremer said, in the midst of a war. The interim government inherited the system and, it appears, some took advantage of it.

But greed, incompetence, and poor mechanisms are only part of the problem. Iraqi society, like the rest of the Middle East, remains entrenched in a system of patronage and clientelism, where contracts are doled out on the basis of personal and professional relationships rather than competence. Until that mindset changes -- something that could take generations -- corruption will remain a problem in Iraq.

For all the news about Iraq, see RFE/RL's special webpage The New Iraq. See Also: Iraq Votes: Constitution Referendum