Development Fund for Iraq
Encyclopedia
In May 2003, following the invasion of Iraq
in March of that year, the Central Bank of Iraq-Development Fund for Iraq (DFI) account was created at the U.S. Federal Reserve Bank of New York
at the request of the Coalition Provisional Authority
(CPA) Administrator. A part of the fund has been transferred to Baghdad
and Iraq
, and the DFI-Baghdad account was opened at the Central Bank of Iraq
"for cash payment requirements".
The fund also eventually received money (US$1.724 billion) from seized and "vested" Iraqi bank accounts and funds seized by coalition forces ($926.7 million). ($650 million) of this amount belongs to Uday Saddam Hussein, the older son of the former Iraqi president. (This money was also used during the transition period before the DFI was set up.) The DFI have been disbursed mainly for “the wheat purchase program, the currency exchange program, the electricity and oil infrastructure programs, equipment for Iraqis security forces, and for Iraqi civil service salaries and ministry budget operations”.
The DFI was put under the control of the Coalition Provisional Authority and the administrative arm of the US-UK occupation forces. International Advisory and Monitoring Board
(IAMB) was created in United Nations Security Council Resolution 1483
(2003). IAMB is an independent oversight body for DFI and its principal role is to ensure transparency and financial accountability of the DFI.
The IAMB was operated from the establishment of the DFI on May 22, 2003 until the dissolution of the CPA on June 28, 2004.
In October 2004, the audits conducted by IAMB and KPMG
revealed the CPA’s inadequate accounting system. IAMB failed its oversight process for several months because of procedural disputes and US manipulation. During this time illegal export of petroleum was conducted secretly from Iraq, and a large amount of funds for DFI were disbursed without accountability.
According to the audits conducted by the Special Inspector General for Iraq Reconstruction
(SIGIR), US$8.8 billion of the US$23 billion of Iraqi money disbursed for DFI has not been accounted the use.
After June 28, 2004, the Iraqi Interim Government
had administered the DFI under the IAMB’s oversight following to United Nations Security Council Resolution 1546
until December 31, 2006.
Paul Bremer
led the Coalition Provisional Authority. During his administration Ambassador Bremer was criticized by some for spending down over 90% of the Development Funds for Iraq. Less than 5% of the $18 billion Congress had set aside for reconstruction were spent during that period. These funds make up the Iraq Relief and Reconstruction Fund
, which is largely managed by the Iraq Reconstruction Management Office. USAID also plays a role in managing these funds. Since the transfer of sovereignty in June 2004, the Development Fund for Iraq has been managed by the Iraqi Transitional Government
.
. United States
Congress
man Henry Waxman
had the staff of the Committee on Government Reform to perform another audit of DFI's expenditures.
were chosen by the Coalition Provisional Authority
and the International Advisory and Monitoring Board
to perform external audits of the Coalition's expenditures from the humanitarian Development Fund for Iraq. The IAMB started negotiating with the CPA to appoint an external auditor in December 2003. KPMG was appointed in April 2004, to audit the CPA's expenditures from Iraq's oil revenue in 2003. On July 15, 2004 KPMG released audit documents that highlighted several dozen serious accounting discrepancies. Note particularly the appendix devoted to Matters noted involving internal controls and other operational issues during the audit period of the Fund For the period to 31 December, 2003
United Nations Resolution 1483 transferred the authority to authorize expenditures from Iraq
's oil revenue from the United Nations
to the Coalition Provisional Authority
.
It also created an international body to monitor the Coalition's expenditures from Iraq's oil revenue, the IAMB. The Coalition's authority to expend Iraq's oil revenue was conditional. The Coalition was only authorized to expend those funds for the benefit of the Iraqi people. Those expenditures were only authorized if they were made in an open and transparent manner. The Coalition was only authorized to expend funds so long as they cooperatived in the IAMB's oversight of those expenditures. The Coalition was charged with the obligation to make those expenditures with meaningful Iraqi input.
Paragraphs 12 and 20 of UN resolution 1483 specified that an external auditor would be appointed to audit the expenditure made from Iraq's oil revenue.
The auditors identified dozens of serious ways in which the CPA failed to meet its obligations:
In their International Advisory and Monitoring Board
's press release of June 22, 2004 states:
The CPA was shipping Iraqi oil through a pipeline system with non-functioning meters. The actual amount of oil being shipped would have had to be estimated. The Iraqi people were left in the position where they had to trust that the CPA's estimates were honest.
Little information has been made public about the DFI. The Coalition Provisional Authority excluded information on its web site about any transfer of assets into and out of the DFI.
2003 invasion of Iraq
The 2003 invasion of Iraq , was the start of the conflict known as the Iraq War, or Operation Iraqi Freedom, in which a combined force of troops from the United States, the United Kingdom, Australia and Poland invaded Iraq and toppled the regime of Saddam Hussein in 21 days of major combat operations...
in March of that year, the Central Bank of Iraq-Development Fund for Iraq (DFI) account was created at the U.S. Federal Reserve Bank of New York
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...
at the request of the Coalition Provisional Authority
Coalition Provisional Authority
The Coalition Provisional Authority was established as a transitional government following the invasion of Iraq by the United States and its allies, members of the Multi-National Force – Iraq which was formed to oust the government of Saddam Hussein in 2003...
(CPA) Administrator. A part of the fund has been transferred to Baghdad
Baghdad
Baghdad is the capital of Iraq, as well as the coterminous Baghdad Governorate. The population of Baghdad in 2011 is approximately 7,216,040...
and Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
, and the DFI-Baghdad account was opened at the Central Bank of Iraq
Central Bank of Iraq
-History:The Central Bank of Iraq was established as Iraq's central bank by Central Bank of Iraq Law 2004 with authorised capital of 100 billion dinars. The current Governor of the Central Bank of Iraq is Sinan Al Shabibi.-Architecture:...
"for cash payment requirements".
The fund also eventually received money (US$1.724 billion) from seized and "vested" Iraqi bank accounts and funds seized by coalition forces ($926.7 million). ($650 million) of this amount belongs to Uday Saddam Hussein, the older son of the former Iraqi president. (This money was also used during the transition period before the DFI was set up.) The DFI have been disbursed mainly for “the wheat purchase program, the currency exchange program, the electricity and oil infrastructure programs, equipment for Iraqis security forces, and for Iraqi civil service salaries and ministry budget operations”.
The DFI was put under the control of the Coalition Provisional Authority and the administrative arm of the US-UK occupation forces. International Advisory and Monitoring Board
International Advisory and Monitoring Board
The International Advisory and Monitoring Board was appointed to oversee the Coalition Provisional Authority's disbursements from the humanitarian Development Fund for Iraq. When the CPA was authorized to manage the DFI by United Nations resolution 1483....
(IAMB) was created in United Nations Security Council Resolution 1483
United Nations Security Council Resolution 1483
United Nations Security Council Resolution 1483, adopted on May 22, 2003, after recalling all previous resolutions on the situation between Iraq and Kuwait, the Council lifted trade sanctions against Iraq and terminated the Oil-for-Food Programme.The resolution was drafted by the United States and...
(2003). IAMB is an independent oversight body for DFI and its principal role is to ensure transparency and financial accountability of the DFI.
The IAMB was operated from the establishment of the DFI on May 22, 2003 until the dissolution of the CPA on June 28, 2004.
In October 2004, the audits conducted by IAMB and KPMG
KPMG
KPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
revealed the CPA’s inadequate accounting system. IAMB failed its oversight process for several months because of procedural disputes and US manipulation. During this time illegal export of petroleum was conducted secretly from Iraq, and a large amount of funds for DFI were disbursed without accountability.
According to the audits conducted by the Special Inspector General for Iraq Reconstruction
Special Inspector General for Iraq Reconstruction
The Office of the Special Inspector General for Iraq Reconstruction was created in October 2004 as the successor to the Coalition Provisional Authority Office of Inspector General . SIGIR is an independent government agency created by the Congress to provide oversight of the use – and potential...
(SIGIR), US$8.8 billion of the US$23 billion of Iraqi money disbursed for DFI has not been accounted the use.
After June 28, 2004, the Iraqi Interim Government
Iraqi Interim Government
The Iraqi Interim Government was created by the United States and its coalition allies as a caretaker government to govern Iraq until the Iraqi Transitional Government was installed following the Iraqi National Assembly election conducted on January 30, 2005...
had administered the DFI under the IAMB’s oversight following to United Nations Security Council Resolution 1546
United Nations Security Council Resolution 1546
United Nations Security Council Resolution 1546, adopted unanimously on June 8, 2004, after reaffirming previous resolutions on Iraq, the Council endorsed the formation of the Iraqi Interim Government, welcomed the end of the occupation and determined the status of the multinational force and its...
until December 31, 2006.
Paul Bremer
L. Paul Bremer
Lewis Paul "Jerry" Bremer III is an American diplomat. He is most notable for being the U.S. Administrator to Iraq charged with overseeing the country's occupation after the 2003 invasion. In his role as head of the Coalition Provisional Authority, he reported primarily to the U.S. Secretary of...
led the Coalition Provisional Authority. During his administration Ambassador Bremer was criticized by some for spending down over 90% of the Development Funds for Iraq. Less than 5% of the $18 billion Congress had set aside for reconstruction were spent during that period. These funds make up the Iraq Relief and Reconstruction Fund
Iraq Relief and Reconstruction Fund
The Iraq Relief and Reconstruction Fund was established by the US Congress on November 6, 2003. It allocated $18.4 billion to rebuild Iraq's infrastructure, damaged from years of neglect, sanctions, and war....
, which is largely managed by the Iraq Reconstruction Management Office. USAID also plays a role in managing these funds. Since the transfer of sovereignty in June 2004, the Development Fund for Iraq has been managed by the Iraqi Transitional Government
Iraqi Transitional Government
The Iraqi Transitional Government was the government of Iraq from May 3rd, 2005, when it replaced the Iraqi Interim Government, until May 20th, 2006, when it was replaced by the first permanent government....
.
Audits
There have been several audits of the disbursement from the DFI during the CPA's stewardship. The first was performed by international accounting firm KPMGKPMG
KPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
. United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
man Henry Waxman
Henry Waxman
Henry Arnold Waxman is the U.S. Representative for , serving in Congress since 1975. He is a member of the Democratic Party. He is considered to be one of the most influential liberal members of Congress...
had the staff of the Committee on Government Reform to perform another audit of DFI's expenditures.
KPMG audit
International auditors KPMGKPMG
KPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
were chosen by the Coalition Provisional Authority
Coalition Provisional Authority
The Coalition Provisional Authority was established as a transitional government following the invasion of Iraq by the United States and its allies, members of the Multi-National Force – Iraq which was formed to oust the government of Saddam Hussein in 2003...
and the International Advisory and Monitoring Board
International Advisory and Monitoring Board
The International Advisory and Monitoring Board was appointed to oversee the Coalition Provisional Authority's disbursements from the humanitarian Development Fund for Iraq. When the CPA was authorized to manage the DFI by United Nations resolution 1483....
to perform external audits of the Coalition's expenditures from the humanitarian Development Fund for Iraq. The IAMB started negotiating with the CPA to appoint an external auditor in December 2003. KPMG was appointed in April 2004, to audit the CPA's expenditures from Iraq's oil revenue in 2003. On July 15, 2004 KPMG released audit documents that highlighted several dozen serious accounting discrepancies. Note particularly the appendix devoted to Matters noted involving internal controls and other operational issues during the audit period of the Fund For the period to 31 December, 2003
United Nations Resolution 1483 transferred the authority to authorize expenditures from Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
's oil revenue from the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
to the Coalition Provisional Authority
Coalition Provisional Authority
The Coalition Provisional Authority was established as a transitional government following the invasion of Iraq by the United States and its allies, members of the Multi-National Force – Iraq which was formed to oust the government of Saddam Hussein in 2003...
.
It also created an international body to monitor the Coalition's expenditures from Iraq's oil revenue, the IAMB. The Coalition's authority to expend Iraq's oil revenue was conditional. The Coalition was only authorized to expend those funds for the benefit of the Iraqi people. Those expenditures were only authorized if they were made in an open and transparent manner. The Coalition was only authorized to expend funds so long as they cooperatived in the IAMB's oversight of those expenditures. The Coalition was charged with the obligation to make those expenditures with meaningful Iraqi input.
Paragraphs 12 and 20 of UN resolution 1483 specified that an external auditor would be appointed to audit the expenditure made from Iraq's oil revenue.
The auditors identified dozens of serious ways in which the CPA failed to meet its obligations:
- Lack of cooperation with the auditors. CPA administrator Paul Bremer has complained that the independent Inspector General Stuart BowenStuart BowenStuart W. Bowen, Jr. , is an American lawyer who serves as the Special Inspector General for Iraq Reconstruction , a position he has held since October 2004. He previously served as the Inspector General for the Coalition Provisional Authority , a position to which he was appointed in January 2004....
, whom the Congress appointed, never met with him. In contrast the KPMG auditors say Mr Bremer never scheduled a meeting with them, prior to the official hand-over, and surprised everyone by leaving Iraq early immediately after his early handover of authority to the Interim government. George WolfeGeorge Wolfe (CPA)George Wolfe, an employee of the United States government, worked for the Coalition Provisional Authority in 2003 and 2004.Wolfe sat on the CPA's Program Review Board, the committee that made the final recommendation to CPA Administrator Paul Bremer over the $20 billion of contracts the CPA...
, the chairman of the Program Review BoardCoalition Provisional Authority Program Review BoardThe Coalition Provisional Authority Program Review Board was composed of the senior personnel of the Coalition Provisional Authority, charged with the responsibility to review and make recommendations about the awarding of contracts to the administrator of the authority, Paul Bremer.The board...
, Iraq's de facto Treasurer "was unable to acknowledge the fair presentation of the statement of cash receipts and payments, the completeness of significant contracts entered into by the DFI and responsibilities for the implementation and operations of accounting and internal control systems, designed to prevent and detect fraud and error." - Internal auditor. In the CPA Administrator's second regulation, of 10 June 2003, Bremer committed the CPA to "obtain the services of an independent certified public accounting firm to support the objective of ensuring that the Fund is administered and used in a transparent manner for the benefit of the people of Iraq, and is operated consistent with Resolution 1483. The accountants performing this function shall be separate from those public accountants (auditors) approved by the International Advisory and Monitoring Board." But Bremer never obtained the services of an internal auditor. Instead the CPA hired a consulting firm, to set up a bookkeeping system – incomplete at the time of the handover.
- Double entry bookkeeping. The CPA did not use a double entry bookkeeping system. Instead, it used what that auditors called a single entry, cash-based, transaction list — $ 20 billion of petty cashPetty cashPetty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque...
. The CPA did not do a cash-reconciliation until April 2004, eleven months into its administration. At that point, the CPA had disbursed $ 6 billion in $ 100 bills. - Metering Iraq's oil. Iraq's oil infrastructure was damaged when the CPA took over. The CPA effected selected repairs. But the IAMB found that the CPA had chosen not to repair the meters on the pipelines. The IAMB told the CPA that they were concerned that the lack of metering made auditing Iraq's oil exports unreliable – making it impossible to detect fraud, deception or smuggling. The minutes of the IAMB meeting make clear that the CPA had assured the IAMB that they were in the process of repairing the meters – in bad faith. The CPA's authority came to an end with the meters unrepaired. Estimates of how much oil revenue was siphoned off during the year of the CPA's administration go as high as $ 4 billion – comparable to the amount Saddam Hussein is suspected of stealing during the entire duration of the oil-for-food program.
- Record-keeping. The auditors found that the Program Review BoardCoalition Provisional Authority Program Review BoardThe Coalition Provisional Authority Program Review Board was composed of the senior personnel of the Coalition Provisional Authority, charged with the responsibility to review and make recommendations about the awarding of contracts to the administrator of the authority, Paul Bremer.The board...
failed to keep proper minutes:- The PRB minutes did not always keep minutes of its meetings.
- The PRB minutes almost never recorded the wording of minutes, or the vote tallies.
- The auditors felt that the minutes did not record enough details for later readers to understand the reasons why the Board made their decisions.
- The PRB minutes sometimes did not even record the who attended the meetings.
- The auditors found that CPA staff responsible for overseeing programs were often unable to find their program files. They could not be counted on to be familiar with the programs they were responsible for.
Waxman audit
On June 20, 2005 the staff on Congressman Waxman's Committee on Government Reform released a highly critical report.In their International Advisory and Monitoring Board
International Advisory and Monitoring Board
The International Advisory and Monitoring Board was appointed to oversee the Coalition Provisional Authority's disbursements from the humanitarian Development Fund for Iraq. When the CPA was authorized to manage the DFI by United Nations resolution 1483....
's press release of June 22, 2004 states:
- "The IAMB was also informed by the CPA that contrary to earlier representations the award of metering contracts have been delayed and continues to urge the expeditious resolution of this critical issue."
The CPA was shipping Iraqi oil through a pipeline system with non-functioning meters. The actual amount of oil being shipped would have had to be estimated. The Iraqi people were left in the position where they had to trust that the CPA's estimates were honest.
Lack of transparency
The Development Fund for Iraq receives 95 per cent of the government proceeds from Iraqi oil sales. The 2003 budget also noted that the Development Fund will provide $1.2 billion for the budget. However, the relationship between the DFI and the budget has not been made clear — the budget anticipated oil revenues of $3.4 billion — much greater than the amount in the DFI then. Moreover, only the Provisional Authority Administrator could authorise spending from the DFI.Little information has been made public about the DFI. The Coalition Provisional Authority excluded information on its web site about any transfer of assets into and out of the DFI.
See also
- Coalition Provisional AuthorityCoalition Provisional AuthorityThe Coalition Provisional Authority was established as a transitional government following the invasion of Iraq by the United States and its allies, members of the Multi-National Force – Iraq which was formed to oust the government of Saddam Hussein in 2003...
- International Advisory and Monitoring BoardInternational Advisory and Monitoring BoardThe International Advisory and Monitoring Board was appointed to oversee the Coalition Provisional Authority's disbursements from the humanitarian Development Fund for Iraq. When the CPA was authorized to manage the DFI by United Nations resolution 1483....
- Coalition Provisional Authority Program Review BoardCoalition Provisional Authority Program Review BoardThe Coalition Provisional Authority Program Review Board was composed of the senior personnel of the Coalition Provisional Authority, charged with the responsibility to review and make recommendations about the awarding of contracts to the administrator of the authority, Paul Bremer.The board...
- Dover testDover testThe Dover test is an informal test and a journalistic phrase to describe whether the general population of the United States is supporting the participation of the United States in a war or other military action by the public reaction to returning war casualties...
- Special Inspector General for Iraq ReconstructionSpecial Inspector General for Iraq ReconstructionThe Office of the Special Inspector General for Iraq Reconstruction was created in October 2004 as the successor to the Coalition Provisional Authority Office of Inspector General . SIGIR is an independent government agency created by the Congress to provide oversight of the use – and potential...
External links
- In Iraq, the Job Opportunity of a Lifetime: Managing a $13 Billion Budget With No Experience Washington Post, May 22, 2004
- U.S. accused of depleting Iraq fund : Money is intended for rebuilding use; international board plans to do audit, Baltimore Sun, July 3, 2004
- U.S. Funds for Iraq Are Largely Unspent, Washington Post July 4, 2004
- U.S. Won't Turn Over Data for Iraq Audits, Washington Post July 15, 2004
- U.S. Won't Turn Over Data for Iraq Audits Washington Post, July 16, 2004
- Audit Finds Fraud, Other Abuses in Iraq Contract Awards, Washington Post July 30, 2004
- U.S. Spends Only Small Part Of Funds to Help Rebuild Iraq, Washington Post November 1, 2004
- Audit: $9 Billion Unaccounted for in Iraq Frankfort Indiana Times, January 31, 2005
- Iraq Authority Made Millions In Cash Payments: Former Official Says Chaos Created 'Wild West' Scene Washington Post, February 14, 2004
- Poor Oversight of Iraq Funds Blamed on Coalition Policy, LA Times, February 15, 2005
- Iraq agency 'run like Wild West', BBCBBCThe British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
, February 15, 2005 - Rules and Cash Flew Out the Window LA Times, May 20, 2005
- So, Mr Bremer, where did all the money go?, The GuardianThe GuardianThe Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
, July 7, 2005 - http://news.bbc.co.uk/2/hi/middle_east/4675902.stm US official admits Iraq aid theft, By Adam Brookes, BBC News, February 2, 2006
- http://www.corpwatch.org/article.php?id=12894 IRAQ: US Army officer Charged in Iraq Fraud Scam, Reuters, December 15, 2005
- Audit documents
- Appendix to the audit of the Development Fund for Iraq – Matters noted involving internal controls and other operations issues during the audit of the Fund for the period to 31 December 2003
- Congress Wants Pentagon Documents on Iraq Development Funds, Voice of AmericaVoice of AmericaVoice of America is the official external broadcast institution of the United States federal government. It is one of five civilian U.S. international broadcasters working under the umbrella of the Broadcasting Board of Governors . VOA provides a wide range of programming for broadcast on radio...
, June 21, 2005 - Iraq reconstruction riddled with waste, audits find, The Seattle TimesThe Seattle TimesThe Seattle Times is a newspaper serving Seattle, Washington, US. It is the largest daily newspaper in the state of Washington. It has been, since the demise in 2009 of the printed version of the rival Seattle Post-Intelligencer, Seattle's only major daily print newspaper.-History:The Seattle Times...
, July 4, 2005 - “So, Mr Bremer, where did all the money go?”, The GuardianThe GuardianThe Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
, July 7, 2005