Journalism
Billions Over Baghdad
"Fraud" was simply another word for "business as usual." Of 8,206 "guards" drawing paychecks courtesy of the C.P.A., only 602 warm bodies could in fact be found; the other 7,604 were ghost employees. Halliburton, the government contractor once headed by Vice President Dick Cheney, charged the C.P.A. for 42,000 daily meals for soldiers while in fact serving only 14,000 of them. Cash was handed out from the backs of pickup trucks. On one occasion a C.P.A. official received $6.75 million in cash with the expectation he would shell it out in one week. Another time, the C.P.A. decided to spend $500 million on "security." No specifics, just a half-billion dollars for security, with this cryptic explanation: "Composition TBD"—that is, "to be determined."
The pervasiveness of this Why-should-I-care? attitude was driven home in an exchange with retired admiral David Oliver, the C.P.A.'s director of management and budget. Oliver was asked by a BBC reporter what had happened to all the cash airlifted to Baghdad:
Oliver: "I have no idea—I can't tell you whether or not the money went to the right things or didn't—nor do I actually think it's important."
Q: "Not important?"
Oliver: "No. The coalition—and I think it was between 300 and 600 people, civilians—and you want to bring in 3,000 auditors to make sure money's being spent?"
Q: "Yes, but the fact is that billions of dollars have disappeared without a trace."
Oliver: "Of their money. Billions of dollars of their money, yeah, I understand. I'm saying what difference does it make?"
The difference it made was that some American contractors correctly believed they could walk off with as much money as they could carry. The circumstances that surround the handling of comparatively small sums help explain the billions that ultimately vanished. In the south-central region of Iraq a contracting officer stored $2 million in a safe in his bathroom. One agent kept $678,000 in an unsecured footlocker. Another agent turned over some $23 million to his team of "paying agents" to deliver to contractors, but documentation could be found for only $6.3 million of it. One project officer received $350,000 to fund human-rights projects, but in the end could account for less than $200,000 of it. Two C.P.A. agents left Iraq without accounting for two payments of $715,000 and $777,000. The money has never been found.
To Frank Willis, a senior adviser to the Iraqi transportation ministry, the presence of so much cash circulating so freely gave the Green Zone a "Wild West" feel. A moderate Republican who worked for Reagan and voted for George W. Bush, Willis spent many years in executive roles in the State Department and the Department of Transportation before leaving government service in 1985. He was a top executive of a health institute in Oklahoma when, in 2003, an old friend from Washington called and asked if he would come to Iraq to help the C.P.A. get the various transportation systems running again.
"You've got to be crazy," Willis told him at first. He says he was talked into going for 30 days, but once in Baghdad became caught up in the work and stayed for six grueling months. Willis says he wasn't there a month before he felt the way things were being done was "terribly wrong." One afternoon he returned to his office to find piles and piles of shrink-wrapped $100 bills stacked on a table. "This just got wheelbarrowed in," one of his American colleagues explained. "What do you think of two million bucks?" The money had been "checked out" of Saddam's old vault in the basement, two floors below, in order to pay a U.S. contractor hired by the C.P.A. to provide security.
The neat bundles of cash looked almost like play money, and the temptation to handle them was irresistible. "We were all in the room passing those things around and having fun," Willis remembers. He and his colleagues played a game of football, tossing the bricks back and forth. "You could spin them but not throw a spiral," Willis says with a laugh. When he called the American contractor to come get his money, Willis advised him, "You better bring a gunnysack."
"Integrity Is a Core Principle"
The American contractor needing the gunnysack was a company called Custer Battles. The name was derived not from Little Big Horn but from the names of the company's owners, Scott K. Custer and Michael J. Battles. Both were former army rangers in their mid-30s, and Battles also had once been a C.I.A. operative. The pair showed up on the streets of Baghdad with the blessing of the White House at invasion's end, looking for a way to do business. At the time, the only American civilians who could gain access to the city were those approved by President Bush's staff.
The Battles half of the team brought the White House access, secured when Michael Battles became the G.O.P.-backed candidate in the 2002 Rhode Island congressional primary for the privilege of losing to the Democratic incumbent, Patrick Kennedy. Battles not only lost the primary but was fined by the Federal Election Commission for misrepresenting campaign contributions. Nevertheless, he forged important political connections. His contributors included Haley Barbour, the longtime Washington power broker and former chairman of the Republican National Committee, who is now governor of Mississippi, and Frederic V. Malek, a former special assistant to President Nixon, who survived the Watergate scandal and went on to become an insider in the Reagan administration and both Bush administrations.
The C.P.A. awarded Custer and Battles one of its first no-bid contracts—$16.5 million to protect civilian aircraft flights, of which at the time there were few, into Baghdad International Airport. The company faced immediate obstacles: Custer and Battles didn't have any money, they didn't have a viable business, and they didn't have any employees. Bremer's C.P.A. had overlooked these shortcomings and forked over $2 million anyway, in cash, to get them started, simply ignoring long-standing requirements that the government certify that a contractor has the capacity to fulfill a contract. That first $2 million cash infusion was followed shortly by a second. Over the next year Custer Battles would secure more than $100 million in Iraq contracts. The company even set up an internal Office of Corporate Integrity. "Integrity is a core principle of Custer Battles' corporate values," Scott Custer stated in a press release.
The U.S. business community was impressed by this upstart. In May 2004, Ernst & Young, the global accounting firm, announced the finalists for its New England Entrepreneur of the Year Awards, honoring an ability "to innovate, develop, and cultivate groundbreaking business models, products, and services." Among the honorees were Scott Custer and Michael Battles.
Four months later, in September 2004, the air force issued an order barring Custer Battles from receiving any new government contracts until 2009. The company had come to epitomize the way business was done in Baghdad. Custer Battles had billed the government $400,000 for electricity that cost $74,000. It had billed $432,000 for a food order that cost $33,000. It had charged the C.P.A. for leased equipment that was stolen, and had submitted forged invoices for reimbursement—all the while moving millions of dollars into offshore bank accounts. In one instance, the company claimed ownership of forklifts used to transport the C.P.A.'s cash (among other things) around the Baghdad airport. But up until the war the forklifts had been the property of Iraqi Airways. They were "liberated," along with the Iraqi people, following hostilities. Custer Battles seized them, painted over the old name, and transferred ownership to its offshore businesses. The forklifts were then leased back to Custer Battles for thousands of dollars a month, a cost that Custer Battles passed along to the C.P.A. In 2006, a federal-court jury in Virginia ordered the company to pay $10 million in damages and penalties for defrauding the government. The jury found more than three dozen instances of fraud in which Custer Battles used shell companies in the Cayman Islands and elsewhere to manufacture phony invoices and pad its bills. During the same period Battles personally withdrew $3 million from the company coffers as a kind of bonus—or, as he put it, "a draw." The jury decision in the whistle-blower lawsuit was subsequently overturned when the trial judge set the verdict aside, pointing out that the C.P.A. was not in fact a U.S.-government entity and hence Custer Battles could not be tried under the federal fraud act. That decision is under appeal.
The NorthStar Contract
How can billions of dollars simply vanish? Wasn't there any accounting mechanism in place to keep track of the money?
La Jolla, California, is about as far away from Iraq in both distance and mind-set as one can get. The house at 5468 Soledad Road is a two-story dwelling with six bedrooms and five and a half baths, a typical California home of beige stucco under a red tiled roof. The neighborhood is lush and well kept. But in one respect 5468 Soledad is not a typical suburban house at all.
On October 25, 2003, the C.P.A. awarded a $1.4 million contract "to provide accountant and audit services" to help "in the management and accounting of the Development Fund for Iraq." In other words, the purpose was to help Bremer and the C.P.A. keep tabs on the billions of dollars under their control, and to help make sure that the money was properly spent. The one-year C.P.A. contract was awarded to a company called NorthStar Consultants.
When a request was made to the U.S. government for a copy of this contract, officials at the Pentagon, which has oversight, dragged their feet for weeks. The document they eventually supplied had been strategically redacted. Nearly all the information about the contractor had been blacked out, including the name and title of the company officer who had executed the contract, the name of the person to call for information about the company, the last four digits of the company's phone number, and the name of the U.S.-government official who had awarded the contract in the first place. But by cross-referencing public records and other sources it was possible to fill in some of the missing data. One path led to 5468 Soledad Road.