Journalism
Billions Over Baghdad
The Baghdad-Bahamas Connection
When an unknown official at the Pentagon meticulously went through the NorthStar contract and used a thick-tipped marker to black out Thomas Howell's name, title, office address, and phone number, he or she neglected to conceal one of the most intriguing aspects of the contract: NorthStar's mailing address. It was P.O. Box N-3813 in Nassau, in the Bahamas.
High on a hill in Nassau, the main post office commands panoramic views of the capital city—the pink stuccoed Parliament building, bustling Bay Street with its hordes of tourists, and, beyond it, the giant cruise ships that dock in Nassau's harbor. Just as you enter the post office, on a sprawling plaza beneath an overhang offering protection from the tropical sun and rain, there stand row after row of metal boxes, each bearing the capital letter N followed by a series of numbers. These are the private post-office boxes of Nassau. Because there is no home delivery in the city, it is the way people in the capital get their mail.
Box N-3813, four inches wide by five inches high, looks like all the other post-office boxes. It harbors many secrets that its users want to keep. No one knows whether anyone at the C.P.A. or the Pentagon questioned why one of its contractors used an offshore post-office box. It is undeniably true, however, that foreigners often use post-office boxes in the Bahamas and other tax havens for three purposes: to conceal assets, to avoid taxes, and to launder money. NorthStar would not be at all unusual among Iraq contractors in setting up its affairs this way. Post-office boxes in tax havens around the world have been flooded with contractor business based in Iraq.
Box N-3813, it turns out, has been the locus for all sorts of transactions by Americans and others looking to move money offshore. In addition to Howell's NorthStar, this particular box also served as the address of record for a man named Patrick Thomson and for his Bahamian business called Lions Gate Management. Both figured prominently in one of the more spectacular offshore frauds in recent years, the collapse of Evergreen Security. The Caribbean-based Evergreen enticed thousands of investors, many of them U.S. retirees, to pour money into its so-called tax-sheltered offshore funds, with the promise of handsome returns. Some of the money came from hundreds of Caribbean trusts for which Thomson acted as trustee. A Ponzi scheme masquerading as a mutual fund, Evergreen siphoned $200 million from investors in the United States and two dozen other countries. One of its ringleaders was William J. Zylka, a New Jersey "con artist who falsified his background, credentials and wealth in order to perpetrate elaborate schemes," according to court documents. He pocketed $27.7 million of Evergreen's money.
Throughout the looting of Evergreen, Thomson was one of the firm's three directors. During that time he also arranged for Howell to establish the same Nassau post-office box as NorthStar's legal home. Identified in Nassau as a member of one of Scotland's oldest publishing families, Thomson has operated out of one or more office buildings in the heart of Nassau for many years. Like most of those in the shadowy world of offshore deals, he has generally kept a low profile, the scandal over Evergreen Security being the one great exception. Thomson incorporated NorthStar for Howell in the Bahamas in January of 1998, as what is known as an "international business company," or I.B.C. Despite their impressive name, I.B.C.'s are little more than paper operations. As a rule, they don't carry on any business; they are empty vessels that can be used for anything. They have no real chief executive officer or board of directors, and they don't publish financial statements. An I.B.C.'s books, if there are any, can be kept anywhere in the world, but no one can inspect them. I.B.C.'s aren't required to file annual reports or disclose the identity of their owners. They're shells, operating in total secrecy. In the last two decades, they have sprouted by the hundreds of thousands in tax havens worldwide.
In a telephone interview, Thomson discussed with great reluctance his role in creating NorthStar for Thomas Howell. How did they meet?
"I believe I was introduced to him through a friend with Citibank," Thomson replied. "I believe Howell used to work for Citibank." He said it was his recollection that Howell initially established NorthStar because of some consulting work he was doing in the Far East, not the Middle East. "This was before the Iraq war started," he noted. "All we did was supply a company name." Thomson said he had had no contact with Howell in years. He had heard that Howell was in Iraq, but declined to discuss the matter further.
Turning Off the Spigot
By the spring of 2004 the clock was winding down for L. Paul Bremer and the C.P.A. Within several months—on June 30—the Authority was scheduled to turn government operations over to the Iraqis, at least formally. There was palpable anxiety among officials and contractors about what would happen under the new Iraqi regime, and they launched an aggressive effort to get as much money into the pipeline as possible. On April 26, another shipment of cash-laden pallets, this one holding $750 million, arrived at Baghdad International Airport. On May 18 the Fed made a $1 billion shipment, which was followed on June 22 by the biggest single shipment ever made by the Fed anywhere—$2.4 billion. Another $1.6 billion arrived three days later, bringing the total of cash shipments to Iraq to $5 billion in the C.P.A.'s final three months.
The C.P.A. sought to make one more huge withdrawal. On Monday, June 28, as Bremer stole away from Baghdad unannounced—two days ahead of the scheduled handover of authority—another C.P.A. official put in hurried pleas to the Federal Reserve Bank for an additional $1 billion infusion, hoping to get the money before an Iraqi provisional government came to power. Internal e-mails from the Federal Reserve Bank show that the requests for money came from Don Davis, an air-force colonel serving as the C.P.A. comptroller and manager of the Development Fund for Iraq. But the Fed would have no part of the plan. Because Bremer had already "transferred authority (which is being reported in the press as 10:26 a.m. in Baghdad)," a Fed official explained, "the C.P.A. no longer had control over Iraq's assets."
In one of his last official acts before leaving Baghdad, Bremer issued an order—prepared by the Pentagon, he says—declaring that all coalition-force members "shall be immune from any form of arrest or detention other than by persons acting on behalf of their Sending States." Contractors also got the same get-out-of-jail-free card. According to Bremer's order, "contractors shall be immune from Iraqi legal process with respect to acts performed by them pursuant to the terms and conditions of a Contract or any sub-contract thereto." The Iraqi people, who had had no say over Saddam Hussein's illegal conduct during his dictatorship, would have no say over illegal conduct by Americans in their new democracy.
And the "Sending State" itself is not interested in pursuing misconduct. With the exception of a few low-level individuals, the Bush administration's Justice Department has resolutely avoided the prosecution of corporate fraud stemming from the occupation of Iraq.
"In our fifth year in the war in Iraq," according to Alan Grayson, the attorney for whistle-blowers, "the Bush administration has not litigated a single case against any war profiteer under the False Claims Act." This at a time, Grayson told a congressional committee, when "billions of dollars are missing and many billions more wasted." Grayson knows what he is talking about. He represented the whistle-blowers in the Custer Battles case brought under the False Claims Act—a case in which the Justice Department refused to get involved, and the only one that has gone to trial.
Howell repeated the number and added, "O.K. Let me get somebody who can discuss all this stuff for you."
There is no true method of calculating the human cost of the war in Iraq. The monetary cost, grossly inflated by theft and corruption, is another matter. One simple piece of data puts this into perspective: to date, America has spent twice as much in inflation-adjusted dollars to rebuild Iraq as it did to rebuild Japan—an industrialized country three times Iraq's size, two of whose cities had been incinerated by atomic bombs. Understanding how and why this happened will take many years—if understanding comes at all. There has been no rush to explain even this one small part of the story, that of the missing Iraqi billions. No one in the U.S. government wants to talk about NorthStar Consultants, much less about the money that disappeared. Bradford R. Higgins was the C.P.A.'s chief financial officer, on loan from the State Department, where he is assistant secretary for resource management and chief financial officer. Higgins says it was "a Department of Defense�managed operation"; he says that "I don't know anyone at NorthStar" and that he did not oversee its operations. The C.P.A.'s comptroller and D.F.I. fund manager during the NorthStar days in 2003 was air-force colonel Don Davis. Through the air-force public-affairs office in the Pentagon, Davis declined to comment. L. Paul Bremer III, who wrote a 400-page book on his experiences as the C.P.A.'s administrator, stated in an interview that he had no input in the decision to hire NorthStar. He explained that "all of the contracting was done, by order of the secretary of defense, by the department of the army. They were our contracting arm I don't think I ever heard of NorthStar until some questions came up after I left." Nor did he have any dealings with NorthStar's Howell, he said. "If I met him, I have no memory of it." Queries sent repeatedly to the army's public-affairs desk in Baghdad and the Pentagon have gone unanswered, as have those to the office of the secretary of defense.
The simple truth about the missing money is the same one that applies to so much else about the American occupation of Iraq. The U.S. government never did care about accounting for those Iraqi billions and it doesn't care now. It cares only about ensuring that an accounting does not occur.