WASHINGTON -- A former U.S. occupation official in Iraq thought he was
in the Wild West in 2003 as he watched colleagues pull $2 million in
fresh bills from a vault and stuff them in a Rhode Island contractor's
gunnysack.
Describing the transfer to Custer Battles of Middletown, Frank Willis
said, "It was time for payment. We told them to come in and bring a
bag.''
Custer Battles provided airport security in Baghdad for civilian
passengers, according to Willis.
Cash payments that weren't stuffed in sacks were made from a pickup
truck that bore the name of Iraq's grounded airline. American
authorities thought the vehicle would "meld into the environment,''
Willis said.
Willis, who was a senior adviser in aviation and telecommunications,
described his experience today to a panel of Democratic senators. The
hearing was to spotlight the waste of money in Iraq by the former
occupation agency, the Coalition Provisional Authority.
Because Iraq had no functioning banking system in 2003, money was kept
in a basement vault in CPA headquarters, a former palace of Saddam
Hussein.
Officials from the CPA, which ruled Iraq from June 2003 to June 2004,
would count the money when it left the vault, but nobody kept track of
the cash after that, Willis said.
"In sum: inexperienced officials, fear of decision-making, lack of
communications, minimal security, no banks and lots of money to spread
around. This chaos I have referred to as a 'Wild West,' '' Willis said
in testimony submitted to the Senate Democratic Policy Committee.
"This isn't penny ante. Millions, perhaps billions of dollars have been
wasted and pilfered,'' said the chairman of the Democratic panel, Sen.
Byron Dorgan of North Dakota. He said the hearing was arranged because
the Republicans who run Congress have declined to investigate fraud,
waste and abuse in Iraq.
Army Lt. Col. Joseph Yoswa, a Defense Department spokesman, said the
occupation authority "strived earnestly for sound management,
transparency and oversight." He said U.S. funds were subject to
"contract and accounting practices required by U.S. law." Separate
standards applied to the Iraqi money, he said.
James Mitchell, spokesman for the special inspector general for Iraq
reconstruction, said in an interview that cash payments in Iraq were a
problem when the occupation authority ran the country, and they continue
during the massive U.S.-funded reconstruction.
"There are no capabilities to electronically transfer funds,'' Mitchell
said. "This complicates the financial management of reconstruction
projects and complicates our ability to follow the money.''
The Pentagon, which had oversight of the CPA, did not comment in
response to requests Friday and over the weekend. But the administrator
of the former U.S. occupation agency, L. Paul Bremer, in response to a
recent federal audit criticizing the CPA, strongly defended the agency's
financial practices.
Bremer said auditors mistakenly assumed that "Western-style budgeting
and accounting procedures could be immediately and fully implemented in
the midst of a war.''
When the authority took over the country in 2003, Bremer said, there was
no functioning Iraqi government and services were primitive or
nonexistent. He said the U.S. strategy was "to transfer to the Iraqis as
much responsibility as possible as quickly as possible, including
responsibility for the Iraqi budget.''
Iraq's economy was "dead in the water'' and the priority "was to get the
economy going,'' Bremer said.
Also in response to that audit, Pentagon spokesman Bryan Whitman had
said, "We simply disagree with the audit's conclusion that the CPA
provided less than adequate controls.''
Willis, who served in the State and Transportation departments during
the Reagan administration, worked in Iraq during the last half of 2003
and said he was responsible for civilian operations at Baghdad's airport.
Custer Battles was contracted in the spring of 2003 to secure the
civilian side of Baghdad Airport, a no-bid contract worth $16 million.
The CPA then hired Custer Battles for $24.4 million to provide support
such as housing and transportation for the program to replace Iraqi
currency.
Custer Battles said today it maintained strict controls on the cash
payments it received from American military officials in Iraq. The
company said in an e-mail that it received several cash payments of up
to $2 million each for the first several months of the contract to
provide airport security.
The money came from seized Iraqi assets and was handed out at the
presidential compound, according to Jennifer Christensen, a company
spokeswoman. The arrangement was necessary, Christensen said, because
"the CPA had no electronic means of providing payment to its
contractors."
She said the payments were legitimate, and that Custer Battles' contract
called for payments that were fixed at the start of the contract and
were not tied to the costs it would incur. She added that Custer Battles
spent money to ensure the cash's safe transfer to a bank.
"While this means of payment was by no means preferable, it was
understandable given the CPA's unique situation of having to develop,
implement and supervise contracting procedures as part of a
multinational coalition working in a hostile environment," she wrote.
Custer Battles was formed by two former Army Rangers active in
Republican politics, Scott Custer and Michael J. Battles.
Battles is a West Point graduate and former Central Intelligence Agency
officer, who grew up in Barrington. He tried unsuccessfully to win the
Republican nomination for the 1st Congressional District seat in 2002.
Custer, who has degrees in international relations from Georgetown and
Oxford, helped with Battles' campaign.
As of January 2004, Custer Battles had about 2,000 employees, most of
them Iraqis, according to a Providence Journal story from last year.
The Air Force suspended Custer Battles on Sept. 30 from obtaining new
contracts on the grounds that it has reason to believe the company broke
federal contracting rules.
Two former employees of Custer Battles filed a federal lawsuit in
October claiming that company fleeced the government out of millions of
dollars by submitting phony or inflated bills. A lawyer representing
Custer Battles denied the charges.
Willis' allegations follow by two weeks an inspector general's report
that concluded the occupying authority transferred nearly $9 billion to
Iraqi government ministries without any financial controls.
The money was designated for financing humanitarian needs, economic
reconstruction, repair of facilities, disarmament and civil
administration, but the authority had no way to verify that it went for
those purposes, the audit said.
Willis concluded that "decisions were made that shouldn't have been,
contracts were made that were mistakes, and were poorly, if at all,
supervised, money was spent that could have been saved, if we simply had
the right numbers of people. ... I believe the 500 or so at CPA
headquarters should have been 5,000.''
-- With reports from Journal archives
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