Pay Any Price (3 page)

The Treasury team decided to start with an initial shipment of $250 million. Smith wanted the currency sent in small denominations, to help get the cash moving quickly through the paralyzed Iraqi economy. But when his team called the Federal Reserve in New York and asked about the logistics of sending $250 million in ones and fives, they were told that it would require six air force transport planes. So they decided to ship most of it in $100 bills, which required just one flight. (Some currency in small denominations was sent on the first flight, but the Iraqi Central Bank refused to accept it, and the Americans had nowhere to put it. Pallets filled with several million dollars in $1 and $5 bills are believed to have sat, untouched, in a U.S.-occupied building in the Green Zone, for months, perhaps years, afterward.)

After that first flight, it took eight more planeloads for the Treasury team to transport the entire $1.7 billion in cash during the first months after the invasion. Once the Treasury team had turned that cash over to the Iraqi Central Bank, Ged Smith believed they had given Iraq all of the dollars it would need to jump-start the country's moribund monetary system.

But that was just the beginning of the cash flights, much to Ged Smith's dismay. What Smith did not realize was that the post-Saddam order being established in Iraq was already becoming deeply corrupt. Worse, the United States was willing and able to keep feeding into that corruption.

 

Within weeks of the invasion, American troops scouring one of Saddam's palaces discovered aluminum boxes filled with cash. Each box was stuffed with about $4 million in $100 bills. There were many, many boxes.

The cashboxes were collected and secretly flown to a U.S. base in Kuwait, where the bills were counted by military personnel. In order to prevent them from skimming some of the money for themselves, the soldiers were not allowed to wear anything more than gym shorts and T-shirts while in the counting room.

Not long after that, the Treasury team learned from senior officials of the Iraqi Central Bank that just before the fall of Baghdad, Saddam Hussein had issued orders to withdraw $1 billion in cash from the central bank, and that the money had been handed over to Qusay Hussein, one of Saddam's sons, who had arranged to have the cash trucked away. The Treasury officials soon realized that the cash discovered by American troops and flown to Kuwait was the same money Qusay Hussein had taken from the central bank.

Undersecretary John Taylor and his aides at Treasury said that the money belonged to the Central Bank of Iraq. He argued that the U.S. military should send it back to allow the central bank to maintain steady foreign currency reserves to help stabilize Iraq's shaky economy. Taylor even went to the Situation Room in the White House to argue with top administration officials that the money legally belonged to the central bank and that it should be shipped back immediately. But the White House, the Pentagon, and the newly created Coalition Provisional Authority (CPA), the U.S.-led organization that had just taken over the occupation of Iraq from Jay Garner's ORHA team, did not agree. The U.S. officials decided that they were simply going to keep the money.

“We made the case that the money should go back to the Iraqi Central Bank,” said Taylor. “That recommendation was rejected.”

The Coalition Provisional Authority decided to dole it out to American military commanders as cash that they could use as they saw fit. The money became the original basis for what was known in the U.S. military as the Commander's Emergency Response Program, or CERP funds, used by American officers to pay for local reconstruction projects—or to pay off local officials to keep them from siding with the insurgency.

The Bush administration never publicly admitted that they simply had taken money that some top U.S. officials argued belonged to the Iraqi Central Bank, nor did the administration reveal that there was an internal high-level argument about whether to give the money back to the central bank. Instead, American officials came up with alternative explanations for the money's origins in order to justify taking it. A lengthy article in the U.S. military's
Joint Forces Quarterly
by Lt. Col. Mark Martins, a senior military lawyer, described the funds as “ill-gotten Baathist Party cash discovered by U.S. forces.” In the article, he said that the American seizure of the cash complied with international law because it could be defined as “safeguarding movable Iraqi government property.” Somehow, that movable property became the coalition's, to be used as military commanders saw fit.

The CPA and the U.S. military soon began to spread the cash around Iraq promiscuously, doling out bricks of $100 bills to military commanders with scant recordkeeping, receipts, or controls. CERP quickly became the most popular program among U.S. officers in Iraq. But it also placed unimaginable temptation right in front of American soldiers in the field. The money quickly began to disappear into the rucksacks and footlockers of the officers and enlisted personnel who had access to it; some was mailed home to wives and girlfriends. The stealing in Iraq reached epic proportions.

 

Maj. Mark Richard Fuller—a Marine, pilot, and family man—was assigned to Fallujah, Iraq, in 2005. Rather than fighting insurgents, the reserve officer from Arizona spent his days counting cash. Assigned as the contracting officer for the Marines in Fallujah, Fuller was in charge of doling out stacks of crisp, newly printed $100 bills to American and Iraqi contractors for reconstruction projects in the blasted city.

There was so much cash that Fuller likely realized that there was no one looking over his shoulder, no one checking where the money was really going. In fact, no one seemed to care. The money was disappearing into a dark hole anyway, and the Iraqis he was paying were simply pocketing the cash. They were not rebuilding their country.

There was no conclusive evidence that Fuller stole any of the money he was managing during his opportunistic time in Fallujah, but when he got back to Arizona, Fuller began depositing cash in banks all over Yuma. The FBI later determined that he had made ninety-one separate deposits, carefully seeking to stay below $10,000 each time, the level at which banks are supposed to report cash transactions. He sometimes made large cash deposits at two or three banks in a single day. All told, he deposited more than $440,000 in fresh $100 bills.

Fuller was a pilot, not a money laundering genius. He didn't realize that repeatedly depositing large amounts of cash in amounts just below the $10,000 limit is considered suspicious by banks, especially when the money is all in uncirculated, large-denomination bills. Fuller was arrested. Yet there was not enough evidence for federal prosecutors to prove that Fuller had obtained his money illegally through his work in Iraq. He agreed only to plead to purposefully seeking to structure deposits in federally insured financial institutions to avoid the $10,000 limit. He agreed to pay a $300,000 fine and to spend about one year in jail.

Army Capt. Michael Nguyen served as a civil affairs officer in Iraq in 2007 and 2008. He was in charge of $11 million in cash, which was supposed to be used for payoffs to Iraqi Sunni militias in Anbar Province. The U.S. Army was willing to pay Sunnis who decided to switch sides and fight the extremist group al Qaeda in Iraq instead of the Americans.

A West Point graduate, Nguyen later admitted that, each day, he would skim cash from the piles of dollars he was handing out for reconstruction projects. He would hide his cash in a box at the end of each shift; later, he sent the cash home to Oregon. No one in the army even noticed that nearly $700,000 had simply disappeared.

But when he got home to Oregon, Nguyen repeated Fuller's mistakes. He started making deposits of just under $10,000 apiece in banks all over Portland. He also began spending extravagantly. He couldn't resist. He spent $200,000 in cash for a BMW, a Hummer, and other fancy toys before he was finally arrested.

During the darkest years of the Iraq war, between 2004 and 2008, there were at least thirty-five convictions in the United States and more than $17 million in fines, forfeitures, and restitution payments made in fraud cases in connection with the American reconstruction of Iraq. But the midlevel officers, enlisted personnel, contractors, and others who have been caught account for only a tiny slice of the billions that have gone missing in Iraq.

The biggest thieves have been far more elusive.

 

Throughout the summer and fall of 2003, the Treasury team scrambled to launch Iraq's new currency. In Washington, the Bureau of Engraving and Printing, the arm of the Treasury Department that actually prints U.S. dollars, awarded a contract to a British firm, De La Rue, to print Iraq's new dinars at seven printing plants around the world. Billions of dollars' worth of new Iraqi dinars were flown to Iraq—enough to fill twenty-seven 747 cargo planes—and the new currency was introduced on October 15, 2003.

The Treasury team believed that they had finally accomplished all that was needed to provide Iraq with financial stability. They had shipped $1.7 billion in U.S. dollars from New York. Although another $900 million in cash that Treasury officials believed belonged to the Iraqi Central Bank had been taken by the United States and doled out to the U.S. military, billions of dollars in new dinars were now in circulation. The new Iraqi currency proved so popular that it quickly began to appreciate against the dollar. Treasury officials saw no reason for any further cash infusion of U.S. dollars flown in from New York.

But the Treasury team did not realize that the Coalition Provisional Authority had other plans. The CPA was about to make the money delivered in Treasury's early cash flights look like spare change.

 

Paul Bremer, the leader of the Coalition Provisional Authority and the de facto viceroy of Iraq, made a series of sweeping decisions soon after he took over from Jay Garner. Bremer issued orders that effectively purged the Iraqi government of Baath Party members and then disbanded the Iraqi Army, virtually guaranteeing an anti-American insurgency. CPA operatives floated ideas like changing Iraq over to the flat tax—a proposal that had been a right-wing Republican Party talking point in the United States for decades. CPA officials were so busy installing their political agenda that they did not take time to actually manage anything.

Ged Smith's Treasury team saw that there was no oversight, that money was disappearing without a trace, and that nothing was really getting done. And so his entire Treasury team quit in disgust. “All of a sudden the wheels started to come off,” recalled Smith. “It got wildly out of control. I had guys who said they had been in government long enough to know that they didn't want to be around there, and didn't want to be part of what was happening.”

Ominously, no one seemed to notice or care. “Once our guys quit, it bothered me that no one in Washington or Baghdad seemed concerned that everybody from Treasury was gone, and that the CPA ideologues were now running the show,” added Smith. “No one was really concerned that Treasury wasn't there.”

It also meant that the Treasury team wasn't there to stop one of the biggest acts of thievery in history.

 

After 9/11, Basel—an Arab-American financial analyst in Fairfax, Virginia, who asked that his last name not be used—was determined to somehow put his hobby of intensive weapons training to use in the war on terror. It took some time, but by May 2003, he finally arrived in Iraq as a contractor with vaguely defined duties for army intelligence. In the chaos of postinvasion Baghdad, he was still trying to figure out what he was supposed to be doing when he ran into David Nummy, a senior member of Ged Smith's Treasury team. Late one night, Nummy walked through an American-occupied building in the Green Zone and loudly asked if there were any Arab speakers who could help him with an urgent problem. Basel replied that he spoke Arabic, and Nummy quickly led him across the street to a convoy of four cars. The cars were filled with cash that Nummy had just picked up from Baghdad International Airport—the currency from Treasury's first cash flight from the Federal Reserve Bank of New York. Nummy had decided not to take the cash to the central bank, because its main vault was still under water. He was planning to turn the money over to Iraq's two main state-owned banks in the morning. But he needed someone who could speak Arabic to convince his Iraqi drivers to stay with the cash-filled cars overnight. Using a bit of charm and guile, Basel convinced the drivers to stay and then helped Nummy safely distribute the cash to the state-owned banks the following morning. Impressed, Nummy hired Basel on the spot to take charge of security and logistics for the Treasury team.

After Treasury ended its cash flights, Basel kept on working, this time for the CPA, which continued to fly cash in from New York after the Treasury had completed its initial infusion to the Central Bank of Iraq. The Treasury team did not realize it, but their idea of tapping into Iraq's overseas accounts to help the Iraqi financial system had resonated with the CPA and the Bush White House. The CPA quietly arranged to double down on the Treasury plan and started flying in far more cash from New York to Baghdad than the Treasury team had ever considered.

Soon, the CPA gained access to cash held in the Development Fund of Iraq (DFI), a new account created at the Federal Reserve Bank of New York by a United Nations resolution in May 2003. The account held billions of dollars from the Iraqi government's revenues from oil sales. The UN resolution gave the CPA control over the DFI for use in Iraq's reconstruction, but also called for the creation of a monitoring board to make sure that the CPA properly used the money for the benefit of the Iraqi people.

The DFI account was a tempting target for the Americans, and so the CPA, established as the sovereign authority over the government of Iraq, issued orders for the release of the money with no real debate, no real controls, and no real supervision. The monitoring board was largely ignored. Before long, more air force cargo planes filled with more billions of dollars were on their way to Baghdad.