AUDIT FINDS IRAQ RECONSTRUCTION AWASH WITH CORRUPTION, VIOLENCE

by Emad Mekay

(IPS) WASHINGTON -- The much-touted U.S. reconstruction effort in Iraq is floundering under threats from rampant corruption and deteriorating security, a U.S. government watchdog says.

"The first democratically elected government to take office in Iraq now faces the daunting challenges of sustaining its infrastructure, fighting corruption, and enforcing security in an increasingly hostile environment," says Special Inspector General for Iraq Reconstruction (SIGIR) Stuart Bowen.

Bowen's office, tasked by Congress to oversee the reconstruction efforts, released two reports on Tuesday and one on Wednesday that cited figures showing Iraq losing four billion dollars to corruption every year since the U.S. invasion of the Arab country in March 2003.

Bowen, who addressed the Senate Homeland Security and Government Reform Committee on Wednesday, says he found that Iraq now has more than 1,400 criminal corruption cases open, involving about five billion dollars.

One of the reports cites a recent poll conducted in Iraq in which one-third of the Iraqi respondents reported that they have paid bribes for products or services this year. The report uses the poll as evidence of popular mistrust of the U.S.-backed police and army, who are believed to be unable or unwilling to enforce the rule of law.

"Corruption is a virtual pandemic in Iraq," says the report while urging international support for fighting corruption in Iraq.

"More resources and stronger support will be needed for Iraq's anticorruption entities to battle corruption effectively," says the IG office.

The World Bank is lending a helping hand. In late July, the multilateral lender whose current president was a leading architect of the war against Iraq, hosted an anticorruption workshop in neighboring Dubai that brought Iraqis and donors together to examine how the Bank and others can more effectively assist in the anti-graft fight.

But the main message of the two reports is that corruption in Iraq, along with the deteriorating security situation, has deterred international investment and eroded trust in the government.

In the strategically important oil sector, for example, the inspector general says corruption threatens not only Iraq's capacity to fund new capital investment, but also its ability to sustain and increase oil production.

Most corruption in this sector is motivated by the high profitability of smuggling oil and refined fuels.

The Ministry of Oil Inspector General reported in April 2006 that smuggling includes transferring imported oil products or stolen local crude to neighboring countries, channeling products supplied to government facilities to the black market, and taking advantage of lax oversight at loading stations.

At least 10 percent of refined fuels are sold on the black market and about 30 percent of imported fuels are smuggled out of Iraq, it says.

The report also detected many examples of waste, fraud and abuse. It reported that the IG's criminal investigators are working on 82 cases. Their work has so far resulted in five arrests and two convictions, and another 23 cases are awaiting prosecution.

One example of the corruption cases is that of a U.S. contractor arrested in March. He is charged with offering a bribe to a police official for assistance in facilitating the purchase of armored vests and equipment for about one million dollars along with a separate $28-35,000 gift to process the contracts.

In his testimony Wednesday, Bowen faulted some U.S. policies in Iraq, including the no-bid system, initially created by World Bank chief Paul Wolfowitz when he was number two at the U.S. Department of Defense, in some contracts in Iraq.

"The use of sole-source and limited competition contracting in Iraq should have virtually ceased after hostilities ended," said the Inspector General.

He also said the involvement of different U.S. government bodies led to their development of ad hoc operating systems and procedures which hampered efficiency and caused inconsistent contracting documentation.

Bowen also said assigning major corporations to handle small contracts created waste in Iraq and recommended that the U.S. avoid using expensive design-build contracts to execute small-scale projects.

"Most projects in Iraq were smaller and could have been executed through fixed-price direct contracting," he said.

The findings of the report stoked worry among U.S. lawmakers who said the reports by the IG showed how flailing the Iraq reconstruction efforts are, given the proven cost overruns, accounting irregularities, unfinished work, and evidence of waste and corruption.

"The reports of the Inspector General indicate that while billions have been spent, reconstruction has fallen far short of promized outcomes," said Senator Susan Collins, a Republican from the north-eastern state of Maine who chairs the committee. "Funds that should have been used to build schools and health clinics, improve electricity access, and repair the oil infrastructure have been squandered."

One instance of wasted funds and uncompleted projects detailed in the hearing was the case of the Basrah Children's Hospital. Senator Joseph Lieberman (Democrat from Connecticut) referred to how the IG office found that the United States Agency for International Development (USAID) used "accounting tricks" to hide ballooning costs and significant schedule delays in the project.

According to the IG, the hospital's original completion price tag was set at $50 million with an opening date in January 2006.

But the latest estimates range from $149.5 million to $169.5 million and the projected completion date is now July 31, 2007 -- more than a year and a half late.