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Audit of Iraq Reconstruction Finds Corruption Worsening

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Audit of Iraq Reconstruction
Finds Corruption Worsening

By YOCHI J. DREAZEN
August 2, 2006; Page A4

The corruption that has plagued Iraq's reconstruction -- described by U.S. officials as the "second insurgency" -- is worsening, complicating American reconstruction efforts and shattering public confidence in the Baghdad government, according to a new report by a Bush administration watchdog agency.

Special Inspector General for Iraq Reconstruction Stuart Bowen said in his quarterly audit that the Iraqi government estimates that corruption costs the country at least $4 billion a year, a staggering sum for a war-ravaged country that remains heavily dependent on foreign aid. Iraq's anticorruption agency has opened 1,400 criminal cases alleging some $5 billion of theft by Iraqi officials, including a widening probe into a former defense minister accused of stealing or misspending more than $1 billion, the report said.

"It could undermine progress in every sector unless it's aggressively addressed," Mr. Bowen said in an interview yesterday.

FIGHT FOR IRAQ

See continuing coverage of developments in Iraq, including an interactive map of major insurgent attacks.
See highlights of the Special Inspector General for Iraq Reconstruction's quarterly report to Congress, and view the complete report.A succession of Iraqi prime ministers have identified corruption as one of the largest threats to the country's future and vowed to bring the problem under control, and there have been some successes. In mid-May, for example, Iraqi agents broke up a ring suspected of smuggling at least 1,200 truckloads of stolen Iraqi oil into Syria, operating with the help of officials from Iraq's border police and at least three government ministries.

Nonetheless, the report bluntly concluded that "corruption threatens to undermine Iraq's democracy," citing a recent poll that found one-third of all Iraqis paid bribes so far this year.

The report comes as the Bush administration continues to wind down its ambitious Iraq reconstruction program, which has spent tens of billions of dollars on rebuilding efforts that have largely failed to restore basic services such as water or electricity to prewar levels. Part of the problem is continued violence: Mr. Bowen's report notes that 56 foreign contractors were killed in Iraq this past quarter, bringing the total number of such deaths from violence there since the March 2003 U.S.-led invasion to 575, including 185 Americans.

Violence and corruption have taken a particularly heavy toll on the country's oil sector, which was expected to produce enough oil to finance the reconstruction program and fund basic government operations. Instead, oil-smuggling rings continue to siphon off revenue. In testimony to Congress in July, U.S. Comptroller General David Walker said 10% of Iraq's refined fuels and 30% of its imported fuels were being stolen.

In a report to be released today, Mr. Bowen concludes that the Bush administration's overall handling of Iraq contracting -- from relying on no-bid contracts even when major fighting had ended, to failing to standardize contracting regulations to help prevent fraud -- was deeply flawed. It found that the U.S. government "was not systemically well-poised to provide the kind of contracting and procurement support" needed to oversee the large-scale reconstruction effort that began in mid-2003, which led to widespread mismanagement as an array of competing U.S. government entities -- with widely differing practices -- ultimately took part.

"The system needs to be changed so it can function better, so it will work next time," Mr. Bowen said. "We think these are realistic suggestions."

The report recommends a shift to small reconstruction projects that can be completed quickly. It also urges the creation of a single contracting agency able to oversee all rebuilding work, as well as the establishment of a "contracting reserve corps" of experienced officers that could be quickly deployed after future conflicts.

The contracting missteps -- along with recent arrests of U.S. military and government personnel suspected of committing fraud and other crimes in Iraq -- have fueled congressional unease. Mr. Bowen will testify today at a hearing of the Senate Homeland Security and Government Reform Committee, headed by Maine Republican Susan Collins, a vocal critic of administration handling of Iraq's rebuilding.

Write to Yochi J. Dreazen at yochi.dreazen@wsj.com