Thursday, February 08, 2007

Government: Contract Rigging

Three Army Reserve officers and two civilians were indicted yesterday on federal charges of participating in a wide-ranging bribery and contract-rigging scheme involving millions in Iraq reconstruction funds.

The 25-count indictment handed up by a Trenton, N.J., grand jury expands a probe that has resulted in three guilty pleas. Those indicted yesterday were accused of participating in a scheme to funnel $8.6 million in reconstruction contracts to an American businessman in exchange for cars, $3,200 Breitling watches, plane tickets, $3,000 Toshiba laptop computers, weapons and stolen money. Named in the indictments were Col. Curtis G. Whiteford; Lt. Col. Debra M. Harrison and her husband, William Driver; Lt. Col. Michael B. Wheeler; and Michael Morris.


The reconstruction program often distributed funds in cash, handing out blocks of currency known as "bricks," and the indictment described how participants in the scam smuggled the bulk back into the United States.


In one case, Harrison and Wheeler smuggled at least $330,000 in stolen authority funds from Iraq to New York using commercial business-class tickets purchased by Bloom, according to the indictment. In a January 2004 e-mail, Stein proudly told Bloom that he and Wheeler had secured another contract for him.

I personally handle millions of dollars worth of government contracts and grants. So when another civil servant is caught doing this sort of thing, I'm filled with disgust, because it reflects poorly on all of us, and it reflects poorly on our country.

But having said that, what the heck was anyone doing in Iraq with bricks of cash? Who in the administration thought that sending billions of dollars in loose currency was somehow a good way to manage the reconstruction?

You don't need to be an accountant to know that its almost impossible to have meaningful internal controls if you're moving around your funds that way. It's far too easy to pay a contractor in cash and then get a kickback, or just report giving the contractor $1,000,000, but only paying him $500,000, and embezzling the rest for yourself. And even if you are an honest civil servant, its far too easy for the contractor to under report on their taxes.

This wasn't just corruption. This was stupidity. If you put a brick of $100 bills on the table in front of an honest person and asked them to use it to rebuild a war torn country, most people would. But the overwhelming temptation would be to take some part of it for themselves. After all, the contractors you're handing the cash to are making ten times what you are for handing them the cash. And they're often far less experienced, and risking their lives far less then you! Now multiply that temptation by 100, and have one of your friends blown up by roadside bombs randomly, and read letters from your family once a week about how much they miss you and are struggling without you. The pressure would be enormous. That’s why intelligent people set up strong internal accounting procedures with regular audits. You don’t need people to be angels. You assume that people are thieves, but hold everyone accountable to honest and verifiable standards.

While the Post essentially just did a Metro beat report on the crime, The Guardian wrote an excellent piece a year ago on the environment it happened in:

"Iraq was awash in cash - in dollar bills. Piles and piles of money," says Frank Willis, a former senior official with the governing Coalition Provisional Authority. "We played football with some of the bricks of $100 bills before delivery. It was a wild-west crazy atmosphere, the likes of which none of us had ever experienced."

The environment created by the coalition positively encouraged corruption. "American law was suspended, Iraqi law was suspended, and Iraq basically became a free fraud zone," says Alan Grayson, a Florida-based attorney who represents whistleblowers now trying to expose the corruption. "In a free fire zone you can shoot at anybody you want. In a free fraud zone you can steal anything you like. And that was what they did."

There is no ideological position on filling potholes. Either you fill the potholes, or you waste the money on something else. Good government is good government, regardless of party or belief. Whether or not we should have gone to war is a highly charged political question. But rebuilding a country shouldn't have been. And now Iraq has a lot more to deal with then just poor infrastructure.


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