How Did $9B in Cash Airlifted From the Fed to Iraq Go Missing?
Democracy Now | September 12, 2007
One month after the invasion of Iraq, the United States began airlifting planeloads of cash to Baghdad. Between April 2003 and June 2004, a total of $12 billion dollars of US currency was shipped to Iraq where it was to be dispensed by the Coalition Provisional Authority for reconstruction. To date, at least $9 billion dollars cannot be accounted for.
In a startling new expose in Vanity Fair, Pulitzer Prize winning investigative journalists Donald Barlett and James Steele follow the money trail from the Federal Reserve to Iraq. [includes rush transcript] One month after the invasion of Iraq, the United States began airlifting planeloads of cash to Baghdad...literally. Stacks of $100 dollar bills were packed into bricks, assembled into large palettes and loaded onto cargo planes bound for the Iraqi capital.
Beginning in April 2003 and continuing for little more than a year, a total of $12 billion dollars of US currency was shipped from the Federal Reserve to Iraq. The US military delivered the banknotes to the Coalition Provisional Authority where it was to be dispensed for Iraqi reconstruction. What happened to it? To date, at least $9 billion dollars cannot be accounted for.
In a startling new expose, Vanity Fair contributing editors Donald Barlett and James Steele follow the money trail from the Fed to Iraq. Barlett and Steele are two of the nation's top investigative journalists. Together they have won two Pulitzer Prizes and two national magazine awards.
- James Steele , investigative journalist and Vanity Fair contributing editor.
- Donald Barlett , investigative journalist and Vanity Fair contributing editor.
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AMY GOODMAN: One month after the invasion of Iraq, the United States began airlifting planeloads of cash to Baghdad, literally. Stacks of $100 bills were packed into bricks, assembled into large pallets and loaded onto cargo planes bound for the Iraqi capital. Beginning in April 2003, continuing for little more than a year, a total of $12 billion of US currency was shipped from the Federal Reserve to Iraq. The US military delivered the bank notes to the Coalition Provisional Authority, where it was to be dispensed for Iraqi reconstruction.
What happened to it? To date, at least $9 billion cannot be accounted for. In a startling new expose, Vanity Fair contributing editors Donald Barlett and James Steele follow the money trail from the Fed to Iraq. Barlett and Steele are two of the nation's top investigative journalists. Together they have won two Pulitzer Prizes, two national magazine awards. Don Barlett and Jim Steele join us now in our firehouse studio, up from Philadelphia. Thanks so much for joining us.
JAMES STEELE: Great to be with you.
DONALD BARLETT: Good to be with you, Amy.
AMY GOODMAN: Jim, let's start with where this money was in this country before it was sent off.
JAMES STEELE: The money that went to Iraq was basically impounded funds: Iraqi assets dating back to the original Gulf War, oil money that had been under the control of the United Nations. And this money was basically under the care of the US government, the Federal Reserve Bank of New York.
And when they wanted to make this shipment, what we were so fascinated by was just how it get there, where did it come from. And what we found out, there's a warehouse ten miles west of Manhattan, about a mile west of Giants Stadium, that nobody knows is there. It's a huge facility, larger than your biggest Wal-Mart, and this thing is packed with cash. It's the largest currency vault, apparently, in the world, certainly the largest repository of American cash. And when they wanted this money, they had to ship it out of this facility. They loaded it into eighteen --
AMY GOODMAN: This is in East Rutherford, New Jersey?
JAMES STEELE: East Rutherford, New Jersey, about a mile west of Giants Stadium, ten miles west of Manhattan. Thousands of commuters go by this place every day. Nobody even knows it's there. I mean, everybody knows where the Federal Reserve Bank is in Lower Manhattan, this august institution, but nobody knows this warehouse over there. You don't think of a warehouse for money. But anyway, that's what we were tracing. This is where it began. And they have it stored there on basically pallets, like it's some sort of household goods, and it's all run on a very computerized system. If somebody needs money, it comes out of that.
And the money for Iraq went into eighteen-wheeler trucks, unmarked trucks, and then these trucks quietly slipped under the New Jersey Turnpike, went down to Andrews Air Force Base near Washington. Seals were broken on the money, and the money was shipped out overnight to Iraq.
AMY GOODMAN: Where are highway spills when you need them?
JAMES STEELE: Exactly. In fact, one of the most amusing things that happened to some of the people loading this money was that one day they opened the back of one of these trucks, and the money flowed out just like it was beans or coffee or sugar or whatever it was, creating all kinds of mayhem as people scrambled around trying to get the money back onto these pallets.
But the whole process, at least in this country by the Federal Reserve Bank in New York and the Treasury Department, there were standards. I mean, there were rigid standards to watch this money and make sure that the proper amount was shipped over there. But once it got to Iraq, a totally different thing happened.
AMY GOODMAN: Don Barlett, pick it up from there. Where does it go in Iraq? Who's in charge?
DONALD BARLETT: What struck us was the incredible control, supervision and everything in this country, and then it gets to Iraq, and all controls, all supervision disappears. I mean, large chunks of it went into the palace in Baghdad. Some of it went into other palaces, all Saddam Hussein palaces around the country. And then it was distributed about, and a lot of the money went to American contractors, it went to Iraqi contractors. It was all a, basically, as-much-as-you-can-carry basis. And people stuffed it into their own pockets, basically, in a lot of cases. Now, some --
AMY GOODMAN: It was kept in a vault in the Green Zone?
DONALD BARLETT: Yes, in the beginning. But then it was moved about the country in different ways. But what is striking about this is that here you have $12 billion and actually many more billions later coming through that process, but no auditing arm established to track the money. And that is just amazing.
AMY GOODMAN: I mean, the irony of the Coalition Provisional Authority initials, CPA, that there was no accounting.
DONALD BARLETT: Exactly.
JAMES STEELE: No certified public accountant on duty.
DONALD BARLETT: No. And this is an interesting organization in itself, because when we traced it back, it is literally a rogue agency within this country. There is no formal document establishing it. Congress has funded it with taxpayer dollars at that time, but it was never created within the legal process of Congress.
AMY GOODMAN: Now, explain this, Jim, because this is quite astounding. When it comes to accountability then -- where has the money gone -- and even lawsuits, the question is: who ran the Coalition Provisional Authority?
JAMES STEELE: The Coalition Provisional Authority, which created this illusion that this was this multinational force, was basically run by the Pentagon. It was a creation of the Pentagon. Most of the contracts were awarded with the approval of the Pentagon. This was totally their entity. And it became an absolutely perfect sieve for this cash, because it only existed for fourteen months, and then we turned Iraq over to the Iraqis. And during that period, because it was not a US government agency, because it was not really an entity of the UN, because it was a rogue operation, as Don has mentioned, nobody was responsible for really what happened to that money. And, in fact, some of the litigation that has come up in this country, the traditional whistleblower things, it's basically failed so far, because you're not dealing with malfeasance within a normal US government agency.
AMY GOODMAN: Explain with the lawsuit, using that as an example.
JAMES STEELE: The reason -- courts have ruled that because this is not an entity of the United States government, normal whistleblowers, people who observe wrongdoing within an agency, see theft and so forth, cannot appeal to the courts, because nobody has authorized this thing. I mean, it's a classic Catch-22 situation. I mean, you've created this thing that isn't legitimate, therefore you can't sue it. But in the meantime, it's become this wonderful repository for this incredible amount of cash.
AMY GOODMAN: Don Barlett?
DONALD BARLETT: And the other thing is that the Pentagon did establish an auditing, basically, for us to track the money, make sure it was spent properly. So who does the auditing contract go to, but something called NorthStar Consultants, run out of a million-dollar home in La Jolla, California, with a post office box in Nassau, Bahamas, which also happens to be the post office box set up for a $200 million securities swindle a few years earlier. And the company was actually created -- the company in charge of monitoring the money to making sure it's spent right -- was created by a Bahamian man for the -- on the behalf of the San Diego man who ran it. But the Bahamas guy who set this up also had set up and been involved in companies linked to the $200 million swindle. And this was the group that the Pentagon put in charge of seeing where the money went, which means one of two things: the Pentagon didn't want anyone to know where the money was going, or they wanted it to go a certain place that nobody knows about.
AMY GOODMAN: Jim Steele, you tried to get in touch with the head of NorthStar. Ironically, the name NorthStar was the newspaper of Frederick Douglass, the great abolitionist. But talk about trying to get to the top and find how they were monitoring the billions.
JAMES STEELE: When the Pentagon provided this contract to us, they blacked out almost all the names. We were able to trace back and find out the name of the fellow who had chartered NorthStar, a fellow by the name of Thomas Howell.
AMY GOODMAN: Because the only thing they didn't black out was the --
JAMES STEELE: They didn't black out the name of the company, NorthStar Consultants, and they blacked out most of the phone number, but not all of the phone number. So we were able to see that it was somewhere in the San Diego area, La Jolla area. And by going back through some public records and so forth, we were able to find where he lived.
So, much to our surprise, when I called him, I was put through to him. And he took the position then, and in later conversations, that, gosh, he'd love to talk, but this was a Pentagon operation, and the Pentagon was his customer.
AMY GOODMAN: This is Thomas Howell.
JAMES STEELE: Thomas Howell. And he wouldn't be able to talk about it unless he got approval from them. And in subsequent conversations, he simply said that the Pentagon considered this a closed issue, that there was really no one capable on duty at this point who could actually discuss this and explain the dynamics of it. Even simple questions, like, “Well, what are you? What's NorthStar, and what does it do?” He simply took the position that he really couldn't get into that. We sent him incredible number of faxes and FedEx packages, and so forth, to give him an opportunity, but there was deafening silence out of him.
AMY GOODMAN: You went to his house.
JAMES STEELE: And we went to his -- Don went to his house. I called him a couple of times. And every case, total refusal to discuss the contract any way. And that was the same policy we got from the Pentagon. Nobody wants to talk about it.
DONALD BARLETT: This was interesting. Jim talked -- when Jim talk to him, it was on a Thursday. And the next day afternoon, or Friday afternoon, I show up at the house, and his wife comes to the door. And I introduced myself, Vanity Fair . And she says, “Well, he's out of the country now.” So either he departed very quickly or something else.
JAMES STEELE: I mean, what is so interesting about this to us is that here is this Iraqi contractor, supposedly, having to trace billions of dollars airlifted to Iraq, among other things. He's operating out of a private home. What are his other businesses out of this home? Their home remodeling, things of this sort, have nothing to do with what you would normally associate with high-level --
AMY GOODMAN: Furniture and remodeling?
JAMES STEELE: Remodeling.
AMY GOODMAN: And how much money did NorthStar get?
JAMES STEELE: The contract was originally $1.4 million. And this was to oversee billions of dollars in money that supposedly went -- that did, in fact, go to Iraq.
AMY GOODMAN: L. Paul Bremer was asked about NorthStar.
DONALD BARLETT: Yes, Mr. Bremer said that -- well, originally, he was asked during the Waxman hearings, and he said he really wasn't too familiar with the company. And somebody asked him, “Would you be surprised if you were told that they had no accountants on their payroll?” And he said, “Well, I would, if that were true.” It absolutely was true.
So when we talked to him, he said, “Well, NorthStar really was a creation of the Pentagon.” The Pentagon, the deafening silence out of the Pentagon on this company has been astonishing. The Pentagon usually say, “No comment,” or “We don't want to discuss this,” or -- but no comment --
AMY GOODMAN: So you raised the question of whether there are CPAs --
DONALD BARLETT: Yes.
AMY GOODMAN: -- because, according to the rules, there have to be?
JAMES STEELE: Right.
DONALD BARLETT: Right.
AMY GOODMAN: And so, they changed the rules.
JAMES STEELE: Right, exactly
DONALD BARLETT: Yes. They changed the rules.
AMY GOODMAN: Explain.
JAMES STEELE: Exactly.
DONALD BARLETT: Well, the Pentagon -- the original order called for CPAs to audit the money -- certified public accountants. He had none on his staff. So they simply rewrote the contract rules and did away with them.
AMY GOODMAN: To this overall issue of oversight, I want to go to last February. The House Oversight Committee, Oversight and Government Reform Committee, held a hearing about the missing reconstruction funds. The committee's chair, Henry Waxman, questioned former CPA head, Paul Bremer. This is an excerpt.
REP. HENRY WAXMAN: Little more than a year, $12 billion in US currency removed from the vaults of the Federal Reserve and flown into Iraq, this money, mainly $100 bills, were packed into bricks, and each brick was worth $400,000 each. And I think we have a picture of the bricks on the screen. They were assembled into large pallets containing over $60 million in cash and flown into Iraq. In December 2003, Ambassador Bremer and the Coalition Provisional Authority asked for a shipment of $1.5 billion to be flown into Iraq, and a Federal Reserve official described this in an email as the largest payout of US currency in US history. But this didn't remain the largest for very long, because in June, $2.4 billion was sent to Iraq, and this time the Federal Reserve official wrote, quote, “Just when you think you've seen it all, the CPA is ordering $2,401,600,000 in currency.”
Well, the question this committee is trying to answer is, what happened to the money? Was it spent responsibly? Was it misspent? Was it wasted? Did it go out to pay off corrupt officials? Or, worst of all, did some of this money get in the hands of the insurgents and those who are fighting us today in Iraq? Ambassador Bremer, are you concerned about the possibility that some of this money went to ghost employees -- we don't know where it went -- and might be showing up in the hands of insurgents that are fighting US troops?
PAUL BREMER: If there were evidence of that, I would certainly be concerned.
REP. HENRY WAXMAN: We don't know whether there's evidence of it, but we don't --
PAUL BREMER: I don't know.
REP. HENRY WAXMAN: -- know whether the people who got the money were entitled to it or what they did with it.
PAUL BREMER: Well, as the inspector general pointed out, the problem of ghost employees was certainly there, and it was there even before the invasion. But I have no knowledge of monies being diverted. I would certainly be concerned if I thought they were.
REP. HENRY WAXMAN: Well, $12 billion is a lot of money. It could have been used for a lot of projects that American taxpayers ended up funding through appropriations. It seems to me inconceivable that we can't explain what happened to it, but that seems to be the situation we're in.
AMY GOODMAN: That is Congressmember Henry Waxman, the House Government Oversight hearings, questioning L. Paul Bremer.
Jim Steele, your response to L. Paul Bremer's answers, and then I want to ask you both about Custer Battles.
JAMES STEELE: Well, the idea that there was no evidence of this corruption and if some of this was brought forth is pretty astonishing at this point. I think anybody who was over there at the time -- and we talked to a number of people, both military folks and civilians who were in Iraq at that time -- 2003, 2004, right during the height of the Coalition Provisional Authority, all of them talk about the level of corruption, that the corruption was everywhere. It was not just a matter of American contractors and Iraqi subcontractors. It was the Iraqis who were manning these agencies.
One particular person I talked to said that he's never forgotten the situation. He had these Iraqis placed in charge of these agencies. They had never run anything in their life. They were scared of being killed. They were scared of losing their jobs. They weren't interested in nation-building at all. They were interested in building up themselves and their own future, whatever it might be.
So, from day one, this corruption was there, this chaos was there. And anybody who was there saw it at the time. So an awful lot of this money disappeared into the hands of these types of Iraqis, who had no interest in nation-building. This is very true from the beginning. And there was no follow-up with them to see where that money was spent.
Other money went to American contractors in many cases. I mean, this money was supposedly supposed to go to Iraqis, but a lot of it went to American contractors, like Custer Battles, who you mentioned.
AMY GOODMAN: Explain -- as you say, you're not talking Little Bighorn -- explain Custer Battles, Don.
DONALD BARLETT: Custer and Battles were two former Rangers, Army Rangers. And they showed up in the streets of Baghdad right after the invasion. And to get there at that point, you had to have White House approval. And Battles had -- well, he had the rather disappointing position to be in of running against Patrick Kennedy in Rhode Island. But he didn't even survive the primary, so he didn't get that far. But he accounted for the access. And they get on the streets of Baghdad. They have no money. They have no company. They have no nothing.
All of a sudden, this cash that's in the palace shows up being delivered to them, $2 million right off the top to start up a business in the first contract to protect flights into the Baghdad airport, which there were none. So -- but it was the beginning of contracts that ultimately, by the end of the year, were totaled about $100 million to these two men. Again, it was cash.
AMY GOODMAN: So you're talking Scott K. Custer and Michael J. Battles --
DONALD BARLETT: Michael Battles, right.
AMY GOODMAN: -- Battles, who ran against Kennedy, had been a CIA operative before.
DONALD BARLETT: Yes.
AMY GOODMAN: They're Rangers in their mid-thirties.
DONALD BARLETT: Right.
AMY GOODMAN: Any experience?
DONALD BARLETT: In the security field? No.
AMY GOODMAN: And the first amount of money they got, Custer Battles got, was how much?
JAMES STEELE: I believe it was -- one of the biggest shipments was $2 million. And, in fact, we interviewed the fellow who shows up in his office one day, and somebody higher up in the CPA who had originally agreed to the contract with Custer Battles had authorized a payment to them of $2 million. The guy comes back to his office, finds it spread out on a desk. And, of course, he had never seen that kind of money in his entire life. And somebody said, “This has just been wheelbarrowed in” to basically pay Custer Battles an installment on their contract.
AMY GOODMAN: I mean, when you're talking about connections, as you lay out in your piece in Vanity Fair , talking about the Battles half of the team, his benefactors, his contributors in the Patrick Kennedy race included Haley Barbour, the longtime Washington powerbroker, former chair of the Republican National Committee, now Mississippi governor, and Fred Malik, and for those who lived through the Nixon years and beyond, a former special assistant to President Nixon, who survived the Watergate scandal, went on to become an insider in the Reagan and both Bush administrations. These guys may not have experience, but they're connected.
DONALD BARLETT: They were really well connected politically.
AMY GOODMAN: You say, one of their first no-bid contracts, $16.5 million to protect civilian aircraft flights, of which at the time there were few into Baghdad International Airport.
DONALD BARLETT: I think we were being charitable there. We don't think there were really any, but gave them the benefit of the doubt and said there were a few.
JAMES STEELE: Maybe one sneaked in at some point.
AMY GOODMAN: So they don't have a viable business. They don't have any money. But they get this money. And this, as you pointed out at the beginning, is Iraqi money, actually. Yes, from the United States, but this is from Iraq.
JAMES STEELE: Right.
DONALD BARLETT: The other thing that happened here, it's really very important, is this -- the cavalier handling of all this money, because so many people do say, “Well, this is Iraqi money. Who really cares?” It set the tone for the following years in Iraq, in which this just unlimited corruption continues to this day, and nobody really cares about it.
AMY GOODMAN: So, at this point, with your investigation, we're talking $9 million of perhaps $12 billion, and you point out there are billions that went there beyond that.
JAMES STEELE: Right. This is just the cash.
DONALD BARLETT: Right. The total -- yeah, the CPA had $23 billion under its control. In addition, this isn't touching the oil revenue, and the oil pipelines are still, to this day, un-metered in Iraq, which means steal as much oil as you want.
AMY GOODMAN: When L. Paul Bremer left Iraq two days earlier than people expected, he changed another law, which had to do with accountability and holding anyone responsible.
JAMES STEELE: He basically took off the hook all contractors. In other words, they could not be charged later for any malfeasance, any improper billing, all the normal things that a whistleblower lawsuit or even the US government might bring in looking at performance. This was taken off the books.
Everything was attributed to the fact that it was a war zone, it was an unusual situation, and so therefore unusual measures were called for. But the fact of the matter is, this is why it's going to be hard to ever find, totally, where any of this money went, because they paved the way for an operation that could just rip off this money, send it wherever it wanted it to go, and nobody would ever be able to fully track it.
AMY GOODMAN: Well, I want to thank you for doing this investigation. It is surprising to link your name to Vanity Fair . I'm so used to saying the Pulitzer Prize-winning reporters from Time magazine. What happened? You were fired? You were two --
JAMES STEELE: Our contracts were not renewed, I guess would be the nicest way to put it. But the fact of the matter is, this has been a wonderful venue, because Vanity Fair believes in long-form journalism. And ever since we've been there, they've encouraged this, and it's become a great outfit for that reason.
AMY GOODMAN: But I do want to ask you about the question of media consolidation and what this means.
JAMES STEELE: Sure.
AMY GOODMAN: I think the media community, the journalistic community in this country, were shocked, when you guys, well, we would say “sacked,” you would say your contracts were not renewed.
DONALD BARLETT: “Sacked” is fair. “Sacked” is fair.
JAMES STEELE: “Sacked” is a fair statement.
AMY GOODMAN: What happened at Time ? What is the problem? Are they in the red?
JAMES STEELE: We were told that it was simply a budget issue, and that's probably right, not that -- you know, our work is not as expensive as people think, once you get beyond salaries or whatever we're paid. That's not the issue. The issue with investigative reporting is always commitment. How much of a commitment do you want to make to it? How much do you want to go for it? And we were simply told that it was a budget issue. And then, frankly, with most of the editorial people we knew, they were as stunned and as really shocked by this as people on the outside.
DONALD BARLETT: I think the budgetary aspect of this also includes devoting the kind of space that our work requires, that Time magazine no longer has, quite frankly. If you look at the magazine today, the long stories that we wrote could not appear today.
JAMES STEELE: The other thing that's happening with the media, too, which Time is part of, and that is -- and this has been written about and talked about by far more people than us -- and that is the public ownership of a lot of these companies has been very destructive to the media everywhere. Having to meet those quarterly returns, and so forth, has very often led to all kinds of staff cuts, all kinds of shrinkage on a very radical basis, that has not been good for the properties. So anywhere you see that public ownership, in so many cases it has been very counterproductive -- not everywhere, but in far too many places.
AMY GOODMAN: Well, as the New York Times said in a piece by Steve Lovelady, or Steve Lovelady quoting from the Times , he says “In a doleful shirttail or footnote to the New York Times story this morning on the appointment of a new managing editor at Time magazine, we learn this: Don Barlett and James Steele, two investigative reporters who've chronicled the vicissitudes of the American economy for Time magazine since 1997, have lost their jobs in a budget squeeze.” The Times said, “The reporting duo who together won two Pulitzer Prizes, two National Magazine Awards, were on the payroll of Time Inc. Their jobs were among about 650 that the company has eliminated in the last six months. With that, there ended a chapter in American journalism, the likes of which we may not see again. First at the Philadelphia Inquirer for twenty-six years, then at Time for nine, Barlett and Steele came to be regarded by many as the premier investigative team in the business, and one that consistently met benchmarks to which others could only aspire.”
Well, I want to thank you very much for continuing your work, and we'll read more of your work, we hope, in Vanity Fair and other places. Thanks so much for joining us.
DONALD BARLETT: Thank you.
JAMES STEELE: Great to be with you.
AMY GOODMAN: Jim Steele and Don Barlett.
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