Iraq Could Produce Another Enron

by Nomi Prins
Newsday   Tuesday 02 December 2003     Scrounging up money for anything Iraq-related has been the Bush administration's most consistent economic policy. And it's been ridiculously easy ever since Congress blessed the first ...
Tuesday 02 December 2003

Scrounging up money for anything Iraq-related has been the Bush administration's most consistent economic policy. And it's been ridiculously easy ever since Congress blessed the first "emergency package" defense budget addendum in April.

Fast forward eight months, and the latest $87-billion injection that went predominantly into the Iraq black hole puts the total sum of "liberation and reconstruction" funds at more than a quarter- trillion dollars, roughly the combined annual revenue of IBM and General Electric.

But you wouldn't know that we were dealing with such enormous quantities from the glaring absence of consolidated financial reporting on Capitol Hill. In fact, an endless gush of money keeps streaming out of Washington faster than the White House seems to be keeping track of it.

Perhaps it's no surprise that complete financial statements on Iraq haven't been disclosed. After all, we're dealing with the same crew that hasn't indicted Enron's Ken Lay or WorldCom's Bernie Ebbers. But, by not producing comprehensive and transparent records, the Bush administration is shirking a major domestic and international oversight responsibility. As one UN senior insider said, "No country has ever had so much control over information and resources for reconstruction efforts in history."

Although the amount of public money circling Iraq is staggering, there is no way to even trace it. Therefore, whether it's being spent wisely and methodically, whether projected revenues are on target or realistic, and whether cash is leaking out around the edges remain a total mystery.

During the stock market boom, fraudulent corporations hid losses and boosted earnings by playing complex financial shell games designed to withhold information from regulators and the public. Enron perfected this technique with the establishment of ghost subsidiaries. But the murkiness of Iraq finances goes beyond a mere jiggering of the books. In the case of Iraq, there are no obvious books.

Adding to the subterfuge is the fact that a slew of separate entities are involved in what might be called Operation Incorporate Iraq. They span the State Department, Treasury Department, multiple Defense Department divisions, and international organizations like the World Bank and United Nations. Each is privy to receiving and responsible for disclosing only a subset of information.

What should be established is an independent, international auditing body with full authority and ability to compile all the information regarding the Iraq balance sheet. Instead, the administration's modus operandi is adding layers to the existing U.S. structure. The Pentagon just set up a new division of the Coalition Provisional Authority, called the Program Management Office, to track the next round of contract money flow.

On the revenue side of the Iraq balance sheet, we have oil, the true information about which lies solely with the CPA. The CPA and the administration continuously restate revenue estimates. To date, they are down from an unsubstantiated $20 billion before the war to an equally unsubstantiated $2.5 billion, an almost 90-percent drop. Yet, those dancing numbers were used to justify the CPA's most recent $18.7-billion handout.

Brazenly, despite this obvious downward spiral, the CPA anticipates oil revenues to magically leap five-fold by the end of 2004 and seven-fold by 2007. That kind of unquestioned optimism fueled the Internet fire. No one in Congress raised a finger of caution then. No one in the administration is now. What's more, the CPA budget calls for another $39 billion in expenditures over the next three years.

Even more alarming than those exploding expenses is that the CPA has no backup plan in case next year's oil revenues fall short. According to CPA spokesman, Maj. Joseph M. Yoswa, "It would be hard for me to predict what would happen. When we get there, we'll make determinations." If this year's regularly revised estimates of expenses and revenues are anything to go by, those "determinations" will translate into more congressional monetary demands.

Inflated expectations and widespread deception first fabricated and then popped an $8-trillion stock market bubble. As Rep. Henry A. Waxman (D-Calif.), ranking minority member of the Committee on Government Reform, said, "With Enron, the lack of accountability and transparency took a huge toll on employees and investors who were left with nothing while executives walked away wealthy. We want to make sure that doesn't happen in Iraq." Because this time the toll of playing fast and loose with the money would be on the shoulders of taxpayers.

Without a paper trail, there's also no way of assigning culpability for potential fraud. As it is, up to $11.2 billion in contracts have been awarded under less than competitive circumstances to companies such as Halliburton and Bechtel.

This clandestine process leads to a lack of accountability. In the U.S. financial scandals, secrecy combined with corporate hype allowed CEOs to stuff their pockets during the boom. Likewise, the Bush administration has a lot riding on the perceived financial success of Corporation Iraq - re-election for starters.

With high-stakes incentives to fudge numbers and no controls to monitor them, the results could be disastrous, or criminal. Unfortunately, we've all been there before, and the results weren't pretty.

Nomi Prins, a former investment banker, is the author of the forthcoming book "Other People?s Money: The Corporate Mugging of America."