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Report: Iraqi corruption at all-time post-invasion high

Corruption in Iraq is at an all-time high and several other major indicators of progress in the country are on a downward trend, according to a new U.S. government report. Earlier this month, the Iraqi government fired Central Bank of Iraq (CBI) Governor Sinan al-Shabibi amid allegations of corruption, a move that is both a ...

Corruption in Iraq is at an all-time high and several other major indicators of progress in the country are on a downward trend, according to a new U.S. government report.

Earlier this month, the Iraqi government fired Central Bank of Iraq (CBI) Governor Sinan al-Shabibi amid allegations of corruption, a move that is both a symptom and a consequence of increased corruption in Iraq and also a possible power grab by Iraqi Prime Minister Nuri al-Maliki, according to the report, published Tuesday by the Office of the Special Inspector General for Iraq Reconstruction.

"This peremptory and constitutionally questionable move occurred as an audit of the CBI’s foreign currency auctions surfaced. The audit purportedly found that perhaps 80% of the $1 billion purchased at weekly CBI-managed auctions was tied to illegal transactions, with the funds subject to those transactions potentially lost abroad to money laundering," the report reads.

It continues: "This development is symptomatic of a troubled year in Iraq, evidenced by increasing corruption, resurgent violence, deepening ethno-sectarian strains, growing apprehensions about the conflict in Syria, and widening divides within the coalition government."

Special Inspector Stuart Bowen, in an interview with The Cable, said it’s unclear whether the firing of Shabibi was a direct power grab by Maliki, but it does open up the possibility that Maliki will now have greater access to the vast capital reserves the bank holds.

"The facts are that Governor Shabibi was widely respected around the globe amongst financial ministers for building up Iraq’s reserves to about $65 billion. And I did know from my discussions in Iraq there was some desire in Iraq to access some of that money for capital expenditure purposes and Shabibi had exerted a firm hand in preventing its use," Bowen said. "The government of Iraq wanted to access some of those reserves."

The Iraqi government’s public explanation is that Shabibi was not diligent enough in combatting the money laundering that was going on at the bank, mostly through weekly auctions of dollars for Iraqi dinars. Bowen said that Abdul-Basit Turki, the head of the Board of Supreme Audit, made that money-laundering determination. Basset is now the acting governor of the Central Bank of Iraq.

"The matter of corruption was brought to me by a number of ministers, who noted to me that it’s as bad as it’s ever been," Bowen said.

The report points to several other negative indicators. For example, Iraq suffered its worst day of violence in more than two years when Vice President Tariq al-Hashimi was sentenced to death in absentia last month, charges that are widely viewed as political in nature. Iraq’s relationship with Turkey is deteriorating, the ongoing violence in Syrian presents both political and humanitarian problems for Iraq, and a temporary resolution of Baghdad’s oil revenue sharing dispute with the Kurds has not solved the overall problem, the report said.

Official numbers for staffing at the U.S. Embassy in Baghdad, America’s largest, have actually gone up despite State Department claims that the embassy was in the process of being downsized. Apparently, the number of staff had been underreported in the past.

"U.S. Embassy-Baghdad reported that 16,035 persons supported the U.S. Mission in Iraq at the end of the quarter, including 1,075 U.S. government civilian employees and 14,960 contractor personnel. The Embassy said the discrepancy was due to earlier underreporting of certain staff categories," the report stated.

"My expectation is that it will be shrinking. We had conflicting reporting about the size of the staff at the embassy," Bowen said. "We’ll just have to wait to see how that evolves over the next couple of quarters."

SIGIR also announced in its report the conclusion of several investigations that resulted in either guilty pleas or convictions of persons abusing U.S. taxpayer funds in Iraq, including the guilty plea of the former chief of party in Baghdad for USIP of wire fraud.

Earlier this month, two former employees of the contractor Parsons were sentenced to prison for terms of 27 and 15 months for "conspiring to commit kickbacks, wire fraud, and mail fraud, and for filing false tax returns" and will pay about $2 million in restitution to the U.S. government. And Monday, UK-based Iraqi subcontractor Ahmed Sarchel Kazzaz was sentenced to 15 months in prison and ordered to pay about $1 million in restitution and forfeit another $1 million.

The U.S. government has obligated $60.5 billion to Iraqi relief and reconstruction since 2003.

In January, the SIGIR office will release its final lessons report and three more audits, and then the office will begin to roll up its operations unless Congress sees fit to extend its funding past March. If not, the hope is to take about 20 staffers from SIGIR’s investigative unit and move them over to the Office for the Special Inspector General for Afghanistan Reconstruction (SIGAR), Bowen said.

"We have over 80 cases ongoing… the Hill has expressed in continuing the investigative part of SIGIR after the office officially closes down," he said.

Corruption in Iraq is at an all-time high and several other major indicators of progress in the country are on a downward trend, according to a new U.S. government report.

Earlier this month, the Iraqi government fired Central Bank of Iraq (CBI) Governor Sinan al-Shabibi amid allegations of corruption, a move that is both a symptom and a consequence of increased corruption in Iraq and also a possible power grab by Iraqi Prime Minister Nuri al-Maliki, according to the report, published Tuesday by the Office of the Special Inspector General for Iraq Reconstruction.

"This peremptory and constitutionally questionable move occurred as an audit of the CBI’s foreign currency auctions surfaced. The audit purportedly found that perhaps 80% of the $1 billion purchased at weekly CBI-managed auctions was tied to illegal transactions, with the funds subject to those transactions potentially lost abroad to money laundering," the report reads.

It continues: "This development is symptomatic of a troubled year in Iraq, evidenced by increasing corruption, resurgent violence, deepening ethno-sectarian strains, growing apprehensions about the conflict in Syria, and widening divides within the coalition government."

Special Inspector Stuart Bowen, in an interview with The Cable, said it’s unclear whether the firing of Shabibi was a direct power grab by Maliki, but it does open up the possibility that Maliki will now have greater access to the vast capital reserves the bank holds.

"The facts are that Governor Shabibi was widely respected around the globe amongst financial ministers for building up Iraq’s reserves to about $65 billion. And I did know from my discussions in Iraq there was some desire in Iraq to access some of that money for capital expenditure purposes and Shabibi had exerted a firm hand in preventing its use," Bowen said. "The government of Iraq wanted to access some of those reserves."

The Iraqi government’s public explanation is that Shabibi was not diligent enough in combatting the money laundering that was going on at the bank, mostly through weekly auctions of dollars for Iraqi dinars. Bowen said that Abdul-Basit Turki, the head of the Board of Supreme Audit, made that money-laundering determination. Basset is now the acting governor of the Central Bank of Iraq.

"The matter of corruption was brought to me by a number of ministers, who noted to me that it’s as bad as it’s ever been," Bowen said.

The report points to several other negative indicators. For example, Iraq suffered its worst day of violence in more than two years when Vice President Tariq al-Hashimi was sentenced to death in absentia last month, charges that are widely viewed as political in nature. Iraq’s relationship with Turkey is deteriorating, the ongoing violence in Syrian presents both political and humanitarian problems for Iraq, and a temporary resolution of Baghdad’s oil revenue sharing dispute with the Kurds has not solved the overall problem, the report said.

Official numbers for staffing at the U.S. Embassy in Baghdad, America’s largest, have actually gone up despite State Department claims that the embassy was in the process of being downsized. Apparently, the number of staff had been underreported in the past.

"U.S. Embassy-Baghdad reported that 16,035 persons supported the U.S. Mission in Iraq at the end of the quarter, including 1,075 U.S. government civilian employees and 14,960 contractor personnel. The Embassy said the discrepancy was due to earlier underreporting of certain staff categories," the report stated.

"My expectation is that it will be shrinking. We had conflicting reporting about the size of the staff at the embassy," Bowen said. "We’ll just have to wait to see how that evolves over the next couple of quarters."

SIGIR also announced in its report the conclusion of several investigations that resulted in either guilty pleas or convictions of persons abusing U.S. taxpayer funds in Iraq, including the guilty plea of the former chief of party in Baghdad for USIP of wire fraud.

Earlier this month, two former employees of the contractor Parsons were sentenced to prison for terms of 27 and 15 months for "conspiring to commit kickbacks, wire fraud, and mail fraud, and for filing false tax returns" and will pay about $2 million in restitution to the U.S. government. And Monday, UK-based Iraqi subcontractor Ahmed Sarchel Kazzaz was sentenced to 15 months in prison and ordered to pay about $1 million in restitution and forfeit another $1 million.

The U.S. government has obligated $60.5 billion to Iraqi relief and reconstruction since 2003.

In January, the SIGIR office will release its final lessons report and three more audits, and then the office will begin to roll up its operations unless Congress sees fit to extend its funding past March. If not, the hope is to take about 20 staffers from SIGIR’s investigative unit and move them over to the Office for the Special Inspector General for Afghanistan Reconstruction (SIGAR), Bowen said.

"We have over 80 cases ongoing… the Hill has expressed in continuing the investigative part of SIGIR after the office officially closes down," he said.

Josh Rogin covers national security and foreign policy and writes the daily Web column The Cable. His column appears bi-weekly in the print edition of The Washington Post. He can be reached for comments or tips at josh.rogin@foreignpolicy.com.

Previously, Josh covered defense and foreign policy as a staff writer for Congressional Quarterly, writing extensively on Iraq, Afghanistan, Guantánamo Bay, U.S.-Asia relations, defense budgeting and appropriations, and the defense lobbying and contracting industries. Prior to that, he covered military modernization, cyber warfare, space, and missile defense for Federal Computer Week Magazine. He has also served as Pentagon Staff Reporter for the Asahi Shimbun, Japan's leading daily newspaper, in its Washington, D.C., bureau, where he reported on U.S.-Japan relations, Chinese military modernization, the North Korean nuclear crisis, and more.

A graduate of George Washington University's Elliott School of International Affairs, Josh lived in Yokohama, Japan, and studied at Tokyo's Sophia University. He speaks conversational Japanese and has reported from the region. He has also worked at the House International Relations Committee, the Embassy of Japan, and the Brookings Institution.

Josh's reporting has been featured on CNN, MSNBC, C-Span, CBS, ABC, NPR, WTOP, and several other outlets. He was a 2008-2009 National Press Foundation's Paul Miller Washington Reporting Fellow, 2009 military reporting fellow with the Knight Center for Specialized Journalism and the 2011 recipient of the InterAction Award for Excellence in International Reporting. He hails from Philadelphia and lives in Washington, D.C. Twitter: @joshrogin

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