Use the free
to view the PDF files
[Transcript prepared from a tape recording.]
MR. MURRAY : Okay. I think we have everybody here. I just want to do quick introductions, and then I'm going to turn the floor over to Jean-Pierre Halbwachs to have some brief opening remarks.
Let me introduce everybody, and I can give you spellings at the end of the briefing, but from the left of the table is Mr. Khalifa Ali Dau, who is a senior financial advisor and the representative to IAMB of the Arab Fund for Economic and Social Development. Next is Bert Keuppens, who is a senior advisor in the International Monetary Fund and the IMF's representative to IAMB. Next to Bert is Mr. Halbwachs, who is the Chair of IAMB and the representative of the Secretary-General of the UN to IAMB. And at the right side of the table here is Mr. Fayezul Choudhury, who is Vice President and Controller of the World Bank and also the World Bank's representative to the IAMB.
Let me again—this is an on-the-record briefing. Take your time to ask any questions. Let me turn the floor over to Mr. Halbwachs. Thanks.
MR. : Can we please turn our cell phones off for the briefing? Thank you very much.
MR. HALBWACHS: Good afternoon. And, first of all, thank you for your presence here this afternoon. As Bill said, I'm Jean-Pierre Halbwachs, the Chairman of the Board, also the representative of the Secretary-General of the United Nations on the Board. Khalifa Ali Dau is the representative of the Chairman and General Director of the Arab Fund. Mr. Keuppens is representative of the Managing Director of the IMF, and Mr. Choudhury the representative of the President of the World Bank.
There's one of our members absent and we regret his absence; that is the member designated by the Iraqi Government. He is not here and neither is his alternate or the President of the Iraq Board of Supreme Audit. They were unable, unfortunately, to attend this meeting today, which we, of course, anticipate that these key people will be present at our future meetings.
Before I open the floor to questions, I will review briefly what IAMB is and what it has been doing since it began its operation in December 2003.
Since we were created in 2003, all the reports of our meetings, the audit reports, the findings, have been made public through our website as well as the press releases which have been issued after each meeting. I'm sure you have a number—we are sure you have a number of questions about what we've been doing and what it is that we've found in our work, and we hope that today we can address these and give you a sense of what the IAMB will be doing going forward.
We met today here. It was our 14th meeting since we began our operation. We met to continue to review the financial operation of the Development Fund for Iraq, the DFI, which is the principal repository of oil export receipts.
The IAMB began operation, as I said, in 2003 following Resolution of Security Council 1483. We are structured along the lines of international best practice models for audit oversight committees, and although we can recommend follow-up to the findings of our work, we have no authority to require actions arising from our work.
Our mandate was due to expire at the end of the month, just three days from now; however, the Security Council by its Resolution 1637 extended our mandate for another year and recognized in that resolution "the significant role of the IAMB and its contribution to transparent public accounting in Iraq." So we are now set to go until the end of 2006.
We have since the DFI itself, which was administered by the Coalition Provisional Authority, has been administered by the Government of Iraq since June 28, 2004, when the CPA left, and this was also consistent with Resolution 1546.
Let me now turn to the main findings of—some of the main findings of IAMB so far. As I said, you will find all of these on our website.
For those of you who followed IAMB closely, you will already have noted that we have consistently raised concerns about inadequate controls over Iraqi oil and other aspects of the DFI operation. And are we concerned about the state of accounts and the controls in place? I think the answer is yes. In particular, we have repeatedly raised four issues with the CPA initially and more recently with the Government of Iraq itself since they took over the responsibility for the DFI.
The first issue is the absence of oil metering. We recommended way back in March of last year the expeditious installation of metering equipment in accordance with standard oil industry practices. This is a difficult task, but one that is essential to maintain control over the oil revenues. And we understand that a recent agreement has been reached between the Government of Iraq and a United States company to undertake this task.
The second issue relates to the use of barter transaction for certain oil sales. We have been concerned that barter transactions are not accounted for in the DFI, as required by Resolution 1483. We understand that some bartering of oil for electricity with some neighboring countries still goes on. The use of barter transactions makes it difficult to determine whether fair value has been received for Iraqi oil revenues.
The third issue is the question of persistent weak control in the spending ministries. There are questions whether all the DFI disbursements have been made for the purposes intended since the audits continue to criticize the overall financial control framework and contain exceptions to administrative and accounting procedures in the spending ministries by the U.S. agencies in respect of outstanding commitments which they have using DFI resources and the Iraqi administration of DFI resources itself.
The fourth issue is the use of noncompetitive bidding procedures for some contracts that have been funded from the DFI. In that context, all contracts in excess of $5 million that have been awarded by the CPA have been the subject of a special audit. Audit documents that have been published by us on our website are technical by their nature, so let me try and elaborate a little bit about these audits.
We have requested regular audits of financial statements of the DFI and the related accounts. We have also requested the special audit since under our terms of reference we have the authority and the power to do so. The special audit covers the use of DFI resources for sole-source contracts—that is, contracts that were awarded by the CPA without going through competitive bidding. This special audit was required to determine that the resources of the DFI were properly used.
The purpose of the special audit was: first, to identify all noncompetitively CPA-awarded contracts valued at more than $5 million that used DFI funds; second, to summarize the finding of audits of such contracts that have already been conducted by various audit agencies; and, third, to conduct limited audit procedures on noncompetitively awarded contracts that have not been the subject of audits.
Overall, there were a total of 24 sole-source contracts that were reviewed under the special audit, and this audit was executed by KPMG, except for one contract for a value of $1.4 billion that has been awarded to Kellogg, Brown & Root. The audit of this $1.4 billion contract was reviewed by the Special Inspector General for Iraq Reconstruction, otherwise known as SIGIR, because KPMG recused itself from this related audit because of a potential conflict of interest.
The special audit by SIGIR focused on the sole-source contract awarded to Kellogg, Brown & Root for the procurement and distribution of fuel products and the restoration of Iraqi oil infrastructure, but also reported that the Defense Contract Audit Agency, the DCAA, had questioned costs under this contract for a total of $208.5 million.
MR. : I'm sorry. The Defense?
MR. HALBWACHS: Defense Contract Audit Agency.
In view of the fact that the amount questioned by the Defense Contract Audit Agency was significant, in view of the length of time that this process is taking and the fact that almost $1.2 billion had already been disbursed from the DFI for this contract, the IAMB had recommended that the U.S. Government seek resolution with the Iraqi Government concerning the use of DFI, which might be in contradiction with Resolution 1483, and recommended that the amount disbursed that cannot be supported as fair be reimbursed expeditiously.
The remaining 23 sole-source contracts, which amounted to $0.6 billion, were reviewed by KPMG, who indicated that a number of exceptions had been made to contracting procedures.
In addition to the special audit, periodic audits of the finances of the DFI have also been completed, and these findings are in line with our earlier observation, which is that all known and reported oil proceeds and frozen assets and transfers from the Oil for Food Program under Resolution 1637, have been properly and transparently accounted for in the DFI; however, as mentioned by this Board earlier, we cannot be sure that all oil sales and all assets are captured by the system.
The IAMB has asked the Iraqi Government to inform us of the steps taken to implement the recommendations that arose from earlier audits, and the steps reported so far to us include the enactment of a financial management law to establish a comprehensive framework for the conduct of fiscal and budgetary policy; the establishment of a special directorate within each ministry, headed by an Inspector General reporting directly to the Minister; steps to strengthen controls at the Ministry of Oil and the spending ministries; the adoption of rules and regulations regarding disbursement of allocated funds to be followed by the relevant ministries; and the training of finance personnel.
We believe that it is extremely important for the Government of Iraq to act on the audit recommendations to strengthen financial controls and the administration of DFI resources, and we look forward to working with the Board of Supreme Audit and the Government of Iraq to continue strengthening the overall framework for public and financial management in Iraq. Our future immediate work will focus on completing the statement of work for the next audit, which will cover the period June to December of this year. We will focus on a briefing by the Iraqis on further measures they have taken since they last reported. And we will be also having a briefing with the Department of Defense on implementation of audit recommendations that concern contracts administered still by the United States agencies and to discuss further developments on the question of sole-source audits following the issuance of the report.
This is where we stand. I thank you again for your time, and my colleagues and I would be happy to answer any questions you may have.
MR. : Before we start, could I ask you to turn off your cell phones. That's causing [inaudible].
MR. : No, it's from the BlackBerry.
MR. MURRAY: Real quickly, we will have a statement available at the end of the briefing that will cover some of the ground that was just introduced at the opening remarks. If you guys could identify yourselves by name for our transcript, it will help out. Thanks.
QUESTIONER: On behalf of the UN Correspondents Association, welcome. My name is Jim Wurst, Global Security Newswire. Is it unusual for Iraqi representatives not to be in attendance at these meetings? I mean, they have a lot at stake, obviously, and this would be—you could read a lot of unpleasant implications into the fact that they aren't present: that they don't want to be—that they don't want to face questions or they don't think that you're conducting a fair or competent inquiry. How—why is it that there are no Iraqis involved in this meeting?
MR. HALBWACHS: Thank you. I think that this is the first meeting that the Iraqis have not been attending, and they've attended actually every meeting that we've had. And we, I think, value their participation as much as they do.
What seems to have happened is we were informed late last week—is it?—the 23rd or the 24th, that they would not be able to come because they—according to them, they had not been able yet to receive a visa to come to the United States. They need a visa every time they come, and I don't know, the process has probably taken too long this time.
QUESTIONER: What would prevent—I'm sorry. That just sounds very strange that the U.S. Government would not issue a visa to an Iraqi official to come for a UN sanctioned meeting.
MR. HALBWACHS: I don't think that the U.S. has refused. I think the process of getting a visa has probably taken longer than they had anticipated. This is the first time this has happened.
There is a problem—there is—it takes time to get visas, which is why we meet—we take turns in meeting, the various agencies, and this almost happened once before at the beginning. So we decided if there are three U.S.-based agencies, we would not have to start with consecutive meetings in the United States and we would have one of our agencies, which is the World Bank, when it's their time to host the meeting, to hold it in their offices in Paris.
QUESTIONER: Two questions. First is, in early November you actually made a recommendation—excuse me. I'm Warren Hoag (ph) of the New York Times. You made a recommendation that the United States repay as much as $208 million to the Iraqi Government for contracting work in 2003 and 2004. My question is: Will you have any such recommendation coming out of this meeting today?
And the other question I have is: From your briefing, I can't tell how happy or unhappy you are with the level of cooperation you're getting from the Iraqi Government and maybe from Pentagon audits. Can you somehow characterize what that level of cooperation is?
MR. HALBWACHS: On your first question, there won't be any recommendations coming out of today's meeting. Essentially, we had planned to meet today initially to—basically to wrap up, since we were supposed to have completed at the end of the year, and in mid-November we got an extended mandate. So we met today to review where we stand and basically to convene a press conference and share with you where we're at after two years.
On cooperation, I think we have—well, the Iraqis have always attended our meetings, and the Board of Supreme Audit is very keen in getting involved in our work and in pursuing the audits. So I don't see any problem with the cooperation with the Iraqis. The auditors have had some problems in terms of access to ministries, and I think that is reflected in the audit of KPMG.
With the Pentagon, we asked—we decided to have a special audit. I think it was in April 2004. And that took a bit of time for the U.S. authorities to come back with an agreement on a statement of work, which then had to be translated into—going to bid, then finally approving the contract. So that I think took a bit longer than we expected, and this is where we are today.
QUESTIONER: Ian Williams from the Nation. There's far too many questions to ask in a short briefing, but a beginning: Over the years, we've heard a lot in this room about transparency and UN accounts. The last figure, I think, on the Oil for Food account is $10 billion of surplus handed over. Are you satisfied that that $10 billion has been properly accounted for? And if not, what proportion of it is still swinging?
And, secondly, on the $1.2 billion, it seems—am I to understand that there's been no independent audit, that the special inspector, as I understand, is actually the President's former hometown lawyer, Mr. Bowen. The company concerned is a former—the Vice President of the United States is a former executive of it. So if any contract really called for independent audit, I would say that this would be howling for it, and I was wondering if you're intending to get an independent substitute to KPMG.
And then, finally, I understand that earlier this year several federal courts ruled in the case of corruption on the part of U.S. companies that this was not a subject for U.S. law unless it could be proved that U.S. taxpayers' money was involved. So if they just stole the Oil for Food money and gave it up, that's okay. It's only if the U.S. taxpayers' money is involved that they're culpable under law. And as you will have seen, there are people now being arraigned for taking $200,000 a month in bribes for disbursements of these funds.
So, I mean, what have you got to recommend in the way of following up on these with the sort of proper spirit of justice and retribution that is being pursued in the case of the United Nations?
MR. HALBWACHS: Thank you. I will let my colleague, Mr. Choudhury, take that.
MR. CHOUDHURY: I can't speak to the Oil for Food issue [inaudible], but in terms of the independence under which the $1.2 billion was audited, I mean, in essence we were faced with a choice. As Jean-Pierre mentioned, you know, I think the level of cooperation we've had from the Iraqis and the U.S. Government has—certainly I don't think anyone questions their will to cooperate, but certainly, you know, once one gets into the process of various bureaucratic structures underneath, we have encountered varying degrees of difficulty, most of which were overcome.
The special audit that we commissioned on sole-source I think was a victim to that. It took an extraordinary long time. And by the time we became aware that KPMG had recused itself from the audit of that KBR contract, because they are the external auditors, you know, we were faced with a choice: Do we hold the whole thing up, or do we review what SIGIR had done?
We have reviewed what SIGIR had done. It seems to us to be a reasonable piece of work that seems to follow acceptable professional standards. The fact that certain exceptions have been identified of significance—$208 million is not an insignificant amount—speaks to the fact that it's—it's not ostensibly or on the face of it a whitewash. And, you know, the Iraqis are in discussions with the U.S. on the disposition of that amount. I think they are urging the U.S. to resolve the matter quickly and reimburse whatever's necessary.
So, you know, as the Chairman mentioned, we will be meeting again in January to discuss the next status report on those issues, and obviously as new information comes to light, we will keep that matter under review. But as things stand at the moment, you know, we believe that it has been on the face of it an objective and professional piece of work.
QUESTIONER: And on the question of possible criminal prosecution, you have seen the evidence pointing to it, and have you been in touch with any law enforcement authorities?
MR. CHOUDHURY: Our work—well, you'd raised the question vis-a-vis Oil for Food money or DFI money?
QUESTIONER: Overall, the recent—there were several recent court cases, I believe it was in August, that ruled that U.S. law could not prosecute American contractors who had merely stolen money from the Oil for Food or from DFI unless it was proven it was U.S. taxpayers' money involved.
MR. CHOUDHURY: Well, I don't think the IAMB has—I think as the Chairman mentioned, we are an oversight board. Our job is to shed light, even through these exercises, and we believe we've been doing that. Our job is not to detect fraud per se. We are looking at systemic issues of control and making recommendations on how those controls can be improved.
If our work did come across something that was fraudulent, obviously this process of shedding light and making issues transparent would put the right parties in the know so that appropriate action could be taken. But it is not within the IAMB's mandate to initiate such actions.
QUESTIONER: So has that happened and have you?
MR. CHOUDHURY: It hasn't happened to date.
QUESTIONER: Yes, Colum Lynch, Washington Post. Just one request, first of all. I mean, when you guys have your next report—obviously we're happy that you've all come out to speak with us, and we're all very interested in this issue. But it would be very helpful if you could flag us when the next report's coming out and provide some opportunity of people in the IAMB we could talk to to sort through some of the—you know, if we have some confusion about what's in the report.
In any event, I just have a bit of a follow-up on one of the issues that Ian raised, and that is, my understanding was that there was an agreement with the Pentagon for there to be an independent audit on the sole-source contracts, including KPMG. And I understand that KPMG recused itself on KBR—that KPMG recused itself. But it sounds to me like that constitutes sort of a fundamental violation of an agreement to have an independent audit, and why did you not sort of characterize it as a violation of that agreement? And also, it was a bit confusing to figure out what had happened. You said that you hadn't been informed in time about—you know, until late in the process that KPMG was actually off the case. I mean, do you have any indication that there was any sort of untoward activities that the government or any people in the U.S. Government were trying to prevent you from doing a totally independent audit of the finances?
So, in any event, if you could sort of address some of that.
MR. CHOUDHURY: Yes, I think—well, the sequence of events is unfortunate because we were notified late that KPMG had recused itself, and we were notified after the event that the alternative work by SIGIR had commenced. But as I say, we had to make a judgment at that time: Did we look at the information that was available, and, frankly, keeping all our options open? Because the moment we believe that there's more to be looked at, that there are gaps in the work that was done, I think we all agree that we still have the option to reopen that issue. But working on the information that's being made available to us and believing it to be a good-faith transaction, we will pursue it. But at the moment that we believe that there is—you know, there are areas of investigation that weren't properly pursued or that there is more to be pursued, we keep our options open as to what our next step would be.
QUESTIONER: [inaudible] negotiating with the Pentagon, it makes it very easy for them to sort of—I mean, if you were willing to roll over like this, I imagine that—and try it again in a number of other areas. I mean, I don't understand why this isn't sort of a crucial—you know, why you didn't consider this sort of a crucial issue of the—you know, the independence of, you know, having an auditor that you were convinced was absolutely independent and outside and beyond the control of the government.
MR. CHOUDHURY: As I say, I think we have looked at some of the work that the independent groups in the U.S. Government have done. I mean, I think some of that work has been pretty scathing in its assessment. So, you know, I'm not sure that there is prima facie a case for saying that the independent oversight functions of the U.S. Government are marching to any political drummer.
But having said that, you know, we are taking the information that is being given to us, and as I say, it's not the way we would have necessarily liked the outcome—or the process to have worked, but that's the way it ended up, that it currently is. We're reviewing that information. We're still in dialogue with the DOD. And if we believe that further work is warranted, we will certainly require that that work be undertaken.
So, you know, I think, as I said, we're acting in faith. So far we believe we've received some pretty robust analyses. But if the discussions lead us that way, we'll request something different.
MR. HALBWACHS: Also, before turning—also, we have to—KPMG was the only company that bid for that contract, so there was no back-up company ready to take it over in the time.
QUESTIONER: I wanted just to follow up. I remember, this is a basic one, at the time that there was talk of vast amounts of the report being excised and that you hadn't got access to that. And I just wondered if you could clear that piece of history up for me.
But I was just wondering if you could go back to the beginning, because I'm a little bit at sea on all of this. I’m sort of having about as much of a sense of what's been going on with the DFI as we used to have with the Oil for Food Program money. And I think it's worthwhile going back and just sort of giving us some basic figures again and seeing how they add up.
Could we just take the two sources of income for the DFI? First of all, could you clarify finally at the end of the day how much money was carried over from the old Oil for Food account into the DFI?
Then could you clarify how much has gone into the DFI from the oil receipts and the other sources of income into the DFI? And then of that total amount of money, could you give us a figure of what percentage of that money or total amount of that money could you say with confidence has been spent with fair, transparent, clear procedures, and what percent or total amount of that money you have serious questions about its disbursement and spending?
MR. HALBWACHS: Bert, do you want to...?
MR. KEUPPENS: Let me try to answer your question about the chronology, about the copies that were redacted and how we arrived at the stage where we are today.
Very early on, we noticed that DFI money had been used to pay sole-source contracts to Halliburton—that was early in 2004—at which time we asked the CPA for details of this, and they were forthcoming with the details and informed us that audits were ongoing by their own Department of Defense contract auditors.
Subsequently, we received these audits, but they were heavily redacted, because, according to the Department of Defense, it contained proprietary information that couldn't be divulged to the public.
Subsequently, after some negotiation and, I believe, consultation by the Defense Department’s lawyers themselves, we received access to these unredacted copies, which by the time, you may recall, had also been posted on the website of Congressman Waxman.
The issue for us was then to not re-audit what already had been audited. The issue for us was to make sure that we had a good grip on the total population of single-source contracts, how much was single—sole-sourced and how much of that was to Halliburton. So we asked for these details. We received these details. And we asked KPMG—that was the purpose of the special audit—to confirm to us that this was it, we had the total population. So at least we knew there weren't any others. That was the purpose of the special audit. And we asked also the auditor to summarize for us the results of other audits, because we didn't want to replicate.
KPMG did that for 23 sole-source contracts, but as we've discussed several—a couple of times now, it recused itself for that one audit.
QUESTIONER: Just to understand, KPMG's independent auditing of this was, in fact, reading existing audits and summarizing them.
MR. KEUPPENS: That is correct.
MR. CHOUDHURY: [inaudible] but where existing audits were in existence, it was to summarize those findings. Where certain of those contracts had not been subject to any audit, undertake some limited procedures on those—so that overall [inaudible] that everything had in some way, shape, or form been audited by someone.
QUESTIONER: Right, so we could say, though, that even the 23 that you're saying are subject to the independent auditing procedure by KPMG, the information ultimately came from a U.S. audit.
MR. KEUPPENS: Some of it. We had agreed upon procedures to review documentation, and this is actually available in the audit which is posted on our website. There's a table there which summarizes these results.
QUESTIONER: If we could go to facts and figures then, just to give us a sense of inflow, outflow, percentage confidences that they're being spent properly, I mean, just real basic stuff.
MR. HALBWACHS : There were various—how many? We've had one, two, three—five audits so far, or four? We have the inflow and outflow per period in our different audits from January to June, June to December. We can put all this on the website if you want. We can add all this up and can provide to you on a cumulative piece of paper. We can do this on the website—
QUESTIONER: It’s a very basic question. How much money has gone into the DFI and how much money has gone out? Can you not say?
MR. HALBWACHS : I can't say it from the top of my head, no.
MR. KEUPPENS : Actually—
MR. HALBWACHS : It goes in about $10 million per six months, from what I remember, and about $10 billion—
MR. HALBWACHS : It's all there in the audit. We can add it up and give it to you.
MR. KEUPPENS : I mean, the main purpose for us was to determine that all oil sales are actually deposited in the DFI. That's the key thing.
QUESTIONER: And not how the DFI is disbursed?
MR. : And then secondly, you know, secondly to make sure that the money is spent for the benefit of the Iraqi people. Now, what does that mean? It means that it's spent in according with appropriate budgetary appropriations and that it goes to what we call the spending ministries. And we take it one step further. We have asked our auditors to go to these spending ministries to make sure that there are controls in place and to make sure that the money is appropriately spent. And as you may have read from our reports, there are quite a number of issues there.
QUESTIONER: Well, just if I cap off my question, can you say—I mean, honestly I don't mean anything personally, but this is about as clear as Benon Sevan’s briefings used to be. Can you say what percentage of the money that has been spent from the DFI or what total has been spent from the DFI, you're confident has been spent using proper procedures and what percentage or total has been spent that you don't know how it's been spent and whether it's, you know, just disappeared or whatever? Do you have some figures based on all of this?
MR.CHOUDHURY : Let me try and put it in context, that the U.S. Government, which is audited by the GAO, I think recently the GAO announced that the U.S. Government itself, as well as some very high percentage of federal agencies, would receive a qualified audit opinion. The European Commission I think for the last X number of years have received a qualified audit opinion. I think the member nations of the European Community, the bulk of them have received qualified audit opinions from the national auditors.
Now, if you then sort of say, well, therefore, does that qualified opinion mean that we cannot be sure that the money has been disbursed for purposes intended, and the answer is yes. Likewise I think for this, there was a qualified audit opinion speaking to weaknesses, which indicates that these systems of control are vulnerable to disbursements not being made for the purposes intended.
The question you're asking would require us to look at every single transaction undertaken and form a view as to whether or not it was proper or not. That is certainly not our scope. Our scope is to look at the systems and procedures and to opine on whether they're adequate and where they need to be strengthened, and that's what we've done, and that's what we're working with the Iraqi authorities to try and, you know, ensure that they have a proper focus and give proper priority to getting those fixed.
But your question is, I think, unanswerable, not just in this context but for the United States, the European Commission, and probably every country in the world—with the possible exception of New Zealand, which I think does get a clean audit opinion.
QUESTIONER: [inaudible] at Reuters. A couple of quick questions and then a philosophical one. You mentioned, I believe, that there were DFI contracts that are still being administered by U.S. agencies, and I wondered what those would be and why. You mentioned the metering contract, and I'm wondering is this something recent and can we get the date and the amount of money and the company. I wanted to know about the fate of the $208 million reimbursement request. Has it ever been reimbursed? And if not, why not?
And then the philosophical question is: Mr. Choudhury, you mentioned that there could be no doubt that there was good will on the part of the Coalition Provisional Authority. And I'm wondering since they blocked your operating rules for something like six to eight months so that you couldn't get an audit out until they were no longer running Iraq, since they fought your choice of an auditor, since they gave you audits where all the good stuff was deleted and then lied about why they had done it, I'm wondering why you think that there could be no question about their good faith.
MR. CHOUDHURY: [inaudible] your characterization. Certainly some of the reasons we've been given for delays are that under the legal processes under which they operate, whenever a company is mentioned, before they go public with that company's name, they have to give under U.S. law that company a right to respond, and that was part of the delay. I don't think they fought us in the appointment of an auditor under our choice. I think they consulted with us on the terms of reference. We agreed the terms. They consulted with us on the bidding. As it so happens, only one firm responded, which, you know, I don't think was their doing. I think our—you know, we've received excellent cooperation from various people, parties in Iraq, in DOD, in CPA. Others, it's been rather more sluggish. I don't think it's any different to any other organization one deals with.
But certainly the delays are regrettable. I think in terms of—you know, I think we have uncovered enough of some of the weaknesses and the flaws to indicate that if there was a systematic attempt at a cover-up, it probably wasn't very good. That's not to say it didn't happen, but I'm just sort of saying—you know, I mean, there's enough there that we found to criticize, which suggests that—and for which responsibility has been taken.
MR. HALBWACHS : On the contracts administered by the U.S. agencies, these were contracts that were—that was entered into and signed by the former CPA before they left, which is continuing, and the Iraqis had agreed that these would continue to be managed by the U.S. agencies.
QUESTIONER: Can you give us some detail on how much money [inaudible]?
MR. HALBWACHS : I think it was a couple of—$1.2, $1.3 billion. I'll get you the exact figure. But they're supposed to hand this over to the Iraqi Government at the end of 2005, and one of the issues we will be looking at when we meet in January is where do we stand on this and how this handover took place. I don't know if the financial statement indicates the exact amount. I think it did I don’t have it in front of me right now, but we can—
QUESTIONER: If we could get that later, that [inaudible].
MR. HALBWACHS : While we answer questions, I'll get it for you.
The metering is something that we were informed at the last meeting that there was the potential agreement with some United States company, I think, to do it. We will get more detailed information in early January on this, and we will address this in our minutes and our press release after our meeting.
On the $208 million, I think the issue is still alive because these contracts are not—have not been what the U.S. call definitized, and the issue is still open. I know that the Iraqis intend to pursue this with the U.S. Government, but I'm not sure where they stand on that. That, too, will be the subject of a report at the next meeting.
The gentleman with the green shirt has been waiting a long time.
QUESTIONER: Bill Varner (ph) with Bloomberg News. A couple things on the metering. You first raised a concern about metering almost two years ago. How do you feel about the fact that it's nearly two years and this still hasn't happened? I mean, is it basically you're willing to accept the idea that the security just hasn't allowed it and, you know, everybody knows what the security is and that's that?
Also, in paragraph 2.2.1 of the report from the Iraqi representative on the IAMB, it says that, "Lately, an agreement has been reached with the American PCO for the metering project to be executed by the Americans (who can provide for security) and financed from American donations." Can you expand on exactly what's the American PCO? What does that stand for? And is it true that this is going to be paid for by American donations?
MR. HALBWACHS : The American PCO is the contracting officer, the person I think who has overall responsibility for coordinating within the United States the remaining contract which is being administered by the CPA, from what I understand.
QUESTIONER: So PCO doesn't stand for a particular company? It's—
MR. HALBWACHS : No, no. It's some official in the U.S. Government.
QUESTIONER: And you don't know what company it really is?
MR. HALBWACHS : We haven't gotten details on this. We will get this when we meet with the Iraqi’s.
MR. DAU : [inaudible] metering. I think it's worthwhile to notice that the metering problem has been there a long time, even during the other regime. So it's not anything new.
QUESTIONER: Well, how do you feel about the fact that it's been two years and it hasn't been solved?
MR. DAU : We have been—like you said, we have been stressing this, and apparently everybody's convinced it has to be done. But for one reason or another, it hasn't been done as of yet. Probably the security factor is an important one there, too.
QUESTIONER: And lastly, this idea that this is going to be financed from American donations. What does that mean? Taxpayers? Contributions? Charity? I don't know.
MR. CHOUDHURY: I think a couple of—just to add to Khalifa's point, metering is one of the first things we looked at, you know, because as people with financial backgrounds, you sort of want to know, well, are all the assets captured, you know, are all the assets monetized, and then, you know, if we can control it.
It is not uncommon in the industry—it's technically a very difficult task. It's not easy even in any—you know, because there are all sorts of calibrations on natural wastage and so on and so forth.
We were informed that it was actually planned, you know, for around the time of the CPA transfer, but then, you know, the CPA withdrew a few days earlier than was originally thought.
So are we happy about it? Absolutely not. Have we made frequent reference to it? Yes, which is really, you know, the extent of our authority. As I mentioned, our job is to shed sunshine on the issues, and we believe we have done that. We have urged our Iraqi counterparts in a number of ways, and the CPA before that, you know, to act on this. And, frankly, that is about all we can do and continue to shed light on the issue.
There are a number of matters relating to that contract on which we were looking for further elaboration by our Iraqi colleagues, indeed that and various other matters. It is—you know, we were faced with a choice: Did we proceed with this meeting today, you know, or defer it until the Iraqi colleagues could, you know, sit in? And we decided to split it and basically, you know, do certain things that we could do today, you know, where decisions need not be taken, where we can, you know, involve our Iraqi colleagues at the next meeting next month to move forward on those. But, obviously, in terms of briefings on certain issues, you know, they're not here, it's not very satisfactory to do it electronically, and so, you know, we would need to go into that with them there. You know, the data—
QUESTIONER: I take it you include the financing from the American donations as one of those things you're seeking elaboration on or—
MR. CHOUDHURY: Well, that would be one of the things that we would seek elaboration on, together with, you know, who the contract was awarded to and the manner of that contract being awarded, the status of the $208 million, have they had dialogue with the U.S. authorities. You know, there's a number of things now that are firmly in their court, as they well should be, where, you know, the sources of information are really, you know, rather difficult other than through that channel, and that's what we're looking at.
QUESTIONER: [Inaudible] CNN. It may be by definition impossible, but is it at all possible to calculate how much money is being lost without this metering capability? And then related to that, do you have any sense or do you look at all at a black market which might exist, funneling money outside of the reach of the DFI? Do you have any sense of amounts in that regard?
MR. KEUPPENS : I believe the short answer is no, but we know, and so do the Iraqis, and so did the CPA, that there was large amounts of smuggling going on, by the shiploads initially, and that therefore the CPA patrolled the coastline to catch it. We also know that some of this oil was smuggled outside the country and reimported at a different price. So these are things that are known. It is a matter of putting controls in place to reduce that.
Furthermore, the Iraqis now very much realize that while getting control of oil extraction is very important, it's still a conflict country and the security situation is very precarious, so I think they're doing the best to remedy these shortcomings. But I don't think it's possible to estimate what is lost.
We know that if you look at the capacity of a country like Iraq, it should not be unreasonable to produce in excess of $20 billion of oil per year. We account—for the first 6 months of the year, we account for 9 billion. We know it has gone down, so, you know, we are certainly not up to capacity, and some of the oil is disappearing, but how much that exactly is, is impossible to say.
QUESTIONER: To what do you attribute this drop, and are you able to just give a little laundry list from what you look at?
MR. KEUPPENS : They have given us a list of reasons including security, including difficulties in certain storage facilities, difficulties with pipelines, the kind of things you read in the newspapers.
QUESTIONER: And just one more on this point. You've mentioned persistent weak controls in the spending ministries. Can you broaden this more into plain English what this means? For any of you.
MR. CHOUDHURY : I mean the definition of a proper control—you asked for it—but the definition of a proper control over expenditure in any setting is, is the purpose of the expenditure relevant to the organizational objectives? Is it properly authorized? Is it properly recorded? And is there a mechanism for making sure value was ultimately received for that expenditure? I mean that is what you would look at in any assessment of where the money is used for the purpose intended, be it in the UN or CNN or wherever.
So, in essence, if you look at those categories, what the audit has found is there are either systemic weaknesses, in other words, the invoice didn't go to the right level of seniority for approval, and that would be a design flaw, or there was noncompliance, you know, was supposed to go to the General Manager, but it went to his or her assistant instead.
So those are the kinds of weaknesses, or, you know, if it was recorded in the wrong line in the accounting ledgers, or there was no process for someone confirming the value had been received.
So, basically, you know, what an auditor does when they look at those, is they are trying to understand what the system is and how it's supposed to work, and then they select a sample of transactions and walk it through the system to see if those controls apply. And in both those areas they found weaknesses, which is what they have reported.
QUESTIONER: But not to sort of bludgeon it into plain English, but anybody from the outside would say, well, that implies corruption. So can you look at the weak controls in the system—I mean a lot has been written about corruption as being a factor in reducing the oil revenues.
MR. CHOUDHURY: I think that implies there is greater scope for corruption. It does not in and of itself imply corruption. As I mention, even the U.S. Government and agencies of the U.S. Government and the European Commission all have similar audit findings. So, is there a scope therefore for wastage of resource, be it fraudulent or mismanagement? Yes, the scope is increased. Has it actually manifested itself in corruption? That you can only do by taking a transaction and following it through, which is a huge exercise, which is not within the scope of what we are trying to do, which is a systemic look at the system and procedures and the extent of compliance.
QUESTIONER: Nick Wattams (ph) from the Associated Press. Just in an effort to follow up on Mark's question in sort of quantifying how much was lost, I mean, can you give us a sense from a different angle, whether on a ratings scale of 1 to 10 or A to F, I mean looking at—you know, you've raised these concerns, but if this were a charitable foundation or a company or a government contracting office of the UN Procurement Division, I mean, just looking at, what grade does it get over the last two years in how well it's functioned and how effective it's been? Sort of your overall assessment after two years of scrutiny of the DFI? Scale of 1 to 10, 10 being highest.
MR. KEUPPENS : This is a country in conflict, and you would not expect perfect conditions. I think the CPA, when they went in, were aware of the issues and were trying to fix them. The Interim Government is aware of these issues and is trying to fix them. And I'm sure the government now is very well aware of these issues and is trying to fix them.
In any countries my organization has been involved in that's in a post-conflict situation, you have these kind of issues and it takes time to fix them. Sure there's massive problems. Sure, oil is disappearing, and sure, I would not be surprised if there is corruption in the spending ministries. I mean the Iraqis themselves publish it in their own press.
What the grade would be, I have frankly no idea what grade I would give considering the circumstances. I know that they themselves are committed to bringing their country back on track. They have international support. They have the support of the international organizations, and you may be well aware that the IMF last week approved a program for them. So I think they are on the road to recovery, but it's a difficult—
QUESTIONER: But I mean comparatively, or, you know, obviously given the circumstances, you know, comparatively with other countries where you've been over the last two years, does it compare favorably or—I mean just to get a sense for the lay reader who really doesn't understand this at all. I mean are we looking at a program that, given the circumstances, they did a pretty good job?
MR. CHOUDHURY: Our job was not to do a comparative analysis in that sense, but if you want an impressionistic view—and I stress the word "impressionistic"—I think the problems they are encountering are not uncommon certainly to a post-conflict situation, and probably not that uncommon to some of the weaker capacity developing countries. You know, these are not, unfortunately, issues that we are seeing and saying, "Oh, my God, let's look at this because this is a once-in-a-generation opportunity to see poor financial management systems." Unfortunately, it's—
QUESTIONER: [Inaudible] that in terms of the way the U.S., the world's most developed country, has handled it.
MR. CHOUDHURY: Handled what?
QUESTIONER: Disbursement of DFI funds. We're not just talking about developing countries, we're talking about the U.S. Government.
MR. CHOUDHURY: Again, I would have no basis for comparison. I mean I think the weaknesses in the way they handled it have been publicized through the audit reports, but how they have done it versus how someone else would have done it in a similar situation, I'm not sure that's answerable, because there is no—
QUESTIONER: The problem is that the audit reports are not really at all accessible to the average reader, which I don't necessarily think is a fault of yours, but just for our readers who are picking up the paper in the morning, can you give in your own words sort of an impressionistic view of what those audit reports—ultimately what you have concluded in two years about the success of this program?
MR. CHOUDHURY : My sense would be that that is in the Chairman's statement. You know, we have said that those audits have been undertaken, weaknesses have been identified. Those weaknesses speak to the potential for, (a) mismanagement, (b) corruption. They, therefore, deserve high-priority attention. We have engaged the Iraqis—well, again, to repeat, our job is to shed sunlight and we hope we've done that. We have engaged the authorities, and implicitly the civil society, if you like, in the form of yourselves, and the Iraqi citizenry in that debate through those findings.
We have received encouraging signals from the Iraqis the seriousness with which they take these issues and the seriousness with which they respond. It is early days, and we certainly hope that they will be able to make rapid and significant strides in the direction upon which they're embarked. But it is an unfortunate situation, unfortunately, not a uncommon situation in developing countries, but that's absolutely no reason for either us or the Iraqis to countenance the state of affairs as they exist currently, but certainly to work hard to fix it.
MR. MURRAY: Thank you very much. If you're interested in being notified about postings on the IAMB website, drop me an e-mail. I’ll create an e-mail group.
[End of press conference.]