Corruption In Iraq & World

SIGIR Releases 2nd Quarter Audit Report on Iraq Reconstruction

SIGIR - the Special Inspector General for Iraq Reconstruction, issued their April, 2008 quarterly report.
I have not been able to download it from their website at:
http://www.sigir.mil/reports/quarterlyreports/Apr08/Default.aspx
...but, I will do so and attach it here when I get it.

One of the major issues in the report is that Iraq's income from oil sales have about doubled from last year due to increased crude barrel prices, but they are not spending it on reconstruction or expanding oil infrastructure. Expect to see the US Congress starting to demand more Iraq reconstruction expenses be paid for by Iraq, and not US funds.
vj

Below is Ben Lando's UPI article on the report. He focuses mostly on Iraq Oil industry issues, but this is one of the first news summaries out...

from:
http://www.upi.com/International_Security/Energy/Analysis/2008/04/30/analysis_the_new_iraq_rebuilding_report/9208/

U.S. auditors of Iraq reconstruction see potential and roadblocks
Published: April 30, 2008 at 6:25 PM

By BEN LANDO
UPI Energy Editor
WASHINGTON, April 30 (UPI) -- Higher exports and oil prices are bringing in record revenue for Iraq, but the lack of institutional capacity to spend it on capital projects is preventing further development of the oil and gas sector, according to a report by the U.S. Special Inspector General for Iraq Reconstruction.

The report was critical of U.S. reconstruction efforts and work to help Iraq cut down corruption that, along with the inability to actually contract and spend funds, is preventing Iraqi government officials from being able to spend the funds on projects to enable the country with the world's third-largest oil reserves to produce and export at its full potential.

"Although both crude production and crude exports are above target levels, Iraq is not taking full advantage of higher oil prices," the report said. "Inadequate investment in the infrastructure hindered production and export gains."

Iraq has earned $19.4 billion in oil revenues this year through April 20, 2008, nearly half what it earned in all of 2007, according to the U.S. State Department's Iraq Weekly Status Report.

The SIGIR report said Iraq's Oil and Electricity ministries may not have spent even half their capital budget; the U.S. Government Accountability Office says there isn't adequate accounting to verify the extent of the capital expenditures but says it could be in the single-digit percentages. The U.S. State Department, which opts for the higher figure, says it's now moved from funding capital reconstruction projects to funding efforts to build institutional capacity.

This comes as members of the U.S. Congress are threatening Iraq with legislation that would force it to spend a certain level of its own funds on reconstruction -- as well as fuel for U.S. efforts -- or take out in loan from the United States.

"There is simply no reason for the U.S. to continue paying for the cost of the salaries for the Sons of Iraq, for the training and equipping of the Iraqi security forces, and the fuel we use in Iraq given this boon in oil revenue," Sen. Susan Collins, R-Maine, said after the SIGIR report's release. Collins, along with Sens. Ben Nelson, D-Neb., and Evan Bayh, D-Ind., have co-authored one of the at least five similar pieces of legislation. "As the Iraqi government is reaping an unanticipated windfall," she added, "the Iraqis should be picking up the tab for their own reconstruction and stabilization costs."

This and previous SIGIR reports noted more Iraqi money has been spent on reconstruction than American tax dollars, and of the reconstruction expenditures by the United States -- of both American and Iraqi funds -- billions of dollars have been misspent or gone missing altogether.

Iraq produced an average of 2.38 million barrels per day in the first three months of 2008, exporting an average of 1.97 million bpd, a post-war high, according to the SIGIR report. Exact numbers for oil production and export are impossible as Iraq hasn't implemented the needed modernized oil flow accounting system yet, sometimes putting SIGIR report numbers at odds with Iraqi government, other U.S. government and other international reports.

"The Ministry of Oil has a three-year program to install the required metering systems," the report said, to be completed next year. It would give the government the ability to fully, throughout the whole system, count drops of oil and fuel produced, en route and delivered.

The SIGIR report attributed a successful security plan for the northern pipeline's increased export activity. "Four (pipeline exclusion zone) projects are currently under way to protect pipelines in central Iraq," it added: Kirkuk to Baiji to be completed this month; Doura to Hilla to be completed in October; Baiji to Baghdad in November; and Baghdad to Karbala by July 2009. The PEZs are funded as part of the $227 million U.S. Economic Support Fund.

Iraq has pledged to the International Monetary Fund to average 2.2 million bpd production and 1.7 million bpd exports this year, is telling international lenders it will produce 3.5 million bpd by 2010, and has a mid-term goal of reaching 6 million bpd production.

On Iraq's refining capacity, the report notes "Iraq imports almost as much refined fuel as it produces domestically." Iraq has plans to build new refineries and fix existing facilities as its three largest oil refineries continue to operate below capacity.

The SIGIR report also noted the Electricity and Oil ministries are attempting to start coordinating better, but "no concrete plan has yet emerged." The two ministries have operated largely in isolation since 2003.

January through March 2008 electricity production and capacity declined from December 2007 because of scheduled maintenance and other problems, including continued attacks on workers and infrastructure, a drought affecting hydroelectric production and a lack of proper types and quantities of fuel.

Meanwhile, demand continues to grow at a faster pace than power production and capacity and in first quarter 2008 Iraqis needed 7,882 megawatts per day compared with the 3,985 MW per day supplied, including 225 MW of Iranian and Turkish imports.

Iraq's operating capacity was 4,300 MW in 2003 and is now 10,000 MW. "Approximately 2,200 MW in new and rehabilitated power has been added as a result of U.S.-funded projects," the SIGIR report said, with $4.46 billion spent of the $4.91 billion allocated.

The report also noted three key power lines -- from Baghdad South to Mussayib and Baghdad West and Baiji to Baghdad West -- were repaired.

Much of the power network is not fail-safe and overworked, with no central control to ensure proper power-sharing between the various provinces. A $104 million U.S. project to fix this was "91 percent installed and 51 percent commissioned" when it "was terminated because of budget overruns," the SIGIR report said.

--

(e-mail: blando@upi.com)

© 2008 United Press International. All Rights Reserved.

We are Contacted by US Senate Policy Committee regarding Today's Corruption in Iraq Hearings

It seems that Democrat Senator Byron Dorgan is focusing more on Federal Waste, Fraud & Abuse in Iraq, and has posted several hearing videos by the Senate Policy Committee (DPC) at:

http://democrats.senate.gov/dpc/dpc-video.cfm?vid=042408dorgan

The DPC office contacted me last week and I spent about an hour giving them background on corruption in Iraq.

TODAY, April 28, at 2pm EST they are having hearings on Iraq Waste, Fraud & Abuse, and feature interviews of three Whistleblowers. See the memo below that DPC sent out:

Note: During the 23 months I was in Baghdad's Green Zone, there weren't any prostitutes. Muslim's really resist any contact with "non-believers". The only time I heard of any was that apparently in 2003 or 2004 a security firm brought in a bunch of them, and it was said that after they left, Iraqi zealots tracked them down and killed them. If it happened at all, it would have been the private security firms, because they had their own camps and equipment.

As for contractors stealing equipment, etc, it hasn't changed since I was in Vietnam in 1969. I was assigned to a computer center in Saigon, and my staff sgt was running a ring of barter in the whole country where he used the military phone system and traded pallets of stolen steak, etc. for captured AK-47's etc. to sell to military officers in Saigon who wanted a souvenir. During Sept-October, 1969, while I was in Saigon, the US Senate was having hearings on "Fraud & Corruption in Management of Military Club Systems AND Illegal Currency Manipulations" in Vietnam. I know, because I later bought the THREE volume set of hearing transcripts and still have them today.
vj
------------------------------------
Memo from DPC:

I was writing to let you know that on Monday, April 28 at 2:00 p.m., the Senate Democratic Policy Committee is holding a hearing on corruption in Iraq reconstruction at 2:00 p.m. that may be of interest to you. Three whistleblowers who have never-before appeared before Congress will be giving eye-witness accounts of corruption by private contractors in Iraq including: the use of government equipment to transport prostitutes from to Kuwait to Baghdad in a contractor-run prostitution scheme, still-useable government equipment worth millions thrown into "burn pits" and KBR employees selling items they looted from Iraqi government buildings on eBay. We'll be live streaming this hearing on our website at http://democrats.senate.gov/dpc/dpc-video.cfm.

Leslie

Leslie Gross-Davis │ Counsel

U.S. Senate Democratic Policy Committee

http://democrats.senate.gov/dpc/

Senator Harry Reid, Majority Leader

Senator Byron Dorgan, Chairman

419 Hart Senate Office Building
Washington, D.C. 20510

(202) 680-2876 (cell)

(202) 224-3571 (phone)
(202) 224-5651 (fax)
leslie_gross-davis@dpc.senate.gov

SIGIR may Lose Iraq Audit Authority over $1.5-Billion in Spending

The blog posting below describes how a bill in Congress may use a sneaky trick to reclassify over $1.5-billion in Iraq Reconstruction spending so that SIGIR (Special Inspector General for Iraq Reconstruction) loses audit authority over that spending and it becomes subject to the audit authority of the much weaker, lower funded State Department's Inspector General. State's IG is still run by Howard Krongard, who was the subject of a recent scandal where audit staff complained that he did not support or allow some requested audits of Iraq operations.

Here is the blog, with information from a Wall St. Journal article, followed by my comments I posted there:
from:

http://uspolitics.about.com/b/2006/05/11/iraq-reconstruction-fraud-filled-program-to-be-exempt-from-iraq-auditor-oversight.htm

from Kathy Gill,

Iraq Reconstruction: Fraud-Filled Program To Be Exempt From Iraq Auditor Oversight?

From the lightly (or almost not) reported news department: Last month, an audit by the special inspector general for Iraqi reconstruction noted even more problems with how we've spent $20.9 billion to rebuild the country. The program is "plagued by reports of billions of dollars of waste, fraud and abuse," concludes the LA Times. The special auditor in Iraq has 72 open investigations into alleged fraud and corruption, according to its April report to Congress.

In January 2005, an audit revealed that $9 billion in UN oil-for-food reconstruction monies -- funds administered by the US government for the Iraqi people via the Coalition Provisional Authority (CPA) -- was unacccounted for.

In January 2006, the audit showed that the US "will not complete hundreds of basic water and electricity projects planned after the 2003 invasion because more than $3 billion was shifted to meet unanticipated security and other needs."

And yet. That $109 billion spending bill that the Senate passed last week? It would exempt its $1.5 billion in reconstruction dollars from the probing eyes of the special Iraqi auditor, according to the Wall Street Journal yesterday. (registration required, tip)

The WSJ reports that the White House asked for the funds to be shifted from "Relief and Reconstruction" -- which must, by law, be audited by special inspector general, Stuart Bowen -- to "Foreign Operations." This shift moves oversight responsibility to State Department Inspector General Howard Krongard. Bowen has an office on the ground with 55 auditors and a budget of $24 million. Krongard has a "minimal" presence on the ground and would have a special budget of $1.3 million to exercise audit responsibility.

According to the WSJ, Senators won't own up to why monies were shifted out of Bowen's oversight, but the bill does now match the House version in this regard. Instead, they are playing the finger-pointing game.

What happened next is a matter of dispute. The measure's sponsors say they asked Republican Sen. Thad Cochran of Mississippi, chairman of the Senate Appropriations Committee, to allow the measure to be brought to a vote but were turned down. Mr. Cochran denies receiving such a request and says the amendment's sponsors could have formally introduced the measure but chose not to, according to his spokeswoman, Margaret Wicker.

The bill passed the Senate without the amendment. As the House version of the spending bill makes the State Department inspector general responsible for the new money, it is likely the funds ultimately will be treated that way. "This is nothing more than a transparent attempt to shut down the only effective oversight of this massive reconstruction program which has been plagued by mismanagement and fraud," said Sen. Patrick Leahy (D., Vermont).

The Journal, not exactly a bastion of liberalism, concludes:

Bowen's criticism of how the rebuilding funds have been managed has put him at odds with some administration officials, who have waged several behind-the-scenes attempts to close down his office.

In its April report to Congress, the The Office of the Special Inspector General for Iraq Reconstruction reported that Contractor Philip Bloom and CPA regional comptroller Robert Stein pleaded guilty "to participating in a scheme to defraud the CPA of over $8.6 million. Bloom faces up to 40 years in prison and a fine of $750,000" as well as $3.6 million in restitution. Stein faces up to 30 years in prison; he admitted stealing $2 million.

Despite U.S. allocations of $1.7 billion to this sector, oil and gas production has yet to return to pre-war levels. Several factors continue to limit progress on oil and gas production levels: the deteriorated infrastructure, uncer- tainties regarding the legal framework governing Iraq’s petroleum industry, corruption, and insurgent attacks and sabotage. The United States and other donors should develop strategies with the new Iraqi government that will stimulate investment in this sector and help boost production levels. [T]he story of Iraq reconstruction has been punctuated by shortfalls and deficiencies, the infrastructure overview provided in Section 2 of this Quarterly Report presents a picture of significant progress achieved through a substantial U.S. investment of time, talent, and tax dollars in Iraq’s relief and reconstruction.

The SIGIR is the successor to the Coalition Provisional Authority Office of Inspector General (CPA-IG). SIGIR was created in October 2004 by a congressional amendment to Public Law 108-106 (55KB PDF), triggered by the June 28, 2004 dissolution of the CPA.

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Thursday May 11, 2006

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My comments submitted on the blog:

I worked in the US Embassy from 5/04 to 3/06 as one of a team of US Advistors setting up the Iraqi anti-corruption agency, Commission on Public Integrity. I knew Bowen’s staff auditors and met him, and reviewed some of their late 2005 reports for factual accuracy on behalf of the Iraq Reconstruction Management Office. Back then, I wrote requests to SIGIR’s lead Audit Manager to review USAID’s constant scope changes, but they resisted looking at any USAID projects. Additionally, the shift of funds from construction to security was widely known, and one reason why in 2004, reconstruction programs for water systems was reduced from $4-billion to $2-billion. Bowen had only about 12-20 auditors in Iraq, but built up a huge staff in DC including consulting agreements. His staff still developed more issues than any other audit group - GAO wasn’t there at all because State wouldn’t give them facilities.

However, Bowen’s auditors practiced the old fashioned tail end audits, reviewing work after spending is over. Most corporations with professional internal auditors moved to doing front end reviews and fixing process problems in the first months of a program, not waiting until after all the spending is over. If qualified Certified Internal Auditors with operational audit expertise had been running SIGIR, the system problems would have been uncovered and fixed back in 2004. See my blog on Corruption in Iraq at www.fiscalrangers.com .
vj

Comment by vj — April 28, 2008 @ 6:03 am

I might add a comment about the funds switch to State’s Krongard. He came to Iraq’s US Embassy when I was there in 2005, and offered to meet with anyone, so I visited him. He didn’t know much about audit - and was very non-assertive - the opposite of Bowen. There was a scandal reported about Krongard in the last several months - staff auditors were saying he reduced audit coverage of Iraq. When I was there, there was only ONE State Dept. auditor that visited, and that was only for 6 weeks. Iraq contracting oversight will suffer greatly if Krongard gets the funding and authority. State’s auditors and staff are nowhere near the level of the retired GAO auditors working for SIGIR, and they don’t have independence like SIGIR does. I am a Republican, but this constant effort by the Republicans to try and bury legitimate business and management control problems in Iraq needs to be reversed. Don’t let them give oversight authority to State or EVER rely on USAID for the truth regarding spending (I was there in Iraq for 23 months, and learned a lot).

US Air Force Award for Tankers to Boeing Rebid due to Corruption

You probably have read that the Federal government and Air Force awarded a contract to a European organization for building new Air Force Tankers to refuel planes in flight. I didn't realize it was the SECOND award for the contract because the first one was to Boeing, and it was rebid due to discovered corruption.

Below is a Time Magazine article with some info about the issue (mostly at the end), followed by a detailed Corpwatch.com article describing the earlier corruption by Boeing in getting the original contract. In my opinion, Boeing doesn't deserve the contract after the lack of ethics they demonstrated in getting the original contract. SHAME, SHAME on Boeing. Send them to the corner stool like a bad kindergarten kid.

Note: The main point of the first article is about Defense Secretary Robert Gates blasting the Air Force for old world thinking. One issue I would add (my Dad was a career officer in the Air Force) is that when I was in Iraq in 2004-2006, the Air Force would only assign their people, even purchasing staff, to a THREE MONTH tour in Iraq, while Navy was 6 months, and Army was 12 months, and National Guard usually spent 12-15 months on a tour. My belief is THAT practice severely damaged many functions that the Air Force was involved in, because they were not there long enough. An example is the Iraq reconstruction program, which used many Air Force officers and enlisted personnel for procurement functions (in PCO for you Green Zone alumni). They were there for such a short time, they didn't have a clue how things worked - I had to work with several of them, and they harmed and delayed the reconstruction program procurement process.

In my opinion, the Air Force should be merged into the Navy, since they don't want to fight any war for the same period as the Navy or Army (or Marines).
vj

========================================================
from: http://www.time.com/time/nation/article/0,8599,1733747,00.html

Monday, Apr. 21, 2008
Why the Air Force Bugs Gates
By Mark Thompson/Washington

If Defense Secretary Robert Gates has his hands full fighting wars in Afghanistan and Iraq, he didn't show it Monday morning when he fired a volley at his own Air Force for doing too little in both war theaters. Gates' comments ricocheted at supersonic speed around the Pentagon and across broader defense networks, as officers — and contractors — tried to parse their implications. His bottom line: The Air Force ought to be less concerned with buying more $350 million F-22 fighters for use in future wars that may never happen, and do more to deliver what is needed to fight the wars currently underway "while their outcome may still be in doubt."

Gates, himself a former Air Force officer (he served from 1967-69 in the Strategic Air Command), told young officers at Maxwell Air Force Base that the nation needs new ways of thinking about warfare. Gates may still be smarting from the fact that when he was CIA chief in 1992, the Air Force refused to invest in a spy drone because it didn't have a pilot. The same kinds of disputes, most notably in the Air Force, persist today over Iraq and Afghanistan. "I've been wrestling for months to get more intelligence, surveillance, and reconnaissance assets into the theater," he said at the Montgomery, Ala., base. "Because people were stuck in old ways of doing business, it's been like pulling teeth. While we've doubled this capability in recent months, it is still not good enough."

To the horror of some in the Air Force, Gates cited the late John Boyd, who attained the rank of Air Force colonel, as an example young officers should emulate. Gates called him "a brilliant, eccentric and stubborn character" who had to bulldoze his way through the Air Force hierarchy to launch the F-16 fighter, now regarded as perhaps the best value in the skies. Gates lionized Boyd for telling colleagues they could think in traditional Air Force ways that "will get you promoted and get good assignments," or do the right thing "and do something for your country, and for your Air Force, and for yourself." The Defense Secretary added that "an unconventional era of warfare requires unconventional thinkers." Gates made clear change won't be easy for the Air Force, whose key victories, he suggested, happened long ago. "The last time a U.S. ground force was attacked from the sky was more than half a century ago," he noted, "and the last Air Force jet lost to aerial combat was in Vietnam."

Air Force officials, upset by Gates's comments, say they have given him as much surveillance capability as they have. And they suggest that his statements are based on a misunderstanding that stems from a dearth of Air Force officers at the highest levels of the Pentagon's Joint Staff. "This fight has been going on since 1947," when the Air Force was created, says one recently departed Air Force officer. "The Army always wants more [such assets] — they're never satisfied."

But the Air Force may have been its own worst enemy. A contract awarded to Boeing for a new fleet of aerial tankers had to be rebid after the corruption involved in the decision had been exposed; the new bidding process was won by a European consortium. Twice in the past year, the service seems to have misplaced sensitive nuclear components, including nuclear-tipped missiles that flew across the U.S. unbeknownst to the chain of command. Its chief of staff, General Michael Moseley, was implicated last week in a bizarre plot to steer a $50 million contract to friends to develop ground-based entertainment for use during shows by the Air Force Thunderbirds precision-flying team. Gates mentioned none of this in his speech at Maxwell. Instead, he said he had "raised difficult questions with, perhaps, difficult answers," and encouraged the young Air Force officers "to be part of the solution and part of the future."
- end -
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Details on Boeing corruption and scandal regarding Air Force tankers
from
http://www.corpwatch.org/article.php?id=11780

Boeing Scandal Part of Deeper Problems at Pentagon
by David Phinney, Special to CorpWatch
January 5th, 2005

View this photo

Darleen Druyun, former weapons buyer for the U.S. Air Force, checked into a special women’s prison about 50 miles from the Gulf of Mexico in the heart of Florida’s Panhandle region this week, for a nine month stay, after pleading guilty to giving Boeing special treatment on an $23.5 billion government contract.

Her crime? Violating conflict of interest laws. Druyun had been talking about possible job opportunities with Boeing at the same time she was negotiating a contract that would let Boeing pump up the price tag by $6 billion on a lease agreement for one hundred 767s tankers.

Soon after the deal was inked, a Boeing executive at the mammoth Chicago-headquartered aviation and aeronautics firm ushered Druyun into the company as a vice president with an annual salary of $250,000 after she retired in late 2002.

Once a Pentagon star, Druyun, 57, spent most of her adult life climbing the rungs of the male-dominated Pentagon where she publicly cultivated an image as a hard-knuckled bargainer on billions of dollars in defense contracts with the nation’s largest defense companies. She was called the "Dragon Lady," but behind closed doors Druyun exercised a much cozier relationship when spending $30 billion a year, she admitted at her sentencing last fall. Since 2000, she gave special consideration on other billion-dollar contracts awarded to Boeing, a company where her daughter and future-son-in-law were given jobs, Druyun told the court.

Touted by the news media as the biggest Pentagon scandal in decades, the Druyun story of a military company receiving preferential treatment over its competitors is not an isolated one. Motives of the individuals involved may differ, but one outcome remains a constant: military contractors with one foot in the Pentagon door are becoming increasingly embedded with the bureaucrats who give them lucrative work

Problems Old and New

Part of the pattern is age old. For decades there has been a constant revolving door where career government officials routinely retire from government into highly paid jobs with military contractors. Meanwhile, corporate executives take sabbaticals from their industry jobs to punch time cards in positions of authority at the Pentagon before returning to their old haunts.

Take Lockheed, the largest military contractor in the United States, for example. Men who have worked, directly or indirectly for the company, hold the posts of secretary of the Navy, secretary of transportation, director of the national nuclear weapons complex and director of the national spy satellite agency, according to a recent profile of the company in the New York Times. The list also includes Stephen Hadley, who has been named the next national security adviser to the president, succeeding Condoleezza Rice.

Politicians who have lobbied for Lockheed at one point or another include Haley Barbour, the governor of Mississippi and a former Republican national chairman; Otto Reich, who persuaded Congress to sell F-16's to Chile before becoming President Bush's main Latin America policy aide in 2002; and Norman Mineta, the transportation secretary and former member of Congress.

Today, a new trend has become more glaring. They are seen in the stark numbers of contracts – large and small – that are made without meaningful competition in the private sector to land the best deal for the war fighter and taxpayer. And after some contracts are signed, program managers are being found to use the agreements for services outside the scope of the original agreement – sometimes worth billions of dollars.

For some critics, such abuse is the consequence of a drastic reduction in staffing to manage contracts. Since 1989, the Pentagon’s acquisition work force has been cut by more than 50 percent — the most dramatic downsizing in the entire federal government, which reduced overall employment by 20 percent during the same time.

Contract supervisors in the field who regret the downsizing of this workforce believe less staffing simply results in more abuse.

“If you’re on a highway and there aren’t any police around, what does the public generally do?” asks one quality assurance specialist with the Defense Contract Management Agency (DCMA) in southern California whose job it is to monitor contractor performance. “They speed.”

“War on Terrorism” Spending Spree

Some of these contract abuses have coincided with the recent spending spree for the “war on terrorism” which has increased Pentagon spending on contracts from $267 billion in 2000 to an estimated $310 billion in 2004.

In June of this year, a report titled “Rebuilding Iraq,” prepared by the Government Accountability Office (GAO), found that $715 million out of $3.7 billion obligated for reconstruction before September 20, 2003 had been spent outside the purview of what the Pentagon and other agencies had originally hired the contractors to do.

“Of the 11 task orders we reviewed,” said GAO comptroller David Walker during testimony before the House Committee on Government Reform, “seven were, in whole or part, not within scope.”

Halliburton , the Defense Department’s 800-pound gorilla in Iraq, with its sweeping $10-billion contract for military logistics, was just one of the major defense contractors that benefitted from the practice. A quick $1.9 million deal to plan for fighting oil fires that Walker found "clearly out of scope" quickly morphed into another secret multi-billion-dollar order for rebuilding Iraq’s oil industry.

“All parties -- including GAO and DoD (Department of Defense) -- agree that repairing Iraq's oil infrastructure would not have been within the scope” of the contract, Walker said. He added that the original $1.9 million order for dousing oil well fires positioned Halliburton to clinch the multibillion-dollar contract for oil reconstruction in March 2003.

Pentagon officials claimed they were operating under emergency circumstances, but a barrage of public outrage forced the Army to put the deal up for open competition although the initially secret arrangement effectively grew to $2.5 billion in payments, half of which was then paid for with seized assets from Saddam Hussein’s toppled regime.

The GAO report only went so far. It never mentioned one of the most controversial agreements of the past year that allowed the Pentagon to hire private interrogators from a Virginia-based company called CACI to work at the Abu Ghraib prison through what was originally a database contract with the Department of Interior office in Arizona with an entirely different company. Several of these interrogators were implicated in the investigation of torture and mistreatment of prisoners in a classified Pentagon report that was leaked to the press last May.

Another investigation discovered that the Pentagon had exploited the Federal Technology Service (FTS), a government-wide clearing house for pre-approved technology contracts. Seventy-five percent of the $5 billion in sales that FTS does annually is with the military.

But the Pentagon was found to often use the FTS for purposes other than technology, such as construction and mental health services, or to carefully select a preferred contractor for agreements that sometimes grew by two, ten, and even 100 times over the original dollar value with no competition.

One Army contract through the FTS provided interrogators for the U.S. detention facility at Guantanamo Bay, Cuba, where prisoners are held as part of the war on terrorism. When the General Services Administration discovered in 2002 that the technology contract was being used inappropriately, the Army moved the contract with Affiliated Computer Services Inc., now a subsidiary of Lockheed Martin Corp, to another management agency at the Interior Department. (That same Interior agency, called the National Business Center, also managed the CACI interrogation contract for Abu Ghraib.)

Investigations of Affiliated Computer Services and CACI found no wrongdoing on the part of either company. Whatever happened to the Army officials who in wrongly ordered the interrogation services to be grafted onto technology contracts was never made public.

Moves in Congress to sever the Pentagon’s business with FTS were aborted last year after intense last-minute lobbying by trade groups representing military contractors.

Buy Native American

Military contractors have also recently been exploiting another major loophole to win lucrative contracts by partnering with corporations run by native American tribes, because tribal companies enjoy special status under law that allow them to receive contracts without first competing against other companies.

Recent news stories have reported that after landing the contracts, the tribal businesses – mostly Alaska native corporations – then frequently subcontract the work, according to writer Michael Scherer of Mother Jones magazine.

“The system was established in the mid-1990s to help native communities, where unemployment rates often exceed 40 percent,” Scherer notes in the January 2005 issue. “It has also become a way for large corporations with no Native American ownership to receive no-bid contracts, an avenue for federal officials to steer work to favored companies, and a device for speeding privatization.”

One tribal company, Olgoonik Corporation, won a $225 million contract for construction work on U.S. military bases and embassies, but much of the actual work is being done by Halliburton , Scherer reports. (See also Private Company Manages Daily Bombing of Korean Village)

The Los Angeles Times also recently identified two similar contracts worth as much as $1 billion signed with two small Alaska Native firms for security services as 36 military bases without competitive bidding. Part of the work was then subcontracted to two of the country's largest security firms: Wackenhut Services and Vance Federal Security Services, despite the fact that the same two companies both lost in contract competitions against other companies for similar security contracts, according to reporter T. Christian Miller.

Congressional Democrats have called for further investigation saying that such arrangements are “sleight of hand.”

Cutting Red Tape, Increasing Prices

Another challenge is the decade-long trend to reform the Pentagon’s acquisition regulations and culture so that private military contractors are considered trusted “partners” in the nation’s security rather than adversaries across the bargaining table who are to be closely supervised on performance and cost.

“What once was considered corruption is now considered standard operating procedure,” comments Danielle Brian, executive director of the watchdog group, Project on Government Oversight, known as POGO. “It’s depressing.”

POGO and similar groups have taken aim at a number of military contracting practices that have been put into place under the guise of acquisition “reform,” which lessen government oversight and provide contractors the opportunity to pump up charges.

One such reform allows the Pentagon to label weapons purchases as “commercial” buys, which waives close scrutiny of costs. The purpose behind commercial items was to cut red tape on purchases of common items such as office supplies, hardware and other items available to the public. But the Air Force took that practice a step further when it deemed the C-130J propeller driven transport plane as a commercial “off-the-shelf” item in 1995, despite the fact that the planes have never been sold commercially or even passed safety muster for the military missions they were designed for.

Since then costs for the plane have soared from $33.9 million each to $66.5 million apiece. The Air Force has spent $2.6 billion on 50 of these planes despite the fact that a recent report by the Pentagon’s inspector general blames Lockheed, the manufacturer, for 33 deficiencies in the planes including cracked propellers and faulty missile defense systems. (Druyun was part of the closed door meetings to approved the initial pricing on the plane)

“If it is deployed in combat, you are putting people's lives in danger,” said Ken Patellas on ABC News in November. Patellas, a DCMA engineer in Marietta, Georgia, has been warning the Pentagon for years about the problems. Ten years later, the Pentagon is finally considering canceling the C-130J program as a cost-savings move.

Isolated Circumstances?

Defenders of the status quo claim that each of these abuses are isolated and not reflective of the good work being done. Others find a growing need for concern over faulty contracts that overcharge and avoid competition that might deliver better value and pricing.

"Much of what's wrong is a perception, because people aren't getting the full story,” said the Pentagon’s top contract policy official, Deidre Lee, during a lengthy interview last summer at her Pentagon office. Tacitly expressing frustration with the news media, she added: “You don't hear about the 90 percent of the people or the 99.5 percent of the people who are using these things right and properly, getting better services at the right price and doing a good job.”

Angela Styles, the former head of procurement policy for the Bush administration, who resigned last year, disagrees.

“It’s not isolated, it’s a trend,” she says, believing that many of the acquisition reforms have led to sloppiness and sometimes fraud. She also has problems with the Pentagon culture that views contractors as business partners instead of companies with their own self interest.

“In business, you don’t view your contractors as partners,” she said. “You hold them at arms length.”

That is a lesson that Darleen Druyun may now be learning as she settles into her temporary new home in Marianna, Florida.

David Phinney may be contacted at phinneydavid@yahoo.com

Saturday Night Live Skit on Petraeus Hearings on Iraq

This SNL comedy skit contains a segment on Iraq Corruption and appeared Saturday night, April 12 and was posted on the new website Hulu.com which gets many of the SNL skits after they appear on TV. The skit was timely because it appeared one day before CBS's 60 Minutes showed their update on Iraq Corruption (which we described in a recent post.)

The skit ( Cold Open: Petraeus Hearings ) contains a segment on the status of Iraq corruption which is funny because most is true. There are also segments with questions from Hillary Clinton, Barack Obama and John McCain, including arguments about whose book is best.

SNL skit on Petraeus Hearings

vj

Iraq Cracks Down on Gas Station Fraud - maybe?

Iraq is notorious for being a socialist country that subsidizes food and utilities for citizens. When I was there in 2004-2006, there was constant discussion about the need for the government to reduce subsidies for food, fuel and utilities and let the prices rise to market conditions. That still hasn't happened.

Thus, as the article below illustrates, the very low cost for gasoline at the pumps has created two problems:

1) There is more demand than the supply of gas pumps, so there are always lines at the gas stations, creating a demand for black market sales of fuel to avoid lines. Most articles on fuel shortages in Iraq fail to mention that there were very few gas stations under Saddam, and when the Coalition invaded Iraq and allowed importing of over 1-million new (or stolen) cars, the demand for fuel went up, but very few new gas stations were constructed. Thus the apparent "shortage" is really a lack of service facilities.

2) Buyers get the gas and sell it on the black market for more money, or they transport it across the border into Iran or other countries to sell the gas for market prices.

The article mentions the BIG spread between legal and black market prices of kerosene. One reason is that almost all Iraqis own generators to provide electricity when the electrical grid is down (which could be 80% of the time due to terrorist damage). One of my translators told me in 2005 about how he had to wait in line almost every day after work to buy jerry cans of kerosene to run his generator at home to provide air conditioning for his new child.

The article says they government is cracking down on allowing anyone like local militia to sit by the gas stations and control who gets gas (maybe after paying a bribe?). Or, is it that other local politicians are angry that they aren't getting a cut? You never know in Iraq.

Finally, if the US government and the State Dept. was on the ball, they would insist on vetted controls to ensure fuel was sold democratically in lines without bribes, etc. But we don't, and we keep providing funds to repair fuel facilities so the Iraqis can skim more fuel for sale on the black market.
vj

===================================================
from AP at:
http://ap.google.com/article/ALeqM5jd63v4MNhSHNyWn-yZUOSGqT627wD9016CCG0

Iraq Orders Gas Station Crackdown

By SAMEER N. YACOUB – 21 hours ago

BAGHDAD (AP) — The Iraqi government on Sunday announced plans to crack down on militiamen controlling gas stations and oil distribution in a new move to curb the resources of armed groups.

Iraqi Prime Minister Nouri al-Maliki has given instructions to ban the interference or presence of any unofficial people at state-run and private gas stations, refineries and oil distribution centers, according to a government statement.

"Anyone who interferes in the supply, pricing and working hours mechanisms or who charges money will be subjected to law," the statement said.

It is widely believed that gas stations and distribution centers, especially in eastern Baghdad and some Iraqi southern provinces, are covertly controlled by Shiite militiamen dominated by radical cleric Muqtada al-Sadr's Mahdi Army.

They in turn make large sums of money by selling smuggled gas and kerosene on the black market.

Gas costs about $1.50 per gallon at gas stations and about $2.53 per gallon on the black market — usually vendors peddling it from jerrycans on the side of the road so motorists can avoid long waits and shortages.

Kerosene is sold for 50 cents per gallon through official channels and $3.37 on the black market.

The decision came after bloody fighting between government security forces and militia groups believed to be involved in oil smuggling in the southern oil-rich city of Basra.

"These are part of our continuous efforts to protect our national resources from manipulators and those who make fortunes at the expense of public money and in order to free resources from corruption and smuggling and to combat crime," said the statement.

The statement said the national oil and interior ministries would coordinate on the necessary measures to prosecute the violators "involved in such actions that deemed as economic sabotage."

Iraqi troops were sent in the past to keep militiamen away from gas stations, but they failed to end the problem.

60 Minutes Show has Update on Iraq Corruption

The CBS 60 Minutes news show published their first investigation segment by Steve Kroft on corruption in Iraq in 2006, and included interviews with Judge Radhi, who I worked with in Iraq when working as one of several US Advisors in setting up the Iraqi Anti-corruption agency, Commission of Public Integrity (CPI).

Now, 60 Minutes and Kroft have published an update on Iraq corruption, again interviewing Judge Rhadhi who is now living in the Washington DC area awaiting approval for political asylum. Several of us from CPI were contacted in the last two months about this show, and we knew it would be released yesterday, Sunday, April 13.

My favorite quotes from Kroft's interviews:

Asked if this is known and condoned by Prime Minister Maliki, Mattil said, "It's known and tolerated by the prime minister and other officials within the government."

"And they're aware of the level of corruption?" Kroft asked.

"Yes," Mattil said. "They would have to be."

Below is the link to the actual segment on the CBS website - a major point is they talked to two known, accused corrupt individuals, one living in London, the other in the US, and neither has been prosecuted.
vj

If the above embedded link does not work, here is the direct link to the CBS webpage:

http://www.cbsnews.com/sections/i_video/main500251.shtml?id=4011963n

And, below is the text from the story:

Iraq: State Of Corruption
April 13, 2008(CBS) General David Petraeus, the top U.S. commander in Iraq, told Congress this past week that there has been substantial progress, but not enough to begin withdrawing American troops. There are questions about the readiness of the new Iraqi army and the competence of Prime Minister Nouri al-Maliki's coalition government, which is fraught with ethnic and religious divisions.

Electricity is still in short supply, medicines are available mainly through the black market, and there are long lines for fuel in a country that has the third largest oil reserves in the world. One of the biggest problems is corruption, which is robust even by Middle Eastern standards. According to U.S. and Iraqi officials, bribery and outright theft are flourishing in virtually every Iraqi ministry, and some of those ill-gotten gains are being used to kill American troops.

This story begins 18 months ago, in the fall of 2006, when correspondent Steve Kroft first reported that more than a billion dollars from the previous Iraqi Defense Ministry had been wasted, stolen or misappropriated. The money was supposed to supply the new Iraqi army with desperately-needed equipment to fight the growing insurgency. But according to audits conducted by the Iraqi government, and to Judge Radhi al Radhi, Iraq's top anti-corruption official, millions were misspent on old and antiquated equipment and the rest simply disappeared.

Judge Radhi told Kroft that he estimated that "more than half" of the $1.3 billion had been stolen. "As we hear from some friends abroad, that they never heard of such corruption and embezzlement to such a degree," he said.

Radhi, who was imprisoned and tortured under Saddam Hussein, obtained arrest warrants for the former minister of defense and his top aides, who all fled the country. As Iraq's commissioner of public integrity, Radhi had one of the most dangerous jobs in the country. He launched investigations against 20 current and former ministers, alienating the political establishment to the point that parliament tried to fire him. He had 30 body guards and received constant death threats.

To the remark that lots of people would like to see him dead, Radhi told Kroft, "I don't care. That's their problem."

That was in 2006.

Today he's living with his extended family living in a small apartment with donated furniture in the suburbs of Washington, D.C. The most public figure in Iraq's battle against corruption had finally been driven out of his job and his country and is now a refugee seeking asylum in the United States.

He showed Kroft pictures of some of the 31 members of his staff who were murdered. One was killed with his pregnant wife; the father of his security chief was found hanging on a meat hook.

"When we first interviewed you, I said, 'Look. There are all sorts of people that want you dead.' And you answered, 'I don't care,'" Kroft remarked.

"But this threat is now against my family too," Radhi said, with the help of a translator.

Asked what made him believe that his family was in danger, Radhi said, "At the end of July, a missile was fired at my home. It fell about five meters away. It hit another house next to mine, and of course my family was terrified."

"And it got to the point where his adversaries were left with few other options. But to possibly remove him, period," explained James Mattil, who was the chief of staff of the State Department’s Office of Accountability and Transparency in Iraq.

It was his job to assist Judge Radhi to clean up corruption in Iraq. And Mattil believes Radhi did a good job given the resources at Radhi's disposal and the scope of the problem, which was outlined in a draft report prepared by the State Department.

"According to the report, these are some of the ministries where corruption seemed to be rampant: the Ministry of Interior, the Ministry of Defense, Ministry of Trade, Ministry of Health, Ministry of Oil, Ministry of Education, Ministry of Water Resources, Finance, Electricity, Labor, and Social Affairs, Displacement and Migration, Science and Technology. I mean, what's left?" Kroft asked.

"I was gonna ask you that. Okay? It's pretty much across the board in every ministry," Mattil replied.

Mattil says shortly after the unclassified report was leaked to the press last summer, the State Department decided to make it classified.

Asked for what reason it was classified, Mattil said, "The embarrassment factor, I would think."

But the State Department's decision to try and bury the report didn't change the facts in Iraq. In some cases, Mattil says the corruption involves outright theft of government funds, or bribery, with some of the money finding its way into the hands of insurgents or Iraqi militias.

"In other cases, it is the militias and insurgents themselves who control some of the ministries, who are involved in the corruption and funding their activities through these actions," Mattil said.

Asked if this is known and condoned by Prime Minister Maliki, Mattil said, "It's known and tolerated by the prime minister and other officials within the government."

"And they're aware of the level of corruption?" Kroft asked.

"Yes," Mattil said. "They would have to be."

"The point that must be clear is that that the American and the Iraqi funds are now going to the militias. And both Iraqis and the Americans are being killed with that. And this is the big problem," Radhi told Kroft.

The situation got so bad, Radhi says his investigators could not even enter certain government buildings.

Asked if his investigators were allowed Ministry of Health, Radhi said, "They entered the ministry and they conducted their investigations. But they were threatened to be kidnapped."

So they stopped, and Radhi said the same thing happened with the Ministry of Oil.

"These are ministries of the Iraqi government," Kroft pointed out.

"This is the reality," Radhi replied.

Another reality is there are few deterrents to corruption at the highest levels. Former Defense Minister Hazem Shaalan and his deputy Ziad Cattan were both convicted in absentia for their role in the Ministry of Defense scandal. And both are now living comfortably abroad.

Back in 2006, Kroft interviewed Cattan in Paris and played him recordings in which he discussed what sounded like a pay-off to someone described as a representative of the president and prime minister of the interim government.

"He wants to know...," Cattan said on the audio recording.

"He wants to know how much they are going to place in his account …?" the associate asked.

"Yes, of course," Cattan replied.

"How much?" the associate asked.

"45 million," Cattan said.

"He wants to know how much money is gonna be placed in his account and you say …'45 million,'" Kroft told Cattan.

"Yes. But not dollar. I don't say dollar," Cattan replied.

Asked what currency or units he was talking about, Cattan told Kroft "I don't remember."

"Well, you're gonna give him 45 million of something," Kroft pointed out.

"Yes," Cattan acknowledged. "But, I don't remember what the matter was."

Warrants for the arrest of Cattan and former Defense Minister Shaalan have been sent to police agencies around the world, but there is not much chance of them being picked up and sent back to Iraq.

The same goes for former Electricity Minister Aiham Alsammarae, an Iraqi-American businessman who got himself tangled up in the hot wires of Iraqi politics, and now faces prison time for mismanaging public funds. Alsammarae somehow escaped from Iraqi custody and made his way back to his home near Chicago. The only problem Kroft had finding him a few months ago was getting past the snowdrifts.

"I'm sitting here looking at a wanted poster from Interpol for Aiham Alsammarae, born 1951, Baghdad. Height: 1.9 meter, 75 inches, weight: 200 pounds,. This looks very much like you," Kroft said.

"Well it is me, but it is wrong because it is issued by Iraqi government based on false information," Alsammarae replied.

"You're not expecting the U.S. marshals to come in here and arrest you some day and send you off to Iraq to stand trial?" Kroft asked.

"Well, I will be so surprised if that happen in the States. Did I do anything wrong in United States? No. Did I pay my taxes, every penny, every year? Yes," he replied.

"Well, you're an international fugitive," Kroft remarked.

"The world is full of innocent victims. I am innocent and I will prove it," he vowed.

But there are indications that Alsammarae may have some problems here in the U.S.: his name has surfaced in connection with the corruption trial of his old friend, Chicago real estate developer Tony Rezko.

In a closed-door session, federal prosecutors reportedly accused Rezko of bribing Alsammarae in order to obtain an Iraqi electricity contract. Alsammarae denies the charges and says he's doing everything possible to clear his name, short of going back to Baghdad where he says he will be killed, perhaps by Iraqis who are only getting a few hours of electricity every day, despite billions of dollars of investment from the U.S. and Iraqi governments.

In the months before he left Iraq, Judge Radhi and his commission on public integrity began getting more and more interference from Prime Minster Maliki.

"He wrote a memo saying we could not recommend pressing charges against anyone from the president's office or from previous or current ministers," Radhi explained. "Who is corrupt in the ministries if it's not the ministers themselves? If we don't recommend they be tried, then corruption will stay as it is."

According to James Mattil, Radhi's former advisor at the State Department, the memo prohibited investigations of current or former high level Iraqi officials without the permission of the prime minister himself.

"It basically put a stop to any anti-corruption activities within the Iraqi government. And it came directly from the prime minister's office," Mattil said.

"So the only way the prime minister could be investigated for corruption would be if he signed off on his own investigation?" Kroft asked.

"Correct," Mattil said.

"So he'd have to be corrupt and stupid?" Kroft asked.

"Yes," Mattil replied.

Mattil told Kroft he had seen the memo and shared the information with his colleagues at the State Department immediately.

Asked what the reaction was when he showed it to them, Mattil said, "None, that I am aware of."

But it did get some reaction in the U.S. Congress when Radhi, seeking asylum in the United States, was called to testify before the House Oversight Committee.

Chairman Henry Waxman grilled Secretary of State Condoleezza Rice about Radhi's allegations.

"Well, this is a big deal. This is the prime minister of the country," Waxman said.

"I agree with you; it’s a big deal," Secretary Rice replied.

"It’s his government that we are propping up with the lives of our soldiers and the billions of dollars of our taxpayers' money," Waxman said. "Prime Minister Maliki has issued an order saying that he may not be investigated, nor may his minister be investigated for corruption, which means they are immunized from the investigation. Are you aware of that order? And does it trouble you that such an order has been issued?"

"Well Mr. Chairman, I will have to get back to you. I don’t know precisely what you are referring to," Rice said.

Six months later, Waxman's staff was still waiting for an answer. But a State Department official and a representative of the Iraqi government told 60 Minutes corruption is not condoned and fighting it remains a top priority.

After Radhi left Iraq, the prime minister went on TV and accused him of corruption.

"Did you bring a lot of money with you when you came from Iraq?" Kroft asked.

"Nothing but my last salary," Radhi replied.

Asked how he was getting by, Radhi said, "Actually with the help of American friends."

Until Radhi's asylum application is approved, he's unable to work. These days, he is getting most of his news on Iraq from television. The Maliki government said 2008 would be the year of fighting corruption.

"You don't think this is gonna be the year of fighting corruption?" Kroft asked.

"I think that this year will be more corrupt," Radhi predicted.

Produced by Andy Court and Keith Sharman
© MMVIII, CBS Interactive Inc. All Rights Reserved.

Chinese Party Boss Sentenced to 18 Years for corruption but not death

About 10 years ago, China set up their first "social security" funding system, and now political leaders are getting caught looting the funds for personal projects or funds. The articles below describe how the normal penalty of death for corruption was waived for the former Communist Party chief in Shanghai. His methods of extracting funds, including investing in shell companies, is one that was used prior to the1980's by union leaders in the US who controlled the union pensions (now much more controlled).

The last entry in the AP article describes how a new anti-corruption bureau in China had their website overrun by users the first day with people wanting to read more how to report corrupt officials. That is the type of model the Iraqi Commission of Public Integrity was formed on, but the Iraqis replaced the honest commissioner with a tainted one last year.

Anti-corruption success in China will depend upon an increasing support for the anti-corruption bureau and an increasing number of public prosecutions. In Iraq, there are many prosecution cases waiting in the courts, but no high level officials have been prosecuted and sentenced yet, so China seems to have more progress than Iraq.
vj

============================================================
from the latimes.com and the 2nd article below is from the AP

http://www.latimes.com/news/printedition/asection/la-fg-shanghai12apr12,1,5355897.story
From the Los Angeles Times
Former Communist Party chief in Shanghai sentenced for corruption
The graft charges are part of a massive pension fund scandal that toppled dozens of officials and business people.
By Don Lee
Los Angeles Times Staff Writer

April 12, 2008

SHANGHAI — The Communist Party's former chief in Shanghai was sentenced Friday to 18 years in prison for graft in a massive pension fund scandal that toppled dozens of officials and businesspeople and exposed some of the corruption behind the development of China's richest and most glamorous city.

The official New China News Agency said Chen Liangyu, 61, was convicted of extorting or accepting bribes of more than $340,000 and abusing his position. The court in Tianjin, where a secretive trial was held last month, also confiscated about $43,000 of Chen's personal assets, the news agency said.

The sentencing was the culmination of an investigation that began in mid-2006 into Shanghai's multibillion-dollar social security fund, which Chen and others misused for personal gain. Government prosecutors also accused Chen of using his power to benefit his family, friends and underlings, who took bribes from developers and other businesspeople in the form of salaries for phantom jobs, apartments and trips overseas.

Once a national Politburo member and one of China's most powerful men, Chen was ousted as Shanghai's party boss in September 2006 -- the highest-ranking official to be purged in more than a decade. It wasn't the bribes per se that got Chen in trouble, analysts said; in fact, the amount he was forced to give up was insignificant. Rather, they said, his downfall was due to his open defiance of central government orders to curb speculative real estate development that was fueling an overheating economy.

Chen's lawyer, Gao Zicheng, declined to comment. "I could only say that the procedure is legal," Gao said in a telephone interview. "Whether there is an appeal or not depends on Chen's personal will."

Rumors had swirled in recent days that Chen could receive a more severe punishment, possibly even death. But some analysts had expected him to get a lighter penalty, something closer to 10 years, partly because of the risk of fostering a brutal climate for the Communist Party's political elite.

"I was shocked this guy got 18 years," said Minxin Pei, director of the China program at the Carnegie Endowment for International Peace in Washington. "That sends out a very strong message. It's not just about corruption. It's about asserting central government authority. It says to local officials, 'No matter how strong you are, don't mess with us.' "

Corruption has been a long-standing problem in China, exacerbated by market reforms that have given local governments greater power and avenues to wealth, largely by exercising control over real estate. Beijing has conducted numerous anti-corruption campaigns over the years, but it has struggled to corral party officials in a system in which patronage and local political machines are hard to break.

In the last five years, nearly 15,000 officials, including 35 at the provincial or ministerial level, were investigated for embezzlement, bribery and misappropriation of public funds, China's top prosecutor said in a report last month.

Chen had built a strong political base in Shanghai over 10 years as a district head, mayor and then the party's secretary here from 2002 to 2006. Trained as an architect, he was said to have been protected by Jiang Zemin, China's former leader whose power base was Shanghai.

Hu Jintao replaced Jiang as president in 2003, and the removal of Chen was seen by some as Hu's way of eliminating a political enemy and consolidating his power.

Chen's fall from grace elicited comparisons to Chen Xitong, the onetime party chief of Beijing and a member of the Politburo who, under Jiang's maneuverings, was ousted in 1995 for corruption. Three years later, Chen Xitong was given a 16-year jail term but was released in 2006 for medical reasons.

Chen Liangyu has been held in Qincheng Prison in Beijing's northern suburbs. During his incarceration, some real estate projects in Shanghai were reported to have been put on ice, and some developers were said to have gone into hiding.

Chen's sentencing came after a closed trial in Tianjin No. 2 People's Intermediate Court, the second-lowest court in the Chinese legal system. No journalists or family members were allowed inside for the proceedings March 25, according to Caijing magazine, a respected publication in Beijing.

In addition to four charges of taking more than $340,000 in bribes, Chen faced two counts of abuse of power and a charge of dereliction of duty, the magazine said.

New China News Agency said Chen had helped some businesses obtain fiscal subsidies or compensation for building demolition, as well as in dealing with unused real estate. The news agency said Chen had urged his family members to return all the illicit money after the case against him was launched.

Charges that Chen abused his power were tied directly to his role in the funneling of Shanghai's pension money to developers and other companies for hotels and other projects. Dozens of Shanghai officials and businesspeople have been implicated in the scandal, and a number of them have been jailed. On Monday, Zhang Rongkun, once one of the richest men in China, was sentenced to 19 years in prison for securing loans from Shanghai's pension plan for use in his company's private investments in a toll road.

With Chen's sentencing, observers said, the Shanghai pension fund case is essentially closed. As a result of the scandal and the ensuing probe, officials scrutinized other such funds in China. Analysts said it wasn't clear how much of Shanghai's social security money that was put at risk was lost or recovered.

don.lee@latimes.com
====================================================
from the AP
http://ap.google.com/article/ALeqM5joRKgqff5aaQCr72TS6czPMdZ0UQD8VVP0780

Ex-Shanghai Party Boss Gets 18 Years

By CARA ANNA – 20 hours ago

SHANGHAI, China (AP) — China sentenced the former Communist Party chief of the country's financial capital to 18 years in prison Friday, but spared him the usual punishment for serious economic crimes — death.

Chen Liangyu, who had been a member of China's powerful 24-seat Politburo, was the highest-level Chinese official to be purged in a decade. Like most high-ranking officials, however, Chen avoided the death penalty.

"This is what I suspect they see as a reasonable compromise," said Steve Tsang, a China expert at St. Antony's College at Britain's Oxford University. "A strong message was sent out, yet it protects current and former members of the Politburo from the full price they have to pay for certain crimes in China."

Chen had been accused of being at the center of a scandal involving the misuse of a third of Shanghai's pension funds — a case that highlighted Beijing's troubles in keeping corrupt officials from looting social security funds set up only a decade ago.

The official Xinhua News Agency said Chen was jailed "for taking bribes and abusing power." It said the Tianjin No. 2 Intermediate People's Court showed leniency because the 61-year-old Chen "showed remorse" and returned the money.

Chen's lawyer, Gao Zicheng, indicated Chen would appeal. "If Chen appeals, it's not over," he said before hanging up.

Chen showed no emotion in court footage aired on state-run China Central Television. It was his first appearance on state-run TV since he was summarily dismissed from his posts in 2006.

The party chief in Shanghai, China's commercial and financial capital, is one of the country's more powerful posts. Chen's removal signaled President Hu Jintao's growing power within the factions that comprise the party's collective leadership. The man who replaced Chen, Xi Jinping, has already been promoted again and is widely seen as being moved into position to succeed Hu.

The Shanghai scandal saw more than an estimated $400 million in pension funds improperly invested in real estate and toll road projects that included Shanghai's new Formula One race track. More than 25 local officials have been detained in the investigation.

Chen used his influence as party boss in 2004 to channel $120 million in social security funds to an unidentified company, Xinhua said citing court documents.

At the center of Chen's rise and fall lay real estate deals, a driver of Shanghai's fantastic growth. The court found him guilty of extorting money accepting bribes of more than $340,000 from organizations and individuals over an 18-year period from the time he headed one of Shanghai's districts in 1988.

Among Chen's crimes, Xinhua said, were funneling land to his brother to develop, getting a new house for his father and arranging a deputy general manager's job for his son at the local soccer team, the Shanghai Shenhua Football Club.

Tsang, the China expert, said the reported amount was almost certainly far less than Chen actually took and was fixed by political bargaining.

"The party boss of Shanghai guilty of a quarter million dollars' worth of bribery? Of course it's too little! Come on, give me a break," Tsang said, adding that the sentence was clearly politically decided.

The court on Friday also confiscated $43,000 of Chen's assets.

Corruption is a popular topic in China. In December, a Web site created by China's newly created anti-corruption bureau crashed after barely a day because too many visitors tried to log on to register complaints.

In 2006, the vice mayor of Beijing who oversaw Olympic construction projects was fired and expelled from the Communist Party on charges of bribery, though Beijing officials insisted Liu Zhihua's alleged misdeeds had nothing to do with Olympic projects. He has yet to be put on trial.

At the same time, China installed a new supervisor for construction projects for the Beijing Olympics as part of efforts to prevent corruption. In January 2007, China's top auditor said fighting corruption in construction projects for the Olympics would be a priority.

Last year, nearly 2,000 local government officials were either disciplined or charged with crimes, the Xinhua News Agency reported in late December, citing the Communist Party's organization department.

"Ah, what country doesn't have corruption?" asked a woman selling pirated DVDs on a Shanghai street after being told of Chen's sentencing.

"What can I say about this? Are they going to take the money and give it back to the people? Ha! I don't think so," said the woman, who gave her family name as Zhang.

Iraq Corruption losses during five years reached 250 billion dollars

This is from an Iraqi news source. I am not sure if this is the new head of the Commission of Public Integrity, or another central Iraqi committee. The reports describes losses, but no improvements in Iraq systems or prosecutions.
vj

===============================================
from an Iraqi news website:
http://www.alsumaria.tv/en/Economics-News-Iraq/3-16421-Iraq-losses-during-five-years-reached-250-billion-dollars.html

Iraq losses during five years reached 250 billion dollars
Friday, April 11, 2008 12:50 GMT
In the fifth anniversary of the former regime fall, head of Integrity (Al Nazaha) committee, Judge Moussa Faraj revealed that Iraq’s losses during these five years have reached 250 billion dollars due to financial and administrative corruption. In statements to Al Hayat Newspaper, Faraj considered that the ministerial council general secretariat is the most dangerous source of corruption after canceling the economic affairs committee which authorities were transferred to the General Secretariat. Faraj clarified that Iraq has lost during this period as well 45 billion dollars from crude oil smuggling and another 45 billion dollars from oil derivatives in addition to burning out 600 million square meters of gas per year without benefiting thereof. He noted that during the last five years, no refinery was built up despite alluring offers from world companies to implement such projects.

Uk Accused of Failing to Implement Anti-Bribery Activities

The UK has always been a laggard in implementing or enforcing anti-corruption or anti-bribery regulations. In the 1970's, I worked for a US construction materials firm that was bought out by a large UK firm. We were in a price war in one Texas market, and the new President appointed by the UK parent company asked why were we dropping a price to compete? Why didn't we just get around a table with the competitors like the UK folks do, and decide a market price to be used by all, and decide on the market share for each firm? They had no concept of anti-trust regulations. We had to send him to a two day crash course on US anti-trust laws and pro-competitiveness training.

The article below give a good idea of the still existing UK resistance to dropping the right to bribe someone to get business. Thus, if you have a competitor from the UK, watch out for bribes they might pay to the decision maker (just like the middle east). And, now you know why many bribe taking Iraqi's escape to live in London. They don't really fear much prosecution.
vj

=======================================================
from
http://www.independent.co.uk/news/business/news/the-pressure-mounts-on-britain-to-stamp-out-the-brownenvelope-culture-805110.html

Independent.co.uk
The pressure mounts on Britain to stamp out the brown-envelope culture

After the dropping of the BAE-Saudi case, other bribery and corruption probes are moving slowly, and international authorities wonder if we mean business in tackling corporate kickbacks. David Connett reports

Sunday, 6 April 2008

Britain's woeful record in combating bribery and corruption is again in the spotlight after an OECD team arrived in London to examine why we are failing to bring prosecutions against UK firms accused of kickbacks and graft.

The Government's record was put under microscopic scrutiny as the OECD sought reassurance about the UK's commitment to fighting bribery and corruption after the controversial decision to halt the BAE/Al-Yamamah inquiry. The review team, led by French and Canadian judges, closely questioned officials and investigators last week about the decision to abandon the probe into the Saudi arms deal.

In particular, they were seeking assurances that the parliamentary claim of former Attorney General Lord Goldsmith – "no company is above the law" – was more substance than spin.

Britain has come under intense pressure to improve the way it tackles corruption after the worldwide outcry sparked by the dropping of allegations that BAE bribed senior Saudi officials to win a lucrative arms deal. The decision to stop the Al-Yamamah investigation on national security grounds alarmed the OECD, whose last two reports have been critical of UK efforts to combat payola.

The OECD is particularly critical of the Government's failure to introduce modern anti-bribery legislation and of the continuing lack of any prosecutions. The concerns have been underlined by the fate of a second overseas corruption investigation. The case, which would be the first brought by the Serious Fraud Office (SFO), has been delayed in the Attorney General's office for more than five months.

Last October the SFO recommended pursuing Vuc Hamovic, the chairman of London-based firm Energy Financing Team. Mr Hamovic, a British-Serbian national, has been questioned as part of an investigation into energy deals and the fate of £6m of aid money given to the Balkans to finance better electricity supplies after the war in Bosnia.

The Attorney General's office insists it is not stalling on the case. A spokesman for Energy Financing Team said the firm had been told no action would be taken and that it was confident Mr Hamovic had no case to answer.

Among those questioned last week was Robert Wardle, outgoing director of the Serious Fraud Office. The SFO has been given the lead role in handling foreign bribery allegations and has created a special unit to vet them. The Government has given it £22.8m to investigate UK involvement in a sanctions-busting scandal. More than 70 British firms are implicated in a UN report that claims thousands of international companies paid kickbacks to Saddam Hussein's former regime in Iraq under the discredited oil-for-food scheme. Lord Goldsmith pledged the money as he was defending his decision to Al-Yamamah inquiry.

The SFO has indicated, however, that it expects the alle- gations, if proved, would generally not constitute foreign bribery offences under UK law and would be prosecuted on other grounds.

The OECD was keen to quiz Mr Wardle about his role in the Al-Yamamah decision and about the need for better laws to take on companies and business people who bribe to win contracts.

Britain prosecutes bribery under a confusing mix of common law and statutory offences. The Crown Prosecution Service has abandoned using one of the main laws – the 1916 Prevention of Corruption Act – after concerns about its compliance with the Human Rights Act. Lawyers and investigators now rely heavily on clauses in the Anti-Terrorism, Crime and Security Act 2001, which specifically outlawed bribes made outside the UK, or involving foreign agents with no connection to the UK.

The Law Commission is currently reviewing bribery law and is expected to produce a draft Bill in the autumn. This is the main reason why a draft Corruption Bill introduced by Lord Chidgey in 2006 was quietly strangled by denying it parliamentary time, according to Whitehall sources.

Detective Chief Superintendent Steve Wilmott, head of the City of London Police's Economic Crimes Unit, was also questioned by OECD investigators.

The City force has set up one of the world's first dedicated units to investigate allegations of overseas corruption involving UK firms. Originally conceived to probe seven or eight cases a year, it currently has 26 ongoing inquiries. The 10-strong team has been further boosted by funding of more than £100,000 from the Department for Business, Enterprise and Regulatory Reform, for more officers to cope with the extra caseload.

Det Ch Supt Wilmott has dismissed suggestions that the UK is reluctant to deal with overseas corruption. "Within 12 months of government funding, we have taken on 26 cases. We had arrested suspects within six months. I am confident it is only a matter of time before we achieve a successful prosecution. There is no question of a lack of commitment on our part."

Not all the evidence the OECD team heard was so positive. Sue Hawley, director of Corner House, the campaign group for social justice, said: "I should think they [the OECD] have little to be impressed about. It has been five years since their first report and the Government has done little to respond to their concerns. In fact the only thing the Government has really done is introduce a new draft constitutional Bill which will give the Attorney General a new power to halt bribery prosecutions on national security grounds."

Corner House, along with fellow pressure group Campaign Against the Arms Trade, launched a legal challenge to review the SFO's decision to abandon the Al-Yamamah investigation. They expect to learn this week whether their challenge has been successful. If they are, ministers may find themselves in the dock yet again.
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