Treasury's War Read online

  In April 1995, the United Nations altered the sanctions regime in a fundamental way to allow for the sale of Iraqi oil when it created the Oil for Food (OFF) program.3 The aim was to allow the country to feed itself with the proceeds of its oil exports. Iraq could export oil at fair-market value and be paid in escrow, with its new line of credit allowing the government to purchase food and medicine. What the United Nations actually created was a trading regime that allowed Saddam Hussein a new mechanism to pump money into his regime and profit personally. The Iraqis manipulated the price of oil and humanitarian goods, collecting surcharges and kickbacks on each exchange. From 1997 to 2001, Saddam and his regime raised $10.1 billion in OFF-related illegal revenues.4

  Saddam used the revenue to pay his loyalists, the army, and himself. He spent lavishly on his pleasure palaces in Baghdad, which were built with the kind of faux luxury reminiscent of a gaudy nightclub in Atlantic City. A 1999 State Department report estimated that Saddam had spent over $2 billion on fifty new palaces since the first Gulf War.5 Saddam would order the purchase of teakwood from Burma, in violation of sanctions, for use in his palaces. Those palaces would soon become the dormitories and offices of the US troops and officials who would occupy Iraq. Saddam also used money to buy allegiances and build relationships with those who were willing to skirt international sanctions to profit from the trade in Iraqi oil. Although years of harsh sanctions had successfully contained some of his most grandiose and dangerous regional ambitions, Saddam, like many other autocrats, had learned to use the system to his full benefit.

  The Iraqi regime established elaborate front companies and wantonly abused the immunity of the diplomatic courier system to deliver currencies and goods in diplomatic pouches from the international market to Baghdad and Saddam’s inner circle.6 The Iraqis accumulated the money from Saddam’s various schemes at Iraqi embassies, or deposited it into bank accounts in the region, later to be withdrawn in cash. This cash was then transported back to Iraq, and some of it was deposited into the vault of the Central Bank of Iraq. Iraq’s embassies became a hub for managing Iraq’s money movements, commercial relationships, and acquisition programs.

  Money also bought weapons and restricted technologies. The Iraqi Intelligence Service was heavily involved in the international illicit procurement network during the sanctions period. It set up front companies in Iraqi embassies worldwide to make contact with business officials for sales and investments in Iraq and the acquisition of dual-use technologies. According to the Duelfer Report, which in 2004 delineated the findings of the US government’s investigation into the issue of weapons of mass destruction in Iraq, Iraq’s illicit procurement program was so successful that it undermined regional support for sanctions enforcement.

  Saddam also used the sanctions system and the OFF program specifically as strategic, diplomatic leverage. The OFF program gave him enormous influence over those in the international system who were hungry to make money in Iraq. In negotiations with the United Nations, Iraq won the right to determine who its customers and vendors would be. The Iraqi government manipulated the selection of companies who received contracts and “vouchers” for the program to increase its influence in international politics and to push for further easing of the sanctions regime against it. It also sought elaborate kickbacks from the buyers in exchange for the opportunity to do business with Iraq. All of this defanged the effects of the sanctions.

  Like many dictators, Saddam did not organize and control every element of his financial empire directly or by simply doling out cash. Instead, he offered his sons, Uday and Qusay, along with other family and tribal members and loyal ministers, business opportunities and the corruption attendant to that trade. Like a Mafia don, he allowed control of different industries and sectors within his country. He handed the most lucrative commercial sectors—such as the religious tourist trade and cigarette smuggling—to his sons.

  Underlying the corruption and profligacy of the regime was a corroded economy and society. Little was invested in infrastructure or the people, while investment and bank accounts worth hundreds of millions of dollars were maintained in Switzerland, Dubai, and Beirut. Not much was done outside the control of the Iraqi regime, and the country’s assets were used as Saddam’s playthings. In his tyrannical regime, the assets of the state were his to invest or spend as he liked. The ones who suffered were the Iraqi people, who were issued ration cards and were beholden to the whims of the government for their food and fuel supplies.

  The goal of the US government was to recover as much of this money as possible and return it to Iraq for reconstruction and recovery. The tricky part was finding it. In this case, it was embedded in front companies and accounts controlled by Hussein’s cronies and family members. Once it was found, we needed to use diplomatic, regulatory, and legal tools to get it back to the Iraqis.

  There was nowhere else in government for this work to be done than at the Treasury Department. Treasury had a track record of freezing and recovering stolen assets through the Office of Foreign Assets Control, the ability to access vast amounts of financial data, and the international networks and connections to ensure that the assets could be found and returned. Right after the secretary announced that Treasury would take on this role, on March 20, 2003, George Wolfe, the deputy general counsel, approached me to take on the role of leading the asset recovery efforts for the secretary and the US government. Wolfe would be headed to Iraq shortly after this to be Treasury’s principal representative. I was flattered but deeply reluctant to take on a wartime global asset hunt. Still reeling from the creation of the Department of Homeland Security and the emasculation of Treasury’s Office of Enforcement, our small group was already overtaxed and trying to maintain our focus. This was likely going to be a mammoth task on top of what we were already doing to counter terrorist financing, expand the anti-money-laundering system, and isolate rogue actors from the financial system. I initially said no to the suggestion, but Wolfe and the secretary convinced me to take on the project, and so we did. As I would soon learn, the work we would do to recover Iraqi assets would help to shape the way we waged financial warfare beyond the borders of Iraq.

  Treasury quickly put together a small team to seek out three types of assets. First, we needed to find the cash the regime had taken from the Central Bank of Iraq and other Iraqi banks, because this was money that the regime and its allies would otherwise use to survive and fight our troops. Second, we would try to capture existing Iraqi state assets abroad and in Iraqi banks, using the Chapter 7 (mandatory) obligations of UN Security Council Resolution 1483 to freeze and repatriate the money. Finally, we would attempt to uncover hidden or layered assets that Saddam, his family, and his cronies had nested outside of Iraq. The last objective would require painstaking investigative and intelligence work. The regime had used proxies, fronts, and multiple bank accounts to move assets beyond the reach of the sanctions regime.

  Estimates of Saddam’s wealth varied widely, with some reports saying he had acquired upward of $30 billion to $40 billion since the 1980s.7 But the rumors of his existing wealth and holdings did not paint the full picture. His wealth was largely wrapped up in the state’s assets—there was a fundamental admixture between Saddam’s assets and those of the Iraqi government. He also used much of the country’s asset flow to maintain power, to build allegiances inside and outside of Iraq, and to buy the materiel he and his military needed to rule with an iron fist.

  Our first job was to find the cash that had been withdrawn from Iraq’s central bank on the eve of war. As US soldiers fanned out throughout the countryside, they were followed by investigators specifically tasked with turning up the missing cash. Within days, the soldiers and investigators began to find boxes of cash hidden in safe houses and storage containers. Within two months of the invasion, 191 of the 236 original boxes had been recovered, totaling more than $850 million in US dollars and 100 million in euros.

  Perhaps unsurprisingly, the full amount withdrawn
from the Central Bank of Iraq was never recovered. Some of the cash had most likely been distributed among loyalists in Iraq or shipped across the border to Syria. One story that persisted—though it was likely apocryphal—was that a truckload of cash containing some of the March 19 withdrawals sat parked under a large tree near a farmhouse owned by one of Saddam’s relatives. US imagery identified the truck as a possible military vehicle hiding from overhead surveillance, and warplanes targeted it for destruction. When the truck was hit with the American missile, the cash scattered high into the air and burned along with the wreckage.

  But the hunt was only getting started. We quickly realized that, for this effort to work, we would need investigators in the field—investigators who could question witnesses, or collect and analyze financial records. I turned to the only investigators we still had in the Treasury Department—IRS criminal investigators. IRS special agents are the best financial forensics investigators in the business. All of them carry accounting degrees along with their guns and badges. It had been Treasury agents who had convicted Al Capone for tax evasion. We would rely again on the same agents to hunt Saddam’s assets.

  Nancy Jardini, a no-nonsense former prosecutor and accountant, was the deputy chief of the Internal Revenue Service–Criminal Investigation Division (IRS-CID). I called Nancy and asked her if the IRS could put together a group of agents willing to go into Iraq and around the world to find Saddam’s hidden assets. Jardini, who would become chief in January 2004, was ready to take an enormous chance, along with the IRS leadership—understanding the importance of the effort but also the real danger for her agents and agency. She put out the call for willing volunteers, unsure what kind of response she would get. We would need seasoned agents willing to go into a war zone. There would be bank records and wire transfers to be analyzed from the Central Bank of Iraq as well as Iraq’s primary commercial banks, Rafidain and Rasheed; trade and commercial contracts to be deciphered; and sources, former regime elements, and money men to be interviewed.

  By noon of the same day, IRS-CID had received responses from some of the most senior agents from around the country—totaling a page and a half of names of volunteers. Many of these were grizzled veterans with experience investigating the financial underworld of drug-trafficking organizations and international organized crime networks. Some had made careers as undercover money launderers, working against some of the most dangerous criminal organizations in the country to get at their money. The IRS leadership was surprised at how many were willing to go into a war zone, without much clarity as to where they might be going and what they would be doing. They were patriots and hungry to help in Iraq.

  One of the first volunteers was an IRS agent named Scott Schneider, a former US Army intelligence officer who had become an accountant and a hard-charging IRS agent. Schneider spoke the two languages that were critical for a civilian agency heading into a Middle Eastern war zone for the first time—Arabic and “military.” He understood how the military worked—the jargon, processes, and command structure that make it tick. This would prove critical as we designed an asset recovery effort alongside the war fighters. Schneider was joined by Treasury analyst Pat Conlon, a longtime analyst who had deployed to the Balkans during his career to hunt leadership assets. Conlon was one of the few Treasury employees who understood what a war zone looked like.

  The immediate goal on the ground was to find and lock up assets so as to weaken the remnants of Saddam’s power base and to keep the money from being used to fund a war against our soldiers. Our financial “jump teams,” led by IRS agents, were ready to deploy within hours, if needed, to pursue leads and look for Saddam’s hidden treasure. Department of Homeland Security agents were also on these teams, and the FBI and other analysts assisted.

  We worked with an interagency collection of key actors. The group was small, but it included dedicated analysts from the intelligence community; State Department officials, including Assistant Secretary of State Tony Wayne, his deputy Steve Simon, and Ambassador Joseph Saloom; and Jody Myers, who was detailed to the National Security Council from the Treasury. The analysts and investigators began to map out where the assets might be, with a focus on those assets still controlled by Saddam, his family, and his cronies. Wayne and Saloom mobilized our embassies to work with the Iraqis and host governments to implement UN Security Council Resolution 1483 in finding and freezing Iraqi assets. Customs, Secret Service, and FBI agents would prove pivotal on the ground to provide expertise and support. Treasury lawyers, such as John Vardaman, would later go bravely into Iraq, following George Wolfe into the war zone. Vardaman would end up bunking with others in the throne room of one of Saddam’s palaces, sleeping next to a mural depicting Scud missiles headed toward America.

  We sent Scott Schneider and Pat Conlon into Iraq in May 2003. Upon their arrival, they were given camouflage uniforms with the identifying label “Treasury” stitched across the top left part of their shirts. Schneider and Conlon’s first job was to get access to key financial documents and identify the right witnesses and detainees in custody to interview. They hitched a ride to the Central Bank of Iraq almost as soon as they arrived and collected as many documents as they could.

  They soon found there was no lack of documents. Over the next few days, the investigators were confronted with rooms full of documents that the military had already found and collected as quickly as possible. The papers were stuffed into big duffle bags and poured out of files and boxes. The first order of business was to determine which documents might be valuable.

  In the early days of the Iraq War, the central bank had been looted like other government ministries, buildings, and museums in Baghdad. With the regime toppled, the security infrastructure crumbling, and Saddam and his sons on the run, there was little law and order in the city. The looters were not interested in documents and files, however—they were interested in getting access to the vault. By the time American officials arrived, it was clear that someone had tried to break through the massive steel vault door with a grenade launcher. Not only had the attempt failed, but the blowback from the explosion in the relatively small room apparently killed the bank robbers.

  The Iraqis had kept good financial and commercial records. The ledgers, account files, and contracts may have represented corrupt deals or embedded kickbacks and over-invoicing, but the flow of funds and the nature of the trades were diligently memorialized. The bank documents gave the investigators leads and a picture of how the Iraqis were doing business. They showed where money was wired and when cash was withdrawn. The identities of those who would know something about the deals were revealed by their signatures. The bank statements gave company names and the names of those who were in control of bank accounts, which could lead the investigators to front companies and the people who were complicit with the Iraqis. The financial records—yet again—proved to be a valuable source of leads and irrefutable evidence.

  Eventually, the central bank employees, many of them government technocrats and economists with no political affiliation, returned to work. Some of them, along with other Iraqi bankers, who had moved money for Saddam by necessity, proved invaluable in directing and guiding the investigators to key documents and deciphering the meaning of others. They also helped to identify key bankers and accountants in neighboring countries on whom they had relied to move and hide money.

  The Treasury team was most interested in talking with those who would know how the money was handled and how the trade deals were designed. This meant interviewing the ministers of oil, trade, and finance, the governor of the Central Bank of Iraq, and a number of deputy ministers, as well as Saddam’s business associates. These were the people who would understand the inner workings of Iraqi money management and decision making.

  The interviews took place in a secure location inside the perimeter held by the military at Baghdad International Airport. Large canvas tents were propped up by thick wooden poles to allow for interviews of those deemed not to present a ri
sk of flight or injury to others. The investigators and the detainees sat in folding chairs, with folding tables in between them. It was suffocating, hot, and dusty inside the tents, which were placed right on top of the dirt. It was an unpleasant place to meet, but it was the space that was available.

  Most of the officials the Treasury team needed to interview were older politicians and bankers. None of them had been mistreated, but each man appeared downtrodden and tired as he arrived at the tent. Most cooperated, at least to some degree. Schneider had been trained as an interrogator, and Conlon was an analyst by training. They knew how to build a relationship with a detainee, and they treated the detainees—most of whom were older than them by a couple of decades—with respect.

  As is so often the case in detainee interviews, each initially deflected responsibility and attention from their own role and pointed fingers at Saddam, his sons, and the most senior officials. Truly useful information was much less forthcoming. Yet, over time, the Treasury team began to make headway with the detainees. In the growing heat of the Iraqi summer, Schneider determined that the most attractive commodity was simply a cold drink. A refrigerated bottle of water or cool Coca Cola proved to be enough to unlock the memories of many detainees tired of suffering in the heat. After the IRS shipped a large refrigerator to Iraq, Schneider and Conlon became very popular. The detainees would get cold drinks in return for their time. It wasn’t long before they were rewarding the investigators with real information that filled the gaps in our knowledge about the true nature of the Iraqi economy and the location of Saddam’s assets.

  It was clear that the Oil for Food program and the trade in oil were the primary vehicles for generating huge amounts of money for the regime. Saddam and his relatives controlled the key smuggling industries—from cigarettes to dual-use military equipment—and they and their trusted proxies helped to manage the money that sat outside of the country. Tariq Aziz, Saddam’s foreign minister, and his son controlled some of the oil deals with Western companies, illegally evading sanctions, and were sure to take their fair share of kickbacks from the contracts. Investigators had found correspondence laying out details about the transportation of oil, along with a list of Iraqi-controlled oil tankers. Money that was not kept in the country was usually being used in trade to circumvent the sanctions and to pay for loyalties and services abroad. The money would collect in the trading accounts and find its way into banks in Beirut, Dubai, and Switzerland.