DFI: We are working hard to encourage countries that have frozen assets to transfer
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    RED LILY
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    DFI: We are working hard to encourage countries that have frozen assets to transfer

    OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION

    We are working hard to encourage countries that have frozen assets to transfer those funds to the Development Fund for Iraq (DFI), ... On June 4, 2013



    SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION


    2530 Crystal Drive • Arlington, Virginia 22202
    January 22, 2013
    MEMORANDUM FOR U.S. SECRETARY OF DEFENSE
    U.S. SECRETARY OF STATE


    SUBJECT: Lessons Learned from U.S. Agencies’ Management of Iraqi Funds for Relief and Reconstruction (SIGIR 13-004)


    We are providing this audit report for your information and use. The report summarizes key lessons learned based on reports the Special Inspector General for Iraq Reconstruction (SIGIR) issued which addressed the U.S. government’s management and oversight of Iraqi funds for relief and reconstruction activities.

    We performed this review in accordance with our statutory responsibilities contained in Public Law 108-106, as amended, which also incorporates the duties and responsibilities of inspectors general under the Inspector General Act of 1978.

    This law provides for independent and objective audits of programs and operations funded with amounts appropriated or otherwise made available for the reconstruction of Iraq, and for recommendations on related policies designed to promote economy, efficiency, and effectiveness and to prevent and detect fraud, waste, and abuse.


    We received technical comments from the Office of the Under Secretary of Defense (Comptroller), which we incorporated as appropriate. The Office of the Under Secretary of Defense (Comptroller) also noted that it agreed with the opportunities highlighted within the four broad lessons learned areas presented in the report. The Office further stated that the information provided in our reports and the corrective actions taken on the Development Fund for Iraq, affirm what can be accomplished through a collaborative effort between agency management and the audit community. We addressed this last comment in our concluding observations. The Office’s statements are presented in their entirety in Appendix E.

    SIGIR 13-004


    January 22, 2013


    Background


    U.S. reconstruction assistance to Iraq began in May 2003, after the end of U.S. combat operations. Early that month, the Coalition Provisional Authority (CPA) was created to plan and initiate reconstruction activities in Iraq. For about 14 months thereafter, the CPA acted as the managing body for the governance and reconstruction of Iraq.


    Following the CPA’s dissolution on June 28, 2004, the Interim Iraqi Government granted the U.S. Department of Defense (DoD) limited authority for administering contracts previously awarded by the CPA.


    Together, the CPA and DoD had access to about $26.7 billion in Iraqi funds for relief and reconstruction activities.1 The two sources for these Iraqi funds were the Development Fund for Iraq (DFI) ($24 billion) and vested and seized assets ($2.7 billion).2


    United Nations Security Council Resolution 1483 created the DFI in May 2003 and assigned the CPA the responsibility for its management. The DFI account at the Federal Reserve Bank of New York contained revenues from sales of Iraqi oil and gas, certain remaining deposits from the Oil for Food program, and repatriated national assets. Resolution 1483 specified that these funds be used for the benefit of the Iraqi people, including financing reconstruction, civil-administration programs, and humanitarian initiatives.


    During the CPA’s tenure, its Administrator intermittently directed bulk shipments of the DFI, in the form of U.S. currency, be flown to Baghdad (or ordered electronic fund transfer payments executed) to reimburse vendors for reconstruction projects and for other purposes benefitting the Iraqi people. The CPA established guidance for shipping DFI funds from the Federal Reserve to Baghdad and their deposit into the Central Bank of Iraq. Some DFI funds were also held in the Republican Palace vault in Baghdad.3


    In separate decisions made between March 20, 2003 and April 30, 2003, pursuant to Executive Order 13290: “Confiscating and Vesting Certain Iraqi Property,” DoD was assigned responsibility for planning and accounting for the use of vested and seized Iraqi funds.


    1 In addition, DoD had access to billions of dollars of U.S. appropriated funds for reconstruction.

    2 In response to a draft of this report, DoD noted that it did not have direct access to any of the Iraqi bank accounts including the DFI accounts. However, SIGIR notes that the funds used to make payments for relief and reconstruction activities, with proper Iraqi authorization, came out of these accounts.

    3 Saddam Hussein’s Republican Palace in Baghdad became the CPA’s headquarters and was used to store cash needed by the CPA.


    2



    According to presidential direction, these funds were to be used to assist the Iraqi people and to support the reconstruction of Iraq.


    Vested assets entailed Iraqi funds that had been frozen in U.S. bank accounts since the first Gulf War.

    Seized assets entailed Iraqi assets obtained from non-U.S. banks and from certain Iraqi state or regime-owned property confiscated by Coalition forces and transferred to U.S. government accounts.


    The Coalition Provisional Authority’s Oversight of Iraqi Funds


    During its roughly 14-month tenure, the CPA had access to about $23.4 billion in Iraqi funds: $20.7 billion of which were in DFI funds and another $2.7 billion in Iraqi vested and seized asset funds. It directed expenditures of $14.1 billion in DFI funds, mostly to Iraqi ministries for salaries, pensions, and operating costs.


    The CPA had $6.6 billion in DFI funds remaining when its mission ended on June 28, 2004. We previously reported that the CPA Administrator transferred full and legal control over almost all of the $6.6 billion to the Central Bank of Iraq.4 SIGIR also reported that DoD assumed control of the $217.7 million in cash that remained in the Republican Palace vault.

    Table 1 provides a matrix showing DFI revenues and expenditures during the CPA’s existence.


    Table 1—DFI Revenues and Expenditures during the CPA’s Existence
    Revenues
    Oil for Food
    $8,100,000,000

    Proceeds from Oil Exports
    $11,362,662,000

    Repatriated Funds
    $1,039,805,000

    Interest from U.S. Treasury Bills
    $33,495,000

    Other1
    $170,433,000

    Total
    $20,706,395,000



    Expenditures
    Disbursements for Ministries
    $10,430,426,000

    Project Disbursements
    $3,628,232,000

    Total
    $14,058,658,000


    Remaining Fund Balance
    $6,647,737,000


    Source: SIGIR’s analysis of CPA financial matrix, as of June 28, 2004.


    Note:


    1 Interest income from overnight deposits, sale of smuggler boats, donations, United Nations World Food Program, and vested assets.


    In May 2003, the Deputy Secretary of Defense delegated the authorities that DoD had been granted for administering and accounting for $2.7 billion in vested and seized assets to the CPA


    4 Development Fund for Iraq: The Coalition Provisional Authority Transferred Control over Most of the Remaining DFI Funds to the Central Bank of Iraq, SIGIR 12-001, 10/26/2011.

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    Last edited by RED LILY; 06-22-2013 at 02:20 AM.

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