Where Did All The Cash Go In Iraq?

This column was written by Jeremy Kahn.
In the latest James Bond thriller, "Casino Royale," 007's mission is to stop an amoral money man for international terrorist organizations from winning a high-stakes poker game. Bond is assisted in this effort by a dashing British agent, Vesper Lynd, played by the beguiling Eva Green. And, in a modern twist on the old Ian Fleming formula, Lynd does not work for Her Majesty's Secret Service, but rather for the Chancellor of the Exchequer — she's a Treasury agent.

John B. Taylor, the Stanford economist who served as Undersecretary of the Treasury for International Affairs throughout President Bush's first term, wants everyone to know that U.S. Treasury officials play just as important — and sometimes just as daring — a role as Lynd in the real-life war against terrorism. Taylor has a new book out, "Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World," that seems intended to ensure that Treasury's — or, perhaps more accurately, Taylor's — contribution to America's current war effort is not overlooked.

To drive home the point, Taylor placed an op-ed in last week's New York Times defending Treasury against California Representative Henry Waxman, who, in a hearing last month, criticized the Bush administration's decision to fly large shipments of cash into Iraq immediately after the invasion. "Who in their right mind would send 360 tons of cash into a war zone?" Waxman demanded. Taylor didn't see anything wrong with his mind; he called the cash transfers "one of the most successful and carefully planned operations of the war."

Taylor is right that Iraq really needed that cash after the invasion — and also that the conversion from old Iraqi dinars to a new currency, which he also lauded in the op-ed, went off without a hitch. But Taylor's narrative overstates the success of Treasury's efforts in Iraq, ignores Waxman's basic point — which was about oversight in the reconstruction effort — and, through omission, seeks to whitewash the Treasury's culpability in many of the policy failures that have hampered U.S. efforts in Iraq since 2003.

The story of Treasury's cash shipments is one I know well. In May 2003, Fortune magazine sent me to Iraq to chronicle efforts to get the economy back on track. I traveled in convoys that moved millions in Iraqi dinars — crammed into burlap sacks and placed in armored personnel carriers — around Baghdad. I watched vast quantities of U.S. dollars — much of it newly minted and flown from the Federal Reserve banks of Atlanta and New York in plastic-wrapped bricks — being airlifted to Kirkuk and Mosul to pay the salaries of Iraqi government employees. (I even stood on a stack of $23 million at the airport.) And I spent a good amount of time hanging out with the civilians and soldiers who were responsible for reopening Iraq's banks and figuring out how to stave off economic collapse.

April and May 2003 were chaotic months in Iraq. Most banks were shuttered; some had been looted. Saddam's son Qusay had stolen $1 billion from Iraq's Central Bank just before U.S. troops arrived. Many government ministries had also been looted and, in Iraq's socialized economy, large segments of the population were not showing up for work — except on payday. At the same time, there was a legitimate fear of civil unrest if government workers and pensioners were not paid. So flying money in from the United States was a sensible stopgap. Besides, as Taylor points out, most of the money initially sent to Iraq belonged to the Iraqis in the first place — it had been frozen in U.S. banks since Saddam's invasion of Kuwait. Later, when U.S. troops recovered most of the money Qusay had stolen, this, too, was used in reconstruction efforts.

Taylor argues that these shipments of cash had been carefully planned. (He cites a presentation then-Treasury Secretary John Snow made to President Bush and the National Security Council in March 2003.) But, while the concept may have been, the mechanics certainly were not. Like much of the postwar planning, administration officials assumed the pieces would magically fall into place once Baghdad was liberated. From what I saw — and from interviews with Treasury staff — the actual movement of money around the country was a completely ad hoc operation. The troops, armored cars, and helicopters needed to protect cash as it was shuttled from place to place were pressed into service at the last minute. It was just lucky that officials unearthed servicemen with accounting backgrounds to assist in the operation — none had been assigned in advance of the invasion. Meanwhile, many Treasury experts with highly technical skills in economic planning and budgeting were forced to become glorified Brinks employees — spending much of their time merely moving cash around the country.

Taylor claims that "Treasury officials who watched over the payment process in Baghdad in those first few weeks reported a culture of good record keeping." I watched salaries being disbursed to Iraqis on a number of occasions — from banks, at a ministry building, and, at least once, from the back of a truck. While Iraqis needed certain papers to get paid and salaries were usually handed out by ministry supervisors (who, presumably, knew who their own employees were), in practice the payment system was often disorderly, and Taylor overstates the extent to which harried Treasury advisers were able to police the process.