What Happened to Iraq’s Oil Money?

Former U.S. official says billions of dollars were ‘squandered’

After the U.S. invasion of Iraq, the United States took control of all of the Iraqi government’s bank accounts, including the income from oil sales. The United Nations approved the financial takeover, and President Bush vowed to spend Iraq’s money wisely. But now critics are raising serious questions about how well the United States handled billions of dollars in Iraqi oil funds.

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Iraq's oil resources generate billions of dollars — money the United States promised to protect after overthrowing Saddam Hussein.

Now, Frank Willis, a former senior American official in Iraq, tells NBC News the United States failed to safeguard the oil money known as the Development Fund for Iraq.

"There was, in my mind, pervasive leakage in assets of Iraq, and to some extent, those assets were squandered," says Willis.

Willis helped run Iraq’s Transportation Ministry. He says government agencies and private contractors had to be paid in cash because Iraq’s banking system was decimated.

"A lot of money did get to the Iraqi people at the grass-roots level, and a lot of it got into the wrong hands," he says.

In one photograph, Willis and colleagues showed off a $2 million payment to a security contractor.

"It was time for payment," he remembers. "We told them to come in and bring in a bag. It reminded me of the Wild West."

In a series of reports on U.S. management of the oil money, auditors working for the United Nation's Iraq Advisory and Monitoring Board and the Inspector General of the Coalition Provisional Authority found:

Insufficient controls
Missing records
Two sets of books at Iraq's Finance Ministry, which did not match
In one example of insufficient controls, the United States stored hundreds of millions of oil dollars in a vault in a Baghdad palace. Government auditors found that the key to the vault was kept “unsecured” — in a U.S. official’s backpack.

Iraq’s U.S. administrator, Paul Bremer, pledged last year to hire a certified public accounting firm to ensure proper controls. But the United States gave the contract not to an accounting firm but to a tiny consulting company, Northstar — which NBC News found is headquartered at a private home near San Diego.

"They violated the rules. They picked a contractor who didn’t meet their requirements," says Paul Light, a government contracting expert and professor at New York University.

Northstar’s president says the Pentagon knew Northstar was not a certified public accounting firm and that four experienced employees went to Iraq and did a good job. However, one audit notes that a single Northstar employee maintained spreadsheets tracking billions of dollars.

Bremer would not comment. His aides say Iraq is a war zone and their top priority was getting money quickly where it was needed, even if the accounting wasn't perfect.

But NBC News has learned that a draft government audit faults the United States for “inadequate stewardship” of up to $8.8 billion in oil money, handed over to Iraq’s ministries but never fully accounted for.

Lisa Myers & the NBC investigative unit
NBC News
Updated: 7:21 p.m. ET Nov. 30, 2004After