The Great Iraq Swindle

Since time immemorial, the distribution of government largesse had followed a staid, paper-laden procedure in which the federal government would post the details of a contract in periodicals like Commerce Business Daily or, more ­recently, on the FedBizOpps Web site. Competitive bids were solicited and contracts were awarded in accordance with the labyrinthine print of the U.S. Code, a straightforward system that worked well enough before the Bush years that, as one lawyer puts it, you could "count the number of cases of criminal fraud on the fingers of one hand."

There were exceptions to the rule, of course -- emergencies that required immediate awards, contracts where there was only one available source of materials or labor, classified deals that involved national security. What no one knew at the beginning of the war was that the Bush administration had essentially decided to treat the entire Iraqi theater as an exception to the rules. All you had to do was get to Iraq and the game was on.

But getting there wasn't easy. To travel to Iraq, would-be contractors needed permission from the Bush administration, which was far from blind in its appraisal of applicants. In a much-ballyhooed example of favoritism, the White House originally installed a clown named Jim O'Beirne at the relevant evaluation desk in the Department of Defense. O'Beirne proved to be a classic Bush villain, a moron's moron who judged applicants not on their Arabic skills or their relevant expertise but on their Republican bona fides; he sent a twenty-four-year-old who had never worked in finance to manage the reopening of the Iraqi stock exchange, and appointed a recent graduate of an evangelical university for home-schooled kids who had no accounting experience to manage Iraq's $13 billion budget. James K. Haveman, who had served as Michigan's community-health director under a GOP governor, was put in charge of rehabilitating Iraq's health-care system and decided that what this war-ravaged, malnourished, sanitation-deficient country most urgently needed was . . . an anti-smoking campaign.

Town-selectmen types like Haveman weren't the only people who got passes to enter Iraq in the first few years. The administration also greenlighted brash, modern-day forty-niners like Scott Custer and Mike Battles, a pair of ex-Army officers and bottom-rank Republican pols (Battles had run for Congress in Rhode Island and had been a Fox News commentator) who had decided to form a security company called Custer Battles and make it big in Iraq. "Battles knew some people from his congres­sional run, and that's how they got there," says Alan Grayson, an attorney who led a whistle-blower lawsuit against the pair for defrauding the government.

Before coming to Iraq, Custer Battles hadn't done even a million dollars in business. The company's own Web site brags that Battles had to borrow cab fare from Jordan to Iraq and arrived in Baghdad with less than $500 in his pocket. But he had good timing, arriving just as a security contract for Baghdad International Airport was being "put up" for bid. The company site raves that Custer spent "three sleepless nights" penning an offer that impressed the CPA enough to hand the partners $2 million in cash, which Battles promptly stuffed into a duffel bag and drove to deposit in a Lebanese bank.

Custer Battles had lucked into a sort of Willy Wonka's paradise for contractors, where a small pool of Republican-friendly businessmen would basically hang around the Green Zone waiting for a contracting agency to come up with a work order. In the early days of the war, the idea of "competition" was a farce, with deals handed out so quickly that there was no possibility of making rational or fairly priced estimates. According to those familiar with the process, contracting agencies would request phony "bids" from several contractors, even though the winner had been picked in advance. "The losers would play ball because they knew that eventually it would be their turn to be the winner," says Grayson.

To make such deals legal, someone in the military would simply sign a piece of paper invoking an exception. "I know one guy whose business was buying ­weapons on the black market for contractors," says Pratap Chatterjee, a writer who has spent months in the Mideast researching a forthcoming book on Iraq contracts. "It's illegal -- but he got military people to sign papers allowing him to do it."

The system not only had the advantage of eliminating red tape in a war zone, it also encouraged the "entrepreneurship" of patriots like Custer and Battles, who went from bumming cab fare to doing $100 million in government contracts practically overnight. And what business they did! The bid that Custer claimed to have spent "three sleepless nights" putting together was later described by Col. Richard Ballard, then the inspector general of the Army, as looking "like something that you and I would write over a bottle of vodka, complete with all the spelling and syntax errors and annexes to be filled in later." The two simply "presented it the next day and then got awarded about a $15 million contract."

The deal charged Custer Battles with the responsibility to perform airport ­security for civilian flights. But there were never any civilian flights into Baghdad's airport during the life of their contract, so the CPA gave them a job managing an airport checkpoint, which they failed miserably. They were also given scads of money to buy expensive X-ray equipment and set up an advanced canine bomb-sniffing system, but they never bought the equipment. As for the dog, Ballard reported, "I eventually saw one dog. The dog did not appear to be a certified, trained dog." When the dog was brought to the checkpoint, he added, it would lie down and "refuse to sniff the vehicles" -- as outstanding a metaphor for U.S. contractor performance in Iraq as has yet been produced.

Like most contractors, Custer Battles was on a cost-plus arrangement, which means its profits were guaranteed to rise with its spending. But according to testimony by officials and former employees, the partners also charged the government millions by making out phony invoices to shell companies they controlled. In another stroke of genius, they found a bunch of abandoned Iraqi Airways forklifts on airport property, repainted them to disguise the company markings and billed them to U.S. tax­payers as new equipment. Every time they scratched their asses, they earned; there was so much money around for contractors, officials literally used $100,000 wads of cash as toys. "Yes -- $100 bills in plastic wrap," Frank Willis, a former CPA official, acknowledged in Senate testimony about Custer Battles. "We played football with the plastic-wrapped bricks for a little while."

The Custer Battles show only ended when the pair left a spreadsheet behind after a meeting with CPA officials -- a spreadsheet that scrupulously detailed the pair's phony invoicing. "It was the worst case of fraud I've ever seen, hands down," says Grayson. "But it's also got to be the first instance in history of a defendant leaving behind a spreadsheet full of evidence of the crime."

But even being the clumsiest war profit­eers of all time was not enough to bring swift justice upon the heads of Mr. Custer and Mr. Battles -- and this is where the story of America's reconstruction effort gets really interesting. The Bush administration not only refused to prosecute the pair -- it actually tried to stop a lawsuit filed against the contractors by whistle-blowers hoping to recover the stolen money. The administration argued that Custer Battles could not be found guilty of defrauding the U.S. government because the CPA was not part of the U.S. government. When the lawsuit went forward despite the administration's objections, Custer and Battles mounted a defense that recalled Nuremberg and Lt. Calley, arguing that they could not be guilty of theft since it was done with the government's approval.

The jury disagreed, finding Custer Battles guilty of ripping off taxpayers. But the verdict was set aside by T.S. Ellis III, a federal judge who cited the administration's "the CPA is not us" argument. The very fact that private contractors, aided by the government itself, could evade conviction for what even Ellis, a Reagan-appointed judge, called "significant" evidence of fraud, says everything you need to know about the true nature of the war we are fighting in Iraq. Is it ­really possible to bilk American taxpayers for repainted forklifts stolen from Iraqi Airways and claim that you were just following orders? It is, when your commander in chief is George W. Bush.