>> HUGGING PERVEZ?

washingtonpost.com
Musharraf Cites Nuclear Dealings
Powell Told of Government Involvement
By Glenn Kessler
Washington Post Staff Writer
Friday, March 19, 2004; Page A16
ISLAMABAD, Pakistan, March 18 -- Secretary of State Colin L. Powell said Thursday he had received new information from Pakistan's president about the Pakistani government's dealings with Abdul Qadeer Khan, who admitted last month he had sold nuclear designs and components to other countries.
But Powell, who came here saying he would seek details on the links between the disgraced Khan's technology smuggling ring and Pakistani officials, said he would wait to analyze the information in Washington before providing details. "What I want to do is reflect on what he said to me and discuss it with some of my other colleagues back in Washington before I comment on the specifics of it," Powell told reporters traveling with him.
Gen. Pervez Musharraf, the president, pardoned Khan last month after Khan acknowledged a broad scheme that netted him tens of millions of dollars and spread nuclear technology to Libya, North Korea and Iran. But questions have persisted about how Khan's network could operate without the knowledge or participation of senior Pakistani military, intelligence and other government officials. "No responsible government of Pakistan should have tolerated such a thing, and I hope they did not," Powell said, adding, "We got to get all the facts."
The Bush administration has dealt carefully with the matter of Pakistani government links to the Khan network because Pakistan is considered crucial to the war on terror. Reflecting that caution, Powell announced after meeting with the foreign minister here that the administration would grant Pakistan the coveted status of "major non-NATO ally," making it easier for the country to procure military equipment. The announcement came as Pakistani troops waged a bloody battle in a remote tribal area against al Qaeda and Taliban fighters.
Powell rejected any link between the awarding of Pakistan's new status and the Khan investigation. Naming Pakistan a major non-NATO ally is "part of a normal relationship with countries we have military-to-military relations with, and we think it is a sensible thing to do," Powell said. "It is not a reward for A.Q. Khan. It's part of a continuing relationship."
The benefits of the designation for Pakistan are unclear. Easier procurement of surplus military equipment might help Pakistan fight al Qaeda, but the designation does not confer the same mutual defense and security guarantees that members of NATO receive, and Powell acknowledged it can be largely symbolic. In recent months, the Bush administration has awarded the title to Kuwait and Thailand, which joined 10 other nations.
India, Pakistan's South Asia nuclear rival, does not have this status, a fact that Pakistani officials were eager to note. But the Bush administration gave India its own plum this year -- an agreement to help India with its nuclear energy and space technology in return for a promise to use the aid for peaceful purposes and to help block the spread of dangerous weapons.
But Pakistan's Islamic opposition heavily criticized the U.S. offer, saying it would make Pakistan a client of the United States.
"I will be very unhappy if Pakistan is inching towards this alliance with the U.S.," Khurshid Ahmad, a leader of the fundamentalist Jamaat-i-Islami party, told the Agence France-Presse news service.
"This is neither an honor, nor a step towards global security. We have to avoid becoming a mercenary and a client state," Ahmad said, adding it was not a reward but "a new trap."
The fierce fighting in the tribal region, which Pakistani officials said had killed 15 soldiers and 26 militants, has also stirred criticism in Pakistan. The newspaper Daily Times carried an editorial cartoon today showing Powell emerging from his plane and using the coffins of the dead as his steps.
Powell, a retired four-star Army general, also said he and Musharraf had a detailed "soldier-to-soldier" discussion of the fighting. Musharraf seized power in 1999 in a bloodless military coup.
Khan, who ran Pakistan's main nuclear weapons plant for many years and is known as the creator of the country's nuclear bomb, said last month that he had passed nuclear secrets without government authorization. The Pakistani government launched an investigation of Khan last year after receiving evidence from the United States.
But Powell said he believes Musharraf -- who was Army chief of staff and then president during the height of Khan's dealings -- is "serious about this." He noted that Khan is revered in Pakistan and "they are all taken aback by the fact" Khan took the knowledge "he had developed in helping his own nation to help nations that shouldn't have been helped."
After his talks in Islamabad, Powell flew to Kuwait City.
[On Friday morning, he left Kuwait and made an unscheduled visit to Baghdad, where he plans to meet with Iraqi and occupation officials.]

? 2004 The Washington Post Company

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Colombia's FARC using suicide bombers
BOGOTA, Colombia, March 19 (UPI) -- Colombian officials fear a Muslim terrorist is training young revolutionaries for suicide attacks in the country, the Telegraph reported Friday.
The head of the country's secret police said Thursday Luis Hipolito Ospina, a devout Muslim and member of the Revolutionary Armed Forces of Colombia, or FARC, had created a squad of 22 suicide bombers ages 12-25.
Although often used by Muslim extremists, suicide attacks are not a common tactic of Latin America's Marxist insurgencies.
"This guerrilla set up an indoctrination program for young people," said Jorge Noguera, the head of Colombia's secret police.
"The ultimate aim of this suicide squad was to murder President Alvaro Uribe."
Police first learned of the squad in February last year, after FARC placed a car bomb in a Bogota club, killing 37 people and injuring 160.
But hard evidence about the squad was not obtained until last week, when the army arrested a young man known as "Heriberto."
The 19-year-old admitted he had been sent on a suicide mission to blow up the secret police headquarters in a provincial capital, Florencia, but had lost his nerve.
Copyright 2004 by United Press International.
All rights reserved.

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Kerry blasts ex-Malaysian PM
WASHINGTON, March 18 (UPI) -- Democratic presidential frontrunner John Kerry rejected the support of former Malaysian prime minister Mahathir Mohammad Thursday.
"John Kerry rejects any association with former Malaysian Prime Minister Mahathir Mohammad, an avowed anti-Semite whose views are totally deplorable," Kerry Foreign Policy Adviser Rand Beers said. "The world needs leaders who seek to bring people together, not drive them apart with hateful and divisive rhetoric."
"This election will be decided by the American people and the American people alone," Beers said. "It is simply not appropriate for any foreign leader to endorse a candidate in America's presidential election. John Kerry does not seek and will not accept any such endorsements."
Copyright 2004 by United Press International.
All rights reserved.
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Russians still think Iraq war was 'crime'
MOSCOW, March 18 (UPI) -- Most Russians believe the U.S. and British conquest of Iraq a year ago was a crime against the Iraqi people, RosBusinessConsulting reported Thursday.
Some 62 percent of Russians said the war was a crime and only 23 percent believe it was necessary, indicated a poll conducted by the Russian Center for Public Opinion, also known as VCIOM. Only 4 percent fully supported the U.S.position, RosbusinessConsulting reported.
Russians were also skeptical that the United States had achieved its goals in Iraq. Only 21 percent thought all targets of the Allied military operation there had been reached, the poll showed.
VCIOM said the poll surveyed 1,587 people in 100 Russian cities and towns. It was conducted Feb. 21-22 and has a margin of error of 3.4 percent.
Copyright 2004 by United Press International.
All rights reserved.

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DEA agent charged with witness tampering
WASHINGTON, March 18 (UPI) -- A U.S. Drug Enforcement Administration agent has been charged with witness tampering in Arizona, the Justice Department said Thursday.
Douglas C. Furlow, 43, a special agent with the Phoenix Field Division of the DEA, was named in a federal indictment unsealed Thursday.
The indictment said Furlow allegedly interfered with a criminal investigation in which an undercover DEA informant was to make a drug buy leading to a suspected drug trafficker's arrest. Furlow allegedly called the trafficker and warned him the informant was working with law enforcement, the indictment said.
The DEA's investigation was aborted and neither the drug buy nor the arrest could be made. The trafficker later fled.
If convicted, Furlow faces up to 10 years in prison and a $250,000 fine.
The prosecution is being handled by the Public Integrity Section of the Justice Department. The investigation is being conducted by the Tucson Field Office of the Office of the Inspector General and the DEA's Office of Professional Responsibility, Western Field Division.
Copyright 2004 by United Press International.
All rights reserved.

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Energy offical says bunker busters needed
WASHINGTON, March 18 (UPI) -- A senior U.S. Energy Department official defended research into so-called nuclear "bunker buster" bombs to a House panel Thursday.
Linton Brooks, the undersecretary for nuclear security at the Department of Energy, told a House Armed Services subcommittee research in a device that can penetrate underground bunkers was a deterrent to enemies who use such fortified facilities to house their weapons and command facilities, Congress Daily reported.
Nevertheless, he insisted no final decision had been made on whether to proceed with development of such weapons.
President Bush's 2005 budget calls for spending $485 million on research into such devices through 2009.
A four-year, $72 million study of the issue is scheduled for completion in 2006.
Critics charge such a weapon would never work because of the difficulty of getting the nuclear detonation far enough underground to successfully disrupt operations.
Copyright 2004 by United Press International.
All rights reserved.

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washingtonpost.com
GAO: Iraq Oil Program Profits Understated
Investigation Finds $10.1 Billion Earned Illegally Under Hussein's Government
By Colum Lynch
Washington Post Staff Writer
Friday, March 19, 2004; Page A16
The former Iraqi government of Saddam Hussein pocketed more than $10.1 billion in smuggled oil revenue and illicit proceeds from a U.N.-run humanitarian program between 1997 and 2002, $3.5 billion more than previously estimated, according to testimony by the U.S. General Accounting Office yesterday.
The latest GAO figures, presented to the House subcommittee on oversight and investigations, have come to light as a result of a global investigation by the Iraqi Assets Working Group, according to two GAO officials, Joseph A. Christoff and Davi M. D'Agostino, who testified yesterday.
The interagency body, headed by the Department of Treasury, is seeking to locate and seize $10 billion to $40 billion in estimated hidden Iraqi assets that can be used to rebuild the country. To date, $2 billion in seized Iraqi assets, including $750,000 in cash found with Hussein, has been channeled into Iraq's recovery.
The GAO charged that Iraq's ruling elites acquired $5.7 billion from the proceeds of oil smuggled through Syria, Jordan, Turkey and the Persian Gulf region. They raised an additional $4.4 billion in illegal revenue through the imposition of oil surcharges and commissions from suppliers.
"According to some Security Council members, the surcharge was up to 50 cents per barrel of oil and the commission was up to 5 to 10 percent of the commodity contract," the GAO stated. "The funds were paid directly to officials connected with the Iraqi government."
The GAO testimony came as the United Nations announced that it is seeking to expand an investigation into allegations of corruption by U.N. officials who managed the former program, known as Oil for Food. U.N. Secretary General Kofi Annan has said he has seen no evidence of wrongdoing by U.N. officials, but he has ordered a preliminary investigation by the agency's internal watchdog, the Office for Internal Oversight Services (OIOS).
The charges stem from a January report in a Baghdad newspaper that scores of prominent foreign dignitaries, including the head of the U.N. program, Benon Sevan, allegedly received vouchers to purchase large quantities of oil for less than market value. U.N. critics alleged that the recipients of the vouchers would sell them to middlemen who would resell the oil to a refinery.
The Wall Street Journal's editorial page and an adviser to the Iraqi Governing Council, British businessman Claude Hankes-Drielsma, have leveled additional charges and pressed for an independent investigation.
Sevan has denied the charges through a U.N. spokesman, and Annan has voiced confidence in the innocence of the longtime U.N. diplomat. But in response to the allegations, Annan's office has approached members of the Security Council to explore broadening the investigation and passing a Security Council resolution requiring states to cooperate.
"We are in the process of turning over to the OIOS all the oil-for-food records, that's 60 to 80 boxes," U.N. spokesman Fred Eckhard said in an interview yesterday. "But the secretary general feels that to get a full picture of what went on with oil for food, we would have to look at the whole picture and not just Benon Sevan."
Chile's U.N. ambassador, Heraldo Munoz, discussed the issue yesterday with a senior U.N. aide and said Annan is pressing for the appointment of a review panel or a private accounting firm to conduct an independent audit of the oil-for-food program.
"Since an internal audit would be seen as insufficient, the idea of an external investigator sounds not only reasonable but the most adequate," Munoz said in an interview.
The United States, France and other key Security Council members have yet to sign on to a broader independent inquiry that could question their oversight of the program or investigate their national companies.
Senior U.N. officials say they have not ruled out the possibility of corruption within their ranks, but they have expressed suspicion that the organization is being unfairly targeted by Iraqi critics when the United Nations is mending its relationship with the Bush administration and preparing for an expanded role in Iraq. Critics include U.S. conservatives and Ahmed Chalabi, the fiercest critic of the United Nations within the Iraqi Governing Council and a close associate of Hankes-Drielsma's.
The Security Council established the oil-for-food program in December 1996 to allow Iraq to sell oil to purchase food, medicine and other humanitarian goods. According to the GAO, Iraq sold more than $67 billion worth of oil before the program was shut down. The program's proceeds were transferred to an Iraqi account controlled by the United States and its military allies.

? 2004 The Washington Post Company
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>> GAO.GOV

United States General Accounting Office GAO
For Release on Delivery Expected at 10:00 a.m. EST
Thursday, March 18, 2004 RECOVERING IRAQ'S ASSETS
Preliminary Observations on U.S. Efforts and Challenges
Statement of Joseph A. Christoff, Director International Affairs and Trade and Davi M. D'Agostino, Director Financial Markets and Community Investment
GAO-04-579T
www.gao.gov/cgi-bin/getrpt?GAO-04-579T. To view the full product, including the scope and methodology, click on the link above. For more information, contact Joseph Christoff at (202) 512-8789 or christoffj@gao.gov or Davi M. D'Agostino at (202) 512-5431 or dagostinod@gao.gov.
Highlights of GAO-04-579T, a testimony to Subcommittee on Oversight and Investigations, House Committee on Financial Services
March 18, 2004
RECOVERING IRAQ'S ASSETS
Preliminary Observations on U.S. Efforts and Challenges GAO estimates that from 1997 through 2002, the former Iraqi regime acquired $10.1 billion in illegal revenues related to the Oil for Food program--$5.7 billion in oil smuggled out of Iraq and $4.4 billion in illicit surcharges on oil sales and after-sales charges on suppliers. This estimate is higher than our May 2002 estimate of $6.6 billion because it includes 2002 data from oil revenues and contracts under the Oil for Food Program and newer estimates of illicit commissions from commodity suppliers. The United States has tapped the services of a variety of U.S. agencies and recently developed domestic and international tools in its efforts to recover Iraqi assets worldwide. Led by the Department of the Treasury, about 20 government entities have combined efforts to identify, freeze, and transfer the former regime's assets to Iraq. The United States also used the International Emergency Economic Powers Act, as amended by provisions in the USA PATRIOT Act of 2001, to confiscate the property of the former Iraqi regime under U.S. jurisdiction and vest the assets in the U.S. Treasury. Finally, U.N. Security Council Resolution 1483 required all U.N. members to freeze without delay and immediately transfer assets of the former Iraqi regime to the new Development Fund for Iraq (DFI).
U.S. efforts to recover Iraqi assets have had varying results. In March 2003, the U.S. government quickly took control of Iraq's assets in the United States. From May to September 2003, the United States transferred $1.7 billion to Iraq to help pay for the salaries of Iraqi civil servants, ministry operations, and pensions. Within Iraq, U.S. military and coalition forces seized about $926 million of the regime's assets. Other countries froze about $3.7 billion of Iraqi regime assets in compliance with U.N. Security Council resolutions. As of March 2004, Treasury reported that more than 10 countries and the Bank for International Settlements had transferred approximately $751 million to the DFI. Little progress has been made in identifying and freezing additional Iraqi assets that remain hidden. While the amount of hidden assets accumulated by the former Iraqi regime is unknown, estimates range from $10 to $40 billion in illicit earnings.
The United States faces key challenges in recovering Iraq's assets. First, recovering the former regime's assets was not initially a high priority in the overall U.S. effort in Iraq. Second, U.S. officials stated that many countries needed to adopt additional legislation to implement the U.N. requirements and transfer the funds to the DFI. U.S. expectations for the quick transfer of funds may have been overly optimistic given the legal capabilities of some countries. Third, the impending transfer of sovereignty to an interim Iraqi government on June 30, 2004, may further complicate U.S. efforts to locate and recover assets of the former regime. It is uncertain whether the new government will allow the United States to continue its hunt for the former regime's assets. Rebuilding Iraq is a U.S. national security priority. Billions of dollars are needed for Iraq's reconstruction. The U.S. government and the international community have undertaken important efforts to recover the assets of the former regime and return them to the Iraqi people. In this testimony, GAO will present its preliminary observations on the recovery effort. Specifically, GAO (1) updates its estimate of the revenues diverted from the Oil for Food Program, (2) describes the U.S. government agencies working on the asset recovery effort, (3) discusses the results of U.S. efforts, and (4) highlights challenges that the United States faces in recovering Iraqi assets.
As this testimony reflects GAO's preliminary observations, GAO is making no recommendations.
Page 1 GAO-04-579T Recovering Iraq's Assets
Madam Chairwoman and Members of the Subcommittee:
We are pleased to be here today to discuss our preliminary observations on U.S. and international efforts to recover assets of the former Iraqi regime and transfer them to Iraq for reconstruction. Rebuilding Iraq is a U.S. national security and foreign policy priority. Billions of dollars are needed for meeting humanitarian needs, stabilizing Iraq, and repairing the country's infrastructure. The U.S. government and the international community have undertaken important efforts to recover the assets of the former regime and return them to the Iraqi people. In May 2003, this committee asked GAO to examine how the U.S. government works with the international community to recover the assets of targeted foreign regimes. We will complete this broader report on U.S. recovery efforts for the committee in May 2004. Today, we will present our preliminary observations on Iraqi asset recovery efforts. Specifically, we will (1) update our estimate of the revenues diverted from the Oil for Food Program by the former Iraqi regime, (2) describe the U.S. agencies working to recover Iraqi assets, (3) discuss the results of U.S. efforts, and (4) highlight challenges in asset recovery. To address these issues, we reviewed documents and statements from the Departments of the Treasury, State, Defense, and Justice on the asset recovery effort, the Coalition Provisional Authority (CPA)1 in Iraq on the funds transferred to Iraq, and the United Nations on the Oil for Food Program. We met with U.S. officials working on the recovery effort, including officials from the Treasury's Office of Foreign Assets Control (OFAC), analysts from U.S. law enforcement and intelligence agencies, financial regulators, and representatives from U.S. financial institutions responsible for implementing U.S. orders to freeze and transfer blocked Iraqi assets. We have yet to review the reliability of the data provided by the Department of the Treasury and the CPA.
1The CPA is the U.N.-recognized coalition authority, led by the United States and the United
Kingdom, responsible for the temporary governance of Iraq.
Page 2 GAO-04-579T Recovering Iraq's Assets
* We estimate that from 1997 through 2002, the former Iraqi regime acquired $10.1 billion in illegal revenues related to the Oil for Food Program--$5.7 billion in oil smuggled out of Iraq and $4.4 billion in illicit surcharges on oil sales and commissions from suppliers. This estimate is higher than our reported May 2002 estimate of $6.6 billion because it includes 2002 data from oil revenues and contracts under the Oil for Food Program, newer estimates of illicit commissions from commodity suppliers. 2
* The United States has tapped the services of several U.S. agencies and used recently developed domestic and international tools in its efforts to recover Iraqi assets worldwide. Led by the Department of the Treasury, about 20 government entities have combined efforts to identify, freeze, and transfer the former regime's assets to Iraq. The United States also used the International Emergency Economic Powers Act (IEEPA), as amended by provisions in the USA PATRIOT Act of 2001, to confiscate the property of the former Iraqi regime under U.S. jurisdiction and vest the assets in the U.S. Treasury. Finally, U.N. Security Council Resolution 1483 required all U.N. members to freeze without delay and immediately transfer assets of the former Iraqi regime to the new Development Fund for Iraq (DFI).
* U.S. efforts to recover Iraqi assets have had varying results.
* In March 2003, the U.S. government quickly took control of Iraq'sassets in the United States. From May to September 2003, the United States transferred $1.7 billion to Iraq to help pay for the salaries of Iraqi civil servants, ministry operations, and pensions. The United States also transferred $192 million to the DFI in July 2003. Most of the vested funds have been spent on reconstruction.
* Within Iraq, U.S. military and coalition forces seized about $926 million of the regime's assets. The CPA used these funds for Iraqi projects, ministry operations, and liquefied petroleum gas purchases.
* Other countries froze about $3.7 billion of Iraqi regime assets in compliance with U.N. Security Council resolutions. As of March 2004, Treasury reported that more than 10 countries and the Bank 2U.S. General Accounting Office, Weapons of Mass Destruction: U.N. Confronts Significant Challenges in implementing Sanctions Against Iraq, GAO-02-625 (Washington, DC.: May 23, 2002).
Summary
Page 3 GAO-04-579T Recovering Iraq's Assets
for International Settlements had transferred approximately $751 million to the DFI. State Department and Treasury officials continue to work diplomatically with other countries to expedite the transfer of remaining Iraqi assets.
* Little progress has been made in identifying and freezing additional Iraqi assets that remain hidden. While the amount of hidden assets accumulated by the former Iraqi regime is unknown, estimates range from $10 billion to $40 billion in illicit earnings.
* The United States faces key challenges in recovering Iraq's assets. First, recovering the former regime's assets was not initially a high priority in the overall U.S. effort in Iraq. Second, U.S. expectations for the quick transfer of funds may have been overly optimistic given the legal capabilities of some countries. Third, the impending transfer of sovereignty to an interim Iraqi government may further complicate U.S. efforts to locate and recover assets of the former regime.
In August 1990, Iraq invaded Kuwait, and the United Nations imposed sanctions against the regime. Security Council Resolution 661 of 1990, prohibited all nations from buying Iraqi oil and selling Iraq any commodities except food or medicines. The resolution also required member states to block the transfer of Iraqi assets from their countries. Consistent with this resolution, the President froze all Iraq's assets held in the United States. Other nations similarly froze Iraqi government assets in their countries.
In 1991, the Security Council offered to let Iraq sell oil under a U.N. program to meet its peoples' basic needs. The Iraqi government rejected the offer and, over the next 5 years, food shortages and a general deterioration in social services were reported.
In December 1996, the United Nations and Iraq agreed on the Oil for Food Program, which allowed Iraq to sell a set amount of oil to pay for food, medicine, and infrastructure repairs. The United Nations monitored and screened contracts that the Iraqi government signed with commodity suppliers. Iraq's oil revenue was placed in a U.N.-controlled escrow account. From 1997 through 2002, Iraq sold more than $67 billion of oil through the U.N. program and issued $38 billion in letters of credit for humanitarian goods. In May 2003, the Security Council passed Resolution 1483, which recognized the United States, Great Britain, and coalition partners as the authority for providing security and provisional
Background
Page 4 GAO-04-579T Recovering Iraq's Assets
administration in Iraq. The resolution also ended the sanctions, except for the prohibition on exporting arms to Iraq.
We estimate that, from 1997 through 2002, the former Iraqi regime acquired $10.1 billion in illegal revenues related to the Oil for Food Program--$5.7 billion through oil smuggling and $4.4 billion through surcharges against oil sales and illicit commissions from commodity suppliers.3 This estimate is higher than the $6.6 billion we reported in May 2002.4 We updated this estimate to include (1) oil revenue and contract amounts for 2002, (2) updated letters of credit from prior years, and (3) newer estimates of illicit commissions from commodity suppliers. Oil was smuggled out through several routes, according to U.S. government officials and oil industry experts. Oil entered Syria by pipeline, crossed the borders of Jordan and Turkey by truck, and was smuggled through the Persian Gulf by ship. In addition to revenues from oil smuggling, the Iraqi government levied surcharges against oil purchasers and commissions against commodity suppliers participating in the Oil for Food Program. According to some Security Council members, the surcharge was up to 50 cents per barrel of oil and the commission was 5 to 10 percent of the commodity contract. The funds were paid directly to officials connected with the Iraqi government. In addition, according to a Department of Defense (DOD) official, a DOD report in September 2003 evaluated 759 contracts funded and approved under the Oil for Food Program. The study found that at least 48 percent of the contracts were overpriced and that on average the contracts were overpriced by 21 percent.
3This estimate is in 2003 U.S. constant dollars.
4U.S. General Accounting Office, Weapons of Mass Destruction: U.N. Confronts Significant Challenges in implementing Sanctions Against Iraq, GAO-02-625 (Washington, DC.: May 23, 2002).
Estimated Revenue Obtained Illegally by the Former Iraqi Regime from the Oil for Food Program Exceeds $10 Billion
Page 5 GAO-04-579T Recovering Iraq's Assets
The United States has tapped the services of several U.S. agencies and used recently developed U.S. and international authorities in its efforts to recover Iraqi assets worldwide. About 20 entities, including those of the Departments of the Treasury, Homeland Security, Defense, Justice, State, intelligence agencies, law enforcement agencies, and the White House National Security Council, are involved in recovering Iraqi assets. To lead the asset recovery efforts, the United States created an interagency coordinating body headed by the Department of the Treasury. The Iraqi Assets Working Group has developed a strategy to identify, freeze, seize, and transfer former regime assets to Iraq. The working group's goals are to:
* Exploit documents and key financial figures in Iraq to better understand fund flows;
* Secure the cooperation of jurisdictions through which illicit funds have flowed so that working group members may exploit financial records and uncover the money trail;
* Secure the cooperation of jurisdictions in which illicit assets may reside to locate, freeze, and repatriate the assets;
* Engage the financial community in the hunt for illicit assets generally, and specifically secure the cooperation of the financial institutions through which illicit funds have flowed or may still reside;
* Develop a system to facilitate the fluid repatriation of funds; and
* Prepare for potential sanctions against uncooperative jurisdictions and financial institutions. The working group is leveraging the expertise of U.S. officials involved in efforts to recover assets of terrorists and money launderers. The U.S. Congress recently passed legislation containing provisions that allowed the President to confiscate foreign funds frozen in U.S. financial institutions. Specifically, provisions in the USA PATRIOT Act of 2001 amended IEEPA to allow the President to confiscate foreign property subject to U.S. jurisdiction in times of "on-going hostilities" or if the United States is attacked. These provisions gave the President the necessary authority, through an Executive Order, to confiscate the property of the former Iraqi regime and to vest these assets in the U.S. Treasury.
U.S. Efforts to Recover Iraqi Assets Involve Many Agencies and Use Recently Developed Domestic and International Authorities
Page 6 GAO-04-579T Recovering Iraq's Assets
In addition, the State Department cited U.N. Security Council Resolution 1483 as an important vehicle for requiring other countries to transfer assets to Iraq. On May 22, 2003, the U.N. Security Council adopted Resolution 1483, which (1) noted the establishment of the DFI, a special account in the name of the Central Bank of Iraq; and (2) required member states to freeze and immediately transfer to the DFI all assets of the former Iraqi government and of Saddam Hussein, senior officials of his regime and their family members. The resolution also included a unique immunity provision to protect the assets from new claims.
In 2003, the U.S. government quickly vested Iraq's assets held in the United States and transferred them to Iraq. Similarly, the U.S. military, in coordination with U.S. law enforcement agencies, seized assets of the former regime in Iraq. The CPA has used most of the vested and seized assets for reconstruction projects and ministry operations. U.S. officials noted that some other countries' efforts to transfer Iraqi funds have been slowed by their lack of implementing legislation. There has been little progress in recovering the regime's hidden assets. In 2003, the United States vested about $1.9 billion of the former regime's assets in the U.S. Treasury. Between May and December, the United States transferred more than $1.7 billion to Iraq and $192 million to the DFI. The United States had the necessary legal authorities to make the transfers quickly.
On August 2, 1990, in compliance with a Presidential Executive Order, the Treasury Office of Foreign Assets Control (OFAC) issued regulations to financial institutions requiring them to freeze Iraqi assets in the United States. More than 30 banks in the United States identified and frozeaccounts with $1.4 billion in Iraqi assets.5 These institutions held assets in accounts that accumulated interest.
In March 2003, the President used authorities, including the enhanced authority in IEEPA, as amended by provisions in the USA PATRIOT Act, to issue a new executive order to confiscate or take ownership of Iraqi assets held by U.S. financial institutions and vest them in the U.S. Treasury. 5In addition, according to OFAC, more than $480 million was frozen in U.S. financial institutions abroad.
U.S. Efforts to Recover the Former Iraqi Regime's Assets Have Had Varying Results The United States Transferred Nearly $1.9 Billion in Vested Assets to Iraq
Page 7 GAO-04-579T Recovering Iraq's Assets
According to Treasury and Federal Reserve officials, Treasury instructed the Federal Reserve Bank to release portions of the funds to DOD upon the Office of Management and Budget's approval of DOD's spending plans. As of March 2004, the CPA had spent about $1.67 billion of the $1.9 billion for emergency needs, including salaries for civil servants and pensions, and for ministry operations.
CPA informed us in March 2004 that the U.S. military, in coordination with U.S. law enforcement agencies had seized about $926 million of the regime's assets in Iraq. The U.S. military seized about $894 million in Iraqi bonds, U.S. dollars, euros, and Iraqi dinars, as well as quantities of gold and jewelry. This amount included $750,000 found with Saddam Hussein when he was captured. Department of Homeland Security agents seized an additional $32 million. The CPA is authorized to use these seized funds for humanitarian and reconstruction efforts. As of March 2004, the CPA had used $752 million for reconstruction activities, including projects, ministry operations, and liquefied petroleum gas purchases.
According to Treasury, other countries have frozen about $3.7 billion in Iraqi assets. Treasury officials reported that, as of March 2004, more than 10 countries and the Bank for International Settlements have transferred $751 million to the DFI. Treasury officials noted that the remaining assets have not been transferred to the DFI because some countries do not have the necessary legislation to affect the transfer or are holding about $1 billion to adjudicate claims. U.N. Security Council Resolution 1483 requires the immediate transfer of Iraqi funds identified and frozen in these accounts to the DFI.
To encourage other countries to transfer the funds to Iraq, the Secretary of the Treasury requested that the international community identify and freeze all assets of the former regime. Additionally, Treasury and State officials said that they have engaged in diplomatic efforts to encourage countries to report and transfer the amounts of Iraqi assets that they had frozen. For example, since March 2003, State officials told us that they have sent more than 400 cables to other countries requesting that they transfer funds to the DFI.
According to U.S. officials, Treasury and State continue to leverage the U.S. government's diplomatic relations with finance ministries and central The United States Seized
More Than $900 Million in Iraq Other Countries Have Transferred $751 Million to the DFI
Page 8 GAO-04-579T Recovering Iraq's Assets
banks to encourage the transfer of Iraqi assets to the DFI, according to Treasury officials. Some of the remaining frozen funds are located in financial institutions in Iraq's neighboring countries or Europe. Little progress has been made in recovering the former Iraqi regime's hidden assets. Because the former Iraqi regime used a network of front companies, trusts, and cash accounts in the names of the regime family members and associates, it has been difficult to identify how much remains hidden in the international financial system. U.S. government officials have cited estimates ranging from $10 billion to $40 billion in illicit earnings.
According to U.S. government officials, U.S. government asset recovery efforts have focused on exploiting documents in Iraq, interviewing key financial figures, and convincing other countries to cooperate in identifying and freezing illicit funds that have flowed through or still reside in their countries. For example, Department of Homeland Security agents have exploited Central Bank of Iraq records for leads regarding Saddam Hussein's procurement network. Internal Revenue Service criminal investigators have conducted interviews of former finance ministry individuals and exploited financial documents of the regime to obtain leads on the location of targeted assets. The Defense Intelligence Agency provides some of the research and analysis used to identify assets of the former Iraqi regime. In addition, according to Treasury and State officials, they are coordinating efforts to gain the cooperation of other countries. For example, State officials said that U.S. investigators have identified 500 accounts that potentially belonged to the former regime in other countries. State is working through their overseas embassies to get the cooperation of these countries to return the funds to the DFI.
The U.S. government has faced key challenges to recovering the assets of the former Iraqi regime.
First, recovering the former regime's assets was not initially a high priority in the overall U.S. effort in Iraq. As the need for additional resources to rebuild Iraq became apparent, the United States placed a higher priority on recovering the former regime's assets. According to U.S. government officials, recovering the former Iraqi regime's assets became the U.S. government's third priority behind the hunt for weapons of mass destruction and security in September 2003. In addition, Internal Revenue
Little Progress Has Been Made in Recovering Hidden Assets of the Former Iraqi Regime Challenges to Transferring Frozen Assets and Locating the Hidden Assets
Page 9 GAO-04-579T Recovering Iraq's Assets
Service agents stated that DOD's post-war plans and priorities did not include protection of financial documents or other information that could have provided leads on the location of the former regime's assets. Second, U.S. expectations for the quick transfer of funds under U.N. Security Council Resolution 1483 may have been overly optimistic given the lack of legal capabilities of some countries to do so. In June 2003, State and Treasury officials said that the U.N. resolution included unique provisions that afforded the United States and the international community with an opportunity to quickly recover Iraqi assets worldwide. The resolution required all U.N. members to freeze without delay assets of the former Iraqi regime and immediately transfer them to the DFI. Many of the member states that had frozen Iraqi government assets in 1991 did not immediately transfer the assets to the DFI.
U.S. officials stated that many countries needed to adopt additional legislation to implement the U.N. requirements and transfer the funds to the DFI. According to U.S. government officials, some U.N. member countries have developed the authorities, institutions, and mechanisms to freeze assets of targeted terrorists, but others had not developed similar mechanisms for targeted regimes. U.S. government officials also stated that some countries did not have the administrative capabilities and financial mechanisms to transfer the frozen assets. U.S. officials did not have a central repository of other countries' laws and regulations related to transferring Iraqi assets. Furthermore, according to U.S. officials, despite the immunity provision included in the U.N. resolution, some countries are delaying transfer of funds until all claims have been settled. Third, the impending transfer of sovereignty to an interim Iraqi government on June 30, 2004, may further complicate U.S. efforts to locate and recover assets of the former regime. It is uncertain whether the new government will allow the United States to continue its hunt for the former regime's assets. The future transitional government has yet to conclude agreements regarding the activities of the multi-national force, which may include the right to interview Iraqi officials and exploit documents. In addition, it is also uncertain whether other countries will transfer their remaining funds to the DFI when the interim government assumes authority over it. Madam Chairwoman and Members of the Subcommittee, this concludes our prepared statement. We will be happy to answer any questions you may have.
Page 10 GAO-04-579T Recovering Iraq's Assets
For questions regarding this testimony, please call Joseph Christoff at (202) 512-8979 or Davi M. D'Agostino at (202) 512-5431. Other key contributors to this statement were Thomas Conahan, Lynn Cothern, Philip Farah, Rachel DeMarcus, Ronald Ito, Barbara Keller, Sarah Lynch, Zina Merritt, Tetsuo Miyabara, Marc Molino, and Mark Speight.
Contacts and
Acknowledgments
Page 11 GAO-04-579T Recovering Iraq's Assets Appendix I: Roles of U.S. Entities In Recovering Iraqi Assets Asset location United States Assets $1.92 billion Frozen and transferred $1.67 billion Funds disbursed in Iraq Current status Department of the Treasury Executive Office of the President Coalition Provisional Authority Entity Agency/Office/Subdivision Role Office of Foreign Assets Control Executive Office for Terrorist Financing and Financial Crime Froze assets in 1990, directed financial institutions to transfer these assets to Treasury account in 2003. Leads interagency Iraq Task Force Working Group for Tracking and Recovery of Iraqi Assets (Iraqi Assets Working Group, IAWG).
Office of Management and Budget Approves CPA spending requests of vested funds.
Federal Reserve Bank of New York Maintains Treasury's vested account. As directed by Treasury, released the vested
funds to the Department of Defense and the Coalition Provisional Authority (CPA). Approves and manages the obligation and expenditure of vested funds.
Coalition Provisional Authority Approves and, with DOD, manages the obligation and expenditure of seized funds.
Asset location
Iraq Assets $926 million Seized $752 million Funds disbursed in Iraq Current status Department of Defense Entity Agency/Office/Subdivision Role
Military identified and seized assets in U.S. dollar, euro, and dinar currency notes;
gold, jewelry, and Iraqi bonds.
Department of Homeland Security Bureau of Immigration and Customs Enforcement
Secret Service
Assisted the military in the identification and seizure of assets. Seized an additional $32 million.
Determined the authenticity of seized assets.
Source: GAO.
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(320262)
Asset location Other countires Assets $3.7 billion Identified and frozen $751 million Transferred to the Development Fund for Iraqa Current status Department of the Treasury Entity Agency/Office/Subdivision Role
Office of Foreign Assets Control Coordinates with State and Justice on potential asset designations.
International Affairs Tracks the status of assets frozen in and transferred from other countries.
Bureau of Economic and Business Affairs and International Organizations Undertake diplomatic efforts to encourage other governments to implement UN Resolution 1483. Bureau of Intelligence and Research and Regional Bureaus Collect and analyze economic and other information on Iraq and its neighboring countries Department of State U.S. Mission to the United Nations Negotiated consensus on UN Resolution 1483. Submits potential freezing designations to the United Nations. Financial Institutions Identify, freeze, and transfer assets to the Development Fund for Iraq. Coordinates with State on outreach to foreign government officials, including finance ministries. Executive Office for Terrorist Financing and Financial Crime Bureau of Economic and Business Affairs and overseas embassies Undertake diplomatic efforts to encourage other governments to follow up on leads and freeze assets. U.S. Mission to the United Nations Encourages UN members to identify, freeze, and transfer assets. Asset location Global Assets $Unknownb Hidden Iraqi assets ? Current status Department of the Treasury Department of State Internal Revenue Service Criminal Investigation Division Defense Intelligence Agency Department of Defense Department of Homeland Security Entity Agency/Office/Subdivision Role Executive Office for Terrorist Financing and Financial Crime
Reviews documents and interviews individuals connected to Saddam Hussein's finances, front companies, and account transactions; provides leads to embassies and to other governments and financial institutions. Provides research and analysis used to identify assets of the former Iraqi regime.
Office of the Secretary of Defense and the Special Operations and Low-intensity Conflict Work with the IAWG to facilitate activities in Iraq, including providing logistical support to Treasury investigators. Source: GAO.
Coordinates U.S. efforts to locate additional hidden assets.
Identify and track financial assets related to the Central Bank of Iraq. Bureau of Immigration and Customs EnforcementThis is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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