U.S. wasted billions and billions in Iraq: Report

WASHINGTON (AP) — Ten years and $60 billion in American taxpayer funds later, Iraq is still so unstable and broken that even its leaders question whether U.S. efforts to rebuild the war-torn nation were worth the cost.

In his final report to Congress, Special Inspector General for Iraq Reconstruction Stuart Bowen's conclusion was all too clear: Since the invasion a decade ago this month, the U.S. has spent too much money in Iraq for too few results.

The reconstruction effort "grew to a size much larger than was ever anticipated," Bowen told The Associated Press in a preview of his last audit of U.S. funds spent in Iraq, to be released Wednesday. "Not enough was accomplished for the size of the funds expended."

In interviews with Bowen, Prime Minister Nouri al-Maliki said the U.S. funding "could have brought great change in Iraq" but fell short too often. "There was misspending of money," said al-Maliki, a Shiite Muslim whose sect makes up about 60 percent of Iraq's population.

Iraqi Parliament Speaker Osama al-Nujaifi, the country's top Sunni Muslim official, told auditors that the rebuilding efforts "had unfavorable outcomes in general."

"You think if you throw money at a problem, you can fix it," Kurdish government official Qubad Talabani, son of Iraqi president Jalal Talabani, told auditors. "It was just not strategic thinking."

The abysmal Iraq results forecast what could happen in Afghanistan, where U.S. taxpayers have so far spent $90 billion in reconstruction projects during a 12-year military campaign that, for the most part, ends in 2014.

Shortly after the March 2003 invasion, Congress set up a $2.4 billion fund to help ease the sting of war for Iraqis. It aimed to rebuild Iraq's water and electricity systems; provide food, health care and governance for its people; and take care of those who were forced from their homes in the fighting. Fewer than six months later, President George W. Bush asked for $20 billion more to further stabilize Iraq and help turn it into an ally that could gain economic independence and reap global investments.

To date, the U.S. has spent more than $60 billion in reconstruction grants to help Iraq get back on its feet after the country that has been broken by more than two decades of war, sanctions and dictatorship. That works out to about $15 million a day.

And yet Iraq's government is rife with corruption and infighting. Baghdad's streets are still cowed by near-daily deadly bombings. A quarter of the country's 31 million population lives in poverty, and few have reliable electricity and clean water.

Overall, including all military and diplomatic costs and other aid, the U.S. has spent at least $767 billion since the American-led invasion, according to the Congressional Budget Office. National Priorities Project, a U.S. research group that analyzes federal data, estimated the cost at $811 billion, noting that some funds are still being spent on ongoing projects.

Sen. Susan Collins, a member of the Senate committee that oversees U.S. funding, said the Bush administration should have agreed to give the reconstruction money to Iraq as a loan in 2003 instead as an outright gift.

"It's been an extraordinarily disappointing effort and, largely, a failed program," Collins, R-Maine, said in an interview Tuesday. "I believe, had the money been structured as a loan in the first place, that we would have seen a far more responsible approach to how the money was used, and lower levels of corruption in far fewer ways."

In numerous interviews with Iraqi and U.S. officials, and though multiple examples of thwarted or defrauded projects, Bowen's report laid bare a trail of waste, including:

—In Iraq's eastern Diyala province, a crossroads for Shiite militias, Sunni insurgents and Kurdish squatters, the U.S. began building a 3,600-bed prison in 2004 but abandoned the project after three years to flee a surge in violence. The half-completed Khan Bani Sa'ad Correctional Facility cost American taxpayers $40 million but sits in rubble, and Iraqi Justice Ministry officials say they have no plans to ever finish or use it.

—Subcontractors for Anham LLC, based in Vienna, Va., overcharged the U.S. government thousands of dollars for supplies, including $900 for a control switch valued at $7.05 and $80 for a piece of pipe that costs $1.41. Anham was hired to maintain and operate warehouses and supply centers near Baghdad's international airport and the Persian Gulf port at Umm Qasr.

— A $108 million wastewater treatment center in the city of Fallujah, a former al-Qaida stronghold in western Iraq, will have taken eight years longer to build than planned when it is completed in 2014 and will only service 9,000 homes. Iraqi officials must provide an additional $87 million to hook up most of the rest of the city, or 25,000 additional homes.

—After blowing up the al-Fatah bridge in north-central Iraq during the invasion and severing a crucial oil and gas pipeline, U.S. officials decided to try to rebuild the pipeline under the Tigris River at a cost of $75 million. A geological study predicted the project might fail, and it did: Eventually, the bridge and pipelines were repaired at an additional cost of $29 million.

—A widespread ring of fraud led by a former U.S. Army officer resulted in tens of millions of dollars in kickbacks and the criminal convictions of 22 people connected to government contracts for bottled water and other supplies at the Iraqi reconstruction program's headquarters at Camp Arifjan, Kuwait.

In too many cases, Bowen concluded, U.S. officials did not consult with Iraqis closely or deeply enough to determine what reconstruction projects were really needed or, in some cases, wanted. As a result, Iraqis took limited interest in the work, often walking away from half-finished programs, refusing to pay their share, or failing to maintain completed projects once they were handed over.

Deputy Prime Minister Hussain al-Shahristani, a Shiite, described the projects as well intentioned, but poorly prepared and inadequately supervised.

The missed opportunities were not lost on at least 15 senior State and Defense department officials interviewed in the report, including ambassadors and generals, who were directly involved in rebuilding Iraq.

One key lesson learned in Iraq, Deputy Secretary of State William Burns told auditors, is that the U.S. cannot expect to "do it all and do it our way. We must share the burden better multilaterally and engage the host country constantly on what is truly needed."

Army Chief of Staff Ray Odierno, who was the top U.S. military commander in Iraq from 2008 to 2010, said "it would have been better to hold off spending large sums of money" until the country stabilized.

About a third of the $60 billion was spent to train and equip Iraqi security forces, which had to be rebuilt after the U.S.-led Coalition Provisional Authority disbanded Saddam's army in 2003. Today, Iraqi forces have varying successes in safekeeping the public and only limited ability to secure their land, air and sea borders.

The report also cites Defense Secretary Leon Panetta as saying that the 2011 withdrawal of American troops from Iraq weakened U.S. influence in Baghdad. Panetta has since left office when former Sen. Chuck Hagel took over the defense job last week. Washington is eyeing a similar military drawdown next year in Afghanistan, where U.S. taxpayers have spent $90 billion so far on rebuilding projects.

The Afghanistan effort risks falling into the same problems that mired Iraq if oversight isn't coordinated better. In Iraq, officials were too eager to build in the middle of a civil war, and too often raced ahead without solid plans or back-up plans, the report concluded.

Most of the work was done in piecemeal fashion, as no single government agency had responsibility for all of the money spent. The State Department, for example, was supposed to oversee reconstruction strategy starting in 2004, but controlled only about 10 percent of the money at stake. The vast majority of the projects — 75 percent — were paid for by the Defense Department.

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Online:

Special Inspector General for Iraq Reconstruction: http://www.sigir.mil/learningfromiraq/index.html

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Follow Lara Jakes on Twitter at https://twitter.com/larajakesAP

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Billions at stakes for BP in trial over Gulf oil spill

NEW ORLEANS (AP) — A University of California-Berkeley engineer who played a prominent role in investigating levee breeches in New Orleans after Hurricane Katrina is scheduled to be the first witness Tuesday at a trial involving another Gulf Coast catastrophe: the worst offshore oil spill in U.S. history.

Robert Bea, an expert witness for the plaintiffs who sued BP PLC and other companies involved in the Deepwater Horizon disaster, will share his theories about what caused BP's Macondo well to blow out on April 20, 2010, provoking an explosion on the Horizon rig that killed 11 workers and spewed an estimated 172 millions of gallons of crude into the Gulf.

Bea's testimony was scheduled for the second day of a civil trial that could result in the oil company and its partners being forced to pay tens of billions of dollars more in damages. The case went to trial Monday after attempts to reach an 11th-hour settlement failed.

The second witness slated to appear on the stand is Lamar McKay, president of BP America. The highest-ranking executive of BP scheduled to testify in the courtroom, McKay is likely to discuss corporate decisions that were made throughout the duration of the disaster. It was not clear if there would be time for his testimony Tuesday, however. Other BP officials were expected to give videotaped testimony.

In pretrial depositions and in an expert report, Bea argued along with another consultant that BP showed a disregard for safety throughout the company and was reckless in its actions — the same arguments made in opening statements Monday by attorneys for the U.S. government and individuals and businesses hurt by the spill.

Attorneys for BP tried to block the testimony of Bea, whom they accused of analyzing documents and evidence "spoon-fed" to him by plaintiffs lawyers. BP accused Bea and the other expert, William Gale, a California-based fire and explosion investigator and consultant, of ignoring the "safety culture of the other parties" involved in the spill, in particular Transocean Ltd., the drilling company running operations aboard the Deepwater Horizon.

Gale does not appear on a list of potential witnesses to be called during the trial.

Just last year, Bea testified for plaintiffs who sued the U.S. Army Corps of Engineers over broken levees in New Orleans following Hurricane Katrina.

In opening statements Monday, U.S. Justice Department attorney Mike Underhill said the catastrophe resulted from BP's "culture of corporate recklessness."

"The evidence will show that BP put profits before people, profits before safety and profits before the environment," Underhill said. "Despite BP's attempts to shift the blame to other parties, by far the primary fault for this disaster belongs to BP."

BP attorney Mike Brock acknowledged that the oil company made mistakes. But he accused Transocean of failing to properly maintain the rig's blowout preventer, which had a dead battery, and he claimed cement contractor Halliburton used a "bad slurry" that failed to prevent oil and gas from traveling up the well.

BP has already pleaded guilty to manslaughter and other criminal charges and has racked up more than $24 billion in spill-related expenses, including cleanup costs, compensation for businesses and individuals, and $4 billion in criminal penalties.

But the federal government, Gulf Coast states and individuals and businesses hope to convince a federal judge that the company and its partners in the ill-fated drilling project are liable for much more in civil damages under the Clean Water Act and other environmental regulations.

One of the biggest questions facing U.S. District Judge Carl Barbier, who is hearing the case without a jury, is whether BP acted with gross negligence.

Under the Clean Water Act, a polluter can be forced to pay a minimum of $1,100 per barrel of spilled oil; the fines nearly quadruple to about $4,300 a barrel for companies found grossly negligent, meaning BP could be on the hook for nearly $18 billion.

The judge plans to hold the trial in at least two phases. The first phase, which could last three months, is designed to determine what caused the blowout and assign percentages of blame to the companies involved. The second phase will determine what efforts the companies made to stop oil from spilling, and how much crude actually spilled into the Gulf.

During opening statements, BP and its partners pointed the finger at each other in a tangle of accusations and counter-accusations. But BP got the worst of it, from its partners and the plaintiffs in the case.

Jim Roy, who represents individuals and businesses hurt by the spill, said BP executives applied "huge financial pressure" to "cut costs and rush the job." The project was more than $50 million over budget and behind schedule at the time of the blowout, Roy said.

"BP repeatedly chose speed over safety," Roy said, quoting from a report by an expert who may testify.

Roy said the spill also resulted from Transocean's "woeful" safety culture and failure to properly train its crew. And Roy said Halliburton provided BP with a product that was "poorly designed, not properly tested and was unstable."

Brad Brian, a lawyer for Transocean, said the company had an experienced, well-trained crew on the rig. He said the Transocean workers' worst mistake may have been placing too much trust in the BP supervisors on the rig.

"And they paid for that trust with their lives," Brian said. "They died not because they weren't trained properly. They died because critical information was withheld from them."

A lawyer for Halliburton defended the company's work and tried to pin the blame on BP and Transocean.

"If BP had shut in the well, we would not be here today," Halliburton's Donald Godwin said.

Brock said Transocean's crew members ultimately were responsible for well control on the rig and didn't need permission from BP supervisors to shut in the well.

"Shut in the well, then seek advice," he said.

Underhill, the Justice Department attorney, heaped blame on BP for cost-cutting decisions made in the months and weeks leading up the disaster. He said two BP rig supervisors, Robert Kaluza and Donald Vidrine, disregarded abnormally high pressure readings that should have been glaring indications of trouble.

Kaluza and Vidrine have been indicted on federal manslaughter charges.

The 2010 spill fouled marshes, killed wildlife and closed fishing grounds. Scientists warn that the disaster's full effect may not be known for years. But they have reported dying coral reefs and fish afflicted with lesions and illnesses that might be oil-related.

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AIG seeks to recoup billions it says lost to fraud (Reuters)

WILMINGTON, Delaware (Reuters) – American International Group Inc sued two money management firms on Thursday in the start of a fight to recoup billions of dollars the bailed-out insurer said it lost due to fraud.

The insurer, 92 percent-owned by the U.S. government, joined the swelling ranks of investors and insurers who are taking on Wall Street over supposedly safe mortgage-related investments at the heart of the 2008 financial crisis.

The insurance giant sued ICP Asset Management and Moore Capital in New York State Supreme Court, but made clear that the lawsuits were the start of a campaign that would put Wall Street's biggest banks in its sights.

AIG, which received $182 billion in bailout money, contended it suffered losses by insuring mortgage securities that one of the financial firms created.

ICP could not be immediately reached for comment. A Moore spokesman said in a statement: "We haven't seen the complaint, and therefore can't comment on it."

AIG's campaign will likely take aim at Bank of America Corp, Goldman Sachs Group Inc and other Wall Street banks, according to a person familiar with AIG's strategy.

The banks sold AIG mortgage bonds with top-notch credit ratings that have since plummeted in value.

Goldman Sachs and Bank of America declined to comment.

Investors, bond insurers and federal home loan banks have already sought tens of billions of dollars from the banks for misrepresenting the quality of the home loans that were packaged into bonds known as mortgage-backed securities.

While none of the lawsuits has gone to trial, Bank of America recently reached a $1.6 billion settlement with Assured Guaranty Ltd, which insured mortgage bonds. Some financial and legal analysts said that deal showed the legal claims posed a real risk to the banks.

PART OF LARGER REVIEW

AIG signaled that more lawsuits could be on the way.

"At last year's annual meeting, AIG CEO Bob Benmosche said we would review our dealings with all of the counterparties with which we did business before and during the financial crisis to see if they harmed us by their conduct. This suit is the first result of that review," the company said.

The lawsuit was brought by AIG's Financial Products unit as part of the insurer's "overall efforts to recoup potentially billions of dollars from the fraudulent conduct of these defendants and other parties," the complaint said.

Some stock analysts say the ultimate cost of legal claims against banks stemming from various mortgage-related securities could reach into the tens of billions of dollars.

The claims could end up costing Back of America alone nearly $30 billion, said Chris Gamaitoni, an analyst with Compass Point Research & Trading LLC.

However, that could be spread over many years as much of the litigation has bogged down in procedure.

The U.S. government rescued AIG at the height of the 2008 financial panic, pumping billions into the company, after it and other giant financial firms suffered huge losses from securities tied to the U.S. housing market crash.

A big profit from the AIG rescue and the government's eventual disentanglement ahead of U.S. elections in 2012 would be a boost for the Obama administration, coming on the heels of successes at Citigroup Inc and General Motors Co.

A U.S. Treasury spokesman it was not involved in the decision to sue the money managers.

$350 MILLION DAMAGES ALLEGED

The lawsuit said the defendants breached obligations to AIG related to the creation of complex collateralized debt obligations, or CDOs.

AIG said it has suffered more than $350 million in damages from the alleged misconduct, which included using inflated values on the mortgage bonds that were packaged into the CDOs. By inflating the values, ICP created windfall profits for itself and swelled its management fees, the lawsuit argues.

The complaint draws on last year's SEC lawsuit against ICP in Manhattan federal court, accusing the investment advisory firm of repeatedly violating federal securities laws.

The AIG case is AIG Financial Products v ICP Asset Management LLC et al, Supreme Court of New York, New York County, No. 651117/2011.

(Additional reporting by Martha Graybow, Noeleen Walder, Rachelle Younglai and Joseph Ax; Editing by Howard Goller and Gerald E. McCormick)

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