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Contractor said to be paid $2m in cash

Ex-official says R.I. firm in Iraq got bills in sack

WASHINGTON -- US officials in postwar Iraq paid a Rhode Island contractor by stuffing $2 million worth of crisp bills into a gunnysack and routinely made cash payments around Baghdad from a pickup truck, a former official with the US provisional government says.

Because the country lacked a functioning banking system, contractors, and Iraqi ministry officials were paid with bills taken from a basement vault in one of Saddam Hussein's palaces that served as headquarters for the Coalition Provisional Authority, former authority official Frank Willis said.

Officials from the authority, in charge in Iraq from June 2003 to June 2004, would count the money when it left the vault, but no one kept track of the cash after that, Willis said.

''In sum, inexperienced officials, fear of decision-making, lack of communications, minimal security, no banks, and lots of money to spread around. This chaos I have referred to as a 'Wild West,' " Willis said in testimony he prepared to give today before the Senate Democratic Policy Committee, made up of Democrats who want to spotlight the waste of US funds in Iraq.

Willis was a senior official at the State and Transportation departments in the 1980s under President Ronald Reagan.

James Mitchell, spokesman for the special inspector general for Iraq reconstruction, said cash payments in Iraq were a problem when the occupation authority ran the country and they continue during the massive US-funded reconstruction.

''There are no capabilities to electronically transfer funds," Mitchell said. ''This complicates the financial management of reconstruction projects and complicates our ability to follow the money."

The Pentagon, which had oversight of the coalition authority, did not immediately comment in response to requests Friday and over the weekend. But the administrator of the former US provisional agency, L. Paul Bremer III, in response to a recent federal audit criticizing the authority, strongly defended the agency's financial practices.

Bremer said auditors mistakenly assumed that ''Western-style budgeting and accounting procedures could be immediately and fully implemented in the midst of a war."

When the authority took over the country in 2003, Bremer said, there was no functioning Iraqi government, and services were primitive or nonexistent. He said the US strategy was ''to transfer to the Iraqis as much responsibility as possible as quickly as possible, including responsibility for the Iraqi budget."

Iraq's economy was ''dead in the water," and the priority ''was to get the economy going," Bremer said.

Also in response to that audit, Pentagon spokesman Bryan Whitman had said, ''We simply disagree with the audit's conclusion that the CPA provided less than adequate controls."

Willis served as a senior adviser on aviation and communications matters for the authority during the last half of 2003 and said he was responsible for the operation of Baghdad's airport.

Describing the transfer of $2 million to one contractor's gunnysack, Willis said: ''It was time for payment. We told them to come in and bring a bag." He said the money went to Custer Battles of Middletown, R.I., for providing airport security in Baghdad for civilian passengers.

Willis said a coalition driver would go around the Iraqi capital and disburse money from a pickup truck formerly belonging to the grounded Iraqi Airways airline. Officials ''wanted to meld into the environment," he said.

Willis's allegations follow by two weeks an inspector general's report that concluded the occupying authority transferred nearly $9 billion to Iraqi government ministries without financial controls.

Senator Byron L. Dorgan of North Dakota, head of the group of Democrats that is holding today's hearing, said he arranged for Willis's testimony because majority Republicans have declined to investigate the suspected misuse of funds.

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