Imagine a hostile takeover of a major company, conducted by a dawn raid in defiance of all stock exchange and SEC regulations. Then, without shareholders’, board or trustees’ votes, the takeover guys put in their own board, and announce they will decide in their own good time when to hold board elections. They will also continue to put the company’s major contracts out to themselves, without tender – and no, they will not allow outsider auditors to see where the money is going.
The new company goes on a big roadshow, during which it confirms not only that the newly installed board and management will stay, but also on no account will the firm consider any outside board members. In addition, the company says that it is too big to fail, and that institutions should pour more money in. And it says it should have its existing debt written off by lenders.
Think this sounds like an exercise in sheer chutzpah? Well it is – but as our astute readers will realize this was essentially the script put forward by the US at the Madrid donors’ conference on behalf of Iraq, back in October.
The US invaded Iraq, ignoring its own State Department warnings about what to do post-invasion, and then insisted the rest of the world should write big checks to help it pay for the occupation and reconstruction. All the while it remained insistent that money would mostly go to a handful of American companies, one of which had the current vice president of the US as its CEO.
For many decades the US has been the hardest-nosed about the moral hazards inherent in writing off debt that kleptocrats have run up in the world’s poorest and most asset-free nations. Now it is insisting that everyone else write off Baghdad bonds – of which the US holds very few.
Any IRO could have told the US that as a prospectus for an IPO, this is a tough sell. In terms of transparency and global governance, would-be investors could look at the Iraq Development Fund. The United Nations (pressed by Washington) ruled that all Iraqi government funds frozen under sanctions should be paid into this fund. It has taken six months for the occupation authorities to agree that the Monitoring and Advisory Board, nominated by multilateral institutions, could actually do anything more rigorous by way of auditing than count up how much money was left. Its membership was finally agreed only on the morning of the Madrid donors’ conference.
The UN resolution that set up the Iraq Development Fund asked countries to hand over all Iraqi government assets on their territories, most of them frozen since the first Gulf War. The US had frozen assets worth $1.7 bn. But did it hand them over?
Not likely! By the time the US had persuaded the United Nations to pass the resolution, the money was no longer a frozen Iraqi asset – it was a slush fund. The administration had confiscated it under the US Patriot Act as an anti-terrorist measure. There seems to be some doubt about the fate of Saddam’s own personal piggy bank, the $800 mn or so that was found stashed in Baghdad in the post-invasion weeks – but it certainly wasn’t used for debt buybacks or dividends to stakeholders in Iraq Inc.
Regardless of whether you approve or disapprove of the war on Iraq, no one could or should be happy with post-war policies. For an administration that claims to be business-friendly, one should expect an extension to Iraq of the much-touted principles of transparency, accountability and corporate governance that we preach at home. It would do wonders to make Iraq more of a going concern both domestically and abroad – to the immense relief, one suspects, of American taxpayers.
Maybe, as their patriotic contribution, Niri and the SEC could pull together a commando squad of experienced IROs and enforcement officers to parachute into Baghdad and show Paul Bremer how IR can save the world – or at least the bit of it that allegedly used to be the Garden of Eden. Speculator awaits the call-up papers.
