Small and medium-sized Iraqi firms are often forced to borrow from family-dominated Iraqi groups who impose onerous loan terms, Senior Partner Timothy Mills at law firm Patton Boggs told a US Senate Democratic Policy Committee hearing on Monday.
“This has the effect of substantially driving up the contract price paid for out of US funds,” Mills told the hearing, called by Democrats to look at contracting abuses.
The US government has awarded billions of dollars in contracts to US companies to rebuild Iraq, who have in turn sub-contracted part of that work to Iraqi firms.
Democrats have over the past few weeks increasingly attacked the contracting process in Iraq, levelling accusations of cronyism and favouritism in granting contracts to US firms to wasteful spending and corruption on the ground in Iraq.
“With no place else to turn for financing, medium and small Iraqi firms must turn to the family-dominated entities for financing, on onerous terms that we in the West would consider to be predatory”
senior partner, Patton Boggs
North Dakota Senator Byron Dorgan, a Democrat, voiced concern over the apparent system of inflating prices and said it was abusive to the American taxpayer who is footing the bill in Iraq.
“It sounds like kickbacks to me,” said Dorgan.
Senator Hillary Clinton of New York was also critical. “We have story after story of waste and corruption,” she told Reuters.
Without specifying, Mills spoke of 12 families dominating the Iraqi private sector.
Their money, stashed in country’s with secretive banking laws such as Switzerland, is now providing capital to firms wanting to do business with the US government reconstructing Iraq.
“With no place else to turn for financing, medium and small Iraqi firms must turn to the family-dominated entities for financing, on onerous terms that we in the West would consider to be predatory,” he said.
For a $1 million sub-contract over a three- to six-month period, for example, an Iraqi company would increase its bid to provide the lending family with a return equal to one-half of the maximum profit that could be earned - possibly a net profit of 10%, said Mills.
Mills suggested that over-pricing could be avoided if the US were to create a lending fund of about $500 million from Iraqi seized assets.