Watchdog Finds Many Iraq Reconstruction Projects Subpar

Reviews of the Iraq rebuilding program show many sub-standard facilities, but construction companies say they face unusual challenges in a war zone. The NewsHour presents a report.

EFFREY KAYE, Reporter, KCET: Amid pomp and circumstance, hundreds of cadets graduated this summer from the newly rebuilt Baghdad Police Academy. The $73 million project was supposed to be a showpiece of America's Iraq reconstruction program. But to critics, it's an icon of incompetence; to others, it shows the challenge of rebuilding in a war zone.

Pictures taken by investigators two months after the graduation showed human waste dripping from ceilings in the eight dormitories. One leaky room was nicknamed the "rain forest." The photos and descriptions are contained in a report issues by the special inspector general for Iraq reconstruction, Stuart Bowen, Jr.

STUART BOWEN, JR., Special Inspector General for Iraq Reconstruction: Sewage just drains through the floors, through the light fixtures, through the ceiling, fundamentally compromising the structure of the buildings and creating really a disastrous situation, an unusable facility.

JEFFREY KAYE: Bowen calls the Baghdad Police Academy the worst project he's seen since taking office in January 2004.

STUART BOWEN, JR.: We found that the plumbing was simply improperly installed in all eight barracks, so poorly that, when the facilities were used, that the plumbing burst.

JEFFREY KAYE: The company responsible for the Baghdad Police Academy is Parsons Corporation, the global engineering and construction giant headquartered in Pasadena, California.

JAMES MCNULTY, CEO, Parsons Corporation: The dormitories where the plumbing failures occurred is certainly regrettable, and it's not up to our standards.

JEFFREY KAYE: James McNulty, Parsons' chairman and chief executive officer, blames Iraqi subcontractors for the problems at the police academy.

JAMES MCNULTY: When we found out about the difficulties, we sent in the Iraqi plumbing contractor who did the work, and they have repaired the facility under the warning terms of their contract, at no cost to the government or to the Iraqis.






Stuart Bowen, Jr.
Special Inspector General

It was very disappointing, most disappointing project I've visited.


Cancelled projects

JEFFREY KAYE: But the inspector general's office expects there will be additional costs to fix up the academy. That's just one of the many controversies enveloping Bowen as chief watchdog of America's $22 billion Iraq rebuilding program. Bowen is a former lawyer for George Bush in both Texas and Washington. His office has produced a stream of audits and reports highly critical of the Iraq reconstruction program.
SEN. SUSAN COLLINS (R), Maine: Welcome back home.

STUART BOWEN, JR.: Thank you.

JEFFREY KAYE: As inspector general, Bowen has spent a total of 15 months in Iraq. After a recent trip, Bowen briefed GOP Senator Susan Collins of Maine.

STUART BOWEN, JR.: It was very disappointing, most disappointing project I've visited.

SEN. SUSAN COLLINS: Was that in a Parsons project?

STUART BOWEN, JR.: Yes, it was.

JEFFREY KAYE: Bowen's inspectors examined 14 of Parsons' Iraq projects, and Bowen says all but one were substandard.

STUART BOWEN, JR.: Thirteen of them did not meet contract expectations. And the one that did, a prison which I visited last spring, was ultimately canceled because it was over budget and significantly reduced in scope.

JEFFREY KAYE: In fact, the U.S. government canceled two Parsons prison contracts worth more than $100 million.

With hundreds of projects worth $1.7 billion, Parsons has assumed a lion-sized role in the Iraq rebuilding program. It's worked on oil operations, schools, water systems, munitions disposal, and one of the most photographed buildings in recent Iraq history, the courthouse where Saddam Hussein has stood trial.

In other Parsons projects, health care facilities, border posts, and police stations, the inspector general cataloged contractor horror stories: posts that weren't straight, walls with cracks and gaps, and poor concrete work that made structures unsafe.

Parsons was supposed to renovate 20 hospitals but completed just 12. Among them was the Diwaniya Maternity and Pediatric Hospital, 100 miles south of Baghdad. In January, Iraqi physician Ali Fadhil filmed at the hospital for a British documentary.

DR. ALI FADHIL, Iraqi Physician: Everywhere the standard of work is terrible. New light fittings have melted. Pipes have not been connected. In the operating theater changing room, you can smell raw sewage.






James McNulty
CEO, Parsons Corporation

Our contract was to renovate the hospital, which we did, and we turned over to our government, and the Iraqis accepted it. What happens after acceptance is beyond our control.

Health care crisis

JEFFREY KAYE: Parsons received nearly $4.2 million to renovate this hospital, but instead of new equipment, Fadhil found old incubators held together with wires and tape, oxygen tubes that weren't properly connected, and leaky plumbing. With the help of Fadhil, who now lives in New York City, we contacted the hospital administrator. He says the problems have worsened in the last 10 months.
DR. ALI FADHIL: Now we have the operation -- the cesarean operation room and the neonatal room, it's closed right now because of sewage.

JAMES MCNULTY: Our contract was to renovate the hospital, which we did, and we turned over to our government, and the Iraqis accepted it. What happens after acceptance is beyond our control.

JEFFREY KAYE: Other Parsons work included the planned construction of clinics throughout Iraq, but that contract was scaled back from 141 to 20, and of that only seven have been completed.

STUART BOWEN, JR.: The program, which was the key to providing real health care in Iraq, simply fell off the rails. Parsons, the contractor, didn't get the job done.






James McNulty
CEO, Parsons Corporation

We've had our Iraqi employees pulled out of cars and shot point-blank. We've had Iraqis that worked for us kidnapped. We have had truck drivers blown up by explosive devices while they've been driving down roads.

Challenges

JEFFREY KAYE: McNulty says three factors are responsible for Parsons' difficulties: unreasonable U.S. government expectations; problems with Iraqi subcontractors; and, most of all, unexpected levels of chaos and violence.
JAMES MCNULTY: We had no idea going in that it would be this dangerous. All of the preliminary contractual discussions that we had during the bidding process, we were told to assume a, quote, "permissive environment," by that meaning that we would be able to freely travel around the country and be able to provide the necessary and appropriate oversight at all of the sites. And it certainly didn't turn out that way at all.

JEFFREY KAYE: McNulty says the challenges in Iraq construction are like nothing Parsons has experienced in its 62-year history.

JAMES MCNULTY: We have had senior Iraqi contractor representatives on site murdered. We've had our Iraqi employees pulled out of cars and shot point-blank. We've had Iraqis that worked for us kidnapped. We have had truck drivers blown up by explosive devices while they've been driving down roads.

JEFFREY KAYE: But the difficulties of building in a war zone did seem apparent from the beginning. By early 2004, when Parsons signed its first reconstruction agreements, more than two dozen civilians working for private contractors had already been killed in Iraq.

PARSONS MANAGER: Our project managers are prudent enough to know that, if the coalition forces say it's not safe, it's not safe.

JEFFREY KAYE: And by June 2004, when we first visited Parsons for a story about Iraq reconstruction, company executives assured themselves and us they could handle the dangers.

JAMES MCNULTY: We feel very comfortable doing this work, and we think we can manage the risks. I mean, if we didn't think we could manage both the physical risks and the financial risks, we would have chosen not to bid.

JEFFREY KAYE: Looking back on that statement, were you being realistic?

JAMES MCNULTY: At the time, I was being realistic because I didn't think that the security situation would deteriorate to the extent that it did.

JEFFREY KAYE: The war also affects the watchdogs. Concerned for their safety, analysts with the inspector general's office often examined satellite images instead of visiting projects in person.

The violence has also made oversight work difficult for the U.S. Army Corps of Engineers, which manages the Iraq reconstruction work and inspects projects.

But, says Major General William McCoy, the former commander of the Corps in Iraq, the war is not the only reason for Parsons' difficulties. McCoy, who spent 15 months in Iraq, until mid-October, made the decisions to terminate Parsons' prisons and health facilities contracts.

MAJ. GEN. WILLIAM MCCOY, U.S. Army Corps of Engineers: Their ability to get out and go and see stuff and get to a place was severely limited, partially because of their belief in the security situation, and partially because they just didn't have enough people to get to the right places at the right time.






Rep. Henry Waxman
(D) California

I don't think anybody ought to get paid and be able to keep the money if they didn't do what they were supposed to do.

Subcontracting

JEFFREY KAYE: The Army Corps found that Parsons also lost control of projects because of its heavy use of subcontractors, Iraqi companies, which in turn farmed out work to other layers of subcontractors. McNulty says the U.S. government required Parsons to use Iraqi firms, but Parsons had difficulty finding companies with expertise.
JAMES MCNULTY: The Iraqi contractors had never built anything to U.S. standards before. In fact, many of the Iraqi contractors were never in business until after the war. And so we were supervising Iraqi contractors and trying to get them to build to U.S. standards when they had never done so before and had no experience doing that.

JEFFREY KAYE: McNulty complains the U.S. government didn't pay what Parsons needed to hire enough supervisors. To make matters worse, he says, after Parsons agreed to build 141 clinics in two years, the Army Corps of Engineers decided Parsons should do the job in half the time.

JAMES MCNULTY: The government then told us that 24 months was unacceptable, we had to build them in 12 months, and that they wanted to start every one of the clinics simultaneously, 141 clinics all over Iraq at 141 different sites.

MAJ. GEN. WILLIAM MCCOY: There was clearly some issues with some of the decisions the government made. But at the end, they signed the contract to accomplish the tasks that we asked them to do.

JEFFREY KAYE: Democratic Congressman Henry Waxman agrees. He says Parsons promised more than they could deliver.

REP. HENRY WAXMAN (D), California: The contractors didn't think there would be a problem when they were willing to sign the contracts. They even added money into the contracts to provide for security protections for their efforts and for their workers.

JEFFREY KAYE: Waxman, who is expected to chair the House Government Reform Committee next year when Democrats take control of Congress, promises to pursue allegations of war profiteering.

REP. HENRY WAXMAN: I don't think anybody ought to get paid and be able to keep the money if they didn't do what they were supposed to do. And then they found that Iraqi subcontractors didn't do the work, but why should the U.S. taxpayers pay for that? We should get our money back.

JEFFREY KAYE: But Parsons' chief says the company made an honest profit of 2 percent to 3 percent and has no intention of repaying it.

JAMES MCNULTY: There is nothing wrong with our firm having made a profit on that work that we did over there in Iraq. It was legitimately earned; it was honestly earned. And none of our employees, nor our firm, should feel the least bit bad about that.

JEFFREY KAYE: Congress recently voted to disband the inspector general's office next October, but that decision is expected to be reversed. And Stuart Bowen says he'll expand his investigation of Parsons as part of a widening probe of how U.S. funds have been used in Iraq.

Iranian forces enter Iraq, clash with Kurdish rebels: Kurds
(AFP)

25 November 2006

SULAIMANIYAH, Iraq - Iranian forces crossed the Iraqi border and clashed with a force of Kurdish guerillas eary Saturday, before returning to their posts, Kurdish officials and rebels reported.

Mustafa Sayyed Qader, deputy commander of the peshmerga, the Kurdish militia of the Patriotic Union of Kurdistan, told AFP Iranian forces crossed the border to attack a customs post of the rebel Kurdistan Workers Party.

The PKK, which has been waging a guerrilla war against Turkey, is based in northern Iraq’s Mount Qandil area, together with the anti-Iranian Party of Free Life in Kurdistan (PJAK).

‘A number of Iranian forces crossed into Iraqi territory Saturday morning in the Nowzang border area,’ said Jingawr, a PKK leader who goes by a single name.

‘A force of PJAK atacked them and the clashes continued for an hour until Iranian forces withdrew to their posts inside their own territory.’

Iran, which has its own Kurdish minority, has been battling infiltrations by PJAK for more than a year.

Iran is bound by treaty with Turkey to fight the PKK. In return, Turkey is under a pledge to fight the Iranian armed opposition group, the Iraq-based People’s Mujahedeen. That group was effectively neutralised when it surrendered its arms to US forces following the 2003 invasion to unseat Saddam Hussein.

PJAK, which has close ties with the PKK, was formed in the late 1990s and describes itself as struggling for the Kurdish identity in Iran as well as for democracy.

Both groups have bases in northern Iraq.

Jingawr said that there were no PJAK casualties, nor were they aware of any Iranian casualties.

November 26, 2006
Op-Ed Columnist
The Education of Robert Kennedy

By DAVID BROOKS
Emilio Estevez’s movie, “Bobby,” introduces the martyrdom of Robert Kennedy to another generation of Americans, but it was Robert’s reaction to his brother’s death that is really most instructive to the young.

Robert Kennedy was dining at home on Nov. 22, 1963, when J. Edgar Hoover called. “I have news for you,” Hoover began coldly. “The president’s been shot.” Kennedy turned away from his lunch companions, his hand to his mouth and his face twisted in pain.

In the ensuing months, he was devoured by grief. One of his biographers, Evan Thomas, writes: “He literally shrank, until he appeared wasted and gaunt. His clothes no longer fit, especially his brother’s old clothes — an old blue topcoat, a tuxedo, a leather bomber jacket with the presidential seal — which he insisted on wearing and which hung on his narrowing frame.”

But during March 1964, he visited Bunny Mellon’s estate in Antigua, and spent the vacation in his room, reading a book Jackie Kennedy had given him, “The Greek Way,” by Edith Hamilton.

“The Greek Way” contains essays on the great figures of Athenian history and literature, and Kennedy found a worldview that helped him explain and recover from the tragedy that had befallen him. “When the world is storm-driven and the bad that happens and the worse that threatens are so urgent as to shut out everything else from view,” Hamilton writes, “then we need to know all the strong fortresses of the spirit which men have built through the ages.”

Classical scholars often scorn Hamilton because she wrote in a breathless “all the glory that was Greece” mode, but her book changed Robert Kennedy’s life. He carried his beaten, underlined and annotated copy around with him for years, pulling it from his pocket, reading sections aloud to audiences in what Thomas calls “a flat, unrhythmic voice with a mournful edge.”

Kennedy found in the Greeks a sensibility similar to his own — heroic and battle-scarred but also mystical. He shared the awful sense of foreboding that pervades the work of Aeschylus and Sophocles, and that distinctly Greek awareness of the invisible patterns that connect events to one another, how the arrogance men and women show at one moment will twist back and bring agony later on.

Hamilton is at her best describing the tragic sensibility, the strange mixture of doom and exaltation that marks Greek drama. It was based on the conviction that good grows out of bad, virtue out of hardship, and that wisdom is born in suffering. Kennedy memorized a passage from Aeschylus, which Hamilton quotes twice in her book:

“God, whose law it is that he who learns must suffer. And even in our sleep pain that cannot forget, falls drop by drop upon the heart, and in our own despite, against our will, comes wisdom to us by the awful grace of God.”

Kennedy, recovering from his brother’s murder, found in the ancient Greeks a civilization that was eager to look death in the face, but which seemed to draw strength from what it found there. The Greeks seemed more convinced of the dignity and significance of life the more they brooded on the pain and precariousness of it.

Kennedy underlined a passage of Hamilton’s book in which she summarizes the rippled nature of Greek optimism: “Life for him was an adventure, perilous indeed, but men are not made for safe havens. The fullness of life is in the hazards of life. And, at the worst, there is that in us which can turn defeat into victory.” If they were doctors of the spirit, the Greeks’ specialty was to take grief and turn it into resolution.

The story of Kennedy’s grief is the story of a man stepping out of his time and fetching from the past a sturdier ethic. He developed a bit of that quality, which greater leaders like Churchill possessed in abundance, of seeming to step from another age. Kennedy became a figure in the 1960s, but was never really of the ’60s. He promoted many liberal policies but was never a member of a team since he drew strength from somewhere else.

And the lesson, of course, is about the need to step outside your own immediate experience into the past, to learn about the problems that never change, and bring back some of that inheritance. The leaders who founded the country were steeped in the classics, Kennedy found them in crisis, and today’s students are lucky if they stumble on them by happenstance.

Copyright 2006 The New York Times Company
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November 26, 2006
Now It’s Iraq on the Agenda for Mr. Fix-It of the G.O.P.

By SHERYL GAY STOLBERG
WASHINGTON, Nov. 25 — Everyone in Washington knows that President Bush has a lot riding on the Iraq Study Group, the bipartisan panel searching for a fresh strategy in Iraq. But so has the man whose name has become synonymous with the group: its Republican co-chairman, James A. Baker III.

The last time he dominated the news was in 2000, in Florida, when Mr. Baker — a former secretary of state who has been a friend and a tennis partner of the first President Bush since the current president was 13 years old — led the legal team that delivered the White House to its current occupant. That was Mr. Baker in partisan mode, cementing his reputation as Bush family confidant and Republican fix-it man.

Now, at 76, Mr. Baker is in high diplomat mode, on a mission, friends and supporters say, to aid his country and his president — and, while he is at it, seal his legacy in the realm of statesmen, a sphere he cares about far more than politics.

“I think he’d like to be remembered as a 21st-century Disraeli,” said Leon Panetta, a Democratic member of the group, referring to the 19th-century British statesman and prime minister. “I think deep down he is someone who believes that his diplomatic career, in many ways, helped change the world.”

On Monday, the 10 members of the Iraq Study Group — five Republicans and five Democrats — will convene in Washington for two days of deliberations, to try to produce a report by mid-December. The panel, formed at the urging of a bipartisan group in Congress, has a broad mandate to conduct an analysis of the situation in Iraq, including military, economic and political issues.

The group has conducted hundreds of interviews, but some question whether even the most thorough report can have any effect on the ground in Iraq, where sectarian violence is escalating.

The panel remains deeply divided over several critical issues, most notably whether to accede to calls by Democrats for a phased withdrawal of troops. Mr. Baker, who would not be interviewed for this article, has said he wants bipartisan consensus, but the panel’s Democratic co-chairman, Lee H. Hamilton, acknowledges it will be difficult.

“It’s not a guaranteed result,” Mr. Hamilton said. “There is a lot of focus on our work, and a lot of attention to it, and high expectation from it. I think Jim and I both feel that pressure.”

Mr. Baker is no stranger to world affairs; he presided over the end of the cold war, the 1991 invasion of Iraq (arguing famously against ousting Saddam Hussein) and was an aggressive dealmaker in the Middle East. He has always been “the quintessential pragmatist,” in Mr. Panetta’s words, a master at intertwining politics with diplomacy, at consulting everyone in the beginning so no one feels left out in the end.

That has been his modus operandi at the commission, where he has functioned almost as a shadow secretary of state, using his vast personal Rolodex to reach out to international figures the Bush administration has shunned — while testing the political waters at home.

He has made ample use of his Bush connections, dropping in on the president for private Oval Office tête-à-têtes. He led the study group on a mission to Baghdad, where they donned helmets and flak jackets to meet leaders of every political stripe. (“A lot of them knew him,” Mr. Panetta said.)

He has included Mr. Hamilton on every decision, going so far as to reject a photo shoot at Newsweek unless it included Mr. Hamilton, colleagues said. He insisted the report be released after the November election. He has let information slip out when it has suited him — like news of his quiet rendezvous with officials from Syria and Iran, rogue nations in the White House’s view — but has demanded absolute secrecy about the substance of the panel’s work.

“We’ve all been issued cyanide pills,” said Edward P. Djerejian, who is helping Mr. Baker write the draft and is director of the James A. Baker III Institute for Public Policy at Rice University, a university Mr. Baker’s grandfather helped found.

As a two-time former cabinet secretary (at Treasury under President Ronald Reagan and the State Department under the first President Bush) and a two-time former White House chief of staff (Reagan and the first President Bush), Mr. Baker has been around Washington long enough to know how to play the expectations game. Right now, he is playing it to the hilt, putting out the word that Iraq 2006 is hardly Florida 2000.

“The expectations have gotten well beyond where he wanted them to get,” said one person close to Mr. Baker, who spoke on condition of anonymity. “You’re talking about a political equation as much as you are a strategic and diplomatic one. And one of the things that’s making the situation difficult is this image that Baker’s coming in, Baker’s riding to the rescue. There are some very smart and very strong Democrats on this panel, and they’re not going to do what Baker tells them to do.”

Nor will President Bush; his press secretary, Tony Snow, insisted that the White House would not “outsource this problem to the Baker commission.” The White House is already pushing back against the report, even before it is issued. The Pentagon is doing its own review of Iraq policy, and the White House has commissioned another. President Bush, meanwhile, is traveling to Jordan this week to meet Prime Minister Nouri al-Maliki of Iraq, where he is expected to reassure the prime minister that the United States is not pulling out anytime soon.

Mr. Baker’s relationship with the president is one of the great curiosities of Washington, and many here are trying to divine how he will use that tie to advance the Iraq Study Group. The two are not nearly as close as Mr. Baker is with Mr. Bush’s father; Mr. Baker’s recent autobiography, “Work Hard, Study and Keep Out of Politics,” suggests tension just under the surface.

Mr. Baker writes that he did not mind being left out of the current administration: “We had our turn. Now it was his.” Though people in Washington see a certain irony in his return to manage a new Iraq war gone wrong, he insists he is not “implicitly criticizing” Mr. Bush for the invasion. Yet Mr. Baker takes pains to point out, in a one-sentence footnote, that Mr. Bush is “an alumnus” of the “office boy pool” at Baker Botts, Mr. Baker’s law firm in Houston. In one scene from the elder Mr. Bush’s 1988 presidential campaign, he refers to “the ever-playful presidential son, George W.”

These days Mr. Baker refers to that son as “Mr. President.” The president calls Mr. Baker, 16 years his senior, “Jimmy.” Aides to both insist Mr. Baker has not used his private Oval Office meetings to tip the president off to the commission’s work. But then, Mr. Baker would never be that unsubtle.

“He’s treating the president just like he is everyone else, as somebody to be co-opted, and brought into the process,” said one outside adviser to the study group, who was granted anonymity to talk about the process.

Some Democrats consider that a good thing. “Baker has the great good possibility of success because he’s so close to the president,” said Senator Joseph R. Biden Jr., the Delaware Democrat and incoming chairman of the Senate Foreign Relations Committee. “He’s able to give the president a way out, a way of saying, ‘I didn’t do what the Democrats said. I listened to Baker, my old buddy, Jim Baker.’ ”

By all accounts, Mr. Baker relishes his encore as elder statesmen.

“Look, he was certainly a very effective politician, a wise political strategist,” said Donald L. Evans, a close friend of Mr. Baker’s who served as commerce secretary in President Bush’s first term. “But that was a means to an end. He’s playing, I think, the role that he should be playing at this moment in life — the distinguished statesman that is there for leaders to go to, and listen to.”

The study group, formed in March, operated below radar for months. But the assignment just happened to overlap with Mr. Baker’s October book tour. Mr. Baker left no media outlet unturned, even appearing on “The Daily Show with Jon Stewart.” (“Don’t think for one minute they don’t sell books,” he later told The Houston Chronicle.)

Mr. Baker used the appearances artfully, promoting the book and setting the stage for public acceptance of the Iraq Study Group. He made clear his differences with the White House, telling the ABC news program “This Week” that “it’s not appeasement to talk to your enemies” and that his panel would search for a middle ground between “ ‘stay the course’ and ‘cut and run.’ ”

The political landscape, though, has changed dramatically since then. If Mr. Baker can guide his group toward recommendations that are accepted by the White House and Democrats, and that yield real improvement in Iraq, he will be more than a Republican fix-it man. Mr. Evans, the former commerce secretary, said he would be remembered as “America’s fix-it man.”

But foreign policy experts and politicians alike say there is no miracle elixir for Iraq; if there were, someone would have thought of it already. Ivo Daalder, a scholar at the Brookings Institution, says the real test for Mr. Baker is to pull the White House “out of the quicksand” in a way that has lasting political effects at home and strategic effects in Iraq.

“This is an impossible job,” said Mr. Daalder, adding wryly: “Even God couldn’t meet those expectations. Perhaps Jim Baker can.”

Copyright 2006 The New York Times Company
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November 26, 2006

U.S. Finds Iraq Insurgency Has Funds to Sustain Itself
By JOHN F. BURNS and KIRK SEMPLE
BAGHDAD, Nov. 25 — The insurgency in Iraq is now self-sustaining financially, raising tens of millions of dollars a year from oil smuggling, kidnapping, counterfeiting, corrupt charities and other crimes that the Iraqi government and its American patrons have been largely unable to prevent, a classified United States government report has concluded.

The report, obtained by The New York Times, estimates that groups responsible for many of the insurgent and terrorist attacks are raising $70 million to $200 million a year from illegal activities. It says that $25 million to $100 million of the total comes from oil smuggling and other criminal activity involving the state-owned oil industry aided by “corrupt and complicit” Iraqi officials.

As much as $36 million a year comes from ransoms paid to save hundreds of kidnap victims in Iraq, the report said. It estimates that unnamed foreign governments — previously identified by senior American officials as including France and Italy — paid Iraqi kidnappers $30 million in ransom last year.

A copy of the report was made available to The Times by American officials in Iraq, who said they acted in the belief that the findings could improve American understanding of the challenges the United States faces in Iraq.

The report offers little hope that much can be done, at least soon, to choke off insurgent revenues. For one thing, it acknowledges how little the American authorities in Iraq know — three and a half years after the invasion that toppled Saddam Hussein — about crucial aspects of insurgent operations. For another, it paints an almost despairing picture of the Iraqi government’s ability, or willingness, to take measures the report says will be necessary to tamp down the insurgency’s financing.

“If accurate,” the report says, its estimates indicate that these “sources of terrorist and insurgent finance within Iraq — independent of foreign sources — are currently sufficient to sustain the groups’ existence and operation.” To this, it adds what may be its most surprising conclusion: “In fact, if recent revenue and expense estimates are correct, terrorist and insurgent groups in Iraq may have surplus funds with which to support other terrorist organizations outside of Iraq.”

Some terrorism experts outside the government who were given an outline of the report by The Times, criticized it for a lack of precision and a reliance on speculation.

Completed in June, the report was compiled by an interagency working group that is investigating the financing of militant groups in Iraq.

A Bush administration official confirmed the group’s existence and said it is studying how money was moved into and around the country. He said the group, led by the National Security Council, drew its members from the C.I.A., the F.B.I., the Defense Intelligence Agency, the State Department, the Treasury Department, and the United States Army’s Central Command, which oversees the war in Iraq. The group of about a dozen, the official said, is led by Juan Zarate, deputy national security adviser for combating terrorism.

Even taking the higher figure of $200 million, the group’s estimate of the financing for the insurgency underscores the David and Goliath nature of the war, with American, Iraqi and other coalition forces fighting an array of shadowy Sunni and Shiite groups that can draw on huge armories left over from Mr. Hussein’s days, and the willingness of many insurgents to fight with little or no pay. If the $200 million a year estimate is close to the mark, it amounts to less than what it costs the Pentagon, with an $8 billion monthly budget for Iraq, to sustain the American war effort here for a single day.

For Washington, the report’s most dismaying finding may be that the insurgency no longer depends on the sums Mr. Hussein and his associates seized as his government collapsed. As American troops entered Baghdad, American officials said at the time, Mr. Hussein’s oldest son, Qusay, took more than $1 billion in cash from the Central Bank of Iraq and stashed it in steel trunks aboard a flatbed truck. Large sums of cash were found in Mr. Hussein’s briefcase when he was captured in Dec. 2003.

But the report says Mr. Hussein’s loyalists “are no longer a major source of funding for terrorist or insurgent groups in Iraq.” Part of the reason, the report says, is that an American-led international effort has frozen $3.6 billion in “former regime assets.” Another reason, it says, is that Mr. Hussein’s erstwhile loyalists, realizing that “it is increasingly obvious that a Baathist regime will not regain power in Iraq,” have turned increasingly to spending the money on their own living expenses.

The Hussein loyalists, some leading insurgent groups in Iraq, many others fugitives outside the country, still retain control of “tens or hundreds of million dollars,” the report says, but have hidden it through money-laundering schemes and transfers of money to friends and relatives.

The trail to these assets “has grown cold,” the report adds.

In any case, the document says, the pattern of insurgent financing changed after the first 18 months of the war, from the Hussein loyalists who financed it in 2003 to “foreign fighters and couriers” smuggling cash in bulk across Iraq’s porous borders in 2004, to the present reliance on a complex array of indigenous sources. “Currently, we assess that these groups garner most of their funding from petroleum-related criminal activity, kidnapping and other criminal pursuits within Iraq,” the report concludes.

The possibility that Iraq-based terrorist groups could finance attacks outside Iraq appeared to echo Bush administration assertions that prevailing in the war here is essential to preventing Iraq from becoming a terrorist haven as Afghanistan became under the Taliban. But that suggestion was one of several aspects of the report that drew criticism in interviews with the western terrorism and counterinsurgency experts working outside the government who were given the outline of the findings.

While noting that the report appeared to reflect a major effort by the administration to learn more about the murky world of insurgent financing in Iraq, the experts said the seven-page document appeared to be speculative, at least in its estimates of the funds available to the insurgent and terror groups. They noted the wide spread of the estimates, particularly the $70 million to $200 million figure for overall financing, the report’s failure to specify which groups the estimates covered and the absence of documentation of how authors arrived at their estimates.

While such data may have been omitted to protect the group’s clandestine sources and methods — the document has a bold heading on the front page saying “secret,” and a warning that it is not to be shared with foreign governments — several security and intelligence consultants said in telephone interviews that the vagueness of the estimates reflected how little American intelligence agencies knew about the opaque and complex world of Iraq’s militant groups.

“They’re just guessing,” said W. Patrick Lang, a former chief of Middle East intelligence at the Defense Intelligence Agency, who now runs a security and intelligence consultancy. “They really have no idea.” He added, “They’ve been very unsuccessful in penetrating these organizations.”

Mr. Lang said that he was equally skeptical about the report’s assertion that the insurgent and militant groups may have surpluses to finance terrorism outside Iraq. “That’s another guess,” he said.

“A judgment like that, coming from an N.S.C.-generated document,” is not an analytical assessment as much as it is a political statement to support the administration’s contention that Iraq is a central front in the war on terrorism, he said. “It’s a statement put in there to support a policy judgment.”

Several analysts said that, except for the possibility that Al Qaeda of Mesopotamia might be transferring money to Qaeda factions elsewhere, the assertion that insurgent money might be flowing out of the country was doubtful considering the single-minded regional focus of most of the militants operating here.

Dr. Magnus Ranstorp of the Swedish National Defense College, an author of extensive studies of the Iraqi insurgency, said he doubted Iraqi groups were ready to finance terrorism outside Iraq. “There’s very little evidence that they’re preparing to export terrorism from Iraq to the West,” he said. “I think it’s much too early for that.”

Investigators have had limited success in penetrating or choking off terrorist financing networks — a conclusion that jibes with an acknowledgment by American military commanders that much that is essential to understanding their enemy here remains obscure, including the relationships between “rejectionist” elements of the Sunni insurgency, seeking to restore Sunni minority rule, and Sunni groups linked to Al Qaeda that have been responsible for many of the bloodiest attacks. Shiite terror groups, too, many with Iran’s backing, have proved hard to penetrate, the Americans say.

The report says American efforts to follow the financing trails have been hamstrung by a weak Iraqi government and its nascent intelligence agencies; a lack of communication between American agencies, and between the Americans and the Iraqis; and the nature of the insurgent economy itself, primarily sustained by manual transfers of money rather than more easily traceable means.

“Efforts to identify key financial facilitators, funding sources and transfer mechanisms are yielding some results, but we need to improve our understanding of how terrorist and insurgent cells interact, how their financial networks vary from province to province or city to city and how they use their funds,” the report says. It also says the United States must help the Iraqi government “to excise corrupt officials from its law enforcement and security services and its ministries” and “to prevent smuggled Iraqi oil from being sold within their borders.”

Another challenge for the United States, the report says, was to persuade foreign governments to “stop paying ransoms” for their kidnapped citizens.

It gives no details, but American officials have said previously that France paid a multimillion dollar ransom for the release in December 2004 of two French reporters held hostage by an insurgent group. Italy, these officials have said, paid ransoms on at least two occasions, once for the release of two women aid workers in September 2004, and, in March 2005, a reported $5 million to insurgents who released Giuliana Sgrena, a journalist for the Rome newspaper Il Manifesto.

Several American security consultants, all former members of government intelligence agencies that deal with terrorism, said in interviews that the ineffectiveness of efforts to impede the revenues to the insurgents was reflected in the continuing, if not growing, strength of Iraq’s militants. “You have to look at what the insurgency is doing,” Mr.Lang said. “Are they hampered by a lack of funds? I see no evidence that they are.”

Jeffrey White, a defense fellow with the Washington Institute for Near East Policy, also a former Middle East analyst with the Defense Intelligence Agency, agreed. “We’ve had some tactical successes where we’ve picked off a financier or whatever, but we haven’t been able to unravel a major component of the system,” he said. “I’ve never seen any indication that they’re strapped for cash, never seen any indication that they were short on weapons.”

He said the insurgency had demonstrated tremendous regenerative properties. “The networks fix themselves, they heal themselves,” he said. He pointed to the success of Al Qaeda in Mesopotamia to withstand the loss of hundreds of combatants and dozens of major leaders. “They keep coming back,” he said, “and I think the same thing has happened to the financial system.”

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