GUIDANCE: DFI-IAMB CONSULTATIONS, DECEMBER 17

UNCLAS STATE 126708

SIPDIS
USUN FOR GERMAIN AND FINERTY

E.O. 12958: N/A
TAGS: PREL UNSC IZ
SUBJECT: GUIDANCE: DFI-IAMB CONSULTATIONS, DECEMBER 17


1. (U) USUN should draw from the following building blocks
(para 2) during December 17 UNSC consultations on the
Development Fund for Iraq (DFI) and the International
Advisory and Monitoring Board (IAMB). The U.S. Government
objectives in supporting an extension of the DFI/IAMB and in
making a Security Council intervention are to: 1) highlight
that DFI oversight mechanisms remain inadequate; 2) lay out
what the Government of Iraq needs to consider in order to put
into place adequate oversight mechanisms; and 3) urge support
for a new resolution and 12-month extension.


2. (U) Begin building blocks:

--Since 2003, Iraq has made remarkable progress to address
the prior regime,s legacy of debt and mismanagement of
national resources. It succeeded in reaching a landmark
agreement with the Paris Club for an 80% reduction in its
Saddam Hussein-era debts, and on these terms has concluded
formal debt reduction, cancellation or dismissal agreements
with more than 60 countries and the great bulk of its
commercial creditors. It seems as if the time is in sight
when Iraq will no longer require the exceptional immunities
and international oversight arrangements of the Development
Fund for Iraq.

--The United States recognizes the significance of the
Development Fund for Iraq and the International Advisory and
Monitoring Board in supporting the Government of Iraq to
ensure that Iraq's resources are being used accountably and
transparently to benefit all Iraqi people. Regrettably, the
IAMB,s audits of DFI accounts have consistently noted a
serious lack of internal controls in accounting for and
managing the DFI, including the persistent lack of adequate
systems for metering Iraqi oil and gas production and
exports.

--Given the importance of the DFI accounts for Iraq as the
country rebuilds its economy, the United States is very
concerned that the Government of Iraq,s audit and oversight
of its hydrocarbon resources falls short of international
standards and the terms of the Iraqi Constitution, which call
for independent auditing of federal financial resources and
fair and equitable distribution of the country's oil and gas
revenues. We thus intend to work with the Government of Iraq
over the next year as the government establishes an
effective, transparent oversight mechanism that respects
Iraq's Constitution while meeting international standards and
best practices.

--While the IAMB has expressed confidence in the competence
and capabilities of the Committee of Financial Experts
(COFE),we question whether COFE has the skills and
independence it needs. Although COFE's mandate provides for
its independence, its current composition includes officials
having ties to the same ministries that it would monitor.
Its top official, moreover, is the President of the Board of
Supreme Audit, an Iraqi government body which has been
ambivalent about making its findings public and bringing in
and abiding by international standards and best practices.
Thus, as currently configured, COFE does not yet have the
independence and capacity to meet international or Iraqi
constitutional standards.

--Accordingly, the United States will strongly urge the
Government of Iraq to take the following steps:

1) Establish a single transparent account for collecting and
distributing all hydrocarbon export revenues. This account,
which would succeed the DFI, would help ensure that the Iraqi
government complies with its constitutional and international
obligations, including its obligation to make payments to the
United Nations Compensation Commission (UNCC). In that
regard, we support the call for continued discussion between
Iraq and other interested parties, which has already begun
under UNCC auspices, on solutions to the issue of outstanding
compensation payments.

2) Actively seek to resolve on Paris Club terms any remaining
Saddam Hussein-era sovereign debts. The United States also
will continue to encourage the Government of Iraq to resolve
the remaining Oil-for-Food claims before the end of 2009, so
that the program can then be terminated and the remaining
unpaid balances can be returned to the DFI. These would be
major steps forward in normalizing the Government of Iraq,s
international financial standing.

3) Implement greater internal controls, especially in
relation to oil and gas metering across the Iraqi
hydrocarbons sector. The fact that poor internal controls
remain a significant concern, and the metering of Iraqi oil
and gas production, processing and exports remains
inadequate, frustrates serious efforts to accurately
determine how much of Iraq's oil and gas revenue is being
lost through leakage, theft, or smuggling. Since 2004, this
has been one of the IAMB's earliest and most consistent
recommendations, and we want to further underscore this
concern.

--We have drafted a DFI resolution which has been circulated
to the Council and which extends the DFI/IAMB arrangements
for a further, and we hope final, 12 months. The resolution
requests the Government of Iraq to provide periodic progress
reports to the Council on its efforts in the areas I have
mentioned beginning in April 2010, and we would welcome
representatives from COFE to brief the Council to discuss the
establishment of a timeframe and action plan to implement the
recommendations of the IAMB. We look forward to working with
you all on this resolution.

--Thank you.

IF RAISED

--The United States is encouraged that the Government of Iraq
is exercising its sovereignty by engaging in a democratic
process to adopt a comprehensive and inclusive national
election law which seeks the largest representation of Iraqis
at the polls, including those abroad, and ensures the proper
distribution of seats among the governorates.

End building blocks.
CLINTON