GUIDANCE: DFI-IAMB CONSULTATIONS, APRIL 16

C O N F I D E N T I A L STATE 037354

SIPDIS
USUN FOR GERMAIN AND KUJAWINSKI

E.O. 12958: DECL: 04/10/2019
TAGS: PREL UNSC IZ
SUBJECT: GUIDANCE: DFI-IAMB CONSULTATIONS, APRIL 16

Classified By: IO A/S Esther Brimmer. Reasons 1.4 (b) and (d).


1. (U) USUN should draw from the following building blocks
during April 16 UNSC consultations on the Development Fund
for Iraq (DFI) and the International Advisory Management
Board (IAMB).


2. (SBU) Begin building blocks:

-- UN Security Council Resolution 1859 (2008) carried forward
for one year the obligation (originally contained in
resolution 1483 (2003)) on states to extend immunities to
petroleum, petroleum products, and natural gas originating in
Iraq as well as to the DFI. In anticipation of the
expiration of this obligation at the end of 2009, the United
States is working with the Government of Iraq to alleviate
the need to continue these immunities.

-- We note today that the bulk of sovereign debts and
commercial claims have been formally reduced and resolved and
that the United States is exploring with the Government of
Iraq the possibility of a state-to-state solution that would
compensate U.S. victims of Saddam-era terrorism and bring
about "legal peace" for Iraq on these claims.

-- Resolution 1859 also extended the mandate of the IAMB,
whose audits of DFI accounts over the last four years have
consistently noted a serious lack of internal controls in
accounting for and managing the DFI, as well as the lack of
an adequate system for metering Iraqi oil production.

-- During the last meeting of the IAMB in Amman on April 2nd
and 3rd, the audit findings for 2008 were reviewed. This
report again highlighted the fact that poor internal controls
remain a significant concern and that the metering of Iraqi
oil production remains inadequate, frustrating all serious
efforts to accurately determine how much of Iraq's oil
revenue is being lost through theft, smuggling, or leakage.

-- In this and in other areas, it is time for the Government
of Iraq to undertake responsibilities on behalf of the Iraqi
people. The United States calls on the Government of Iraq to
implement the recommendations of the IAMB, so as to better
secure its own future. In particular, we note the need to
implement comprehensive, system-wide metering.

-- A successor organization to the IAMB - the Committee of
Financial Experts (COFE) - was established in 2007 to assume
the roles and responsibilities of the IAMB upon completion of
the IAMB mandate. While COFE has the potential to take on
these responsibilities, the United States is concerned
whether COFE will be as capable and independent as it needs
to be. Although COFE's initial mandate provides for its
independence, its current composition includes officials with
government ministry ties and its top official is the
President of the Board of Supreme Audit.

-- An excellent program that would do much to dispel any
misperception is the Extractive Industries Transparency
Initiative (EITI),which Iraq intends to implement under ICI
auspices. Iraq's successful implementation of this
accountability and transparency program for the petroleum
sector - including by its state-owned oil companies - would
provide an important adjunct to COFE.

-- We should take every opportunity to inquire about Iraq's
progress with EITI, urge others to undertake action - whether
bilaterally or through the International Compact with Iraq -
to help Iraq become an EITI candidate country, and strongly
encourage and help Iraq to implement the program as quickly
as possible.

End building blocks.


3. (C) While we have been informed by the UN Secretariat that
it will not raise issues critical of the United States during
this briefing, it appears that certain U.S. actions have
delayed the completion of the 2008 IAMB audit. In
particular, the auditing firm contracted by the IAMB to
perform the work, KPMG, has not been granted access to the
International Zone or the U.S. Embassy compound to audit the
files of DFI-funded contracts that are being administered by
the USG. In a separate, but related issue, the Department of
Defense has yet to provide the Iraqi Board of Supreme Audit
with access to contract files funded by the DFI and
administered by DOD during the CPA era. If the issue of KPMG
access is raised, USUN may draw from the following:

-- (U) U.S. officials are aware of this issue and hope to
resolve it shortly.
CLINTON