American Resistance To Empire

Pentagon Claims That It Has “Lost” Over $18 Trillion, Which Probably Paid Foreign Army Payrolls

Pentagon missing $2.3 trillion Rumsfeld Exposed 9/10/2001
May 18, 2003 – The Pentagon’s unenviable reputation for waste will top the … waste under fire / $1 trillion missing
Jun 3, 2015 – Report Reveals $8.5 Trillion Missing

An increasingly impatient Congress has demanded that the Army achieve “audit readiness” for the first time by Sept. 30, 2017, so that lawmakers can get a better handle on military spending. But Pentagon watchdogs think that may be mission impossible, and for good reason.

Related: Why the Pentagon Budget Is Out of Control

A Department of Defense inspector general’s report released last week offered a jaw-dropping insight into just how bad the military’s auditing system is.

The Defense Finance and Accounting Service, the behemoth Indianapolis-based agency that provides finance and accounting services for the Pentagon’s civilian and military members, could not provide adequate documentation for $6.5 trillion worth of year-end adjustments to Army general fund transactions and data.

The DFAS has the sole responsibility for paying all DOD military and personnel, retirees and annuitants, along with Pentagon contractors and vendors. The agency is also in charge of electronic government initiatives, including within the Executive Office of the President, the Department of Energy and the Departing of Veterans Affairs.

There’s nothing in the new IG’s report to suggest that anyone has misplaced or absconded with large sums of money. Rather, the agency has done an incompetent job of providing written authorization for every one of their transactions – so-called “journal vouchers” that provide serial numbers, transaction dates and the amount of the expenditure.

Related: How the Pentagon Cooks the Books to Hide Massive Waste

In short, the DFAS has lagged far behind in providing the tracking information essential to performing an accurate audit of Pentagon spending and obligations, according to the IG’s report.

“Army and Defense Finance and Accounting Service Indianapolis personnel did not adequately support $2.8 trillion in third quarter adjustments and $6.5 trillion in year-end adjustments made to Army General Fund data during FY 2015 financial statement compilation,” wrote Lorin T. Venable, the assistant inspector general for financial management and reporting. “We conducted this audit in accordance with generally accepted government auditing standards.”

A further mystery is what happened to thousands of documents that should be on file but aren’t. The IG study found that DFAS “did not document or support why the Defense Departmental Reporting System . . . removed at least 16,513 of 1.3 million records during Q3 FY 2015. As a result, the data used to prepare the FY 2015 AGF third quarter and year-end financial statements were unreliable and lacked an adequate audit trail,” the IG’s report stated.

The long march-Pentagon audit chart

The troubling findings emerged from a wide-ranging audit of the capital funds and financial statements across the military services, including the Navy, the Marine Corps and the Army.

The problem is no secret to investigative reporter Scot Paltrow at Reuters, who exposed outrageous fraud and abuse in a three-part series in 2013 called, “Unaccountable.”

He wrote:

“For two decades, the U.S. military has been unable to submit to an audit, flouting federal law and concealing waste and fraud totaling billions of dollars.

Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense’s accounts.

Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio DFAS…. Using the data they received, Woodford and her fellow accountants there set about preparing monthly reports to square the Navy’s books with the U.S. Treasury’s…. And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from.”

Related: The 10 Most Expensive Weapons in the Pentagon’s Arsenal

The IG has cautioned in the past that journal voucher adjustments should comply with applicable regulations, which require adequate documentation for each transaction. The June 26 IG’s report made a number of requests and suggestions that DFAS officials and the Pentagon have agreed to go comply with.

The top suggestion is the most obvious one: that DFAS enforce “the applicable guidance” periodically issued by the Under Secretary of Defense Comptroller “regarding journal voucher category identification codes and metric reporting.”

“Until the Army and DFAS Indianapolis correct these control deficiencies, there is considerable risk that AGF financial statements will be materially misstated and the Army will not achieve audit readiness by the congressionally mandated deadline of September 30, 2017,” the report warned.

Montenegro Joins NATO, Promptly Sells Saudis 300 Tonnes of Weapons For Syria

An arms broker who sold almost 300 tonnes of aging Yugoslav-era weapons and ammunition to Saudi Arabia says “It’s no concern of mine” if the Gulf kingdom later diverts them to Syria.

Dusica Tomovic BIRN Podgorica

Saudi Arabia’s state-of-the-art military has emerged as an unlikely buyer of Montenegro’s vast stockpiles of surplus arms and ammunition. The deals were arranged through a powerful, Montenegrin arms broker, already embroiled in controversy surrounding a questionable privatisation and allegations of sanctions-busting in Libya.

Since August 2015, Montenegro Defence Industry (MDI) has exported 250 tonnes of ammunition and 10,000 anti-tank systems to Saudi Arabia, which has no history of buying or using second-hand Eastern European and Soviet-style equipment.

The arms exported match weapons and ammunition bought by MDI in 2015 from stockpiles deemed “outdated and of no future use” for Montenegro’s small army.

Stockpile of surplus arms

With some 2.7 million euros worth of arms and ammunition exported toSaudi Arabia since 2015, Montenegro is the latest country to join a 1.2 billion-euro Central and Eastern European arms pipeline supplying weapons to countries sponsoring Syria’s opposition.

Saudi Arabia is by far the largest buyer, with more than 829 million euros in export licenses from eight European countries including Montenegro. Other buyers since the escalation of the Middle Eastern conflict in 2012 include the United Arab Emirates, Turkey and Jordan.

But arms experts believe equipment such as that sold by MDI is not destined for Saudi Arabia and is likely being diverted to Syria and, to a lesser extent, Libya or Yemen.

Pieter Wezeman of the Stockholm International Peace Research Institute, a leading non-governmental organisation that tracks arms exports, said: “When Saudi buys, in particular, old munition(s) in Central Europe, I would assume it is not for their own forces.”

Zoran Damjanovic, director of MDI, told reporters for Balkan Investigative Reporting Network, BIRN, and the Organized Crime and Corruption Reporting Project, OCCRP, that his firm had the necessary paperwork in place to export to Saudi Arabia. When asked if he was worried that the weapons could have been diverted to Syria, he responded: “It’s no concern of mine what happened later.”

Countries exporting weapons are supposed to verify the shipment will not end up in the hands of terrorists or others who violate human rights, but ministries interviewed by BIRN and OCCRP appear to have made little effort to complete such checks. Some experts call the shipments illegal because of the well-documented diversions in this pipeline.

Emptying Stockpiles

Formally state-owned MDI is Montenegro’s biggest arms exporter, and it is mainly involved in the sale of the country’s military stockpiles to international buyers.

The trade database of the UN reveals that between August 2015 and May 2016, Saudi Arabia received 32 tonnes of anti-tank weapons and 250 tonnes of ammunition from Montenegro, including mortar shells and bullets for anti-aircraft guns.

The shipment from MDI included 10,000 Yugoslav-era Zolja anti-tank rocket launchers, 56 mortars and nearly 500,000 mortar shells and other ammunition.

Stockpile of surplus arms

The identical equipment was bought at the Montenegrin Ministry of Defense’s yearly surplus auctions. Of the € 4.5 million worth of equipment auctioned off in 2015, MDI bought € 3.2 million.

When BIRN and OCCRP asked what checks were made to verify the weapons exported to Saudi Arabia would not be diverted to conflicts in Syria or Yemen, the Ministry of Economy, which grants arms export licences, responded that the Foreign Ministry checks the validity of end-user certificates “on the basis of the available diplomatic and consular ties.” Exports are also approved by the Interior Ministry.

The response said export licences are either approved or denied based on verification and due diligence checks, but, when asked, they did not provide details of any assessments that were carried out in the 2015 exports. The Foreign Ministry did not respond to a request for comment.

Damjanovic, director of MDI, told BIRN and OCCRP that Western countries, mainly NATO and European Union members, had exported weapons worth billions to Saudi Arabia in the past six months. He said Montenegrin exports are a “statistical error” compared to other countries.

Montenegro’s Ministry of the Economy also confirmed that Nikolas, a second arms based in the coastal town of Herceg Novi, obtained one license to export 2,200 mortar shells to Saudi Arabia.

Nikolas did not respond to requests for a comment.

“Destined for Syria, Yemen and Libya”

Jeremy Binnie, arms expert and Middle East and Africa editor at Jane’s Defence Weekly magazine, said that weapons of the type sold by MDI are likely diverted to Syria, and to a lesser extent Yemen and Libya.

“With a few exceptions, the militaries of Saudi Arabia, Jordan, and the UAE and Turkey use Western infantry weapons and ammunition, rather than Soviet-designed counterparts,” said Binnie. “It, consequently, seems likely that large shipments of such materiel being acquired by – or sent to – those countries are destined for their allies in Syria, Yemen, and Libya.”

Questionable Privatisation

In February of 2015, MDI was sold to a consortium of two controversial companies –Israel’s ATL Atlantic Technology and Serbia’s CPR Impex.

ATL Atlantic Technology is linked to Serge Muller, a Belgian-Israeli businessman with a history of dealing arms and diamonds in Liberia.

Muller was arrested on a Belgium-issued Interpol Red Notice just hours after leaving the MDI privatisation ceremony in March 2015, in the Montenegrin capital Podgorica. He has since been extradited to Antwerp on charges of drug smuggling and money laundering. He denies the charges.

The privatisation prompted MANS, a non-governmental organisation based in Podgorica, to file a criminal complaint in May 2015 asking for an investigation into suspected violations of laws and procedures.

As for CPR Impex, one of the region’s most important arms brokers, it has been a major player in sales to Saudi Arabia. It is owned by Serbian businessman Petar Crnogorac.

Crnogorac was arrested in July 2014 by Serbian police on charges of abuse of office over a series of military tenders for surplus military equipment his company participated in between 2011 and 2013. He was accused of receiving inside information about competing bids.

The charges were subsequently dropped, but he has since been investigated by the UN for allegedly violating arms sanctions by trading with Libya.

In April of last year, the UN’s sanctions panel for Libya began probing whether Tehnoremont, a CPR Impex subsidiary, had sold weapons to Islamist fighters in Libya via MDI. The deal was allegedly brokered in December 2014 while the company was still under the auspices of the Montenegrin government. Crnogorac told BIRN that while discussions had been held on exports to Libya, no deal had been signed and as a result there had been no reason to ask permission from the UN.

In March 2016, the UN panel reported that the Montenegrin and Serbian government had received no request for exports to Libya and appears to have closed the case.

Crnogorac declined to comment on MDI’s recent exports from Montenegro to Saudi Arabia, although BIRN and OCCRP have learned that his Belgrade firm, CPR Impex, is involved in a number of deals that include selling Serbian-made arms to Saudi Arabia.

Montenegro: Stricter Rules

In June this year, Montenegro, a candidate for EU membership, adopted a new law to tighten restrictions on the arms trade in response to demands from Brussels. As a result, delivery certificates – documents that are supposed to prove equipment has reached its end user – will be subject to mandatory checks.

The law was passed, the government said, to prevent weapons ending up in conflict zones around the world.

It seems the new legislation will soon be put to the test by Saudi Arabia’s hunger for cheap Central and Eastern European arms.

This investigation is produced as a part of Paper Trail to Better Governance project.