Put Iraqi insurgents out of business

The militias and insurgent groups that have turned Iraq into a killing field can't function without money.

So as President Bush pursues a new war strategy, he should make sharply reducing the flow of money to them a top priority. If successful, this effort could give Iraq's government a fighting chance to curb the violence.

Militias and insurgents in Iraq obtain funds from four major sources: government payrolls; the resale and smuggling of gasoline and diesel fuel; extortion, robberies, and kidnappings; and other countries. The US and Iraqi governments must cooperate to constrain all four sources.

Today, federal and regional Iraqi government payrolls fund the Kurdish peshmerga militia and many Shiite militias. Dependent on the support of Shiite factions to stay in power, the Shiite- dominated Iraqi government has given these factions control over some government ministries and their payrolls.

For example, anti-American Shiite cleric and Mahdi Army leader Moqtada al-Sadr controls the ministries of agriculture, health, and transportation. Mr. Sadr puts his militia members on the payrolls of these ministries in a broad range of jobs, including as members of the Facilities Protection Service (FPS). The FPS, which has about 150,000 members, was described by the Iraq Study Group in December as "having questionable loyalties and capabilities."

The Iraq Ministry of Interior has also provided jobs and paychecks for Shiite militiamen within the police, including some who are part of death squads attacking Sunnis.

Getting the Iraqi government to crack down on the Shiite militias is extraordinarily difficult, since ministers employ members of their own militias in the FPS, police, and the government civilian workforce. The Iraqi government would have to get ministers to force their own supporters off government payrolls. That won't happen under current arrangements.

Smuggling and the resale of diesel fuel and gasoline is a primary source of hundreds of millions of dollars in funding for all combatants, especially Sunni insurgent groups. Although the Iraqi government has raised gasoline prices from a heavily subsidized price of just 4 cents a gallon a year ago to about 44 cents today, smugglers can get $3 or more a gallon by taking the gasoline across the border and selling it in Jordan or Turkey. Insurgents and militias take a cut of the profits.

Extortion, kidnappings, and robberies also keep the cash flowing, including some funds taken by police. Recently, a prominent banker was kidnapped by individuals in police uniforms. After his family paid $25,000, he was released at a local police station.

Nations, groups, and individuals outside Iraq also provide money. Some Shiite groups receive funds from Iran. Sunnis still get funds from Baathist exiles or donations from Sunnis abroad.

The Iraqi government cannot stop the cash flow overnight, but it can slow it to a trickle. Here's how:

•First, create a government-wide employment registry so that the Ministry of Finance pays all government salaries – and only to people on the registry. This would centralize hiring and firing, so that only the central government, rather than faction leaders, could give out or take away government jobs. Senior hires should be approved by the unanimous consent of a board composed of all ethnic, religious, and political factions.

•Second, give these ministry boards the power to investigate and turn over for prosecution employees suspected of involvement in sectarian violence or insurgent activity. This would make it much harder for militia fighters and insurgents to remain on the government payroll.

•Third, accelerate the introduction of electronic bank transfers by the Ministry of Finance to pay government workers. This would reduce the diversion of payroll funds into the wrong pockets.

•Fourth, stop gasoline and diesel-fuel smuggling by gradually phasing out subsidies that keep prices so low. Earnings from rising fuel prices should fund programs that help the poorest Iraqi citizens, so that they see themselves benefiting from the higher prices.

•Fifth, in addition to more US funds for the Iraqi police, more foreign advisers need to be embedded within their ranks to mentor and monitor their activities. The Iraqi government must commit to disbanding and prosecuting rogue units.

Bombs and bullets have failed to stop Iraq's insurgents and militia fighters. Starving them of cash is a better way to put them out of business.

• Keith Crane is a senior economist at the RAND Corporation, a nonprofit research organization, and worked in Iraq as an adviser to the Coalition Provisional Authority in 2003.