What Happened to Iraq’s Missing $1 Billion?

September 22nd, 2005 - by admin

Patrick Cockburn / The Independent – 2005-09-22 00:26:45


BAGHDAD (19 September 2005) — One billion dollars has been plundered from Iraq’s defence ministry in one of the largest thefts in history, The Independent can reveal, leaving the country’s army to fight a savage insurgency with museum-piece weapons.

The money, intended to train and equip an Iraqi army capable of bringing security to a country shattered by the US-led invasion and prolonged rebellion, was instead siphoned abroad in cash and has disappeared.
“It is possibly one of the largest thefts in history,” Ali Allawi, Iraq’s Finance Minister, told The Independent.

“Huge amounts of money have disappeared. In return we got nothing but scraps of metal.”

The carefully planned theft has so weakened the army that it cannot hold Baghdad against insurgent attack without American military support, Iraqi officials say, making it difficult for the US to withdraw its 135,000-strong army from Iraq, as Washington says it wishes to do.

Most of the money was supposedly spent buying arms from Poland and Pakistan. The contracts were peculiar in four ways. According to Mr Allawi, they were awarded without bidding, and were signed with a Baghdad-based company, and not directly with the foreign supplier.

The money was paid up front, and, surprisingly for Iraq, it was paid at great speed out of the ministry’s account with the Central Bank. Military equipment purchased in Poland included 28-year-old Soviet-made helicopters. The manufacturers said they should have been scrapped after 25 years of service. Armoured cars purchased by Iraq turned out to be so poorly made that even a bullet from an elderly AK-47 machine-gun could penetrate their armour.

A shipment of the latest MP5 American machine-guns, at a cost of $3,500 (£1,900) each, consisted in reality of Egyptian copies worth only $200 a gun. Other armoured cars leaked so much oil that they had to be abandoned. A deal was struck to buy 7.62mm machine-gun bullets for 16 cents each, although they should have cost between 4 and 6 cents.

Many Iraqi soldiers and police have died because they were not properly equipped. In Baghdad they often ride in civilian pick-up trucks vulnerable to gunfire, rocket-propelled grenades or roadside bombs. For months even men defusing bombs had no protection against blast because they worked without bullet-proof vests. These were often promised but never turned up.

The Iraqi Board of Supreme Audit says in a report to the Iraqi government that US-appointed Iraqi officials in the defence ministry allegedly presided over these dubious transactions.

Senior Iraqi officials now say they cannot understand how, if this is so, the disappearance of almost all the military procurement budget could have passed unnoticed by the US military in Baghdad and civilian advisers working in the defence ministry.

Government officials in Baghdad even suggest that the skill with which the robbery was organised suggests that the Iraqis involved were only front men, and “rogue elements” within the US military or intelligence services may have played a decisive role behind the scenes.

Given that building up an Iraqi army to replace American and British troops is a priority for Washington and London, the failure to notice that so much money was being siphoned off at the very least argues a high degree of negligence on the part of US officials and officers in Baghdad.

The report of the Board of Supreme Audit on the defence ministry contracts was presented to the office of Ibrahim al-Jaafari, the Prime Minister, in May. But the extent of the losses has become apparent only gradually. The sum missing was first reported as $300m and then $500m, but in fact it is at least twice as large. “If you compare the amount that was allegedly stolen of about $1bn compared with the budget of the ministry of defence, it is nearly 100 per cent of the ministry’s [procurement] budget that has gone Awol,” said Mr Allawi.

The money missing from all ministries under the interim Iraqi government appointed by the US in June 2004 may turn out to be close to $2bn. Of a military procurement budget of $1.3bn, some $200m may have been spent on usable equipment, though this is a charitable view, say officials. As a result the Iraqi army has had to rely on cast-offs from the US military, and even these have been slow in coming.

Mr Allawi says a further $500m to $600m has allegedly disappeared from the electricity, transport, interior and other ministries. This helps to explain why the supply of electricity in Baghdad has been so poor since the fall of Saddam Hussein 29 months ago despite claims by the US and subsequent Iraqi governments that they are doing everything to improve power generation.

The sum missing over an eight-month period in 2004 and 2005 is the equivalent of the $1.8bn that Saddam allegedly received in kick-backs under the UN’s oil-for-food programme between 1997 and 2003. The UN was pilloried for not stopping this corruption. The US military is likely to be criticised over the latest scandal because it was far better placed than the UN to monitor corruption.

The fraud took place between 28 June 2004 and 28 February this year under the government of Iyad Allawi, who was interim prime minister. His ministers were appointed by the US envoy Robert Blackwell and his UN counterpart, Lakhdar Brahimi.

Among those whom the US promoted was a man who was previously a small businessman in London before the war, called Hazem Shaalan, who became Defence Minister.

Mr Shalaan says that Paul Bremer, then US viceroy in Iraq, signed off the appointment of Ziyad Cattan as the defence ministry’s procurement chief. Mr Cattan, of joint Polish-Iraqi nationality, spent 27 years in Europe, returning to Iraq two days before the war in 2003. He was hired by the US-led Coalition Provisional Authority and became a district councillor before moving to the defence ministry.

For eight months the ministry spent money without restraint. Contracts worth more than $5m should have been reviewed by a cabinet committee, but Mr Shalaan asked for and received from the cabinet an exemption for the defence ministry. Missions abroad to acquire arms were generally led by Mr Cattan. Contracts for large sums were short scribbles on a single piece of paper. Auditors have had difficulty working out with whom Iraq has a contract in Pakistan.

Authorities in Baghdad have issued an arrest warrant for Mr Cattan. Neither he nor Mr Shalaan, both believed to be in Jordan, could be reached for further comment. Mr Bremer says he has never heard of Mr Cattan.

A Week of Violence in Iraq

Gunmen killed a senior Iraqi judge, his brother and a Major General in the Iraq army. A British and a US soldier were killed in bomb attacks.

Gunmen killed nine civilians and two policemen in Baghdad and a roadside bomb killed six Iraqi soldiers in Fallujah.

A car bomb killed five people and gunmen killed another four in the Mansour district of Baghdad Two civilians were killed by a suicide bomber on a bus in Hilla.

At least 167 people were killed and 570 wounded in 14 bombings in Baghdad.

Three suicide car bombers killed 28 policemen and eight civilians and gunmen killed four more people Baghdad.

Two suicide car bombers killed 13 people, and gunmen shot dead eight more in Baghdad, including a local mayor in Iskanariya district and an imam in Sadr City.

At least 52 people were killed or found dead throughout the country.

At least three Iraqi soldiers were killed in a roadside bomb and an Iraqi MP and four others were shot dead by gunmen. Two dozen bodies of murder victims were found in the Tigris.

Warrant issued after army left with old weapons. Allawi regime blamed for lack of checks on ministry

Ex-Iraqi Defence Minister Wought over $1Billion Fraud
Michael Howard / Guardian

BAGHDAD (September 20, 2005) — Iraqi authorities are preparing an arrest warrant for the country’s former defence minister in connection with a massive fraud case involving the “disappearance” of more than $1bn from ministry coffers.

Judge Raid al-Radhi, who is head of Iraq’s commission on public integrity, said yesterday that he had given Iraq’s central criminal court a dossier of evidence against Hazim Shaalan, who was minister of defence under the former government of Ayed Allawi.

“What Shaalan and his ministry were responsible for is possibly the largest robbery in the world. Our estimates begin at $1.3bn [£720m] and go up to $2.3bn,” Judge Radhi, who is Iraq’s senior anti-corruption official, told Reuters.

The “robbery” is believed to include the signing of multimillion-dollar deals with companies to supply equipment that was sometimes inappropriate for the new army or was years out of date. It is also alleged that the ministry paid huge premiums for some military hardware.

Judge Radhi said he expected the court to issue warrants over the next week to 10 days for Mr Shaalan and for other senior defence ministry officials. The judge said he had passed the file of evidence on the case to Iraqi authorities two months ago.

Mr Shaalan, who is understood to be living in Jordan, has denied complicity in the scandal, saying that his actions as defence minister were ultimately the responsibility of the US authorities in Iraq.

News of the warrant came after the Iraqi finance minister, Ali Allawi, claimed in an interview with the Independent newspaper that $1bn had been stolen from the defence ministry.

Mr Allawi said the rampant corruption and fraud at the defence ministry had left the new Iraqi army with second-rate weapons with which to confront the insurgency. “Huge amounts of money have disappeared. In return we got nothing but scraps of metal,” Mr Allawi said.

Ayed Allawi’s government was in power from the end of June 2004 until late February this year. The new Prime Minister Ibrahim al-Jaafari has repeatedly complained about the legacy of administrative and financial corruption.

Judge Radhi said there was also evidence against the transport, trade, interior, public works and labour ministries, and that up to 50 officials could be brought to justice.

Allegations of corruption at the defence ministry have been swirling around Baghdad for some time, but the scale of the fraud has shocked many. A defence ministry source, who requested anonymity, told The Guardian yesterday that hundreds of millions of dollars had been wasted on unnecessary and overpriced equipment for Iraq’s military.

“There appears to be no oversights and accountability in the procurement,” he said. Investigators have been investigating weapons and equipment deals struck by the former procurement officer Ziad Cattan and other officials. The source said the most egregious case involved a $236m contract last December to equip the Iraqi army with helicopters and other material.

“The money was paid upfront to a Polish company before we’d even seen what we were buying. It was very fishy,” he said. “The helicopters turned out to be years old and not up to the job we required them to do in Iraq.” Another contract for US machine guns, at a cost of $3,500 each, bought Egyptian copies worth $200.

Judge Radhi said the ministry is alleged to have illegally signed contracts with intermediaries, rather than with foreign companies and governments, for the supply of defence equipment.

In other developments yesterday, the central Iraqi criminal court announced it had given a life sentence to a nephew of the former dictator Saddam Hussein, who was found guilty of funding the insurgency and bomb-making. Ayman Sabawi, the son of Saddam’s half-brother Sabawi Ibrahim al-Hassan, was arrested by Iraqi forces during a raid in May. His father, Al-Hassan, who served as a presidential adviser before the US-led invasion, was captured there two months earlier.

It was the first court decision against a family member of the former Iraqi ruler. The trial of Saddam is due to start on October 19.

Iraqi authorities had not announced that Sabawi’s trial was under way but said he would face a second trial at the beginning of November for other, unspecified crimes to which he allegedly confessed during interrogation.

A government statement said the UN had indicated the Sabawi family stole “millions of dollars from the Iraqi people” under his uncle’s rule.

Meanwhile, in the relatively calm southern city of Basra, journalist Fakher Haider was found shot dead yesterday morning after being abducted from his house by four masked men claiming to be intelligence officers.

Mr Haider worked in Basra as a stringer for the New York Times and occasionally for The Guardian. He was the second journalist to be killed in Basra in recent months. The US journalist Steven Vincent and his Iraqi translator was kidnapped and shot by an unknown gang in early August.

Guardian Unlimited © Guardian Newspapers Limited 2005

Posted in accordance with Title 17, US Code, for noncommercial, educational purposes.