Iraq defense ministry lost $1
billion
Independent
What has happened to Iraq's missing $1bn?
By Patrick Cockburn in Baghdad
Published: 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
* SUNDAY 11 SEPTEMBER
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.
* MONDAY 12 SEPTEMBER
Gunmen killed nine civilians and two policemen in Baghdad and a roadside
bomb killed six Iraqi soldiers in Fallujah.
* TUESDAY 13 SEPTEMBER
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.
* WEDNESDAY 14 SEPTEMBER
At least 167 people were killed and 570 wounded in 14 bombings in
Baghdad.
* THURSDAY 15 SEPTEMBER
Three suicide car bombers killed 28 policemen and eight civilians and gunmen
killed four more people Baghdad.
* FRIDAY 16 SEPTEMBER
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.
* SATURDAY 17 SEPTEMBER
At least 52 people were killed or found dead throughout the country.
* SUNDAY 18 SEPTEMBER
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.
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