http://news.independent.co.uk/world/middle_east/article313538.ece

What Has Happened to Iraq's Missing $1bn?
By Patrick Cockburn
The Independent UK


Monday 19 September 2005


One billion dollars has been plundered from Iraq's defense 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. Armored 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 armor. A shipment of the latest MP5 American machine-guns, at a cost of
$3,500 (=A31,900) each, consisted in reality of Egyptian copies worth only $200 a
gun. Other armored 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 defense 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
defense ministry.


Government officials in Baghdad even suggest that the skill with which the
robbery was organized 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 defense 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 defense, 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 program between 1997 and 2003. The UN was pilloried for not stopping
this corruption. The US military is likely to be criticized 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 Defense
Minister.


Mr. Shalaan says that Paul Bremer, then US viceroy in Iraq, signed off the
appointment of Ziyad Cattan as the defense 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 councilor before moving to the defense
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 defense 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.