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Audit: Iraq fraud drained $1
billion
By
Hannah Allam
Knight Ridder
Newspapers
BAGHDAD, Iraq - Iraqi investigators have
uncovered widespread fraud and waste in more than $1 billion worth
of weapons deals arranged by middlemen who reneged or took huge
kickbacks on contracts to arm Iraq's fledgling military, according
to a confidential report and interviews with U.S. and Iraqi
officials.
The Iraqi Board of Supreme Audit, in a
report reviewed by Knight Ridder, describes transactions suggesting
that senior U.S.-appointed Iraqi officials in the Defense Ministry
used three intermediary companies to hide the kickbacks they
received from contracts involving unnecessary, overpriced or
outdated equipment.
Knight Ridder reported last month that $300
million in defense funds had been lost. But the report indicates
that the audit board uncovered a much larger scandal, with losses
likely to exceed $500 million, that's roiling the ministry as it
struggles to build up its armed forces.
The episode deprives Iraq's military of
essential gear that could help prepare the way for U.S. forces to
withdraw. It also raises questions about the new government's
ability to provide an effective defense against an entrenched
insurgency and win broad acceptance among Iraqis.
The audit board's investigators looked at 89
contracts of the past year and discovered a pattern of deception and
sloppiness that squandered more than half the Defense Ministry's
annual budget aimed at standing up a self-sufficient force,
according to a copy of the 33-page report.
Its revelations offer the most comprehensive
look to date at corruption that allegedly thrived for eight months
or longer even with about 20 American civilian advisers working
alongside Iraqi defense chiefs, including those now under
investigation. The report does not suggest that U.S. advisers were
involved in any corruption.
"If one dinar is misspent, I ache for it, so
just imagine how it feels for such huge sums," Iraqi Prime Minister
Ibrahim al-Jaafari said in an interview Wednesday. "We need it to
build the country and, even if we reach the level to where we don't
need it, we aren't about to give our money over to corruption."
The U.S. Embassy in Baghdad, which oversees
civilian advisers to the Iraqi Ministry of Defense, didn't consent
to on-the-record interviews about the investigation. In response to
a request for comment, it issued a statement that said embassy
officials were aware of the allegations and that, even before they
became public, "we were advising the Iraqis about our concerns
relating to MoD decisions on procurement and the possibility of
corruption."
Iraqi Defense Minister Saadoun al-Dulaimi
confirmed most of audit board report's findings in an interview last
Sunday, saying that at least $500 million in Iraqi money essentially
has disappeared. He's removed nine senior officials so far - he
fired the ministry's procurement chief and placed his own deputy
minister, Bruska Shaways, on leave - and said he was working through
a list of other employees who faced dismissal and possible criminal
charges.
"This is not only the Defense Ministry's
problem. It affects the image of the new Iraq," al-Dulaimi said. "If
we really spent that money in the right way, maybe it would have
given us more capabilities to face terrorists."
The Board of Supreme Audit, led by former
Human Rights Minister Abdel Baset al-Turki, examined defense
contracts that had been signed starting with the transfer of
sovereignty June 28, 2004, through Feb. 28, 2005. The
investigation's results, supported by bank statements, receipts and
internal Defense Ministry memos, were delivered to al-Jaafari's
office May 16.
Among the findings:
-Multimillion-dollar contracts were awarded
to favored weapons suppliers without a bidding process and without
the required approval from the prime minister's office.
Investigators wrote that the chief procurer went "beyond his
authority" in purchasing equipment.
-Senior Iraqi officials kept little or no
record of major purchases, sometimes noting lucrative deals in
"undated and unnumbered" memos. Nearly all purchases contained a
clause - unusual in international contracting of this magnitude -
that required the contract's full value to be paid up front in cash.
-Instead of buying directly from a foreign
company or government, Iraqi arms procurers hired third-party
companies to negotiate the contracts. When Iraqi leaders later
complained about unfulfilled contracts, they discovered they had no
recourse to demand a refund because the payments were made to Iraqi
middlemen who vanished after receiving the millions. "The
undertakings make no obligation ... toward the Iraqi Ministry of
Defense," according to the report.
-The sole beneficiary on 43 of the 89
contracts was a former currency-exchange operator, Nair Mohamed
al-Jumaili, whose name doesn't even appear on the contracts. At
least $759 million in Iraqi money was deposited into his personal
account at a bank in Baghdad, according to the report. Internal
records incorrectly "indicated that the Ministry of Defense signed
contracts with Poland, Arab countries, the United States and Europe,
but we discovered that all contracts were signed and executed with
Iraqi suppliers," the report said.
The contracts under scrutiny total $1.27
billion, nearly equal to the estimated $1.3 billion allocated for
the Defense Ministry's budget this year. The money came solely from
Iraqi coffers, not from the training budget of the U.S. military or
from NATO and foreign donations to Iraq's military.
"There's no rebuilding, no weapons,
nothing," said retired Iraqi Lt. Gen. Abdul Aziz al-Yaseri, who
worked in the Defense Ministry at the height of the alleged
corruption. "There are no real contracts, even. They just signed
papers and took the money."
Lt. Gen. David H. Petraeus, who oversees the
U.S. military's training of Iraqi troops, conducts weekly briefings
with the defense minister. Other Iraqi defense officials seldom are
spotted without American civilian advisers nearby. The close
relationship has raised questions as to how $500 million or more
could vanish without U.S. intervention to stop the suspicious
contracts that flowed for at least eight months.
"Ask them. I have the same question,"
al-Dulaimi said. "I blame those who posted them (the officials under
investigation). And, by the way, the CPA posted them."
He was referring to the Coalition
Provisional Authority, the occupation-era administration that
American Ambassador L. Paul Bremer oversaw. Al-Dulaimi, other Iraqi
politicians and some U.S. military officials blamed the CPA for
forcing the Defense Ministry to hire previously unknown Iraqi
officials, especially former exiles, without consulting Iraqi
leaders.
Petraeus' spokesmen and U.S. Embassy
officials said they raised concerns about corruption rumors but were
constrained from doing more to prevent the alleged wrongdoing
because a sovereign Iraqi government was in place. However, Iraqi
politicians, eager to deflect blame ahead of the coming election
season, said Americans introduced a culture that allowed room for
corruption and that the Americans could have done more to protect
the Iraqi public's money.
"Before me, there was another prime
minister. His name was Bremer," Ayad Allawi, who served as interim
premier when the corruption investigation began sometime last year,
told Knight Ridder. "He ran this country, he had this ministry and a
lot of the corruption started then. ... There was no auditing.
Airplanes were flying in and the money was handed out in suitcases."
Former Defense Minister Hazem Shaalan has
told U.S. and Iraqi officials that Bremer personally requested that
Ziad Cattan - the alleged ringleader of the corruption and the
ministry's former procurement chief - stay in his job after
sovereignty was transferred last summer.
Bremer said this week, through his former
CPA spokesman Dan Senor, that he didn't know Cattan. "At least to
his knowledge, he'd never met him," Senor said.
Cattan, a dual Polish-Iraqi national, was
fired in May and a warrant was issued for his arrest in connection
with "the abuse of an employer's funds." He fled Baghdad and hasn't
returned to answer the charges.
Col. John Martin, Petraeus' deputy for
political-military affairs, said the general as well as high-ranking
American and British defense advisers warned Allawi's defense chiefs
of "their concerns about the lack of transparency in MoD
procurement, the uncoordinated manner in which MoD procurement was
proceeding and the possibility for - and rumors of - corruption."
"They also repeatedly warned the MOD that
Dr. Ziad Cattan, in addition to procuring items Iraq did need, was
also reportedly purchasing items the country did not need and could
not afford to purchase, operate or sustain," Martin said. "At the
end of the day, however, this was Iraqi money being spent by Iraqi
officials of a sovereign country's ministry."
Even as hints of a corruption scandal
emerged last spring, Cattan told others in the ministry that U.S.
Defense Secretary Donald H. Rumsfeld personally had assured his job
and no Iraqi had the power to remove him, al Dulaimi said. Instead
of fleeing the investigation closing in on him, Cattan lobbied for
even more authority. He wanted to become defense minister, a seat
reserved for a Sunni Arab by al Jaafari's Shiite-dominated
government, which was elected last January.
Cattan, a Sunni, contacted the Iraqi
National Dialogue Committee, the main Sunni faction negotiating with
al-Jaafari on Cabinet appointments, and offered members $10 million
cash to nominate him as their candidate for the post, said Mohammed
al-Daini and two other committee members who heard Cattan's
proposal. The group refused, and al-Jaafari handed the post to
al-Dulaimi, a British-educated sociologist who isn't implicated in
the scandal.
In several e-mail messages last month,
Cattan gave Knight Ridder photos and documents purporting to show
his close working relationship with U.S. officials and his repeated
requests for their help in streamlining the contracting process. He
denied wrongdoing, but acknowledged that some Western officials who
are accustomed to peacetime standards might take exception to the
aggressive weapons procurement he conducted to quickly arm an Iraqi
force against the insurgency.
"We support this when conditions are quiet
and normal, but we cannot disregard or overlook the bloody actuality
and stick to the ... procedures imposed on us," Cattan wrote to his
superiors in a memo dated May 29, around the time of his dismissal.
"We cannot stay handcuffed."
When the extent of the alleged corruption
leaked to the U.S. Embassy, senior diplomats were "hopping mad,"
said an official with the U.S.-led Iraq Reconstruction Management
Office who has personal knowledge of the Defense Ministry's
transactions. He spoke on condition of anonymity Wednesday because
he could face dismissal for discussing the matter without
authorization.
"The entire embassy was upside down over
this," he said. "I swear to God the advisers didn't know everything
going on over there. Where did they get their information? From the
Iraqis. I can give you one budget that says this country is
flourishing and another that tells you this country is going to
s---. The Iraqis told us only what they wanted us to hear."
While many of the contracts did result in
useful, if overpriced, equipment for Iraq's 80,000 new troops,
contracts involving shoddily refurbished helicopters from Poland,
crates of loose ammunition from Pakistan and a fleet of leak-prone
armored personnel carriers were among purchases that now are deemed
unnecessary or unusable.
With the money paid in advance and no
mechanism for a refund, al-Dulaimi said, the Defense Ministry is
negotiating with weapons dealers to substitute the equipment for
more useful items such as guns, radio communications and other vital
supplies.
"It's chaos," al-Dulaimi said, visibly
exasperated. "It's a result of all the chaos brought to Iraq."
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