New York Times
January 22, 2005
Mystery in Iraq as $300 Million is Taken Abroad

BAGHDAD, Iraq, Jan. 21 - Earlier this month, according to Iraqi officials,
$300 million in American bills was taken out of Iraq's Central Bank, put
into boxes and quietly put on a charter jet bound for Lebanon.

The money was to be used to buy tanks and other weapons from international
arms dealers, the officials say, as part of an accelerated effort to
assemble an armored division for the fledgling Iraqi Army. But exactly where
the money went, and to whom, and for precisely what, remains a mystery, at
least to Iraqis who say they have been trying to find out.

The $300 million deal appears to have been arranged outside the
American-designed financial controls intended to help Iraq - which defaulted
on its external debt in the 1990's - legally import goods. By most accounts
here, there was no public bidding for the arms contracts, nor was the deal
approved by the entire 33-member Iraqi cabinet.

On Friday, the mysterious flight became an issue in this country's
American-backed election campaign, when Defense Minister Hazim al-Shalaan,
faced with corruption allegations, threatened to arrest a political rival.

In an interview on Al Jazeera television, Mr. Shalaan said he would order
the arrest of Ahmed Chalabi, one of the country's most prominent
politicians, who has publicly accused Mr. Shalaan of sending the cash out of
the country. Mr. Shalaan said he would extradite Mr. Chalabi to face
corruption charges of his own.

"We will arrest him and hand him over to Interpol," Mr. Shalaan thundered on
Al Jazeera. The charge against Mr. Chalabi, he said, would be "maligning"
him and his ministry. He suggested that Mr. Chalabi had made the charges to
further his political ambitions.

Mr. Chalabi first made the allegation against Mr. Shalaan last week, on
another Arabic-language television network. He said there was no legitimate
reason why the Iraqi government should have used cash to pay for goods from
abroad. He implied that at least some of the money was being used for other

"Why was $300 million in cash put on an airplane?" Mr. Chalabi asked in an
interview this week. "Where did the money go? What was it used for? Who was
it given to? We don't know."

The $300 million flight has been the talk of Iraq's political class, and
fueled the impression among many Iraqis and Western officials that the
interim Iraqi government, set up after the American occupation formally
ended in June, is awash in corruption. It is not clear whether the money
came from Iraqi or American sources, or both.

"I am sorry to say that the corruption here is worse now than in the Saddam
Hussein era," said Mowaffak al-Rubaie, the Iraqi national security adviser,
who said he had not been informed of the details of the flight or the arms

That charge is echoed outside of Iraq as well. Isam al-Khafaji, the director
of the New York-based Iraq Revenue Watch, said corruption had become an
"open secret" within the Iraqi government.

"There is no legal system to bring charges against anyone not following the
rules and not abiding by the law, especially if you're a powerful
politician," Mr. Khafaji said. "That's the tragedy of Iraq: Everyone runs
their business like a private fiefdom."

Mr. Shalaan did not respond to several requests for an interview, but one of
his aides insisted that the arms deal was legal and that the money had been
well spent.

Reached by telephone in Lebanon, the aide, Mishal Sarraf, said the arms deal
had been approved by four senior members of the Iraqi government, including
Prime Minister Ayad Allawi and Mr. Shalaan. He said it had been carried out
quickly because of the urgency of the guerrilla war. He said he had not
realized that the deal had been done in cash.

"We don't want to hide anything," Mr. Sarraf said.

He said the armaments themselves had been manufactured in Poland, the Czech
Republic, Turkey, Ukraine and the United States. He said the money had
bought armored personal carriers, tanks and even Humvees.

Mr. Sarraf refused to say who received the money, saying it was too

"They could be killed," he said.

The public fight with Mr. Shalaan is the latest political twist for Mr.
Chalabi, once the darling of the Bush administration and one of the main
proponents of the invasion of Iraq. He has since become a pariah in the
United States, accused of exaggerating Mr. Hussein's prohibited weapons

After a bitter falling out with the Bush administration, which accused him
of passing secrets to the Iranian government, Mr. Chalabi has begun to mend
fences with the Americans, and is positioning himself to make a run for the
prime minister's seat.

In threatening to arrest Mr. Chalabi, Mr. Shalaan appears to be trying to
change the subject to Mr. Chalabi's own legal problems. In Jordan, Mr.
Chalabi faces charges that he embezzled millions of dollars from the Petra
Bank, which collapsed in the 1990's.

Mr. Chalabi has long maintained that the charges against him in Jordan are
baseless, part of a vendetta being carried out for his opposition to Mr.

Mr. Chalabi was campaigning in southern Iraq on Friday and could not be
reached after Mr. Shalaan's threat to arrest him.

Details of the arms detail are still sketchy, but according to Mr. Sarraf
and other Iraqi officials, it began late last year as part of the effort to
beef up the Iraqi armed forces in the face of the relentless guerrilla

Mr. Sarraf said that though the arms deal had been approved by four senior
cabinet members, it had not been put before the entire cabinet because of
the urgency in dealing with the insurgency. "It was all proper," he said.

Dr. Allawi's office did respond to repeated requests for an interview. [ED:
seems "not" is missing]

According to a senior Iraqi financial official with knowledge of the deal,
who spoke on condition of anonymity because of the sensitivity of the
subject, the $300 million was then transferred to the Warqa Bank, a private
Iraqi financial institution with a capitalization of about $7 million. That
bank, the Iraqi official said, does not have the ability to transfer money
electronically to another account in another country. An equivalent amount
of cash was then taken from the vault of the Central Bank of Iraq, taken to
the airport, loaded on an airplane and sent to Lebanon.

"The government here knows it is coming to an end," the official said. "This
is what governments do when they are coming to an end."

A second Iraqi financial official, who also spoke on the condition of
anonymity, confirmed the transaction. The official described the arrangement
as "unusual" and said he had ordered an investigation of the transaction.

The senior Iraqi financial official said the arms deal appeared to bypass
the elaborate financial mechanism set up by the Americans at the end of the
war that was intended to help Iraqi import goods from abroad. Under that
system, Iraqi revenues intended for imports are routed through the Trade
Bank of Iraq and are facilitated, and largely controlled, by large American
financial institutions.

The system was intended to stop creditors from tying up Iraqi money needed
for imports and also to control the way in which the Iraqi government spends
its money.

Indeed, the Iraqi official with knowledge of the deal said he was concerned
that the $300 million could be seized by the many creditors who have liens
against the Iraqi government.

Mr. Khafaji of Iraqi Revenue Watch said the financial mechanism had been set
up to cover all government transactions dealing with imports, including arms

But one American official with knowledge of the transaction said taking the
$300 million out of the country, although unorthodox, was probably the only
way for the Iraqi government to buy weapons.

The reason, according to the American official, is that the financial
mechanism set up after the war's major combat operation ended requires that
Iraqi oil revenues be spent for "humanitarian" purposes. That meant that the
Trade Bank of Iraq could not be used for arms purchases, thus necessitating
the use of cash.

That has since changed, the official said, with the signing of an executive
order by President Bush late last year.

Jad Mouawad contributed reporting from New York for this article.

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