Iraqis find massive fraud in weapons deals

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three intermediary companies to hide the kickbacks they received from contracts involving unnecessary, overpriced or outdated equipment.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.