Knight Ridder Newspapers
July 14, 2005
By Hannah Allam

The Iraqi Defense Ministry has squandered more than $300 million buying faulty and outdated military equipment in what appears to be a massive web of corruption that flourished under American-appointed supervisors for a year or longer, U.S. and Iraqi military officials said this week.

Vendors are suspected of vastly overcharging for substandard equipment, including helicopters, machine guns and armored vehicles, and kicking back money to Iraqi Defense Ministry buyers.

The defective equipment has jeopardized the lives of Iraq's embattled security forces and exposed a startling lack of oversight for one of the country's most crucial rebuilding projects.

Officials of Iraq's recently elected government have fired the main suspects in the scandal, and several former defense overseers are under investigation for possible criminal charges, Iraqi Defense Minister Saadoun al-Duleimi said in an interview this week.

"I view corruption as an incubator for terrorism," said al-Duleimi, who took office in May and isn't implicated in the scandal. "If you can't defend against corruption, you can't defend against terrorism."

The suspected fraud slowed progress in training and equipping Iraqi forces, whose performance against deadly insurgents is the key gauge for when the U.S. military can begin withdrawing its 135,000 troops from Iraq. Lt. Gen. David H. Petraeus is the senior U.S. officer in charge of training and equipping Iraqi forces. He declined to comment on the allegations, saying it was a matter for the sovereign government of Iraq to resolve.

Al-Duleimi said investigators are looking at more than 40 questionable contracts that allegedly sent a huge chunk of the ministry's annual budget into the pockets of senior Iraqi defense officials and their foreign business partners.

Other Iraqis familiar with the cases said there may be more fraudulent contracts involving many more millions of dollars.

Investigators are looking at purchases dating back to the June 28, 2004, transfer of sovereignty from American administrator L. Paul Bremer III to the caretaker government of U.S.-backed Prime Minister Ayad Allawi. Many Iraqi administrators hired under Bremer's Coalition Provisional Authority kept their jobs after the handover of the ministry, but after that the U.S. military no longer had the final say in awarding contracts.

However, Americans still ran the show behind the scenes, said several Iraqi bureaucrats involved with the ministry at the time. It's implausible to them that U.S. officials, who held daily briefings with Iraqi defense chiefs, didn't catch wind of the alleged wrongdoing.

"It seems hard to understand to an outsider that this stuff could go on under our noses and Americans wouldn't know anything about it. But, clearly, we didn't know everything," said a U.S. military official familiar with the events. He spoke on condition of anonymity because he wasn't authorized to discuss an open investigation.

The official said American advisers had warned the government about some suspicious activity, but they weren't aware of the extent of the problem. In his words: "When the $300 million figure came out, jaws hit the floor. We had no idea the numbers were that high."

The official emphasized that it wasn't U.S. taxpayer funds involved in the alleged corruption, though he added that commanders have had to dip into American money to correct the losses and keep Iraqi training on track. He said it was hard to rein in Iraqi officials who had grown accustomed to having cash thrown at them in the confusing first months of the war, but added that there was no other way to get things done when there was no banking system and concerns were mounting over security.

"Maybe you heard a rumor that a certain guy's a crook, but you still needed equipment for the Iraqis and he could get them by the end of the month. What do you do?" the official asked. "We are not operating in a black-and-white situation here. This is a gray, gray world we work in."

In one case, a team of Iraqi defense inspectors traveled to Poland to check on what they understood to be a fleet of refurbished transport helicopters that cost the government more than $100 million. What the inspectors found were 24 Soviet-era helicopters, each about 30 years old and way past its prime. Disgusted, the Iraqi team refused the aircraft and returned to Baghdad empty-handed, with neither helicopters nor the money paid up front for them.

"You could say the helicopters were out of order," al-Duleimi said.

Other disastrous purchases include a shipment of sleek MP5 machine guns, costing about $3,500 apiece, that are now believed to be Egyptian-made knockoffs worth $200 each on the street, according to American and Iraqi officials familiar with the contracts under scrutiny.

In another case, defense officials bought expensive armored personnel carriers to protect Iraqi troops on trips through perilous areas. The vehicles leaked so much oil that they broke down after only a few miles. Eventually all were parked as too dangerous to use, the officials said.

Many of the deals were brokered by former Iraqi exile Ziad Tareq Cattan, who was hired by the CPA in 2004 and quickly rose from district councilman to be the Iraqi defense ministry's chief weapons buyer. Cattan, who oversaw the ministry's acquisitions, logistics and infrastructure portfolio, was known as a man who flew around the world spending millions of government cash with little accountability.

Defense officials said he sometimes submitted scraps of paper as receipts for multimillion-dollar weapons deals and was notorious for charging a 10 percent "finder's fee" for the contracts he negotiated.

"There is no doubt he took advantage of opportunities," said John Noble, senior Western adviser to Iraq's defense ministry. "Certainly millions, possibly even hundreds of millions" of dollars were lost through Cattan's business ventures, Noble said.

Cattan was fired last month. U.S. military officials said he'd tried to flee the country, but was stopped. Knight Ridder obtained a copy of an Iraqi court's arrest warrant filed against him July 7 on charges related to abuse of an employer's funds. The warrant ordered Cattan "to the aforementioned court as soon as possible."

Cattan phoned Knight Ridder on Thursday, saying he was in Irbil, the capital of the semiautonomous Kurdish region in northern Iraq. In an hour-long phone interview, Cattan said the accusations against him were made up by Americans angry that he questioned their training procedures for Iraqi troops and by newly elected Shiite Muslim leaders jealous of a rival Sunni Muslim in such an important ministry post. He denied taking a 10 percent finder's fee for contracts.

Cattan said he spent 27 years in Europe before returning to Iraq two days before the war began in 2003. He said he was handpicked by Bremer's CPA and was flown to Washington in January 2004 for special training in rebuilding the Iraqi Defense Ministry.

"We assisted this ministry when Bremer was here. We built this ministry with our hands," he said. "We built this army from zero to 100,000."

Cattan was kept on after the return of sovereignty put Allawi, a secular Shiite, in charge of the government. But all along, Cattan said, it was Americans who controlled the defense ministry's purse strings and weapons procurement. He said it would have been impossible for him to commit the alleged fraud with American generals managing every aspect of the ministry.

"We could do nothing in the ministry without decisions from the generals," Cattan said. "We couldn't move a single soldier from east Baghdad to west Baghdad without their permission. We had to ask them, to plead with them for one machine gun."

Cattan said he traveled to France, Poland, the United Arab Emirates and other countries to buy high-quality weapons for the new Iraqi force. He acknowledged the helicopter debacle, saying he'd asked his Polish friends to replace the rusty aircraft with newer models. But he said it was Americans - not Iraqis - who wasted money on other outdated equipment for the country's nascent forces.

"A lot of our soldiers were killed because they were given old AK-47s and were told to go fight in Fallujah," Cattan said. "The guns would work for a few minutes and that was it."

While friendly with the Allawi government, Cattan said, he found himself suddenly persona non grata under the more conservative Shiite leadership of Prime Minister Ibrahim al-Jaafari, who came to power after the January elections. He said al-Jaafari's Shiite-dominated administration resented his efforts to bring disaffected Sunni Arab tribesmen and clerics into the government, so officials drummed up the corruption charges to get rid of him.

Cattan said he plans to return to Baghdad next week to answer charges in the arrest warrant. He said he looks forward to continuing his work on rebuilding Iraq and hasn't ruled out running in the next elections.

"They want to destroy my reputation, destroy my position," Cattan said. "If they have one document that shows one cent of corruption, show me. They can prove nothing."

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