Former Iraq Minister Denies Theft Of Millions

Taken from The Times, UK, March 11, 2007
By Marie Colvin

A former Iraqi defence minister whose 10 months in office coincided with the disappearance of more than $800m (£400m) from the ministry’s coffers is living openly in Amman and London despite a warrant for his arrest.

Hazem Shaalan, a small businessman in London until Saddam Hussein was ousted in 2003, rose in a year to one of the most important jobs in the interim government that ran Iraq from 2004 to 2005.

He left Baghdad before the next government discovered that a fortune had been looted from his ministry’s account in what one senior investigator has called “one of the largest thefts in history”.

The missing money was part of $8.8 billion of shrink-wrap-ped American cash that was flown into Iraq after Saddam fell but which is now unaccounted for. It is the subject of a congressional inquiry in Washington amid growing demands by Democrats to identify those responsible.

When The Sunday Times tracked down Shaalan in Amman last week as he prepared to fly to London, he showed no sign of concern that the Iraqi government had issued a warrant for his arrest on fraud charges.

Dressed in an elegant Savile Row suit and silk tie, he denied the allegations against him, claiming that the missing money had never arrived at his ministry in the first place.

“There is nearly $800m we never received,” he said over cups of sweet tea brewed by his bodyguard. “These $800m were never at any time received by the Ministry of Defence, nor were they spent by the Ministry of Defence.”

Documents obtained during an official Iraqi investigation and seen by The Sunday Times suggest otherwise.

An investigators’ audit of the ministry during Shaalan’s tenure found that $1.7 billion went into its account at the Rafidain Bank in Baghdad before vanishing into a Jordanian account.

Two cheques drawn on the Ministry of Defence account, one for $149m and the other for $348m - were among transfers totalling $1.126 billion to al-Warka, a small private bank in Baghdad. The money was then deposited at the Housing Bank in Amman.

There it went into the account of Naer Jumaili, a little-known Iraqi businessman who held no official position but acted as a middle man for Iraq’s defence contracts while Shaalan was in charge. Jumaili also lives openly in Amman despite an Iraqi arrest warrant on charges of theft but was unavailable for comment last week.

“What Shaalan and his ministry were responsible for was possibly the largest robbery in the world,” said Judge Radhi al-Radhi, the head of Iraq’s Commission on Public Integrity which investigates official fraud.

The scandal has raised a series of perplexing questions. The nature of Shaalan’s role, the impact on the faltering development of Iraq’s nascent army as the insurgency took hold and the failure of US officials to keep track of billions of dollars are all coming under growing scrutiny in Baghdad and Washington.

Not least is the question: where did all the money go? Iraqi investigators have been denied access to Jordanian bank details and have yet to establish how much may have simply been stolen.

But they believe that most of it went on weapons deals in which the ministry was supposed to acquire expensive, modern equipment but bought cheap, substandard items instead, with the difference in price being pocketed along the way.

In one example, the latest MP5 American machineguns were ordered at a cost of $3,500 each. But what was delivered were Egyptian copies worth $200 per gun.

Other purchases included outdated Pakistani armoured personnel carriers that could hardly stop a Kalashnikov bullet and had steering wheels on the wrong side; and bullets so old that when soldiers opened the ammunition cases they feared the ammunition would explode.

“Huge amounts of money simply disappeared,” said Ali Allawi, a former finance minister who uncovered the problems after he came into office in 2005.

“We got scrap metal in return. This is not just about fraud. The substandard equipment that the army received meant soldiers died as a result.”

One Iraqi official claimed last week that the missing money would have paid for 11,000 schools or 500 hospitals. But the immediate impact was that the Iraqi army was woefully unprepared to tackle an increasingly savage and well armed insurgency, just at the time when the Americans were pressing for the national force to start replacing their own troops. Iraqi soldiers found that they were ambushed by insurgents with far better weapons than their own.

The person with overall ministerial responsbility was Shaalan, who had made a relatively meagre living from property deals and part-time journalism in Britain before the war and enjoyed a meteoric rise after the US-led invasion toppled Saddam.

Having worked on the fringes of Iraqi exile politics in London, he was initially appointed by the Coalition Provisional Authority (CPA) as governor of Qadisiyah province, where he evidently impressed American officials. Although he comes from a prominent Shi’ite clan, he won plaudits for his fierce opposition to fundamentalist Shi’ite factions.

When the provisional authority handed over to Iraq’s interim government in 2004, the transition was chaotic and the new administration riddled with favouritism.

Shaalan became defence minister without any experience in security or managing a large organisation. Soon after his appointment he wrote to the prime minister, Iyad Allawi, asking for an increase in his ministry’s budget, which had been set at $450m, on top of $8-$10 billion the Americans spent separately that year on training and equipping the Iraqi army.

Shaalan decided to create new mechanised divisions and a rapid deployment force to counter the insurgency, and for that he needed more money. Such an increase would normally have been submitted first to the cabinet and, if approved, to the National Assembly.

Instead, Shaalan sent a memo to the office of the prime minister, requesting an emergency exemption from the procedures.

In a memo signed by Shaalan he said there were “a number of secret contracts the amounts of which cannot be made public”, and other contracts “which require immediate expenditure”. In the same memo he demands “tax exemption for secret contracts”. The finance ministry was instructed to allocate the $1.7 billion for the creation of the rapid deployment divisions and to place it at the disposal of Shaalan’s ministry.

Shaalan’s memo was dated August 29. Two days later Jumaili incorporated the Flowing Spring company with assets of $2,000. Within months the company was doing deals for the ministry and hundreds of millions of dollars were flowing into his personal account.

Jumaili forged an alliance with Ziad Cattan, an Iraqi with dual Polish citizenship. Cattan was appointed head of military procurement at the ministry, even though he appears to have had no credentials for the job. He had run a pizza parlour in Poland while Saddam was in power, and had a small used car business in Germany.

He later admitted to an American newspaper: “Before, I sold water, flowers, shoes, cars - but not weapons. We didn’t know anything about weapons.”

Cattan turned to Flowing Spring to provide the Iraqi army with arms and other equipment. He agreed contracts worth more than $1 billion with Flowing Spring and other companies controlled by Jumaili.

There was little or no competitive tendering. The contracts, some of which the Ministry of Defence never saw, even allowed Jumaili to determine what was delivered at his own discretion.
Documents show that in one transaction Jumaili transferred about $480m in ministry funds to the account of a colleague in Baghdad. The colleague then transferred the entire sum to Jumaili’s account in Amman.

Jumaili also took $100m of ministry cash from a bank in Baghdad in a single withdrawal and flew it out of the city.

A large quantity of substandard equipment was bought by Jumaili from a Polish company through a connection established by Cattan.

Twenty-four Soviet-era helicopters were acquired for $100m, ostensibly paid in advance. They were more than 30 years old and so outdated that Iraqi army inspectors refused to take delivery of them. Another purchase of 16 Polish-made Sokol helicopters is still being disputed.

In one of the few deals not organised by Jumaili and Cattan, Shaalan personally flew to Pakistan and bought equipment supposedly worth $80m from a government stock-pile. “I was on an official visit to Pakistan to sign a military protocol,” he claimed last week. “It included armoured vehicles.” He denies claims that the vehicles were unsafe.

Last week Shaalan said he had sold a spacious villa in Amman and now lived in a small flat. But among the countless Iraqi refugees in Amman, many of them destitute, Shaalan cuts a suave figure, travelling in a luxury car and accompanied by solicitous bodyguards.

He also seems to have ready access to cash. When he travelled from Amman to London with a Sunday Times journalist in 2005, he stopped before customs to divide up bundles of US dollars from his briefcase between himself, his wife and his travelling companions.

The repercussions of financial dealings during his time as defence minister have been many and varied. Iraq’s Bureau of Supreme Audit investigated the arms fraud after it was discovered by Allawi, the finance minister. Although warrants were later issued by the Commission on Public Integrity against Shaalan for fraud, Juamili for theft and Cattan for embezzlement, none has been arrested.

On visits to his family in London, Shaalan stays in some of the capital’s most expensive hotels and has been known to take a suite at the Dorchester. Britain has an extradition treaty with Iraq. But officials in London would not say last week whether an extradition request had been made by the Iraqi government. Nor is it known whether Baghdad has sought the extradition of Jumaili from Jordan. Cattan’s whereabouts are unknown.

By the time Shaalan’s successor came to office in May 2005, the ministry’s resources had been plundered and an army that was supposed to be well equipped and trained was vulnerable and demoralised.

When Ali Allawi traced the missing money to Jordan, his request to officials in Amman for the records of Jumaili’s bank account was stonewalled..

Allawi, who now lives in London, also went to the American government, meeting Treasury officials, but says he received no help.

Paul Bremer, head of the CPA who presided over the disbursement of much of the American cash, came under pressure last month when he was summoned before a congressional committee investigating the handling of reconstruction money in Iraq.

According to US investigators, bundles of $100 bills were taken from the Federal Reserve in New York, loaded onto wooden pallets and flown into Baghdad. “Who in their right minds would send 360 tons of cash into a war zone?” asked Henry Waxman, the Democratic chairman of the House of Representatives oversight committee.

Allawi said last week: “We were given no support either from the United States, or the UK or any of the Arab countries.

“The only explanation is that too many people in positions of power and authority have profited from this or, if they went to court, it would be too embarrassing for those who supported them.”

Missing cash
# $12 billion - cash shipped to Iraq from US in 2003-4
# $8.8 billion - total spent by Coalition Provisional Authority (CPA) and never accounted for
# $2.5 billion - Iraqi money spent by CPA from oil-for-food programme without proper accounts
#$800m - amount missing from Iraqi defence ministry
# $500m-$600m - missing from transport, electricity and interior ministries
# $69m - value of fuel missing from oil ministry

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It seems to be that Hazem Shaalan is just a small fry over the larger picture on the corruption probes and raping of the resources of the country of Iraq. Yes, money has disappeared from both oil revenues of Iraq as well as US Taxpayers but it must be noted that most of the monies that were “Lost” belonged to the Iraqi people. The biggest thieves are the contractors who have been given permission to rebuild the country after the country was bombarded by the US air force and also mercenary’s working in US security firms in Iraq – a job that should be done by the collation forces for the Iraqi security forces. These are the companies that have been sifting the Iraqi money from the Iraqi people.