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What has happened to Iraq's missing $1bn?

By Patrick Cockburn in Baghdad
Published: 19 September 2005

One billion dollars has been plundered from Iraq's defence ministry in one of the largest thefts in history, The Independent can reveal, leaving the country's army to fight a savage insurgency with museum-piece weapons.

The money, intended to train and equip an Iraqi army capable of bringing security to a country shattered by the US-led invasion and prolonged rebellion, was instead siphoned abroad in cash and has disappeared.

"It is possibly one of the largest thefts in history," Ali Allawi, Iraq's Finance Minister, told The Independent.

"Huge amounts of money have disappeared. In return we got nothing but scraps of metal."

The carefully planned theft has so weakened the army that it cannot hold Baghdad against insurgent attack without American military support, Iraqi officials say, making it difficult for the US to withdraw its 135,000- strong army from Iraq, as Washington says it wishes to do.

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Given that building up an Iraqi army to replace American and British troops is a priority for Washington and London, the failure to notice that so much money was being siphoned off at the very least argues a high degree of negligence on the part of US officials and officers in Baghdad.

The report of the Board of Supreme Audit on the defence ministry contracts was presented to the office of Ibrahim al-Jaafari, the Prime Minister, in May. But the extent of the losses has become apparent only gradually. The sum missing was first reported as $300m and then $500m, but in fact it is at least twice as large. "If you compare the amount that was allegedly stolen of about $1bn compared with the budget of the ministry of defence, it is nearly 100 per cent of the ministry's [procurement] budget that has gone Awol," said Mr Allawi.

The money missing from all ministries under the interim Iraqi government appointed by the US in June 2004 may turn out to be close to $2bn. Of a military procurement budget of $1.3bn, some $200m may have been spent on usable equipment, though this is a charitable view, say officials. As a result the Iraqi army has had to rely on cast-offs from the US military, and even these have been slow in coming.

Mr Allawi says a further $500m to $600m has allegedly disappeared from the electricity, transport, interior and other ministries. This helps to explain why the supply of electricity in Baghdad has been so poor since the fall of Saddam Hussein 29 months ago despite claims by the US and subsequent Iraqi governments that they are doing everything to improve power generation.

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The fraud took place between 28 June 2004 and 28 February this year under the government of Iyad Allawi, who was interim prime minister. His ministers were appointed by the US envoy Robert Blackwell and his UN counterpart, Lakhdar Brahimi.

Among those whom the US promoted was a man who was previously a small businessman in London before the war, called Hazem Shaalan, who became Defence Minister.

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