Monday, November 07, 2005

The International Brownie Effect

Remember when people seriously thought Bush would hire and surround himself with smart and competent people? As at home, so it goes in Iraq:

Ziad Cattan was a Polish Iraqi used-car dealer with no weapons-dealing experience until U.S. authorities turned him into one of the most powerful men in Iraq last year — the chief of procurement for the Defense Ministry, responsible for equipping the fledgling Iraqi army.

Do we need to tell you how this story ended?

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three intermediary companies to hide the kickbacks they received from contracts involving unnecessary, overpriced or outdated equipment.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


Blogger Management said...

By Solomon Moore and T. Christian Miller Times Staff WritersSun Nov 6, 7:55 AM ET

BAGHDAD — Ziad Cattan was a Polish Iraqi used-car dealer with no weapons-dealing experience until U.S. authorities turned him into one of the most powerful men in Iraq last year — the chief of procurement for the Defense Ministry, responsible for equipping the fledgling Iraqi army.

As U.S. advisors looked on, Cattan embarked on a massive spending spree, paying hundreds of millions of dollars in Iraqi funds for secret, no-bid contracts, according to interviews with more than a dozen senior American, coalition and Iraqi officials, and documents obtained by the Los Angeles Times. The money flowed, often in bricks of cash, through the hands of middlemen who were friends of Cattan and took a percentage of the proceeds.

Although much of the material purchased has proved useful, U.S. advisors said, the contracts also paid for equipment that was shoddy, overpriced or never delivered. The questionable purchases — including aging Russian helicopters and underpowered Polish transport vehicles — have slowed the development of the Iraqi army and hindered its ability to replace American troops, U.S. and Iraqi officials say.

Cattan, now facing corruption charges leveled by the Iraqi Justice Ministry, insists that he is innocent of any wrongdoing and the victim of a smear campaign. In interviews in Poland, where he now lives, Cattan said he had worked under pressure from U.S. and Iraqi officials to arm the Iraqi forces as quickly as possible.

"Before, I sold water, flowers, shoes, cars — but not weapons," said Cattan, who signed most of the 89 military contracts worth nearly $1.3 billion to equip Iraqi security forces, according to the documents. "We didn't know anything about weapons."

Cattan's improbable rise and fall raises troubling questions about American oversight of the Iraqi army's development, considered the most important mission in reducing the number of U.S. troops in harm's way.

The portrait that emerges from interviews and documents is a Defense Ministry whose members were picked with the care of choosing a pickup basketball team. U.S.-appointed military advisors often selected inexperienced Iraqis and watched as they cut pell-mell weapons deals that eventually totaled one-third of the entire procurement budget.

The Iraqis "were like, 'Hey we're a sovereign government now…. We'll buy what we want,' " one military advisor said. "We didn't know what was going on with the money."

Iraqis say the corruption scandal has set back their efforts to fight insurgents. More than 27 arrest warrants have been issued for former government officials, including Cattan and his boss, former Defense Minister Hazem Shaalan. Several former ministry officials have fled the country, others are already in prison awaiting trial, and six have been killed by unknown assailants.

"These violations are many, and they allow terrorism to flourish," said Judge Radhi Radhi, the head of the Commission on Public Integrity, which is leading the investigations. "Exposing this corruption is a matter of vital importance for Iraq."

Cattan's ascent began two days before the March 2003 invasion of Iraq, when he returned from Poland after 26 years in an attempt to bring his elderly father out of Iraq to safety.

His father refused to leave, however, so Cattan decided to stay as the war raged on. A broad, garrulous man with boundless confidence, Cattan figured he could help rebuild the country, drawing on a past that included an economics doctorate and business ventures including used cars and a pizza parlor.

Cattan was elected to one of the local advisory councils the U.S. set up after the initial combat phase of the war. He soon became close with the U.S. troops that occupied his neighborhood, filled with military officers who served under President Saddam Hussein, who had just been toppled.

By early 2004, as the U.S. moved toward handing sovereignty to the Iraqis, Cattan had caught the eye of American officials who were scrambling to build a new Defense Ministry. The U.S. was starting from scratch. Coalition advisors decided that civilians should lead the new ministry, but under Hussein, the Defense Ministry was run by military officers, meaning there was no pool of experienced Iraqis from which to draw.

In desperation, Americans cast a wide net, sending interested Iraqis to the United States for a three-week crash course on Defense Ministry management. Cattan was one of the first to go.

Upon his return, he rose quickly through the new ministry's ranks, becoming the director of military procurement after the first director's assassination. Cattan was chosen partly because he had done a good job obtaining furniture for the ministry building, one source said.

He impressed U.S. officials in the coalition with his ability to get things done, a trait lacking in many Iraqi government prospects, who had learned to avoid taking the initiative under the Hussein dictatorship.

"He was somebody we recruited, and we were taking a chance on him just like on everybody else," said Frederick Smith, a former Defense Department official who was one of a handful of coalition officials charged with building the ministry. "Ziad is not a choirboy. But he was willing to serve."

As the U.S.-led Coalition Provisional Authority handed over sovereignty in June 2004, the American mission in Iraq shifted its focus to training and equipping Iraqi forces.

Cattan said U.S. officials pressured the Iraqis to begin spending Iraqi funds, which would supplement American spending on arms contracts that had gotten bogged down in the U.S. contracting process. Gen. David Petraeus, head of the training mission, and Nick Beadle, a British Defense Ministry official who was chief advisor to the Iraqi Defense Ministry, declined to comment.

All of sudden, Cattan had $600 million to spend, with a mandate to spend it by the end of December under Iraqi budgeting rules.

In September, Cattan said, he signed the first of 38 contracts with Bumar, Poland's state arms dealer, which would total more than $400 million. Bumar is supposed to supply Iraq with 36 Russian and Polish transport helicopters and 600 Polish armored personnel trucks.

Petraeus and Beadle both objected to the helicopters, according to interviews with military advisors, saying they were not a top priority when Iraqi soldiers still needed basic equipment such as guns and bulletproof vests.

"It was a question of what was the greatest need given the resources available to them and the coalition, and at the same time, whether they had the capacity not only to buy it, but to maintain and sustain it," one military official said.

The Iraqis later objected to the helicopters as well, declaring them too old to fly. A delegation of Iraqi test pilots who visited Bumar's production facility in St. Petersburg, Russia, declined to sign papers to finalize the sale. The current Iraqi government has since rebuffed Bumar's offers to ship the helicopters.

Cattan and Bumar officials acknowledged that some helicopters were 25 years old, but defended the purchase.

Bumar President Roman Baczynski said in an interview that his company has already prepared 10 new Russian MI-17 helicopters for delivery. The rest of the helicopters are used and must be overhauled, including eight manufactured between 1978 and 1986.

Baczynski arranged for a Times reporter to tour a production plant outside Warsaw where the armored personnel trucks were being prepared. The factory will produce about 20 vehicles a month, mostly by hand, at an average cost of $167,000 each. The boxy, beige trucks have metal-reinforced tires, space for 10 soldiers and armor sufficient to stop an AK-47 round.

But during a test drive, the reporter could not manage to propel the heavy truck up a 45-degree, 8-foot-high incline from a standing start; a test driver had to back the vehicle up to build momentum. Bumar officials said the truck only had a 150-horsepower engine — about the same as a Mazda Miata.

"The engine size was their decision," a Bumar executive said. "We adjust to the client's requirements — and cost was a factor for them."

Besides the quality of the material, U.S. and Iraqi officials have raised questions in audits and financial reviews about the possibility of fraud in the payment mechanism.

The Polish contracts, like others signed by Cattan, were paid in cash, up front — both violations of Iraqi contracting regulations, according to a confidential audit by the Iraqi Supreme Board of Audit obtained by The Times.

Many of the contracts signed by Cattan passed through companies run by Iraqi businessman Naer Mohammed Jumaili, whom Cattan had gotten to know while on the advisory council, according to Cattan and the audit. Cattan said he worked closely with Jumaili and other businessmen who owned cash-transfer companies, which exchange currency and move it outside the country. Cattan said he awarded them reconstruction contracts as they provided information on insurgent money flowing into Iraq.

"They supported me to become a big man in Iraq," Cattan said of Jumaili and the other businessmen, whom he referred to as "my friends."

He said he turned to Jumaili during the weapons deals because Jumaili was Bumar's sole registered agent in Iraq — a claim Bumar denied. Cattan also said he used Jumaili's services because it was the only way to move money out of Iraq. In a complicated series of transactions, the Defense Ministry would issue a check to Jumaili's firm, which would cash the check at an Iraqi bank. Jumaili or Cattan would then coordinate the physical movement of sacks of cash to banks in Jordan, according to interviews and documents.

All told, nearly $1 billion worth of contracts were signed with Jumaili's companies, according to the audit. Cattan said Jumaili charged 1% for his services. If true, Jumaili could have earned up to $10 million in fees. Jumaili could not be reached for comment.

U.S., Iraqi and coalition officials said they didn't know about the enormous cash transfers until after one especially large shipment of $300 million became public last winter, when ministry officials were spotted loading bags stuffed with $100 bills onto a flight to Jordan.

U.S.-appointed military advisors conducted a high-level financial review of the ministry's books, resulting in a determination in February of a "high risk of fraud," according to two sources with knowledge of the review.

That review, in turn, sparked a more thorough examination by the Supreme Board of Audit, one of three anti-fraud Iraqi agencies supported by the U.S. government to crack down on corruption.

The May report, which reviewed 89 contracts worth $1.3 billion signed between June 28, 2004, and Feb. 28, was sharply critical. Auditors could not find contract copies, payment receipts or verify that equipment had been received. The audit criticized Cattan's cash payments as a "flagrant violation of the state monetary policy."

Iyad Allawi, the U.S.-appointed interim Iraqi prime minister at the time of the deals, said he wasn't aware that Cattan was using private intermediaries to transfer cash. He charged that the accusations of corruption within his Cabinet were politically motivated.

"I don't think it is fair at all that we shift focus from Saddam and the corruption during Saddam's time … to a period of six to seven months when I was prime minister," said Allawi, who noted that he initiated three investigations. "That is not to say that there is no corruption — there is, of course, corruption."

Another contract called into question by the auditors and U.S. officials involved Wye Oak Technology, a Pennsylvania firm run by Dale Stoffel, an American arms broker. Stoffel, who was killed in a roadside attack after reporting his concerns about corruption at the Defense Ministry, was the subject of previous Times stories.

Stoffel had an agreement worth up to $283 million to refurbish Iraqi tanks and sell scrap metal abroad, according to interviews and documents. When Cattan was slow to pay invoices, Stoffel complained to the Pentagon that the Iraqis were demanding kickbacks by insisting that only certain contractors be hired, according to letters obtained by The Times.

Cattan said he was reluctant to pay the contract because he received only a "vague invoice." He said U.S. officials regularly pressured him to pay Wye Oak.

Army Col. David Styles, the Petraeus deputy who was in charge of the tank project, acknowledged pressuring Cattan, but only because he wanted the project to progress, he says.

Styles also said Cattan used money from the project to buy tens of thousands of bulletproof vests that fell apart and helmets "which were no better than the helmets I got as a kid from [the] toy store."

"The fact that Cattan did not want money paid unless it was to a contractor he personally approved was the problem," Styles said in response to e-mailed questions.

Although U.S. and Iraqi officials believe the chaotic spending harmed the effort to develop Iraqi forces, they disagree about the nature of the effect.

Iraqi officials believe that as much as $500 million has been wasted. They say that Iraqi soldiers are unable to fight effectively and are at greater risk because they lack good-quality weapons, armored vehicles and other supplies as a result of the questionable purchases. More than 2,000 Iraqi soldiers and police officers have died this year.

"The Americans have spent two years building the Iraqi forces," said Hadi Amery, an Iraqi legislator and head of the Badr Brigade militia, the armed wing of the Supreme Council for the Islamic Revolution in Iraq, a top political party. "What have you done through these two years?"

U.S. officials say the scale of corruption is far smaller, and that its effect on Iraqi troop readiness is smaller too.

One U.S. military official said some of Iraq's battalions could have improved their combat readiness had the Iraqis focused more on buying critically needed items instead of equipment such as helicopters.

"There clearly was some impact from Ziad's practices," the military official said. "However, it was not clear that it was all that substantial." The Americans said they did all they could, but that the Iraqis made final decisions.

Such assertions puzzle Iraqis. How is it, they say, that the U.S. could have allowed such slipshod execution of such an important task?

"We have American experts in the Defense Ministry," said Radhi, the official investigating the corruption. "When they saw such violations, why didn't they do something? They are experts."

Moore reported from Baghdad, Warsaw and Amman, Jordan; and Miller from Washington.

5:58 PM  
Blogger Management said...

Posted on Thu, Aug. 11, 2005

Audit: Iraq fraud drained $1 billion

By Hannah Allam
Knight Ridder Newspapers

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.

"There's no rebuilding, no weapons, nothing," said retired Iraqi Lt. Gen. Abdul Aziz al-Yaseri, who worked in the Defense Ministry at the height of the alleged corruption. "There are no real contracts, even. They just signed papers and took the money."

Lt. Gen. David H. Petraeus, who oversees the U.S. military's training of Iraqi troops, conducts weekly briefings with the defense minister. Other Iraqi defense officials seldom are spotted without American civilian advisers nearby. The close relationship has raised questions as to how $500 million or more could vanish without U.S. intervention to stop the suspicious contracts that flowed for at least eight months.

"Ask them. I have the same question," al-Dulaimi said. "I blame those who posted them (the officials under investigation). And, by the way, the CPA posted them."

He was referring to the Coalition Provisional Authority, the occupation-era administration that American Ambassador L. Paul Bremer oversaw. Al-Dulaimi, other Iraqi politicians and some U.S. military officials blamed the CPA for forcing the Defense Ministry to hire previously unknown Iraqi officials, especially former exiles, without consulting Iraqi leaders.

Petraeus' spokesmen and U.S. Embassy officials said they raised concerns about corruption rumors but were constrained from doing more to prevent the alleged wrongdoing because a sovereign Iraqi government was in place. However, Iraqi politicians, eager to deflect blame ahead of the coming election season, said Americans introduced a culture that allowed room for corruption and that the Americans could have done more to protect the Iraqi public's money.

"Before me, there was another prime minister. His name was Bremer," Ayad Allawi, who served as interim premier when the corruption investigation began sometime last year, told Knight Ridder. "He ran this country, he had this ministry and a lot of the corruption started then. ... There was no auditing. Airplanes were flying in and the money was handed out in suitcases."

Former Defense Minister Hazem Shaalan has told U.S. and Iraqi officials that Bremer personally requested that Ziad Cattan - the alleged ringleader of the corruption and the ministry's former procurement chief - stay in his job after sovereignty was transferred last summer.

Bremer said this week, through his former CPA spokesman Dan Senor, that he didn't know Cattan. "At least to his knowledge, he'd never met him," Senor said.

Cattan, a dual Polish-Iraqi national, was fired in May and a warrant was issued for his arrest in connection with "the abuse of an employer's funds." He fled Baghdad and hasn't returned to answer the charges.

Col. John Martin, Petraeus' deputy for political-military affairs, said the general as well as high-ranking American and British defense advisers warned Allawi's defense chiefs of "their concerns about the lack of transparency in MoD procurement, the uncoordinated manner in which MoD procurement was proceeding and the possibility for - and rumors of - corruption."

"They also repeatedly warned the MOD that Dr. Ziad Cattan, in addition to procuring items Iraq did need, was also reportedly purchasing items the country did not need and could not afford to purchase, operate or sustain," Martin said. "At the end of the day, however, this was Iraqi money being spent by Iraqi officials of a sovereign country's ministry."

Even as hints of a corruption scandal emerged last spring, Cattan told others in the ministry that U.S. Defense Secretary Donald H. Rumsfeld personally had assured his job and no Iraqi had the power to remove him, al Dulaimi said. Instead of fleeing the investigation closing in on him, Cattan lobbied for even more authority. He wanted to become defense minister, a seat reserved for a Sunni Arab by al Jaafari's Shiite-dominated government, which was elected last January.

Cattan, a Sunni, contacted the Iraqi National Dialogue Committee, the main Sunni faction negotiating with al-Jaafari on Cabinet appointments, and offered members $10 million cash to nominate him as their candidate for the post, said Mohammed al-Daini and two other committee members who heard Cattan's proposal. The group refused, and al-Jaafari handed the post to al-Dulaimi, a British-educated sociologist who isn't implicated in the scandal.

In several e-mail messages last month, Cattan gave Knight Ridder photos and documents purporting to show his close working relationship with U.S. officials and his repeated requests for their help in streamlining the contracting process. He denied wrongdoing, but acknowledged that some Western officials who are accustomed to peacetime standards might take exception to the aggressive weapons procurement he conducted to quickly arm an Iraqi force against the insurgency.

"We support this when conditions are quiet and normal, but we cannot disregard or overlook the bloody actuality and stick to the ... procedures imposed on us," Cattan wrote to his superiors in a memo dated May 29, around the time of his dismissal. "We cannot stay handcuffed."

When the extent of the alleged corruption leaked to the U.S. Embassy, senior diplomats were "hopping mad," said an official with the U.S.-led Iraq Reconstruction Management Office who has personal knowledge of the Defense Ministry's transactions. He spoke on condition of anonymity Wednesday because he could face dismissal for discussing the matter without authorization.

"The entire embassy was upside down over this," he said. "I swear to God the advisers didn't know everything going on over there. Where did they get their information? From the Iraqis. I can give you one budget that says this country is flourishing and another that tells you this country is going to s---. The Iraqis told us only what they wanted us to hear."

While many of the contracts did result in useful, if overpriced, equipment for Iraq's 80,000 new troops, contracts involving shoddily refurbished helicopters from Poland, crates of loose ammunition from Pakistan and a fleet of leak-prone armored personnel carriers were among purchases that now are deemed unnecessary or unusable.

With the money paid in advance and no mechanism for a refund, al-Dulaimi said, the Defense Ministry is negotiating with weapons dealers to substitute the equipment for more useful items such as guns, radio communications and other vital supplies.

"It's chaos," al-Dulaimi said, visibly exasperated. "It's a result of all the chaos brought to Iraq."

5:59 PM  

Post a Comment

<< Home