US embassy cable - 05BAGHDAD3943

S E C R E T SECTION 01 OF 03 BAGHDAD 003943 
 
SIPDIS 
 
NOFORN 
 
PLEASE PASS TO NSA HADLEY 
 
E.O. 12958: DECL: 09/23/2025 
TAGS: PREL, KCOR, PREL, PGOV, IZ 
SUBJECT: ALLEGATIONS OF CORRUPTION IN THE MINISTRY OF 
DEFENSE 
 
Classified By: AMBASSADOR ZALMAY KHALILZAD FOR REASONS 1.4 (b), (c), AN 
D (d). 
 
1. (U) Action request, see para 18. 
 
2. (S/NF) SUMMARY.  Recent press accounts alleging massive 
fraud at the Iraqi Ministry of Defense (MoD) -- most notably 
implicating former Defense Minister Hazem Shaalan -- repeat 
allegations that have been made for some time.  Embassy, 
IRMO, and MNSTC-I plan to work closely with the MoD and ITG 
to audit past MoD contracts for clear evidence of wrongdoing, 
seek to determine whether it is possible to retrieve any cash 
from poorly-executed contracts (or corruption), and ensure 
that sound contracting and auditing procedures are in place 
and followed.  END SUMMARY. 
 
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BACKGROUND 
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3. (S/NF) Over the past week, allegations of fraud at the MoD 
have resurfaced in the press, repeating old rumors that are 
rife with accounts of secret deals, political machinations, 
and even murder.  Most of these charges involve the former 
Ministry of Defense (MoD) Director General (DG) for 
Acquisitions and Logistics, Ziyad Tariq Ahmed Cattan, who 
served under Minister of Defense Hazem Shaalan and for a 
short time under Minister of Defense Saadoun al-Dulime, who 
had him removed from office. 
 
4. (S/NF) As far as we are aware, any money allegedly stolen, 
misappropriated, or utilized in suspect contracting was all 
Iraqi.  No U.S. or other foreign supplied funds are thought 
to be involved. 
 
5. (S/NF) The amounts allegedly involved vary between several 
hundred thousand dollars and $1.2 billion to $1.3 billion. 
The high figure is thought to be the total amount of funds 
that Shaalan and Cattan had access to for military 
acquisitions between 2004 and January 2005.  Cattan became DG 
for Acquisitions in the summer of 2004 following the 
assassination of the previous DG. 
 
6. (S/NF) This money was used to pay for contracts to 
purchase defense equipment.  Due to the "urgency" with which 
this equipment was needed, normal contracting procedures were 
not followed.  The Iraqi MoD Inspector General (MoD/IG) 
attempted to monitor the contracts being signed but by 
October 2004 had been completely cut off from examining 
contracting information. 
 
7. (S/NF) The MoD/IG became concerned with what was going on 
and raised the issue with Cattan and Minister Shaalan. 
During the fall of 2004, several high ranking military and 
civilian officials in the MoD were assassinated.  These 
killings were attributed to insurgent attacks, but employees 
of the Ministry were said to be very apprehensive regarding 
Cattan thereafter. 
 
8. (S/NF) At the end of 2004, the MoD/IG wrote in its 
year-end report that it could not give an opinion on 
contracting activities because it had been granted no access 
to the Ministry's information concerning them.  This report 
was passed to the Commission on Public Integrity and is 
thought also to have been passed to the Board of Supreme 
Audit.  Neither is known to have taken any immediate 
follow-up action.  Some speculate this was to avoid any 
pre-election scandals.  The Board of Supreme Audit did 
ultimately examine MoD contracting activities and issued a 
report in May 2005.  Board of Supreme Audit activities 
continue to examine MoD contracting. 
 
9. (S/NF) Current Deputy Prime Minister Ahmed Chalabi did 
raise these allegations publicly prior to the January 
election, claiming that Shaalan was bilking the government 
out of millions of dollars by moving massive sums of cash to 
Jordan and Lebanon with little or no oversight.  Following 
the election, Shaalan was replaced by Saadoun al-Dulime, who 
provided allegations concerning Cattan to Prime Minister 
Jaafari, who then removed Cattan.  We believe that Cattan is 
currently in Poland (he is married to a Pole and holds dual 
citizenship). 
 
10. (S/NF) It is likely that many of the contracts (totaling 
$1.2-1.3 billion) that were entered into involved substantial 
overpayments for substandard, used equipment that the 
Ministry did not need and was told by MNSTC-I not to buy, 
such as Polish helicopters, Pakistani pistols, mortars and 
vehicles, Egyptian vehicles and guns, and Chinese ammunition. 
 
11. (S/NF) Those implicated in these allegations argue that 
everything was aboveboard.  MoD officials claimed that 
movement of cash to banks in Jordan, Lebanon, and other 
countries was necessary to support letters of credit at a 
time when the Iraqi banking system was unable to provide such 
services for arms purchases. 
 
12. (S/NF) Cattan, who is extremely intelligent, has already 
survived one investigation conducted by the Public Integrity 
Commission.  He has a voluminous amount of documents that he 
points to as proof of the correct nature of all the deals he 
made.  If pressed to explain the lax contracting procedures 
and lack of oversight, he will blame MNSTC-I and the CPA for 
appointing the wrong people and mismanaging the Ministry.  In 
fact, he has already done so.  He is also said to have 
curried favor with a wide variety of factions in Iraq, 
possibly by providing them with weapons, armored vehicles, 
and/or cash, and he is rumored to have connections on the 
fringes of the insurgency. 
 
13. (S/NF) Others named as possible members of this "cabal" 
within the IIG include: 
 
-- Ghazi Yawir, IIG President and ITG Deputy President; 
-- Saad Bunnia, who was detained by MNF-I after he was found 
with $6 million dollars in cash hidden in his home; he was 
released after convincing everyone that he was legitimately 
handling this money to deposit into Jordanian banks to pay 
for defense contracts; 
-- Mishal al-Sarraf, a senior advisor to Shaalan who 
disappeared from Baghdad after being called to meet with a 
parliamentary committee investigating corruption; he is 
rumored to be in Jordan or Lebanon; 
-- Brusqa Shaways, who was the MoD's "contract manager" under 
Shaalan and is currently the number two official at the MoD; 
he is the brother of Deputy Prime Minister Rowsch Shaways. 
Within the past few days Shaways has left the MoD to become 
Chief of Staff to Masood Barzani, President of the Kurdish 
Regional Government. 
 
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INVESTIGATION 
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14. (S/NF) In February 2005, the British Senior IRMO Advisor 
to the MoD analyzed financial the Ministry's 2004 transfers. 
This was not an in-depth audit but it did identify a large 
number of shortcomings and recommended a full audit by the 
appropriate Iraqi authorities.  The report examined a total 
of 70 MoD procurement contracts with a total value of 
$1,202,461,669.  Among the largest were three contracts for 
military helicopters from Poland totaling nearly $394 
million, and one for armored bulldozers valued at over $119 
million.  All of these were entered into in December 2004 and 
three of them went to one person. 
 
15. (S/NF) The findings of this report were briefed to the 
MoD/IG and the President of the Board of Supreme Audits. 
The recommendations of the report included the following: 
 
-- With regard to the MoD's income and expenditures, the 
investigation found no evidence of fraud, impropriety or 
significant inaccuracies, but recommended a full audit be 
conducted. 
 
-- Urgent consideration should be given to developing and 
introducing a more robust program of financial control within 
the MoD, with a new IRMO advisor position established to 
assist. 
 
-- Despite the lack of evidence of fraud based on this fairly 
superficial examination, a summary of the report noted "it 
certainly appears that there is a high likelihood of 
corruption in the MoD.  Investigations to confirm or refute 
such corruption should be undertaken by the MoD/IG and (an) 
appropriate Iraqi government appointed external audit team." 
 
16. (S/NF) It is likely that this report and other 
information provided to Iraqi government officials by U.S. 
Mission Iraq led to the current Iraqi investigations and the 
findings that have been reported in the press. 
 
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NEXT STEPS 
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17. (S/NF) Mission will be working with UK and ITG 
interlocutors to follow up on initial investigation into the 
allegations of malfeasance at the MoD.  Throughout the 
process we will pursue, through a variety of channels, 
information on whether money improperly obtained through 
contract or other fraud can be found in overseas accounts of 
key former MoD officials, including Cattan and Sarraf. 
 
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SUGGESTED PRESS POINTS 
---------------------- 
 
18. (U) Action Request.  Embassy requests Department 
concurrence on the following as agreed Washington and Mission 
talking points. 
Begin Points: 
 
-- We have serious concerns regarding reports of fraud in the 
Iraqi Ministry of Defense. 
 
-- Investigations to date of these allegations indicate that 
none of the money involved was provided by the United States 
or any other foreign country.  The money involved is all 
Iraqi money. 
 
-- We have long been concerned that acquisition procedures at 
the Ministry have been lax and susceptible to fraud, and have 
raised this with senior Iraqi government officials on many 
occasions. 
 
-- The Iraqi government has taken our concerns seriously and 
has launched investigations.  As a result, many of those 
implicated have been dismissed from their positions and some 
face criminal charges brought by the Iraqi authorities. 
 
-- We understand that investigations and audits by Iraqi 
government anti-corruption entities continue. 
 
-- We cannot confirm the amounts cited in the recent reports 
of these allegations.  Inquiries concerning this question 
should be directed to the Iraqi government officials who are 
conducting this investigation. 
 
-- We will continue to support Iraqi efforts to investigate 
these allegations and, if substantiated, hope to see that 
those responsible are tried and convicted for their crimes in 
Iraqi courts. 
 
-- In addition, we remain committed to working with the Iraqi 
government to build capacity in their ministries to permit 
them to conduct the business of government transparently and 
effectively. 
 
End Points. 
Khalilzad