Missing Money: Mystery in Iraq as $300 Million is Taken Abroad
January 22, 2005
By DEXTER FILKINS
BAGHDAD, Iraq, Jan. 21 - Earlier this month, according to
Iraqi officials, $300 million in American bills was taken
out of Iraq's Central Bank, put into boxes and quietly put
on a charter jet bound for Lebanon.
The money was to be used to buy tanks and other weapons
from international arms dealers, the officials say, as part
of an accelerated effort to assemble an armored division
for the fledgling Iraqi Army. But exactly where the money
went, and to whom, and for precisely what, remains a
mystery, at least to Iraqis who say they have been trying
to find out.
The $300 million deal appears to have been arranged outside
the American-designed financial controls intended to help
Iraq - which defaulted on its external debt in the 1990's -
legally import goods. By most accounts here, there was no
public bidding for the arms contracts, nor was the deal
approved by the entire 33-member Iraqi cabinet.
On Friday, the mysterious flight became an issue in this
country's American-backed election campaign, when Defense
Minister Hazim al-Shalaan, faced with corruption
allegations, threatened to arrest a political rival.
In an interview on Al Jazeera television, Mr. Shalaan said
he would order the arrest of Ahmed Chalabi, one of the
country's most prominent politicians, who has publicly
accused Mr. Shalaan of sending the cash out of the country.
Mr. Shalaan said he would extradite Mr. Chalabi to face
corruption charges of his own.
"We will arrest him and hand him over to Interpol," Mr.
Shalaan thundered on Al Jazeera. The charge against Mr.
Chalabi, he said, would be "maligning" him and his
ministry. He suggested that Mr. Chalabi had made the
charges to further his political ambitions.
Mr. Chalabi first made the allegation against Mr. Shalaan
last week, on another Arabic-language television network.
He said there was no legitimate reason why the Iraqi
government should have used cash to pay for goods from
abroad. He implied that at least some of the money was
being used for other things.
"Why was $300 million in cash put on an airplane?" Mr.
Chalabi asked in an interview this week. "Where did the
money go? What was it used for? Who was it given to? We
don't know."
The $300 million flight has been the talk of Iraq's
political class, and fueled the impression among many
Iraqis and Western officials that the interim Iraqi
government, set up after the American occupation formally
ended in June, is awash in corruption. It is not clear
whether the money came from Iraqi or American sources, or
both.
"I am sorry to say that the corruption here is worse now
than in the Saddam Hussein era," said Mowaffak al-Rubaie,
the Iraqi national security adviser, who said he had not
been informed of the details of the flight or the arms
deal.
That charge is echoed outside of Iraq as well. Isam
al-Khafaji, the director of the New York-based Iraq Revenue
Watch, said corruption had become an "open secret" within
the Iraqi government.
"There is no legal system to bring charges against anyone
not following the rules and not abiding by the law,
especially if you're a powerful politician," Mr. Khafaji
said. "That's the tragedy of Iraq: Everyone runs their
business like a private fiefdom."
Mr. Shalaan did not respond to several requests for an
interview, but one of his aides insisted that the arms deal
was legal and that the money had been well spent.
Reached by telephone in Lebanon, the aide, Mishal Sarraf,
said the arms deal had been approved by four senior members
of the Iraqi government, including Prime Minister Ayad
Allawi and Mr. Shalaan. He said it had been carried out
quickly because of the urgency of the guerrilla war. He
said he had not realized that the deal had been done in
cash.
"We don't want to hide anything," Mr. Sarraf said.
He said the armaments themselves had been manufactured in
Poland, the Czech Republic, Turkey, Ukraine and the United
States. He said the money had bought armored personal
carriers, tanks and even Humvees.
Mr. Sarraf refused to say who received the money, saying it
was too dangerous.
"They could be killed," he said.
The public fight with Mr. Shalaan is the latest political
twist for Mr. Chalabi, once the darling of the Bush
administration and one of the main proponents of the
invasion of Iraq. He has since become a pariah in the
United States, accused of exaggerating Mr. Hussein's
prohibited weapons activities.
After a bitter falling out with the Bush administration,
which accused him of passing secrets to the Iranian
government, Mr. Chalabi has begun to mend fences with the
Americans, and is positioning himself to make a run for the
prime minister's seat.
In threatening to arrest Mr. Chalabi, Mr. Shalaan appears
to be trying to change the subject to Mr. Chalabi's own
legal problems. In Jordan, Mr. Chalabi faces charges that
he embezzled millions of dollars from the Petra Bank, which
collapsed in the 1990's.
Mr. Chalabi has long maintained that the charges against
him in Jordan are baseless, part of a vendetta being
carried out for his opposition to Mr. Hussein.
Mr. Chalabi was campaigning in southern Iraq on Friday and
could not be reached after Mr. Shalaan's threat to arrest
him.
Details of the arms detail are still sketchy, but according
to Mr. Sarraf and other Iraqi officials, it began late last
year as part of the effort to beef up the Iraqi armed
forces in the face of the relentless guerrilla insurgency.
Mr. Sarraf said that though the arms deal had been
approved by four senior cabinet members, it had not been
put before the entire cabinet because of the urgency in
dealing with the insurgency. "It was all proper," he said.
Dr. Allawi's office did respond to repeated requests for
an interview.
According to a senior Iraqi financial official with
knowledge of the deal, who spoke on condition of anonymity
because of the sensitivity of the subject, the $300 million
was then transferred to the Warqa Bank, a private Iraqi
financial institution with a capitalization of about $7
million. That bank, the Iraqi official said, does not have
the ability to transfer money electronically to another
account in another country. An equivalent amount of cash
was then taken from the vault of the Central Bank of Iraq,
taken to the airport, loaded on an airplane and sent to
Lebanon.
"The government here knows it is coming to an end," the
official said. "This is what governments do when they are
coming to an end."
A second Iraqi financial official, who also spoke on the
condition of anonymity, confirmed the transaction. The
official described the arrangement as "unusual" and said he
had ordered an investigation of the transaction.
The senior Iraqi financial official said the arms deal
appeared to bypass the elaborate financial mechanism set up
by the Americans at the end of the war that was intended to
help Iraqi import goods from abroad. Under that system,
Iraqi revenues intended for imports are routed through the
Trade Bank of Iraq and are facilitated, and largely
controlled, by large American financial institutions.
The system was intended to stop creditors from tying up
Iraqi money needed for imports and also to control the way
in which the Iraqi government spends its money.
Indeed, the Iraqi official with knowledge of the deal said
he was concerned that the $300 million could be seized by
the many creditors who have liens against the Iraqi
government.
Mr. Khafaji of Iraqi Revenue Watch said the financial
mechanism had been set up to cover all government
transactions dealing with imports, including arms
purchases.
But one American official with knowledge of the transaction
said taking the $300 million out of the country, although
unorthodox, was probably the only way for the Iraqi
government to buy weapons.
The reason, according to the American official, is that the
financial mechanism set up after the war's major combat
operation ended requires that Iraqi oil revenues be spent
for "humanitarian" purposes. That meant that the Trade Bank
of Iraq could not be used for arms purchases, thus
necessitating the use of cash.
That has since changed, the official said, with the signing
of an executive order by President Bush late last year.
Jad Mouawad contributed reporting from New York for this
article.
http://www.nytimes.com/2005/01/22/international/middleeast/22baghdad.html?ex=1107451840&ei=1&en=055581beb2f017d1
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