Ex-defence minister 'will be arrested over $1bn'

The Iraqi government is expected to issue a warrant for the arrest of Hazem al-Shaalan, the former Defence Minister, in connection with the disappearance of more than $1 billion a senior corruption investigator in Baghdad said yesterday.

The Independent earlier revealed that the Iraqi army is so ill-equipped in the face of well-armed insurgents because its entire procurement budget of over $1 billion had been siphoned out of the country. Weapons were either never supplied or were discovered to be useless on delivery.

Radi al-Radhi, the head of Iraq's Commission on Public Integrity, said: "I expect the court will issue the warrants in the next week, for Shaalan and other senior officials." Claiming that between $1.3 billion and 2.3 billion is missing he added: "What Shaalan and his ministry were responsible for is possibly the largest robbery in the world." Up to 50 officials would eventually be brought to justice he said.

Mr Shaalan, formerly a businessman in London, is now living in Jordan and denies any wrong doing. He and other Iraqi officials say that everything they did during the eight months when the alleged thefts took place between June 2004 and February 2005 was with the knowledge of the US military and American civilian advisers attached to the ministry..

Officials in Baghdad say that at the heart of the scandal is not just excessive commissions for inadequate equipment, as is common in the Middle East and other parts of the world, but a carefully planned robbery.

Ali Allawi, the Iraqi Finance Minister, told The Independent that the dubious contracts were irregular because there was no bidding, money was paid up front and money flowed out of the Defence Ministry's account at the Central Bank with extraordinary speed. The equipment supposedly purchased was unusable.

The contracts were largely with companies in Poland and Pakistan. According to a report by the Iraqi Board of Supreme Audit made to the government in May an Iraqi company called al-Ain al-Jariya was awarded 43 out of 89 contracts worth $949. So confident was the company of its influence with the Ministry of Defence that it would sign supply contracts in Poland before receiving a no-bid contract in Baghdad.

The purchase of the equipment for which the Iraqi army was desperately waiting was allegedly carried out with extreme carelessness. Mr Radhi says that $238 million was paid for a fleet of 28-year-old Soviet helicopters. It turned out that these were no longer air worthy after 25 years. At the last moment this contract was unilaterally switched to a contract for obsolete armoured cars unable to keep out an AK-47 bullet.

The Pakistan contracts were signed directly with the Ministry of Defence and were of smaller value. They included armoured vehicles and night vision equipment. Two contracts were signed, one for $31 million and the second for $48 million. Mr Allawi said: "We haven't received any of the equipment on the second contract although they were supposed to deliver within eight weeks." The contract information was so vague that it is not clear if the Pakistani government was the main supplier.

A further $600-800 million is also missing from the ministries of transport, electricity, interior and other ministries said Mr Allawi. In the case of the Electricity Ministry, which has notably failed to increase power supply to Baghdad, there has been heavy criticism of the way in which four or five contracts for power stations agreed under Saddam Hussein were cancelled. A new set of more costly contracts for natural gas or diesel powered stations were agreed. Unfortunately Iraq does not have adequate supplies of natural gas or diesel so this has to be bought at great expense from abroad. The new power plants have also been very slow to come on stream.

Laith Kubba, the spokesman for Ibrahim al-Jaafari, the prime minister, told The Independent that under the previous Iraqi government the special committee on contracts at the Electricity Ministry refused to sign off on the contract for one $750 million power station because it said information on the deal was inadequate. The committee was promptly dissolved by the minister and another one appointed which proved more willing to agree to the contract.