A Fort Lewis officer with a taste for luxury cars is among the soldiers accused of skimming money from the billions of dollars the U.S. has spent on reconstruction, humanitarian aid and security forces in Iraq and Afghanistan.

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LAKEWOOD, Pierce County — Capt. Michael Nguyen had a profitable tour of duty in Iraq, so profitable that soon after returning to Lakewood, near the Army’s Fort Lewis, he was parking a Hummer H3T outside his apartment.

Then a $70,000 BMW M-3 showed up. People notice cars like that on a street filled with pickups, old Chevys and low-end sport utility vehicles.

“I spent 10 years in the military, and I can tell you, nobody’s giving me bailouts like that,” said Mark Smith, who lives across the street.

The big-ticket cars raised eyebrows in more places than the neighborhood.

Federal investigators found Nguyen’s $6,169-a-month Army paychecks untouched in the bank since his return from Iraq in June 2008, while he was paying credit-card bills for three flat-screen TVs, two desktop computers, a laptop, several iPods, a PlayStation 3 and a dozen combat video games, a refrigerator, new living-room and dining-room furniture, a Nikon camera and a pair of high-powered handguns.

In a federal indictment in March, prosecutors alleged that Nguyen skimmed more than $690,000 in cash while acting as the civil-affairs officer responsible for overseeing millions of dollars intended for reconstruction projects and payments to private Iraqi security forces northeast of Baghdad.

Nguyen, 28, a West Point Military Academy graduate, is accused of packing stacks of cash into boxes and mailing them to his family’s home.

String of cases

His indictment is one of the latest in a wave of prosecutions emerging from the tangled and expensive postwar reconstruction in Iraq and Afghanistan. The Justice Department has secured more than three dozen bribery-related convictions in the awarding of reconstruction contracts; at least 25 theft investigations are under way.

The prosecutions reveal the extent to which the Pentagon’s policy of using “money as a weapon system” has left its soldiers vulnerable to the lure of cash that has washed over the battlefields.

“This was more cash than Donald Trump had ever seen in his life,” said Robert Stein, a Coalition Provisional Authority official in the Iraqi city of Hilla who was convicted in 2006 and sentenced to nine years in prison for his role in a complex bribery, theft and money-laundering case.

“When you work around money like that,” he told investigators, “it becomes, ‘So what, it’s just paper.’ “

In March, former Army Capt. David Gilliam was indicted on charges of stashing more than $400,000 in his luggage when he came home from his assignment as a disbursement officer in Kandahar, Afghanistan.

In October 2008, former Capt. Lee Dubois pleaded guilty to helping steal $39.6 million in fuel from the Army’s Camp Liberty in Iraq and selling it on the black market, a scheme that netted him at least $450,000.

Two senior Army officers were convicted in November 2008 in the Hilla case, which began with the disappearance of nearly $2 million in reconstruction money.

Vulnerable to fraud

A Defense Department review of the program that provides field commanders with an arsenal of cash to help build community-relief projects, aid families and pay civilian security forces found in 2007 that all 15 pay agents surveyed who handled cash in Afghanistan did not have “appropriate physical security” for storing the money, although no instances of theft were discovered.

The audit also found that disbursement officers did not always use the correct exchange rate when doling out local currency. Manipulating the exchange rate, authorities allege, allowed Gilliam to amass a huge amount of cash.

“What happens is if people that know the system and how it operates decide to commit a fraud, it is very difficult to detect,” said David Warren, audits director for the Special Inspector General for Iraq Reconstruction. “Because they are the people that are, in essence, the control system that is in place.”

Through the end of 2008, $3.5 billion had been pumped into the Commanders Emergency Relief Program (CERP), an attempt to use humanitarian aid and community reconstruction projects to combat the Iraqi insurgency. The program also has allowed coalition commanders to hire Sunni gunmen, often former insurgents, as local security officers under the “Sons of Iraq” program.

During Nguyen’s tenure with the 4th Stryker Brigade combat team in Muqdadiyah, where he helped oversee disbursement of CERP funds, the program paid for $68,000 worth of school supplies, a new municipal garage and renovations to the market, courthouse and hospital.

The farming hamlets and date-palm groves of the Diyala valley, where al-Qaida fighters had set up strongholds after being driven out of Anbar province, had become one of the toughest enclaves of the insurgency.

“We were called in because the situation was so bad in Muqdadiyah and we had lost so many soldiers out of it,” said Command Sgt. Maj. Gregory Frias, who served in Nguyen’s unit.

The battlefield cash was important in pacifying the region, Frias said, not only helping farmers to repair their irrigation systems but hiring local Sons of Iraq to set up permanent security stations in areas that had been subject to frequent insurgent bombings.

“A different place”

When the unit arrived in September 2007, “people weren’t on the streets … there was no real (Iraqi security) presence at all,” Frias said. “When we walked out of that place (in May 2008), it was a different place. People were out, stores were open, Sunni and (Shiites) were working together.”

Nguyen’s officer-evaluation report said he personally developed $11 million worth of plans and programs to support the counterinsurgency fight.

Maj. Eric Hefner, Nguyen’s supervisor, told investigators Nguyen was the only person who had the combination to the safe where up to $400,000 in U.S. currency at a time was stored, much of it to pay the Sons of Iraq. It was only in April 2008 that payments shifted from U.S. currency to Iraqi dinars, a tactic military officials said reduces the chances of theft.

Hefner told investigators that Nguyen might have stolen the money by asking Iraqi fighters to sign receipts for more than they had received or asking an Iraqi to sign a duplicate receipt under the pretense that the original had been lost.

Starting June 9, 2008 — the day he returned to the United States — Nguyen opened four bank accounts in three days, according to court documents, making 47 cash deposits totaling $387,550. Each was just under the $10,000 limit that would trigger a mandatory report from the bank.

Surveillance photos showed Nguyen making cash deposits at four different Washington Mutual branches in Oregon, Washington and Utah.

Nguyen has pleaded not guilty. Neither he nor his attorney responded to requests for comment.

New safeguards

Regulations adopted in 2009 mandate that CERP managers in the war theater must approve projects larger than $500,000, while efforts costing more than $2 million must be approved by the U.S. Centcom commander (in Afghanistan) or the secretary of defense (in Iraq). And pay agents now are required to submit quarterly reports with specific rules for delivery, transporting and safeguarding cash.

“Our internal controls … have significantly increased, and we’re … making sure at the company, battalion and brigade level the program is being managed efficiently,” said Lt. Col. Ryan Saw, CERP resource-program manager in Iraq.

There also is less money floating around the battlefield. With the war winding down and more projects being run by Iraqi provincial governments, U.S. authorities have spent only $157 million on CERP projects in the 2009 fiscal year, which began in October, compared with $1.08 billion in 2008.

Cases of military theft have been relatively few and aggressively prosecuted when found. And although the opportunity to steal reconstruction funds may have lessened, staying on top of the situation will be important for building public confidence as the war in Afghanistan heats up, said Frank Vogl, co-founder of Transparency International, a watchdog group that tracks public corruption around the globe.