Now the scope and longevity of the misuse is becoming clear: Between 2002 and 2008, while al-Qaida regrouped, only $500 million of the $6.6 billion in American aid actually made it to the Pakistani military, two army generals tell The Associated Press.
The account of the generals, who asked to remain anonymous because military rules forbid them from speaking publicly, was backed up by other retired and active generals, former bureaucrats and government ministers.
At the time of the siphoning, Pervez Musharraf, a Washington ally, served as both chief of staff and president, making it easier to divert money intended for the military to bolster his sagging image at home through economic subsidies.
"The army itself got very little," said retired Gen. Mahmud Durrani, who was Pakistan's ambassador to the U.S. under Musharraf. "It went to things like subsidies, which is why everything looked hunky-dory. The military was financing the war on terror out of its own budget."
Generals and ministers say the diversion of the money hurt the military in very real ways:
_Helicopters critical to the battle in rugged border regions were not available. At one point in 2007, more than 200 soldiers were trapped by insurgents in the tribal regions without a helicopter lift to rescue them.
_The limited night vision equipment given to the army was taken away every three months for inventory and returned three weeks later.
_Equipment was broken, and training was lacking. It was not until 2007 that money was given to the Frontier Corps, the front-line force, for training.
The details on misuse of American aid come as Washington again promises Pakistan money. Legislation to triple general aid to Pakistan cleared Congress last week. The legislation also authorizes "such sums as are necessary" for military assistance to Pakistan, upon several conditions. The conditions include certification that Pakistan is cooperating in stopping the proliferation of nuclear weapons, that Pakistan is making a sustained commitment to combating terrorist groups and that Pakistan security forces are not subverting the country's political or judicial processes.
The U.S. is also insisting on more accountability for reimbursing money spent. For example, Pakistan is still waiting for $1.7 billion for which it has billed the United States under a Coalition Support Fund to reimburse allies for money spent on the war on terror.
But the U.S. still can't follow what happens to the money it doles out.
"We don't have a mechanism for tracking the money after we have given it to them," Pentagon spokesman Lt. Col. Mark Wright said in a telephone interview.
Musharraf's spokesman, retired Gen. Rashid Quereshi, flatly denied that his former boss had shortchanged the army. He did not address the specific charges. "He has answered these questions. He has answered all the questions," the spokesman said. Musharraf took power in a bloodless coup in 1999 and resigned in August 2008.
The misuse of funding helps to explain how al-Qaida, dismantled in Afghanistan in 2001, was able to regroup, grow and take on the weak Pakistani army. Even today, the army complains of inadequate equipment to battle Taliban entrenched in tribal regions.
For its part, Washington did not ask many questions of a leader, Musharraf, whom it considered an ally, according to a U.S. Government Accountability Office report released last year.
Pakistan has received more money from the fund than any other nation. It is also the least expensive war front. The amount the U.S. spends per soldier per month is just $928, compared with $76,870 in Afghanistan and $85,640 in Iraq.
Yet by 2008, the United States had provided akistan with $8.6 billion in military money, and more than $12 billion in all.
"The army was sending in the bills," said one general who asked not to be identified because it is against military rules to speak publicly. "The army was taking from its coffers to pay for the war effort _ the access roads construction, the fuel, everything. ... This is the reality _ the army got peanuts."
Some of the money from the U.S. even went to buying weapons from the United States better suited to fighting India than in the border regions of Afghanistan _ armor-piercing tow missiles, sophisticated surveillance equipment, air-to-air missiles, maritime patrol aircraft, anti-ship missiles and F-16 fighter aircraft.
"Pakistan insisted and America agreed. Pakistan said we also have a threat from other sources," Durrani said, referring to India, "and we have to strengthen our overall capacity. "The money was used to buy and support capability against India."
The army also suffered from mismanagement, Durrani said. As an example, he cited Pakistani attempts to buy badly needed attack helicopters.
Pakistan asked for Cobra helicopters because it knows how to maintain them, he said. But the helicopters were old, and to make them battle-ready, the Pentagon sent them to a company that had no experience with Cobras and took two years, he said.
As a result, in 2007, Pakistan had only one working helicopter _ a debilitating handicap in the battle against insurgents who hide, train and attack from the hulking mountains that run like a seam along the Afghan-Pakistani border.
The army was also frustrated about not getting more money. Military spokesman Gen. Athar Abbas said the U.S. gave nothing to offset the cost of Pakistan's dead and wounded in the war on terror. He estimated 1,800 Pakistani soldiers had been killed since 2003 and 4,800 more wounded, most of them seriously.
The hospital and rehabilitation costs for the wounded have come to more than $25 million, Abbas said. Pakistan's military also gives land to the widows of the dead, educates their children and provides health care.
"These costs do not appear anywhere," he said. "There is no U.S. compensation for the casualties, assistance with aid to the grieving families."
Even while money was being siphoned off for other purposes on Pakistan's end, the U.S. imposed little control over or even had specific knowledge of what went where, according to reports by the U.S. Government Accountability Office. The reports covered 2002 through 2008.
The reports found that the Pentagon often ignored its own oversight rules, didn't get adequate documents and doled out money without asking for an explanation.
For more than a year, the Pentagon paid Pakistan's navy $19,000 a month per vehicle just for repair costs on a fleet of fewer than 20 vehicles. Monthly food bills doubled for no apparent reason, and for a year the Pentagon paid the bills without checking, according to the report.
Daniyal Aziz, a minister in Musharraf's government, said he warned U.S. officials that the money they were giving his government was being misused, but to no avail.
"They both deserved each other, Musharraf and the Americans," he said.