Evidence of illegal arms sales came to light last October when NATO-led peacekeeping troops raided the Orao aviation factory in the Serb-controlled area of Bosnia.
Among the documents they found was a contract for $8.5 million to repair and upgrade the engines of Saddam's MIG fighter planes.
They also found a copy of a letter sent last September to the Ministry of Defense in Baghdad outlining precautions to avoid detection by UN weapons inspectors. They offered the help of Yugoslav experts to dismantle the equipment, and cautioned the Iraqis to hide the spare parts in a safe place.
The letter went on to say that, when the possibility of being discovered had passed, the Yugoslav side would reassemble and operate the equipment again.
That letter was sent to the Iraqis by Yugoimport, the Yugoslav arms export agency, and signed by the director of Yugoimport in Baghdad.
That office in Baghdad wasn't just there to arrange the servicing of Saddam Hussein's MIGs.
Just how much the Iraqis relied on the Yugoslavs for arms is laid out in a report by the International Crisis Group, an independent organization that seeks to pinpoint potential trouble spots around the world.
We spoke to the author of the report, Dr. James Lyon.
"What we later found out was that it was not just jet engines," Dr. Lyon said. "There were a whole series of other weapons that appeared to have gone, including artillery shells, including technology that could enable Saddam to enhance his Scud missiles, including anti-aircraft technology, including a whole series of other military technologies and equipment. So it wasn't simply jet engines in question. It could have been a whole laundry list of equipment."
How big a laundry list? "Some estimates have put it as high as perhaps $3 billion, others $1.5 billion, no one knows for certain," Dr. Lyon says.
No one knows for certain because Yugoimport, which is a state-owned company, saw hardly any of that money.
Zoran Kusovacs, the Balkan defense analyst for "Jane's Defense Weekly," says most of it went into the pockets of private individuals.
"They have been operating like private arms dealers, at the same time when and where convenient, using allegedly the umbrella of the state," Zusovacs explains. "This does not say that the officials did not know about these deals. Arms deals at this scale lasting this long cannot go unnoticed."
Shortly after the raid on Orao, Croatian authorities, acting on a tip from U.S. intelligence, intercepted a ship called the Boka Star, steaming on the Adriatic Sea, and brought it to the port of Riyeka.
According to the ship's manifest, the Boka Star was headed for Egypt with a cargo of water filters and charcoal. But that's not what Croatian police found when they searched the hold.
A tape shot by the Croatian authorities reveals that the Boka Star was carrying 208 metric tons of explosives--some for use in artillery shells, and some that could be used to produce solid rocket fuel for missiles.
Zinka Bardic, a spokesperson for the Croatian Ministry of Interior, says that documents found in a secret compartment on the Boka Star included a log that listed the ship's voyages over the last year. They show, she says, "that they transported weapons and go to some Arabian country, like, to be specific, to Syria."
From Syria, U.S. officials say, those explosives would have been trucked overland to Iraq to fuel Saddam's missiles.
Although the sales invoice was stamped by Yugoimport in Belgrade, Croatian police found that the Boka Star's cargo and crew came from many different regions in the former Yugoslavia.
Lord Paddy Ashdown, who is a UN representative in the Balkans, says the warring factions put aside their differences to make a dollar.
So, how widespread was the trade?
"I think it's more widespread than we have yet currently uncovered," Lord Ashdown says. "When you look at this, you need to think of the old, as it were, ghostly network leftover of the JNA, the Yugoslav National Army's generals who controlled the military industrial complex, who existed in the days of the Federal Republic of Yugoslavia and who went on controlling it afterwards."
Those Yugoslav army generals long had close ties with Iraq. In the 1980s, they developed a joint weapons program that produced a multiple rocket launcher that can fire chemical warheads.
In 1999, Yugoslav dictator Slobodan Milosevic flouted the UN arms embargo and signed a series of lucrative arms sales with Iraq.
But when Milosevic was ousted by a popular uprising, a new democratic government took over in Belgrade.
They promised to end those sales. They didn't.
"The information we have come across indicates that the arms sales may have actually increased after Milosevic left power," says Dr. Lyon, of the International Crisis Group.
As President Bush began to beat the war drums, the Iraqis began to rely extensively on the Yugoslavs because of their decades-long cooperation, and because the Yugoslavs were the only other country that they dealt with that had been bombed by the Americans. "And so there might have been a strange sort of mutual trust built on that shared experience," says Dr. Lyon.
But when the Yugoslavs were bombed by the Americans to put an end to Milosevic's policy of ethnic cleansing, the Iraqis had more to gain than trust.
Zoran Kusovacs says that during those air strikes the Yugoslavs, using sophisticated computer systems, acquired an in-depth knowledge of American aerial tactics.
"They had the chance to observe what sequences, what frequencies do radars use, what combinations of signals need to be sent for something to happen," says Kusovacs. "And if that information, particularly if that analysis of that information, got to Iraq, that is something that really could be worrying for the Americans."
What's more, Kusovacs says, the Yugoslavs managed to upgrade their anti-aircraft missiles with a television guidance system that allowed them to shoot down an American stealth bomber and to keep NATO aircraft above 15,000 feet.
That system has allegedly been passed on to Iraq.
Any improvement in Iraqi missile systems is bad news for the U.S., says Kusovacs: "How bad? That's the big question, but definitely no American general wants to see any kind of improvement on Iraqi missile systems."
It wasn't just firepower but brainpower that the Yugoslavs exported to Iraq. Professors from the Technical University in Belgrade, people with scientific expertise in missile technology, made frequent trips to Baghdad to help the Iraqis make the weapon that the United States fears the most in its war in Iraq.
It is a harmless looking aircraft, a Czech-made jet trainer, But it can be armed with tanks of chemical or biological weapons and equipped with remote control technology, so that it can be flown without a pilot. Military experts say that it can be turned into what they call a 'poor man's cruise missile,' able to launch devastating attacks on Iraq's neighbors.
We asked whether the scientists involved were capable of doing that.
"Oh yes, very much so," replies Dr. Lyon. "One of the professors, in fact, was working on the Scud program with Saddam back in the 1980s. These are not people who have just all of a sudden said 'Hey, I know something, hire me.' These are people who have track records of experience with ballistic missile programs and with propulsion systems."
In a country where the devastation caused by American bombs is still visible four years later, those scientists knew that few would criticize them for selling their services to Saddam Hussein.
"Many people simply feel uncomfortable telling somebody this is bad, because so many people say, 'America bombed us, why not damage America some way if we can do that,'" says Zoran Kusovacs.
But when news of the illegal arms deals broke, the democratic government which relies on American aid was quick to deny all knowledge of them.
We asked Miroljub Labus, the Deputy Prime Minister in charge of foreign trade, who he thinks was behind the illegal arms sales to Iraq.
"Some private vested interest," Labus replies. "Some people in the last ten years, mostly from the military, retired gentlemen or generals, and they had very good relationships with Ministry of Defense, so they've been very active in selling those weapons."
Deputy Prime Minister Labus says that the government immediately dismissed a Ministry of Defense official and a retired general who was head of Yugoimport.
But what about the government ministers, including the Minister of Defense and the Minister of Interior, who sat on the board of Yugoimport? How is it that they wouldn't know what's going on?
"Well, they claim that they didn't know everything what happened, you have to talk to them," the Deputy Prime Minister says.
Is it logical to assume that you should know about such arms sales, if you're the Minister of Defense or the Minister of Interior and you sit on the board of Yugimport?
"Yes, you should know," Labus acknowledges.
The fact is, those ministers did know. In January 2002, the Yugoslav Foreign Ministry presented a document at a cabinet meeting detailing those illegal sales, and warning that such a breach of UN sanctions would damage the government's attempts to win Western approval.
Labus attended that meeting, and he says "my impression was that we passed a decision to cancel any trade. But it turned out that some ministers didn't share that view."
So whatever they decided to do at this cabinet meeting, in fact nothing was done.
Why? Dr. James Lyon thinks "there were people in that new democratic government who were directly profiting from those arms sales. I think that there were some people at the ministerial level, perhaps even at the very highest levels of the government, who were making money off of this, through front companies and through cronies."
One of those people at the very highest levels of the government, it is alleged, was Prime Minister Zoran Djindjic, who, ten days ago was gunned down in Belgrade by unknown assailants.
After his death, Djindjic was praised in the West as a liberal reformer. But he was also thought to be involved in illegal arms deals as well as other criminal activities.
The U.S. must take some of the blame for the way that the state and organized crime continue to march hand in hand in this country, as they did under Milosevic, says Zoran Kusovacs.
"The United States bears a lot of the responsibility because, along with others in the West, it has let the changes go skin deep," he explains. "Milosevic has been changed. The system has not been changed. And certain things that were done under Milosevic are still being done under the democratic government, and they're as unacceptable now as they were then."