Wads of $100 bills mailed from Iraq to Oregon first made investigators suspect that a US army captain, charged with stealing almost $700,000 (¤554,000) while serving in Iraq, was pilfering from a US government emergency fund.

Capt Michael Dung Nguyen was put in charge of the money when he served as civil affairs officer for his battalion between April 2007 and June 2008. The money came from the Commander's Emergency Response Programme – money put aside so it could be immediately dispensed by US commanders to win Iraqi support by providing humanitarian relief and paying for small construction projects.

Nguyen, 28, allegedly made limited and ineffectual efforts to hide the fact he was siphoning off large amounts of money. He mailed bundles of $100 bills back to his home in Oregon and opened bank accounts there and in other areas. His deposits were each for under $10,000 to avoid detection, but often he would make several deposits on the same day. At one point, he had $300,000 in cash in a safe, a federal grand jury in Portland was told.

Less discreet was his purchase of a 2008 BMW M3 for $70,000 and a 2009 Hummer H3T for $43,000. Dan Wardlaw, of the Internal Revenue Service, said an investigation was launched after it became clear the officer was living beyond his means. "Buying a brand-new BMW and a Hummer will attract attention," Wardlaw said.

So far, federal agents have recovered $436,000 in cash and goods. Along with the two vehicles, they seized computers, electronics, two guns, furniture and appliances. This weekend, Nguyen denied stealing government property, structuring financial transactions and money laundering. The maximum penalty for each charge is 10 years in jail and a $500,000 fine.

The prosecution of Nguyen is the latest in a series of corruption scandals that started soon after the US-led invasion of Iraq in 2003. In the early days of the occupation, millions of dollars in cash were dispensed without any accounting, and it was often impossible to know how the money was spent. The $50bn US reconstruction effort produced few positive results because of fraud, waste and poor management.

"By stealing money intended to assist Iraqi citizens, Captain Nguyen betrayed his country and the fine men and women of our nation's armed services," said US Attorney Karin Immergut.

Capt Nguyen, a West Point graduate who served with the 4th Stryker Brigade Combat Team, 2nd Infantry Division, will stand trial in May.