"These defendants actually took bricks of stolen cash ... and smuggled them out of Iraq and back to the United States for their own personal use," he said.
The 25-count indictment, filed in US district court in New Jersey, follows an investigation into $8.6 million worth of Iraq contracts awarded to construction mogul Philip H Bloom.
Bloom, an American citizen who ran construction and services companies in Iraq, has admitted to laundering at least $2 million and is awaiting sentencing.
The money was stolen from reconstruction money managed by the US-led Coalition Provisional Authority in Iraq, which is now defunct.
CPA fund 'misused'
McNulty said the five people stole or otherwise misused $3.6 million from the CPA fund.
The three reservists - Curtis Whiteford, Debra Harrison and Michael Wheeler - helped supervise the funding and progress of the CPA contracts in al-Hillah, southwest of Baghdad.
Prosecutors said that, in return for steering contracts to Bloom between 2003 and 2005, the reservists and their accomplices shared an estimated $1 million in cash, and received Porsche and Nissan sports cars, real estate, watches and business-class plane tickets among other items.
Harrison's husband, William Driver, was charged with helping smuggle over $300,000 into the United States, part of which was used for home improvements, prosecutors said.
One of Bloom's friends, businessman Seymour Morris Jr, a US citizen who lives in Romania, was also charged with allegedly acting as a go-between for the military officers and the construction company. He was arrested in Romania on Tuesday.
Money trails unraveled
Charges against the five include bribery, conspiracy, wire fraud, money laundering and transporting stolen property.
US Immigration and Customs Enforcement agents helped unravel the scheme by examining money trails and other data gleaned from computers, cell phones, global positioning systems and other devices, said Kumar Kibble, the agency's deputy assistant director for national security.
Stuart Bowen, the US government's special inspector general in Iraq, said his team of 10 investigators are pursuing 80 cases of waste, fraud and abuse of federal money in reconstruction contracts.