My journey into the dark underworld of the US military begins on a rainy Tuesday morning in March 2008, with a visit to Tampa, Florida. I am here to meet Forrest Fogarty, an American patriot who served in the US army for two years in Iraq. Fogarty is also a white supremacist of the serious Hitler-worshipping type.

We meet in his favourite hangout, the Winghouse Bar & Grill. In our brief phone call, I'd asked how I would recognise him. "Just look for the skinhead with the tattoos," he said. And sure enough, sitting straight to my right as I walk in is a youngish-looking man, plastered in tattoos, with cropped hair and bulging biceps. "You're British, right," he says, as we order. "I remember seeing black guys with British accents in Iraq, shit was so crazy."

Fogarty tells me he was bullied at his LA high school by Mexican and African-American children, and was just 14 when he decided he wanted to be a Nazi. He has no qualms about flaunting his prejudice. When black people come into the bar, he emits a hiss of disapproval. "I just don't want to be around them," he tells me. "I don't want to look at them, I don't want them near me."

As a young man, Fogarty was obsessed with Ian Stuart Donaldson, the legendary singer in the British band Skrewdriver, who is hero-worshipped in the neo-Nazi music scene. At 16, he had an image from one of Skrewdriver's album covers – a Viking carrying an axe, an icon among white nationalists – tattooed on his left forearm. Soon after, he had a Celtic cross, an Irish symbol appropriated by neo-Nazis, emblazoned on his stomach. A few years later, he started his own band, Attack, now one of the biggest Nazi bands in the US. But it was never his day job. "I was a landscaper when I left school," he says. "I kind of fell into it. I didn't give a shit what I was doing, I was just drinking and fighting."

For the next eight years he drifted through jobs in construction and landscaping, and began hanging out with the National Alliance, at the time one of the biggest neo-Nazi organisations in the US. He soon became a member. He had always seen himself as a fighter and warrior, so he resolved to do what two generations of Fogartys had done before him: join the military.

Forrest Fogarty, a neo-Nazi who served in Iraq as a part of the military police from 2004 to 2005. Photograph: Courtesy Matt Kennard

Fogarty was not the first extremist to enter the armed forces. The neo-Nazi movement has had a long and tense relationship with the US military. Since its inception, the leaders of the white supremacist movement have encouraged their members to enlist. They see it as a way for their followers to receive combat and weapons training, courtesy of the US government, and then to bring what they learn home to undertake a domestic race war. Not all far-right groups subscribe to this vision – some, such as the Ku Klux Klan, claim to prefer a democratic approach – but a large portion see themselves as insurrectionary forces. To that end, professional training in warfare is a must.

The US military has long been aware of these groups' attempts at infiltration, but it wasn't until 1996 that supremacist and neo-Nazi groups were specifically banned from the military, after the murder in 1995 of two African-Americans by a neo-Nazi paratrooper stationed at Fort Bragg, North Carolina. Fogarty was recruited the year after.

He knew that the tattoo he had riding up his forearm could be a problem when it came to enlistment. In a neo-Nazi underworld obsessed with secrecy, racist tattoos remain one of the clearest indicators of extremism for a recruiter, and in an effort to police the matter, the US military requires recruits to explain any tattoos. "They just told me to write an explanation of each tattoo and I made up some stuff and that was that," he says.

Soon after Fogarty was approved, his ex-girlfriend and mother of his eldest child contacted the military. According to Fogarty, she sent a dossier of pictures to his military command that showed him at white supremacist and neo-Nazi rallies, as well as performing his racist rock with Attack. "They hauled me before some sort of committee, and showed me the pictures. I just denied it." The committee, he says, "knew what I was about, but they let it go because I'm a great soldier".

Fogarty remained in the reserves, until finally, in 2004, he was sent where he had always wanted to go: Iraq. Before he left for the Middle East, he joined the Hammerskin Nation – described by the Anti-Defamation League as the "the most violent and best-organised neo-Nazi skinhead group in the United States".

Fogarty maintains that a good portion of those around him were aware of his neo-Nazism. "They all knew in my unit," he says. "They would always kid around and say, 'Hey, you're that skinhead!'" He was confident enough of his carte blanche from the military that during his break from service in 2004, he flew not to see his family in the US but to Dresden, Germany, to give a concert to 2,500 skinheads, on the army's budget.

When he was at Camp Victory in Baghdad, Fogarty even says a sergeant came up to him and said, "You're one of those racist motherfuckers, aren't you?" I ask how the sergeant knew about his racism. "The tattoo, I suppose. I can't hide everything – people knew, even the chain of command."

Another white supremacist soldier, James Douglas Ross, a military intelligence officer stationed at Fort Bragg, was given a bad conduct discharge from the army when he was caught trying to mail a submachine gun from Iraq to his father's home in Spokane, Washington. Military police found a cache of white supremacist paraphernalia and several weapons hidden behind ceiling tiles in Ross's military quarters. After his discharge, a Spokane County deputy sheriff saw Ross passing out fliers for the neo-Nazi National Alliance. And in early 2012, a photo emerged of a 10-strong US marine scout sniper unit posing for a photo with a Nazi SS bolts flag in Sangin, Afghanistan. According to the military, the symbolism was unknown to the soldiers. "Certainly, the use of the 'SS runes' is not acceptable and scout snipers have been addressed concerning this issue," marine corps spokesman Captain Gregory Wolf said.

James Douglas Ross, who served in Iraq as an intelligence ofﬁcer, in his barracks room. Photograph: Hunter Glass

The magnitude of the problem within the military is hard to quantify. The military does not track extremists as a discrete category, coupling them with gang members, and those in the neo-Nazi movement claim different numbers. The National Socialist Movement claimed 190 of its members are inside. White Revolution claimed 12. In white supremacist incidents from 2001 to 2008, the FBI identified 203 veterans. Because the FBI focused only on reported cases, its numbers don't include the many extremist soldiers who have managed to stay off the radar. But its report does pinpoint why the white supremacist movements seek to recruit veterans – they "may exploit their accesses to restricted areas and intelligence or apply specialised training in weapons, tactics, and organisational skills to benefit the extremist movement". The report found that two army privates in the 82nd Airborne Division at Fort Bragg had attempted in 2007 to sell stolen property from the military – including ballistic vests, a combat helmet, and pain medications such as morphine – to an undercover FBI agent they believed was involved with the white supremacist movement (they were convicted and sentenced to six years in prison). It also found multiple examples of white supremacist recruitment among active military personnel, including a period in 2003 when six active-duty soldiers at Fort Riley were found to be members of the neo-Nazi group Aryan Nations, working to recruit their army colleagues and even serving as the Aryan Nations' point of contact for the State of Kansas.

The degree of impunity encountered by Fogarty and countless other extremists has caused tensions within the military. The blind eye turned by the recruiters angered many investigators whose integrity was being compromised. Hunter Glass was a paratrooper in the 1980s and became a gang cop in 1999 in Fairville, North Carolina, next to Fort Bragg. "In the 1990s, the military was hard on them, they could pick and choose," he recalls. The change came after 9/11. "The key rule nowadays is ignore it until it becomes a problem," Glass tells me. "We need manpower. So as long as the man isn't acting out, let's blow it off." He recounts one episode in early 2005 when he was requested by military police investigators at Fort Bragg to interview a soldier with blatant skinhead insignia – SS lightning bolts and hammers. Glass worked with the base's military police investigators, who filed a report. "They recommended that he be kicked out," he recalls, "but the commanding officers didn't do anything." He says there was an open culture of impunity. "We're seeing guys with tattoos all the time ... As far as hunting them down, I don't see it. I'm seeing the opposite, where if a white supremacist has committed a crime, the military stance will be, 'He didn't commit a race-related crime.' "

By 2005, the US had 150,000 troops deployed in Iraq and 19,500 in Afghanistan. But the military wasn't prepared in any way for this kind of extended deployment – and just two years into the war in Iraq, people were talking openly about the fact that it had reached breaking point. The slim forces needed fattening up and what followed constituted a complete re-evaluation of who was qualified to serve – a full-works facelift of the service unheard of in modern American history. In the relatively halcyon days of the first Gulf war in 1990, the US military blocked the enlistment of felons. It spurned men and women with low IQs or those without a high school diploma. It would either block the enlistment of or kick out neo-Nazis and gang members. It would treat or discharge alcoholics, drug abusers and the mentally ill. No more. While the Bush administration adopted conservative policies pretty much universally, it saved its ration of liberalism for the US military, where it scrapped many of the regulations governing recruitment.

Many of the wars' worst atrocities are linked directly to the loosening of enlistment regulations on criminals, racist extremists, and gang members, among others. Then there are the effects on the troops themselves. Lowering standards on intelligence and body weight, for example, compromised the military's operational readiness and undoubtedly endangered the lives of US and allied troops. Hundreds of soldiers may have paid with their lives for this folly.

On 1 December 2007, Kevin Shields was murdered in Colorado Springs in an incident involving three of his fellow soldiers, Louis Bressler, Kenneth Eastridge and Bruce Bastien Jr, who all served in Iraq as part of the Second Brigade Combat Team, Second Infantry Division. Bressler and Bastien were each put away for 60 years for their part in the murder, alongside a litany of other crimes in Colorado Springs; Eastridge is serving a 10-year prison sentence for his part. In the aftermath of the arrests, pictures emerged of Eastridge proudly displaying his SS bolts tattoo. After his arrest, Bastien told investigators that he and Eastridge had randomly fired at civilians in Iraq during patrols through the streets of Baghdad. In broad daylight, Bastien alleged, Eastridge would use a stolen AK-47 to fire indiscriminately at Iraqi civilians. At least one was hit, he said. "We were trigger happy," said another member of the platoon, José Barco, who is serving 52 years in jail for shooting and injuring a pregnant woman in Colorado Springs. "We'd open up on anything. They even didn't have to be armed. We were keeping scores." So far, no one has been charged with shooting civilians in Iraq.

A US marine scout sniper unit posing with neo-Nazi SS lightning bolts ﬂag in Sangin, Afghanistan.

The military not only ignored Eastridge's extremism, but on his return from combat awarded him a Purple Heart and Army Achievement medals. Eastridge's lawyer, Sheilagh McAteer, becomes palpably angry when I speak to her. She claimed that the military were now knowingly sending mentally unstable young men to Afghanistan and Iraq. "The military is to some extent desperate to get people to go to fight – soldiers who are not fit, mentally and physically sick, but they continue to send them," she told me. "Having a tattoo was the least of his concerns."

In March 2012, a US soldier, on his fourth deployment in a decade, walked out of his base and went on a shooting spree in southern Afghanistan, murdering more than a dozen Afghan civilians, including nine children. Then news came that US army staff sergeant Robert Bales, the 38-year-old suspect, was from Joint Base Lewis-McCord, in Washington state, which just four months earlier had convicted a member of an Afghanistan "kill team" of murder via a military jury.

PTSD [post-traumatic stress disorder] was not a new phenomenon for the military, but sending soldiers still suffering from severe mental health problems back to the frontline in such large numbers was. "I'm concerned that people who are symptomatic are being sent back," said Dr Arthur S Blank, Jr, a Yale-trained psychiatrist. "That has not happened before in our country." The army's top mental health expert, Colonel Elspeth Ritchie, explicitly accepted that the reason so many mentally ill troops were being sent back was because of the demands on the military for more and more personnel. "The challenge for us," he said, "is that the army has a mission to fight. And, as you know, recruiting has been a challenge. And so we have to weigh the needs of the mission with the soldiers' personal needs."

Bradley Manning, the alleged US military source of the WikiLeaks data, is another example of the mental health of recruits being ignored. Manning was a "mess of a child" who "should never have been put through a tour of duty in Iraq", said an officer from the Fort Leonard Wood military base in Missouri, where Manning trained in 2007. Chase Madar, the author of a recent book on Manning, told me, "He would never have been kept in the army if not for record low recruitment levels in 2007 when he enlisted." The only reason Manning made it on to active duty in Iraq, after repeated warnings about his fitness at all three of his stateside deployments, was the army's "utter desperation for soldiers with IT and analytic skills during its historic low in recruitment".

New recruits were physically, as well as mentally, unfit. In 1993, around 23% of prospective recruits would have been overweight – a pretty significant tranche. By 2006, this had increased to just over 27%, or more than a quarter of potential recruits, due partly to the use of "medical waivers" to make exceptions for overweight recruits.

The three most common barriers for potential recruits were failure to graduate high school, a criminal record and physical fitness issues, including obesity. The criminal record had been dealt with by "moral waivers" and the obesity problem by "medical waivers", but dropping the standards on educational attainment would not be so easy without seriously affecting operational readiness. There was a way for non-graduates to get into the military, however: the general equivalency degree, or GED, which can afford recruits a waiver if they score well enough on the military's entrance exam. The army accepts about 15% of recruits without a high school diploma if they have a GED. Alive to this loophole, the military instituted another program in 2008, the so-called GED Plus, to give more of America's youth the requisite qualifications they needed to go and fight. It opened its first prep school for the purpose, targeted at tough, inner-city areas.

In fact, during the "war on terror", the resources poured into recruiting impressionable young people skyrocketed, with 1,000 new recruiters added in one year to bring high school kids round to the military's way of thinking. The Junior Reserve Officer Training Corps expanded across the nation, and no child was free from their solicitations; even 11-year-olds were taking part in the programmes. One in 10 high school students in Chicago wore a military uniform to school and took classes on shooting guns from retired veterans.

One of the main incentives offered was money – a lot of money from the perspective of a 16-year-old. In 2005, the army moved to raise the average bonus given to recruits when they signed on the dotted line from $14,000 to $17,000, with the possibility of as much as $30,000 for hard-to-fill vacancies. Another of the military's slogans was "Join the Armed Forces, get a free education", an offer many of America's poorest kids couldn't turn down.

A report, Soldiers Of Misfortune, by the American Civil Liberties Union, found that the US government was actually in contravention of an international protocol prohibiting the recruitment of children into military service when they are under 18 years old. It also noted that the US military disproportionately targets poor and minority public school students, but its findings were dutifully ignored.

It took a report from the Palm Center at the University of California – a group committed to discussion of homosexuals in the military – to blow the lid on yet more figures the military was trying hard to cover up. In 2007, it published information obtained through the Freedom of Information Act that found the number of convicted criminals enlisting in the US military had nearly doubled in two years, from 824 in 2004 to 1,605 in 2006. In that period, a total of 4,230 convicted felons were enlisted, including those guilty of rape and murder. On top of this, 43,977 soldiers signed up who had been found guilty of a serious misdemeanour, which includes assault. Another 58,561 had drug-related convictions, but all were handed a gun and sent off to the Middle East. "The fact that the military has allowed more than 100,000 people with such troubled pasts to join its ranks over the past three years illustrates the problem we're having meeting our military needs in this time of war," said Aaron Belkin, director of the Palm Center.

One of the most horrific of the reported atrocities by the US military in Iraq, the murder of the al-Janabi family in Yusufiyah, involved a convicted criminal, Steven D Green, whose enlistment required special dispensation because of his criminal record. But research has shown that these recruitment practices engender breakdown within the ranks as well. During the "war on terror", one in three female soldiers reported being victims of some form of sexual assault while in service. In fact, US women service members are today more likely to be raped by a fellow soldier than to be killed by enemy fire. No one knows how many Iraqi or Afghan women and girls have been subjected to similar atrocities, although cases such as the rapes and murders in Yusufiyah suggest it was equally endemic, and went equally unpunished.

In 2009, the military met its recruitment targets for the first time since 2004 and once again pledged to lock out those with criminal records. Brigadier General Joseph Anderson, deputy commander of the US Army Recruiting Command, said that the "adult major misconduct" waiver, given for felony offences, was now closed and, additionally, those with a history of juvenile criminal activity would not be allowed to recruit without a high school diploma. It was an admission of guilt, but for many in Iraq and Afghanistan, it was too late.

• Extracted from Irregular Army: Irregular Army: How The US Military Recruited Neo-Nazis, Gang Members, And Criminals To Fight The War On Terror, by Matt Kennard, is published by Verso Books on 24 September, priced £14.99. To order a copy for £11.99, with free UK p&p, visit the Guardian Bookshop.