By T. Christian Miller
Los Angeles Times Staff Writer
July 7, 2004
WASHINGTON — A senior Defense Department official conducted unauthorized
investigations of Iraq reconstruction efforts and used their results to push for
lucrative contracts for friends and their business clients, according to current
and former Pentagon officials and documents.
John A. "Jack" Shaw,
deputy undersecretary for international technology security, represented himself
as an agent of the Pentagon's inspector general in conducting the
investigations, sources said.
In one case, Shaw disguised himself as an
employee of Halliburton Co. and gained access to a port in southern Iraq after
he was denied entry by the U.S. military, the sources said.
In that
investigation, Shaw found problems with operations at the port of Umm al Qasr,
Pentagon sources said. In another, he criticized a competition sponsored by the
U.S.-led Coalition Provisional Authority to award cellphone licenses in Iraq.
In both cases, Shaw urged government officials to fix the alleged
problems by dir ecting multimillion-dollar contracts to companies linked to his
friends, without competitive bidding, according to the Pentagon sources and
documents. In the case of the port, the clients of a lobbyist friend won a
no-bid contract for dredging.
Shaw's actions are the latest to raise
concerns that senior Republican officials working in Washington and Iraq have
used the rebuilding effort in Iraq to reward associates and political allies.
One of Shaw's close friends, the former top U.S. transportation official in
Iraq, is under investigation for his role in promoting an Iraqi national airline
with a company linked to the Saddam Hussein regime.
The inspector
general's office — which investigates waste, fraud and abuse at the
Pentagon — has turned over its inquiry into Shaw's actions to the FBI to
avoid the appearance of a conflict of interest, the sources said.
The
FBI also is looking into allegations, first reported by the Los Angeles Times,
that Shaw tried to steer a contrac t to create an emergency phone network for
Iraq's security forces to a company whose board of directors included a friend
and one of Shaw's employees.
Shaw, who held top positions in the Reagan
and George H.W. Bush administrations, declined to comment for this article. In
previous interviews, he has denied any financial links to the companies involved
or receiving any promises of future employment or other benefit.
Shaw
justified his investigations under a special agreement with the Pentagon
inspector general, Joseph E. Schmitz. The August agreement created a temporary
office headed by Shaw called the International Armament and Technology Trade
Directorate. Its mission was to cooperate with the inspector general on issues
related to the transfer of sensitive U.S. technologies or arms to foreign
countries.
Shaw frequently cited the agreement in his dealings with
reporters and the military, telling them it allowed him to "wear an IG hat" to
conduct investigations. In a recent letter to t he inspector general, he said
the agreement gave him "broad investigatory authority."
That contention
is the subject of dispute, however. The agreement states that Shaw "may
recommend" that the inspector general initiate audits, evaluations,
investigations and inquiries, but it does not appear to give him investigative
powers.
"Jack Shaw was never authorized to do any kind of investigation
or auditing on his own," said one source close to Schmitz. "The agreement was
not for that. He's trying to cram more authority into that agreement than it
gives him."
Schmitz canceled the agreement two weeks after Shaw was
first accused of tampering with the emergency phone network contract. Schmitz
declined to comment, but in his letter canceling the arrangement, he praised
Shaw for "outstanding leadership."
Shaw used the agreement to win
permission to visit Iraq last fall. In an Oct. 28 letter to Army Gen. John P.
Abizaid, head of the U.S. Central Command, Shaw said he wanted to "investigat e
those who threatened the national security of the United States through the
transfer of advanced technologies to Iraq."
Specifically, Shaw said he
planned to identify countries that had smuggled contraband weapons into Iraq and
catalog existing conventional weapons stockpiles.
Although he did not
mention it in the letter, Shaw also was interested in investigating operations
at the port of Umm al Qasr.
Last summer, Shaw was visited by Richard E.
Powers, a longtime friend and lobbyist. Powers was representing SSA Marine, a
Seattle-based port operations company that had won a controversial limited-bid
contract in the early days of the war to manage the troubled port.
He
also was representing a small business owned by Alaskan natives called Nana
Pacific. Under federal regulations, small companies owned by Alaskan Native
Americans can bypass the normal process and receive unlimited, no-bid
contracts.
Powers suggested there were serious problems with dredging at
the port t hat could be quickly remedied by having a no-bid contract awarded to
Nana, which then could subcontract to SSA Marine, sources said.
Powers
did not respond to requests for comment. Public lobbying records show that Nana
and SSA Marine paid Powers $80,000 last year for his work.
In December,
Shaw flew to Kuwait to inspect the port. The military refused to allow him into
the facility, however, because of the danger involved, Pentagon sources
said.
Shaw and several staffers then went to the port dressed like
employees of KBR, the Halliburton subsidiary that has a contract to supply the
military with food and other items.
In a KBR hat, Shaw and his staff
spent less than an hour at the port, taking pictures and talking with soldiers,
current and former Pentagon sources said. The group documented well-known
problems there, including the presence of unexploded mines.
A Defense
official in Shaw's office acknowledged that they had entered the port despite
the military's concern s. He described the disguise as an attempt to conceal
Shaw's status, for safety reasons.
He said the military's negative
reaction to the proposed visit convinced him that there was serious trouble at
the port.
"This Army two-star said, 'We won't let you in the country.'
I said, there's something there," said the Defense official, who did not want to
be identified. "Everybody had declared victory at the port…. We looked at
the port and there were still tremendous problems."
When coalition
officials learned that Shaw was at the port, they made a frantic effort to
locate him, but didn't reach him until after his return to Kuwait.
"I
get this call from [the U.S. military command in Iraq] that said: 'We
have an undersecretary of Defense roaming the countryside. We need to locate
and secure him,' " recalled a former CPA official. "He's in the country
illegally, but we can't arrest him, so we let him finish the tour."
Shaw
spent about a week in Iraq, meeting with top U.S. and Iraqi officials. He told
several officials that the trip to Umm al Qasr had convinced him that work at
the port had to be accelerated. He then suggested that the work could be
expedited by awarding the contract to Nana, several former CPA officials
said.
"The only time I heard Nana's name was when [Shaw and his
team] were in Baghdad," said a former CPA official involved in the ports.
"The notion was that this might well be a vehicle where you could in fact get
things moving quickly that needed to be done, such as dredging and so
forth."
Soon after Shaw's visit, the CPA granted Nana a construction and
communications contract worth up to $70 million. Nana then subcontracted $3.5
million in work to SSA Marine, which recently completed the dredging.
Nana also is linked to Shaw's other investigation.
Late last year, Shaw
began looking into the award of cellphone licenses in Iraq after receiving
complaints from a longtime friend, Don DeMarino, who had worked und er Shaw at
the Commerce Department.
DeMarino was a director of a consortium called
Liberty Mobile, one of the losing bidders in the contest that awarded the
cellphone licenses, potentially worth hundreds of millions of dollars, to three
other firms.
Relying on information from DeMarino and Liberty Mobile's
president, Declan Ganley, Shaw cast doubt on the validity of the awards by
leaking to several media outlets information that he said showed corruption in
the process, said current and former Pentagon sources. He also provided the
evidence he had gathered to the inspector general.
In December, the
inspector general's office released a report saying that no basis had been found
for Shaw's accusations. The office referred part of the complaint to the
British government for further investigation of two British CPA officials
involved in the licensing process, according to a copy of the report obtained by
The Times.
British authorities exonerated the men. Later, Deputy
Defense Secr etary Paul D. Wolfowitz wrote to the British ambassador clearing
them.
"The British ambassador in the U.S. has received notification
that no British citizens are under investigation by the U.S." in the contract
matter, a British Embassy spokesman said.
Soon after Liberty Mobile lost
the bidding war last fall, Shaw began pushing Nana to win a no-bid contract to
build a communications system for the Iraqi police, fire and security forces,
according to officials with the now-dissolved CPA and documents obtained by The
Times. He then tried to change the language of the contract to allow the
creation of a cellphone network, according to interviews and documents.
Nana planned to subcontract the construction of the communications system to a
company called Guardian Net. Guardian Net's board of directors was nearly
identical to that of Liberty Mobile. It included DeMarino, Ganley and Julian
Walker, who works for Shaw as a researcher, according to the documents.
Ganley and DeMarino hav e acknowledged participating in the attempt to win a
cellphone license. Walker could not be reached for comment.
When CPA
officials reported their concerns about the Guardian Net plan to Pentagon
investigators, Shaw stepped up his investigation of the role of the CPA
officials in the licensing process, Pentagon sources said.
Even after
the Pentagon canceled the agreement that Shaw had used to justify his probe, he
unilaterally continued the investigation, Pentagon sources said.
On
May 11, Shaw delivered his report, which concluded that there was "serious,
credible evidence of criminal wrongdoing by U.S. government employees
pertaining to taking official acts in exchange for bribes."
He
acknowledged that the report "directly conflicts" with the December report by
the inspector general, which he dismissed as "worthless."
Shaw's report,
which The Times has reviewed, claims evidence of a conspiracy to take over
Iraq's cellphone service led by Nadhmi Auchi, a British busine ssman who has
been accused of links to Hussein and who was convicted last year in a French
court in an unrelated kickback scheme. Auchi maintains his innocence and is
appealing.
Auchi, according to the report, paid bribes through a series
of surrogates to win the three cellphone licenses and gain control of Iraq's
cellular system.
A spokesman for Auchi denied Shaw's claims. He
acknowledged that Auchi has an indirect, minor stake in Orascom, one of the
cellphone operators. He denied any ownership interest in the other phone
companies.
Shaw's report relies mainly on newspaper articles, rumors and
secondhand conversations reported by the losing bidders or anonymous sources and
"the Arab street," which Shaw calls "a reasonable sounding board for accepted
truth."
In the conclusion to his report, Shaw recommends that all the
cellphone licenses be canceled and that the contract be awarded to one of the
original bidders — as long as the bidder uses a technology known as CDMA,
w hich Shaw describes as superior to other cellular technologies.
Shaw
sent his report to the inspector general's office, which turned it over for
further investigation to the FBI. An FBI official confirmed that the agency had
received the report and had just begun looking into the allegations of
bribery.
"While some of the evidence in this report is fragmentary, the
dots are connected in convincing and important ways," Shaw said in the report.
"Below the deadly serious efforts to restore security and legitimacy to Iraq
lies a muted gold rush mentality."