THe man trusted by the US to do the job in Iraq... from the FT, surprisingly.

Bank fraud, botched rebellions, intrigues
By Stephen Fidler and Roula Khalaf
Published: December 12 2002 19:53 | Last Updated: December 12 2002 19:53

Three hundred Iraqi exiles gather in London this weekend for a meeting aimed at depicting a future of freedom and democracy for Iraq. They could be just months away from achieving a long-cherished ambition, the end of the brutal rule of Saddam Hussein.

Of the 300, one man has played a greater role than any other in bringing them so close to their goal: Ahmad Chalabi (pictured), an urbane former banker who heads the Iraqi National Congress. He is the man who in 1992 brought together dissident groups from Iraq's main ethnic communities - Shias, Kurds and Sunnis - under the umbrella of the INC. It was he whose relentless work put "regime change" in Baghdad at the top of the Washington foreign policy agenda and who enshrined the concept of a federal, pluralist Iraq in the minds of other dissidents.

He is a man with, it seems, as many enemies as he has powerful and enthusiastic friends; someone who elicits strong passions. A successful businessmen, he fled Jordan in 1989, it is said, in the boot of a car to escape jail for bank fraud. A committed Iraqi nationalist, he also mixes with American neo-conservatives and Israelis.

To many in the exile community, Mr Chalabi is a divisive figure, a leader obsessed with controlling the opposition. His supporters believe he would make a superb leader of a future democratic Iraq. His detractors point out that the US-educated former professor of mathematics left Iraq in 1958 and is completely unknown to most people inside the country. With some colleagues feeling alienated, the INC has splintered as various groups have asserted independence. One former US official says: "The opposition could have been much more useful and effective if he had been willing to use his formidable skills to build it into a better organisation."

Much to the disbelief of the rest of the opposition, Mr Chalabi claims to have no political ambitions. "My job ends when Saddam is overthrown. I have no desire or inclination to seek office in Iraq. It's a thankless task," he told the FT this year. "There's no disappointment here. I am impelled by a strong commitment to restore a sense of humanity to Iraq." He declined to comment for this article.

In the US, Mr Chalabi has placed himself in the middle of a passionate debate on foreign policy that pits neo-conservatives who want to spread democracy and modernity in the Arab world against "realists" fearful of overturning the established order. He is adored on Capitol Hill and among the civilian foreign policy hawks in the Pentagon. But he has acrimonious relations with the State Department and the Central Intelligence Agency.

Richard Perle, chairman of the US Defence Advisory Board and a strong supporter, says: "I have very high regard for his intelligence and judgment and commitment. The complaint is that he is high-handed - but this applies to anyone who seeks to lead."

But Edward Walker, former US assistant secretary of state, sums up the contradictions that have coloured Mr Chalabi's career. "Ahmad has tended to put tactical political considerations above the strategic effort to build a viable organisation."

Mr Chalabi's assiduous courting of neo-conservatives such as Mr Perle has brought results, notably the 1998 Iraq Liberation Act that forced the reluctant Clinton administration to make "regime change" official US policy. Then, with the arrival of the Bush administration, regime change became an attainable goal.

Yet the road that may one day lead to Baghdad has rarely run smoothly. Mr Chalabi has been accused of fraud in bringing about the collapse of a bank he founded and ran in Jordan and of sloppy accounting with US taxpayers' money during the 1990s.

The 1989 collapse of Petra Bank has been, says one observer, "like an albatross around his neck". In April 1992, he was sentenced in absentia by a Jordanian military court to a 22-year jail term on charges of embezzlement, fraud and breach of trust.

Mr Chalabi strenuously denies the charges. He says the bank was closed by the Jordanian government under pressure from Saddam Hussein, with whom it was then close. He was the victim also of a campaign that included Mohammad Said Nabulsi, then head of Jordan's central bank. Mr Nabulsi still holds to the official explanation of fraud. "I . . . conducted a full examination of Petra's books and concluded they had been cooked and that Ahmad Chalabi was the master cook who had been in collusion with his auditors," he told UPI last month. The central bank, Mr Nabulsi added, paid $300m to depositors to cover the losses generated by the Petra Bank liquidation.

Some people who know him say Mr Chalabi's private explanation was that he transferred funds - one says he mentioned a figure of $80m - out of Petra Bank to prop up family banks in Lebanon and Switzerland run by his brothers. Mr Chalabi said that if the Jordanian authorities had not acted when they did, the money would have been made good.

According to acquaintances of the Chalabi family, those institutions were run like many banks in the Middle East, making many loans to family interests. What brought their troubles to a head was a run on Mebco, the family's Lebanese bank run by Mr Chalabi's brother Jawad.

"Ahmad was not guilty of anything other than helping his brothers," says one person who lost money in the collapse of the Chalabi financial empire, which included a Mebco subsidiary in Geneva and a finance company in Switzerland, called Socofi. Mr Chalabi told one aide: "My brothers messed up the two other banks and I needed to help them."

Because of their role in the collapse, Jawad and Hazem, another brother, were each were sentenced by a "condemnation order" of a Swiss court, dated September 1 2000, to suspended sentences of six months in prison. Their crime was faux dans les titres, essentially fraud in the false presentation of accounts. They were also charged with causing the collapse of a company through fraud but the case was not pressed because of a statute of limitations.

Mr Chalabi has made efforts over the years to turn the page on his fraud conviction in Jordan. Soon after the first meeting of the INC's National Assembly in October 1992, he orchestrated an audience with King Hussein in London, one of four Mr Chalabi say he had with the king during the 1990s.

Mr Chalabi's spokesman says the INC leader wanted the military court verdict overturned - but never requested a pardon because that would have implied guilt. However, other accounts of the meeting say that King Hussein said he would be willing to grant a pardon - but only after an independent audit of the accounts and after any deficitshad been made good.

"Ahmad did nothing. He was very arrogant and said: 'Soon I will be in Baghdad and it's the king who will have to come to seek my approval,' " says someone familiar with the episode. Mr Chalabi's spokesman denies this.

Whatever the full truth behind the collapse of the Chalabi banking empire, it left many customers facing large losses and central banks footing big bills. Yet it did not destroy the Chalabis' family wealth. Some relatives of the clan estimate the family is worth about $150m, which is why they are sceptical of insinuations that Mr Chalabi was pocketing US government money during the 1990s. Mr Chalabi is part-owner of some profitable businesses, including Cardtech, which sells card-processing software to banks and other financial institutions.

In the event, the Petra episode proved to be no obstacle to CIA sponsorship of Mr Chalabi and the INC. Yet although Mr Chalabi expressed confidence in early 1993 that he would soon be in Baghdad, that does not seem to have been what the CIA had in mind.

Soon after the 1991 Gulf war, Mr Chalabi joined an anti-Saddam Hussein propaganda effort being run for the CIA by the Rendon Group, a Washington-based public relations and lobbying firm. The CIA effort followed a so-called "lethal finding" by President George Bush in May 1991, giving it authorisation to launch covert operations in Iraq.

In 1992, Mr Chalabi and other INC leaders decided to accept covert support from the CIA. According to a 1997 article in The Washington Post, this support grew to $326,000 a month, though INC officials say the figure was no more than $200,000 a month. If the numbers are right - and some other estimates put the figures twice as high - in the four years the CIA was supporting the INC, it channelled between $10m and $16m to it.

James Woolsey, CIA director for two years from early 1993, says: "During my time we regarded the INC as a bit like [Poland's] Solidarity in the early 1980s. It might not take power very soon but it represented the democratic opposition. There wasn't any debate during my time about a coup."

In a pattern that has marked his leadership of the INC, Mr Chalabi was quickly falling out with supporters. Laith Kubba, a former INC spokesman, says: "His priorities were on lobbying Washington rather than to reach out to Iraqis, develop policy papers or work out what should be the national agenda."

Mr Chalabi, he adds, was, obsessed with intelligence gathering. For him, says Mr Kubba: "It's a business. Information is a commodity and he's a businessman. He's aware that the commodity is rare."

By 1993, Mr Chalabi had moved his main base to northern Iraq, hoping to co-ordinate an effort with Kurdish forces to mount an offensive against the demoralised Iraqi army.

Robert Baer, a former CIA field officer who worked with Mr Chalabi in northern Iraq, blames a lack of US leadership for the failure of the offensive. In a book he wrote about the experience, See No Evil, he says he and others were deceived by Mr Chalabi. But he says: "You can't tell from the book but I like the guy. He does believe in getting Saddam Hussein - and he'd like to have a political future. Iraq is the only chance he's got."

Mr Baer says that, from his perspective, Mr Chalabi was no armchair exile leader, nor did he appear primarily concerned with machinating in exile politics.

"When I saw him in 1995 in northern Iraq, it wasn't about him, it was about getting rid of Saddam."

Mr Chalabi left northern Iraq in April 1995 and, in the following year, the CIA cut off the INC's funding. There had been deep differences over a CIA-sponsored plot in 1996 to mount a coup against Mr Hussein by the rival Iraqi National Accord.

Authors Andrew and Patrick Cockburn report in their 1999 book, Out of the Ashes, that Mr Chalabi had warned CIA director John Deutch and Steven Richter, head of the near East division, in March 1996 that the coup was compromised. But the plot went ahead. It had indeed been compromised - there was a debate inside the CIA about by whom - and several hundred of those implicated in it were rounded up and killed. Bad blood between the CIA and Chalabi was further poisoned.

The INC's fortunes plunged to new lows in September that year when Iraqi forces intervened in an intensifying civil war between the two main Kurdish armed groups in northern Iraq. At least 135 INC fighters were executed and a further 40 to 50 were killed in the fighting. For a force of some 1,000 fighters, it was a shattering blow.

Mr Woolsey, who had left the CIA by then, says he had no direct knowledge of what caused the agency to cease funding. But he says: "There is a historical propensity in the CIA for some - not all - to prefer institutions and individuals that can be controlled . . . The INC wasn't like that. They disagree with one another. They say what they think. That's what building democracy is all about."

Yet it was also true that the finances of the INC were a subject of continuing controversy. From 1992-96, says Mr Kubba, there was "zero transparency about the INC's finances". Mr Baer says Mr Chalabi paid money to keep people loyal to him and on side, including the Kurdish groups. "When I was in northern Iraq with him I saw no evidence that he was pocketing money. He was playing loose and fast with the INC's money, but he wasn't pocketing it."

For almost two years from 1996, the INC was in the wilderness in Washington, receiving no funding from the US and out of favour with the Clinton administration. Despite having parlayed his connection with Mr Perle into the Iraq Liberation Act, which made regime change official US policy, the programme was being run by the sceptical State department. "The State Department was trying to nibble the INC to death with ducks," says Mr Woolsey.

Part of the problem was again a dispute over budgets. An investigation showed no evidence of malfeasance but it did show poor accounting.

Mr Chalabi continues to be at the centre of controversy. For months, he has been accused of obstructing the holding of this weekend's conference out of fear it might further marginalise the INC. He is now, after all, one of several prominent dissident leaders rather than the head of the whole operation.

One of his friends says the animosity against Mr Chalabi has grown as the prospect of taking power becomes closer.

"All the other groups want to take advantage of what Ahmad built in America, while spitting him out as a useless tool once they have secured regime change."

Yet, inevitably, because of the way he has achieved his objective, Mr Chalabi will always risk being seen as a tool of the US. It raises the question of whether the charm offensive that has been so effective in the US capital could ever be adapted successfully to win over the hardened and hopeless population of Iraq.