Iraq Deal on Airline Is Probed

The top U.S. transportation official in Iraq was forced out after conducting closed-door negotiations to create a national airline with a firm suspected of helping Saddam Hussein’s regime skirt United Nations sanctions, according to documents and current and former U.S. officials.

The proposal fell apart when top officials in the Coalition Provisional Authority became concerned by the involvement of Alia Transportation of Jordan, an alleged partner in Hussein’s scheme to divert funds from the U.N. “oil-for-food” program.

The plan also drew criticism for appearing to grant Alia an inside track to a lucrative contract without competitive bidding, and for financing the airline in a way that could violate a U.N. resolution.

The airline proposal was one of several problems that led senior CPA officials to send Darrell M. Trent back to Washington in March, the sources said. The coalition authority’s inspector general is investigating Trent’s actions.

The case offers a window onto what critics describe as a haphazard reconstruction effort. U.S. officials, under pressure to produce results, sometimes cut corners. Million-dollar deals have been done overnight, sometimes with shadowy partners. Critics say the effort also has been hampered by Pentagon cronyism.

Trent, who was the U.S. senior advisor to the Iraqi Ministry of Transportation, has not been accused of any illegal acts, and there is no evidence that he personally benefited from the deal. A U.S. official said that so far there is no sign that any money was misdirected.

Some say Trent’s case appears to be partly a matter of sloppy administration.

“A lot of people came over to Iraq and had a cowboy attitude toward getting things done,” said one observer familiar with Trent’s actions. “This could just be a case of somebody trying to get something done and maybe not knowing all the rules.”

Trent’s nine months in Iraq were marked by continuing problems with Iraq’s railroads, airports and port operations, high staff turnover and allegations of mismanagement.

Trent, 65, a former U.S. deputy secretary of Transportation, was part of a network of friends from the Reagan and Nixon eras who joined the U.S. government’s reconstruction effort in Iraq, several of whom have come under fire for their business dealings.

During his time in Iraq, Trent worked with his close friend John A. Shaw, a former Reagan White House aide and now a deputy undersecretary of Defense. Shaw is under investigation by the FBI for trying to steer an Iraqi telecommunications contract to a company whose board members included a friend who served in the Commerce Department during the first Bush administration.

Many involved in the troubled reconstruction of Iraq have come to believe that the Pentagon’s reliance on a cadre of people who were close friends with senior officials such as Defense Secretary Donald H. Rumsfeld and Deputy Secretary Paul D. Wolfowitz hampered the rebuilding effort.

The Pentagon failed to tap a broader pool of talent with more recent and relevant experience in creating basic services such as air transportation, critics say.

“They might not have been the best people for the jobs, but they were known commodities to the Pentagon people who were organizing a team very quickly in Iraq,” one former coalition official said. “What we built in Baghdad was an extension of the Washington scene. So it’s not surprising the same people showed up at the party.”

Trent declined to comment. His longtime friend, attorney and former chief deputy in Iraq, Frank Willis, strongly defended Trent’s actions.

During his tenure in Iraq, Trent helped oversee the partial reopening of the ports in southern Iraq and worked toward establishing cellular phone service in the country, Willis said.

Trent “is fundamentally an ethical guy,” Willis said. “It’d be out of character from my perspective for him to try to pull something cute.”

Trent worked with Rumsfeld in President Nixon’s White House, and in President Reagan’s Transportation Department. He worked on Reagan’s presidential campaigns in 1976 and 1980. Trent left government for a career in real estate and waste management, and is now a senior researcher at the Hoover Institution, a conservative think tank.

At the request of old friends in the Pentagon in the spring of 2003, Trent went to Iraq to oversee the reconstruction of Iraq’s shattered transportation and telecommunications system.

His responsibilities included reopening the nation’s ports and railroad system, reestablishing phone and mail services, and overseeing the creation of a cellular phone system.

But one of his biggest jobs was to get commercial flights running again.

Security concerns had forced the postponement of the opening of Baghdad’s airport and the cancellation of plans for commercial service to Basra.

Iraqi Airways, the state-owned airline under Hussein, had been grounded since the 1991 Persian Gulf War. Unused aircraft were rusting away. Kuwait had filed a multimillion-dollar lawsuit against the airline that clouded its legal future.

Trent decided it was vital to jump-start an Iraqi airline to get essential air service started, said Willis, a businessman from Oklahoma City and former Transportation Department aide who agreed to join Trent in Iraq last July. Trent saw a new Iraqi airline as an important political and economic symbol of the success of the reconstruction effort, Willis said.

“We needed to do things at triple speed, even if it was fast and loose,” Willis said.

Willis and Trent learned that the Transportation Ministry owned part of Alia Transportation & Trading Co. in Amman, Jordan. The company is majority-owned by the Khawam family, a powerful Iraqi clan living in Jordan.

Willis said he, Trent and the Alia representatives held at least three meetings in Jordan in the fall to discuss a new Iraqi airline. Willis even designed logos for the venture. U.S. Embassy officials and representatives of Boeing Co. and Royal Jordanian Airlines were present at some of the meetings, Willis said. Boeing declined to comment, and Royal Jordanian could not be reached for comment. A U.S. Embassy official confirmed that an embassy representative had been present for at least one meeting.

The talks centered on the formation of a new company called Iraqiyya Airlines. The Iraqi Transportation Ministry would be a minority owner through its stake in Alia, and other partners were to be recruited.

Dozens of foreign airlines had voiced interest in operating in Iraq, but Willis denied that there was any attempt to exclude other companies from the country or that any agreement was reached with Alia.

“This had not gone very far. We’re talking about a mating dance,” Willis said.

But a copy of a contract obtained by Iraq Revenue Watch, a nonprofit group funded by the liberal Soros Foundation, shows that the Transportation Ministry was planning to sign over exclusive rights to the Khawam family to operate an airline.

The unsigned contract, dated Dec. 2, calls for an Iraqi airline with a minority stake held by the Transportation Ministry.

“I’ve never seen this thing,” Willis said, when sent a copy of the contract. “This is just another surprise. You’re over there and you think you’re in control. But all sorts of things are going on under your nose.”

But the former Iraqi transportation minister, Behnam Zayya Polis, said he had frequently discussed the proposal “informally” with Trent and Willis.

“Of course they knew about it,” he said.

Besides concerns that the deal to create the airline took place without open bidding, there were questions about the involvement of the Khawam family.

U.S. officials suspect that the Khawams operated Alia to help Hussein evade restrictions on oil sales under the oil-for-food program after the Persian Gulf War, according to memos obtained by the Los Angeles Times and U.S. government officials. Alia allegedly collected loading fees for oil at Iraqi ports that wound up in Hussein’s hands. The diversion of funds under the oil-for-food program is under investigation by the U.N.

Alia company executives did not respond to repeated requests for an interview but have said that they simply followed orders under a contract for processing transactions for the Hussein regime.

Willis said Trent had vetted the family with several government sources.

“None of us really knew what awful things people could be involved in,” Willis said. “Certainly had somebody told us, we would have slowed up with our participation and gotten some guidance.”

U.S. Embassy officials, however, said they had warned CPA officials against doing business with the Khawams. And one U.S. Embassy official said that he specifically warned Trent during the airline deal to “check them out twice.”

“I guess he ignored me,” the official said.

By January, Trent was put on notice about Alia’s past. An internal CPA memo sent to Trent from his chief of staff, Mark Walker, said Alia was created to “circumvent” U.N. sanctions.

Willis, who left Iraq in December, said he had not seen or heard of the memo. Walker declined to comment.

Under the pre-existing ownership scheme, Iraq’s 49% ownership of Alia was hidden by issuing the shares in the name of two Transportation Ministry employees, according to the Walker memo obtained by The Times.

The memo urged Trent to comply with a request from Polis, the former Iraqi transportation minister, to clear up the company’s ownership. Trent issued a letter ordering the two ministry employees to sign over their shares to the ministry. The ministry could then sell millions of dollars’ worth of the shares to finance the airline.

Before the order went out, however, Trent’s legal advisor, a Republican lawyer named Ronald A. Dwight, who had only recently arrived in Iraq, contacted officials with the U.S. Treasury to check its legality.

Treasury officials ordered Dwight to stop the transaction. Under U.N. Resolution 1483, all Iraqi assets held abroad are to be placed under control of the Development Fund for Iraq, a centralized bank account created by the U.N. to safeguard such assets.

Trent responded by getting Dwight sent back to the U.S., Dwight said. The CPA inspector general’s office is investigating Dwight’s allegation.

Confronted by CPA officials, Trent revealed that there were 13 other companies under his control at the ministry whose existence he had not previously disclosed, CPA officials said.

One of those companies was massive: United Arab Shipping Co., whose market value was nearly $1 billion, according to a CPA official. The Iraqi government has a 20% share in the Kuwait-based company, which it jointly owns with several other Arab countries.

Willis said neither he nor Trent realized that they were supposed to report Alia to CPA officials, and that he was unaware of the other companies. CPA officials said they were continuing to investigate the money that flowed through the companies under the Transportation Ministry.

The officials said that an inquiry into the assets held by Alia and the other companies had just begun. They said they were determining how best to put the assets to use for Iraqis.

About six weeks after CPA officials learned of the existence of the 14 companies, Trent was ordered to leave his post and return to the U.S., sources said.

Today, the Iraqis have full control of the ministry. There is still no Iraqi airline, nor regular service into Baghdad by any airline except Royal Jordanian.

John Flaherty, chief of staff to U.S. Transportation Secretary Norman Y. Mineta, said the Federal Aviation Administration recently had dispatched consultants to work with the Iraqis on basic issues such as airport security and navigation equipment.

“There are a lot of opportunities in the rebuilding of the Iraqi transportation system,” Flaherty said. “There are also a lot of challenges.”