The Rise And Fall Of Chalabi: Bush's Mr. Wrong

Judging from the allegations made last week in Baghdad, Chalabi has run the INC the way Tony Soprano runs the Bada Bing. Chalabi's INC associates have been accused of using their connections at the Ministry of Finance and the major banks to commit fraud and embezzlement, according to charges that led to the raid on Chalabi's headquarters. Chalabi's men have also been accused of extortion and kidnapping by the Iraqi Central Criminal Court, which was set up by the U.S.-run CPA. Aides to Chalabi, who has not been personally charged with any crimes but is said to be a target of the investigation, claim that the criminal probe is an American plot to smear him.

The head of the CPA--Ambassador Bremer--is known to have tired of Chalabi's shenanigans and his increasingly anti-American statements. The U.N. envoy to Baghdad, Lakhdar Brahimi, is reportedly fed up with Chalabi as well. Chalabi has been running his own investigation into the United Nations' old Oil-for-Food program. By identifying Iraqi businessmen and political figures who were siphoning off money from the humanitarian program--not to mention certain European and U.N. officials who may have had their hands in the till--Chalabi could resort to playing a blackmail game.

According to U.S. officials, Chalabi tried to quash the corruption investigation against him by some crude enticements. His nephew, Salem Chalabi, has been accused of offering, through an intermediary, one of the main Iraqi investigative magistrates a seat on the tribunal that will try Saddam Hussein. Last week the magistrate told NEWSWEEK that he had received such an offer, but declined to say from whom. Salem has denied making any such offer, and Chalabi and his associates all insist they will be cleared of any wrongdoing.

But Chalabi has clearly lost his get-out-of-jail-free card. American intelligence is particularly concerned with Chalabi's former top intelligence chief, Aras Habib, who seems to have disappeared from Iraq. Habib has murky ties to Iranian intelligence; the FBI, NEWSWEEK has learned, is investigating whether Chalabi and his aide passed classified information to the Iranian government, as well as who in the U.S. government might have leaked it. A few American spooks even speculate that Habib has been working for Tehran all along--to the point of spreading disinformation about Saddam's WMD stockpiles to help lure the Americans into toppling Saddam, Iran's bitter enemy in a long and losing war during the 1980s. The theory seems very far-fetched--why would Tehran want America to occupy its neighbor Iraq? But in the back-stabbing, "Spy vs. Spy" world of Baghdad, all conspiracy theories have their day.

Chalabi's defenders among the neocons are clearly weakened. Perle, his strongest advocate, had to drop off the Pentagon's Defense Advisory Board because of various business interests. Feith had been under attack; his resignation or firing is routinely (though inaccurately) rumored in the press. Even Wolfowitz, the cockiest of the neocons, did something very unusual last week: he admitted, in congressional testimony, an error (overestimating Iraqi patience with foreign occupation).

Though Bremer was picked for his Baghdad job by Rumsfeld, he has fallen out with the Pentagon and now speaks more regularly to Rice and her staff at the White House. The uniformed military is in almost open revolt against its civilian masters in the offices of Wolfowitz and Feith. The troops resent the Bush administration hard-liners as dangerously ideological.