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

For the hard-liners at the Defense Department, the raid came as a surprise. Secretary of Defense Donald Rumsfeld and his senior deputies, Paul Wolfowitz and Douglas Feith, got the news from the media. When Iraqi police, guarded by American GIs, burst into the home and offices of Ahmad Chalabi and his Iraqi National Congress, looking for evidence of kidnapping, embezzlement, torture and theft, the men who run the Pentagon were left asking some uncomfortable questions. "Who signed off on this raid?" wondered one very high-ranking official. "What were U.S. soldiers doing there?" asked another, according to a source who was present in the room.

Until at least very recently, Chalabi had been the darling of these top Pentagon officials. How could it be that the men who run the most powerful military in the world could not know that their own troops were about to run a raid on a man once regarded as the hope of free Iraq? Just last January, Chalabi had been seated behind First Lady Laura Bush at the State of the Union Message. Now, according to intelligence officials, he is under investigation by the United States for leaking damaging secrets to the government of Iran.

A civil war simmered in Iraq last week, not between Sunnis and Shiites, but between American government officials. On the one side are the neoconservatives inside the Pentagon and the Bush administration who backed Chalabi as a freedom fighter; on the other are the spooks and diplomats who have long distrusted the former Iraqi exile with a taste for well-cut suits. The neocons, who once swaggered, seem to be slipping, losing confidence and clout. It is telling that the ground commanders in Baghdad who participated in the raid on Chalabi headquarters did not bother to inform their chain-of-command higher-ups at the Pentagon. (The raid was apparently OK'd by the American proconsul in Baghdad, Paul Bremer, probably with tacit approval of White House officials.) Embarrassed by horrific images from Abu Ghraib, a growing number of uniformed soldiers are blaming their political bosses in Washington--Rumsfeld, Wolfowitz and Feith--for whatever goes wrong in Iraq.

Americans may be beginning to wonder: is anyone in charge over there? For an administration that prides itself on clarity of leadership, the Bushies seem to be lost in the Mesopotamian sandstorm. Everyone and no one was responsible for the prisoner-abuse scandal; the deadline for turning over the country to a new government is five weeks away, and the outcome is highly uncertain. Chalabi, who was supposed to be Our Man in Baghdad, is now whipping up anti-American sentiment. It wasn't long ago that Chalabi was touted as a great democrat, a friend of Israel, an Arab who "thought like us." He was going to help Americans reshape the troubled Middle East in our own image. But just as Chalabi once seemed to personify the utopian dreams of the true believers--remember those bouquets that would greet the troops?--his fall from grace suggests a more depressing turn in the Iraq reality show.

Chalabi should not be a scapegoat for all that ails the American occupation of Iraq. When it served their own ideological agenda, his neocon sponsors engaged in a willing suspension of disbelief. The ideologues at the Defense Department were warned by doubters at the State Department and CIA that Chalabi was peddling suspect goods. Even so, the Bushies were bamboozled by a Machiavellian con man for the ages. Chalabi (who vigorously denies wrongdoing and has donned a martyr's robes) has survived a fraud conviction, betrayals and scandals before. He may yet emerge on top. His story would be darkly entertaining, even funny after the fashion of a late John le Carre novel, if the consequences were not so serious.

Chalabi, 59, is a Savile Row Shiite who has spent much more time in London than in Baghdad. His career as a banker has been a trail of lawsuits and investigations (and one conviction for fraud, in absentia by a military court, in Jordan; Chalabi says he was framed by Saddam Hussein). Along the way, Chalabi has worked as an American spy and enjoyed the life of bon vivant and friend to the great. Though he plotted for years to overthrow Saddam, he was not taken seriously by the regime. NBC's Tom Brokaw recalled a conversation with a friend of the then Deputy Prime Minister Tariq Aziz on a trip to Baghdad in the summer of 2002. "You guys can have Chalabi!" the Saddam flunky told the American newsman. "You can keep feeding him all the prime rib and expensive Scotch. He doesn't know anyone here. He hasn't been to Iraq in 25 years."

But Saddam's henchmen underestimated Chalabi's wiles and staying power. He may be a dandy, but he is also a nervy risk taker. If he reinvents himself as an Iraqi patriot, his moral shortcomings may even be overlooked by history. Who remembers that in his day, Simon Bolivar, the liberator of South America, was regarded as a crook? Engaging scoundrels can be effective, if they don't get killed by the enemies they make (or fool) along the way.

Chalabi has not always charmed his patrons. His first run as a CIA asset in the early- and mid-' 90s was a disaster. Chalabi's attempts to foment an insurrection were aborted in a fiasco still known around the agency as the "Bay of Goats." His case officers didn't trust him. "There was a lot of hanky-panky with the accounting: triple billing, things that weren't mentioned, things inflated... It was a nightmare," says a former U.S. intelligence official who worked with Chalabi. "His primary focus was to drag us into a war that [President] Clinton didn't want to fight."

Chalabi had more luck with a group of Republican hard-liners who formed a kind of government-in-exile in the 1990s. So-called neoconservatives like Wolfowitz and Richard Perle, the veteran bureaucratic infighter known in the Reagan administration as the "Prince of Darkness," were drawn to Chalabi's ideas. Several, like Wolfowitz and Doug Feith, a then obscure Washington lawyer who had once worked for Perle at the Pentagon--and now serves--as under secretary of Defense for policy--began talking about a speech Chalabi gave to the Jewish Institute for National Security Affairs in June 1997. In that speech, Chalabi promised that Saddam could be overthrown on the cheap if the United States dared back a guerrilla force led by Chalabi. (Feith told NEWSWEEK that he found Chalabi's vision of post-Saddam Iraq to be "quite moving.") A side benefit, Chalabi suggested in his conversations with the neocons, would be an Arab country friendly to Israel. Soon Chalabi was dining from time to time with Perle, a fellow epicure.

But Chalabi was broke, or nearly so. In 1998 he and his friends skillfully lobbied Congress to provide funding for his organization, the Iraqi National Congress. The Iraq Liberation Act passed with overwhelming support from Democrats and Republicans. It was seen as an easy vote, giving the appearance of taking a stand against Saddam without actually having to do much.

Clinton had no intention of going to war with Iraq. Bush might not have either, but for 9/11. Before the terrorists struck, Bush administration policy toward Iraq consisted mostly of a futile attempt by Secretary of State Colin Powell to fiddle with sanctions against Iraq before the United Nations dropped them altogether. But the neocons in the Bush cabinet, led by Deputy Defense Secretary Wolfowitz, were ready to march on Baghdad before the World Trade Center stopped smoldering. President Bush, Vice President Dick Cheney and Secretary Rumsfeld were all itching to show off American strength. The rest of the government and the American people needed some persuading. Ever the opportunist, Chalabi came along to tell the war hawks just what they wanted to hear--and to provide the sort of frightening "evidence" that could galvanize the nation into action.

Chalabi is an expert manipulator who knows how to work the press as well as congressmen, lobbyists and think-tankers. He began coming up with Iraqi defectors who told reporters stories of Saddam's allying with terrorists and stockpiling weapons of mass destruction. After lurid stories appeared in the press (and softened up bureaucratic skepticism in the government), Chalabi would pass on the defectors to American intelligence agencies. Thus, in December 2001, Chalabi produced a defector who told The New York Times that he had seen biological- and nuclear-weapons labs hidden around Baghdad, including one underneath a hospital. The defector later became a source for the Defense Intelligence Agency. To Vanity Fair, Chalabi peddled another defector, a supposed former general in the Iraqi secret police, who told of terrorists-in-training practicing to hijack passenger aircraft at a secret base near Baghdad. (The defector, Abu Zeinab, was dismissed by the CIA as a "bulls----er," according to an intelligence source; newly coached by the INC, he went back to the CIA and was again rejected.)

When American spooks proved resistant, Chalabi cozied up to their counterparts in foreign intelligence services. To the Germans, Chalabi provided a source code named "Curveball" (appropriately, as it turned out), who told of Saddam's building mobile bioweapons labs. Another defector sent to the DIA by Chalabi supported Curveball's tale. DIA labeled this defector a "fabricator" and attached a warning notice to his report, but the notice was so highly restricted that other intelligence officials never saw it. Both defectors' reports--apparently pure fiction--worked their way into official pronouncements and became part of the Bush administration's building case for war. Months later, when Colin Powell was feeling burned for having dramatically presented "facts" to the United Nations Security Council that turned out to be shaky at best, the secretary of State privately, but bitterly, blamed Chalabi.

Powell also faults the neocons in the Bush administration who swallowed Chalabi's phony stories and pushed them into speeches by the president and vice president. With his clever sense for bureaucratic gamesmanship, Chalabi fed the neocons' hunger for raw intelligence. If the CIA and other spy services weren't going to come up with the goods on Saddam, then Chalabi would. He found a receptive audience in the office of the vice president and at the Pentagon. I. Lewis (Scooter) Libby, the veep's chief of staff, and Wolfowitz were eagerly looking for links between Saddam and Al Qaeda. With his media friends, Chalabi hyped a story, often cited by the neocons, about a secret meeting in Prague between Muhammad Atta, the leader of the 9/11 hijackers, and a high-level Iraqi intelligence officer. (After months of investigation, the CIA and FBI determined that the meeting had never taken place.)

Much of Chalabi's dubious intelligence was funneled to the DIA through top Pentagon civilians. Under Secretary Feith himself signed a long and detailed summary of the intelligence linking Saddam to terrorists and WMD. The Feith memo, stamped secret, submitted to Congress and leaked to the conservative Weekly Standard magazine last summer, reads like a conspiracy theorist's greatest hits. Interviewed last week by NEWSWEEK, Feith was a little defensive about his relationship with Chalabi. "The press stories would have him as my brother. I met him a few times. He was very smart, very articulate," Feith said. Feith allowed he has always been drawn to the stories of exiles who come back to save their countries. But he rejected the idea that he had been Chalabi's tool or dupe.

Over at the State Department and CIA, career bureaucrats viewed Chalabi with a jaundiced eye. State Department auditors found that Chalabi had not always kept the most meticulous records of the funds flowing into the Iraqi National Congress. Diplomats suspected Chalabi was using taxpayers' money to fund his own war-propaganda campaign, which was barred by law. In the summer of 2002, the State Department moved to cut off Chalabi's funding, but he was rescued by his friends at the Pentagon. That fall the Defense Department began picking up the check using secret intelligence funds. All told, Chalabi's INC has been paid about $33 million by State and some $6 million by the DIA. (Not all of Chalabi's intelligence operation was dodgy; last week, Joint Chiefs of Staff Chairman Gen. Richard Myers told Congress that some of the information turned over by the INC had saved the lives of American soldiers.)

With his eye on Saddam's soon-to-be-empty throne, Chalabi took an active interest in planning for postwar Iraq. In retrospect, his involvement was unfortunate. At best, it contributed to government paralysis and fed a standoff between the ever-feuding State and Defense departments. Chalabi's closest ally, Richard Perle, vigorously denied to NEWSWEEK that the neocons wanted to "install" Chalabi as the new head of Iraq. "No one installed by the United States could survive," said Perle. But the neocons did want to help train and equip Iraqi exiles loyal to Chalabi who could be airlifted into Iraq and take over as a security force (or as Chalabi's private army, depending on your point of view).

The State Department stood against this plan. A team of diplomats and Arab experts worked up a 15-volume Future of Iraq project that Defense Department officials dismissed as overly academic and "nonoperational." At Feith's office in the Pentagon, charged with postwar reconstruction, the Future of Iraq documents were consigned to the dustbin. When various Iraqi-exile groups met outside London in the fall of 2002 to try to compromise on a post-Saddam government, the outcome was the mild anarchy of dueling press conferences to announce vague and uncertain plans.

Doomed by bureaucratic infighting and a notable lack of enthusiasm among the community of potential freedom fighters, the plan to build an Iraqi-exile force fizzled. Something like 100 Iraqi men showed up to be trained as soldiers at a camp in Hungary. Nonetheless, Chalabi and his INC entourage were airlifted into southern Iraq by the Pentagon shortly after the American invasion in April 2003.

As soon as Saddam's statue was toppled, Chalabi moved into Baghdad to become, in effect, the new nation's first warlord. He set up office in the Baghdad Hunting Club, a comfortable, vaguely colonial-sounding establishment in a posh neighborhood, and then moved his operation into an edifice with outlandish pagoda-style turrets and vast corridors, known as "the Chinese House." Through associates, he took over the old Finance Ministry and later his clan set up one-stop shopping for foreign companies that wanted to do business in the new Iraq.

Chalabi was not universally endorsed in the upper echelons of the Bush administration. True, when President Bush went to the United Nations last September to proclaim a free Iraq, the man sitting in Iraq's seat at the General Assembly was Ahmad Chalabi. But when Chalabi was first flown into Iraq by the Defense Department, national-security adviser Condoleezza Rice was visibly startled when reporters gave her the news that Chalabi was on the ground and had rounded up a 700-man local army. Even Rumsfeld was less than a totally committed Chalabi partisan. "Why do people keep saying that Chalabi is my candidate?" Rumsfeld would wonder aloud at meetings of the Defense Advisory Board, according to Perle, who was a member. But a quick and sure Chalabi takeover offered Rumsfeld the one thing above all he wanted: a fast way to get American troops out of Iraq. No fan of "nation-building," Rumsfeld wanted a new Iraqi government that could take over and run the place.

It is not clear what role Chalabi played in the Bush administration's decision to suddenly and totally "de-Baathify" Iraq, including the decision (now regretted) to disband the Iraqi Army. A senior Defense Department official deeply involved in the decision to purge Saddam's Baath Party members says that Chalabi was not consulted. Nonetheless, when the 25-member Iraqi Governing Council was formed by Bremer that spring, it was Chalabi who took over the so-called De-Baathification Commission.

Chalabi set about his business with a vengeance. He acquired (he claims with American encouragement) vast stores of Baath Party records, including memberships and records of payments made and services rendered. With those tools, U.S. investigators now believe, Chalabi's outfit was able to extort and blackmail to get his way. By threatening to expose old ties to Saddam, Chalabi could be very persuasive with Iraq's new rulers and get rid of the ones he didn't like. (Chalabi and his lawyers specifically deny the blackmail charge.)

A certain amount of corruption is to be expected when new governments arise out of old dictatorships. But, according to Iraqi investigators who raided Chalabi's house and headquarters last week, Chalabi's empire pushed the boundaries of brazenness. Today his extensive network of cousins and nephews runs almost every major bank. The minister of Finance, Kamel Gailani, is regarded as a weak Chalabi crony. "He was put in that position as a button for Chalabi," says a Coalition Provisional Authority official who works in the financial sector.

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.

Their animus has been inflamed in recent weeks by the prisoner-abuse scandal. From the Joint Chiefs of Staff on down through the ranks, soldiers blame the politicians for making a hash of the war on terror. By throwing aside the protections of the Geneva Conventions, the true believers at Defense, the White House Counsel's Office and the Justice Department may have put American soldiers at risk in future wars. The evidence mounts that the ideologues were at least cavalier about the laws that protect captured soldiers. NEWSWEEK has uncovered a Jan. 9, 2002, memo written by two Justice Department lawyers, John Yoo and Robert Delahunty, which argued that the Geneva Conventions did not apply to any Taliban or Qaeda fighters flown to the detention center at Guantanamo Bay, Cuba, because Afghanistan was a "failed state" whose militia had no standing under international treaties.

The prisoner-abuse scandal, not the fall of Ahmad Chalabi, seemed to be animating the crowds in Baghdad. The list of top-this outrages grows: prisoners anally penetrated by phosphorus-tipped nightsticks, prisoners fondled by female guards, prisoners fed from toilets, prisoners ridden like dogs and prisoners forced to eat pork and drink liquor. Only a small crowd gathered outside U.S. headquarters in the Green Zone to protest the treatment of Chalabi. That didn't stop Chalabi from sounding like a cross between Moses and Mahatma Gandhi. "Let my people go," he declared. "Let my people be free! It is time for the Iraqi people to run their own affairs." The Iraqis may run Chalabi to prison or out of the country. Right now, his poll rating in Iraq stands somewhere below Saddam Hussein's. On the other hand, Chalabi has a way of resurfacing and reinventing himself. Why not as the man who took America for a ride and freed his country?