Terror Watch: Shades of Gray

The new report by chief U.S. weapons inspector Charles Duelfer contains evidence that Saddam Hussein allegedly used the United Nations-managed Oil-for-Food program to provide millions of dollars in subsidies to a group the U.S. State Department has branded a foreign terrorist organization.

But so far, the Bush administration has made little of Duelfer's surprise discovery which, on its face, would seem to strengthen White House claims that Saddam's regime had longstanding ties to terrorism.

In fact, U.S. officials concede, the Duelfer finding does little to advance the administration's case and could even be politically awkward. The State Department designated terrorist group in question, is the Mujahedin-e Khalq (MEK)--an Iranian opposition group that was long backed by Saddam's regime as a counterweight to the Tehran government. Not only does the MEK have no connection either to September 11 or Al Qaeda, in the past, it has had strong support from members of Congress--including leading Republicans in both chambers and a current Bush cabinet member, Attorney General John Ashcroft.

Duelfer's evidence linking the MEK to the burgeoning Oil-for-Food scandal comes from 13 secret lists that were maintained by Iraqi oil officials of favored recipients for vouchers for the sale of oil overseas. Duelfer's report says the Iraqi government maintained a rigorous high-level process for nominating foreign companies or individuals who were to be awarded the Oil-for-Food vouchers and that Saddam himself personally signed off on every name that was put (or struck off) the list.

The Oil Allocation Recipient List published in Duelfer's report says that, among Saddam's many beneficiaries, was the MEK (spelled in the report as Mojahedie Khalq, based apparently on how it appeared in the Iraqi documents). The list indicates the MEK received a series of oil allocations totaling more than 38 million barrels over a four-year period prior to the U.S. invasion. That was large enough to theoretically enable the group to collect more than $16 million in profits; it could receive those proceeds by doing little more than reselling Iraqi oil to middlemen (who could then resell it to real oil companies in Western countries like the United States).

According to the list, people using the MEK's oil vouchers actually collected (or "lifted," in oil-industry jargon) around 27 million barrels of Iraqi oil during the four years before the U.S. invasion. By cashing in on the vouchers, the MEK could have generated profits of at least $11.2 million, Duelfer's figures suggest. One U.S. official said the vouchers were most likely Saddam's way of rewarding the MEK for the support it provided his regime. The list also says that the MEK apparently used two British companies or business entities to handle the oil deals. Initial efforts to trace the companies named in the report have so far proved unsuccessful.

In a telephone interview from Paris, Shahin Gobadi, chief press spokesman for the National Council of Resistance of Iran, the MEK's political arm, vehemently denied the charge that the group benefited under the Oil-for-Food program. "This is an absolute lie," he told NEWSWEEK, adding that he believed the list with the group's name was a "fabrication" by Iranian intelligence. "This is part of a smear campaign by the [Iranian] mullah's intelligence agents."

The new documents relating to the MEK underscore the awkward problems the group has long presented for U.S. officials. For the past seven years, the State Department has labeled the MEK a terrorist organization, depicting it as a cultlike organization that "mixes Marxism and Islam." The department's most recent annual "Patterns of Global Terrorism" report says the group has been implicated in repeated bombings, mortar attacks and political assassinations inside Iran. "This group has a long, bloody history of committing terrorist acts and retains the capability to do so," a U.S. counterterrorism official said today when asked about the MEK.

Saddam is known to have supported the group for years as a potential subversive force against the theocratic mullahs in Tehran. Just last year, the U.S. Treasury Department shut down the operations of an affiliated group, the National Council of Resistance of Iran, on the grounds that it was serving as the political front--with an office at the National Press Building in Washington, D.C.--for the MEK.

But at the same time, the MEK has been championed for years by leading members of Congress who, like its spokesman, have described it as a legitimate resistance movement opposing a tyrannical government run by religious fanatics. As recently as four years ago, more than 200 members of Congress signed statements endorsing the National Council's cause (including prominent Florida Republican Rep. Ileana Ros-Lehtinen and Missouri GOP Sen. Kit Bond.)

When Mahnaz Samadi, one of the group's spokeswomen, was detained by U.S. immigration authorities in early 2000 on grounds that she did not disclose her past "terrorist" ties, including her role as a "military commander" for the MEK, John Ashcroft, then a senator, wrote a letter of "concern" to Attorney General Janet Reno. As first reported by NEWSWEEK in September 2002, Ashcroft described Samadi as a "highly regarded human-rights activist" and a "powerful voice for democracy." (A spokeswoman for Ashcroft at the time said he was "supporting democracy and freedom in Iran" and that he did not "knowingly" intend to endorse a member of any terrorist organization.)

The question of how to view the MEK has intensified in the wake of the war in Iraq. After the invasion, U.S. troops rounded up thousands of MEK militants, viewing them at first as terrorists who had been aligned with Saddam. But the Bush administration was divided over what to do with them. Some Pentagon hard-liners and neoconservative political activists pushed last year to provide the group with secret U.S. backing as part of a broader covert campaign to destabilize the mullahs' regime in Tehran.

But Bush ultimately rejected that move on the grounds that it would send mixed messages in the war on terror, one administration official said. In the meantime, administration moderates, including officials at the State Department, argued, by contrast, that not only should MEK militants in Iraq be rounded up and disarmed, but that the US should consider some sort of deal with Tehran whereby MEK fighters in Iraq would be turned over to Iranian authorities. In exchange, State Department officials contended, Iranian authorities might be persuaded to deport or extradite Al Qaeda leaders like Osama bin Laden's son Saad and Al Qaeda planner Saif Al-Adel, who are believed to be under house arrest in Iran. With U.S.-Iranian tensions running high at the moment, however, the possibility of such a bargain now seems unlikely.

Meanwhile, the Bush administration has been methodically reviewing the status of about 3,800 MEK militants at Camp Ashraf, about 60 miles northeast of Baghdad. Last summer, The New York Times reported that U.S. authorities in Iraq had found no basis to charge any of them with violations of American law, prompting MEK supporters say that that finding alone was ample evidence that the group should be stricken from the State Department terror list. "There is a contradiction here," Gobadi, the National Council spokesman in Paris, said today. "If none of its members have any connection to terrorism, how can it be described as a terrorist organization?"

But a U.S. official told NEWSWEEK that more recent reporting from Camp Ashraf indicates that about 40 MEK members have been identified as possible candidates for prosecution. Most likely, the official said, the prosecutions would take place in Iraq, where MEK members might be charged with crimes against humanity or war crimes associated with assistance they provided Saddam's regime--including acting as a paramilitary force to suppress uprisings by the Shia. Another handful, perhaps four to six, might be brought to the United States for prosecution for terrorist-related acts or other crimes, the official said.

Terror Watch, written by Michael Isikoff and Mark Hosenball appears online weekly