Start-up Company With
U.S. gives $400M in
work to contractor with ties to Pentagon favorite on Iraqi Governing
By Knut Royce
BUREAU; Tom Frank contributed to this article from
Washington - U.S. authorities in Iraq have awarded more
than $400 million in contracts to a start-up company that has
extensive family and, according to court documents, business ties to
Ahmed Chalabi, the Pentagon favorite on the Iraqi Governing
The most recent contract, for $327 million to supply
equipment for the Iraqi Armed Forces, was awarded last month and
drew an immediate challenge from a losing contester, who said the
winning bid was so low that it questions the "credibility" of that
But it is an $80-million contract, awarded by the
Coalition Provisional Authority last summer to provide security for
Iraq's vital oil infrastructure, that has become a controversial
lightning rod within the Iraqi Provisional Government and the
Soon after this security contract was
issued, the company started recruiting many of its guards from the
ranks of Chalabi's former militia, the Iraqi Free Forces, raising
allegations from other Iraqi officials that he was creating a
Chalabi, 59, scion of one of Iraq's most
politically powerful and wealthy families until the monarchy was
toppled in 1958, had been living in exile in London when the U.S.
invaded Iraq. The chief architect of the umbrella organization for
the resistance, the Iraqi National Congress, Chalabi is viewed by
many Iraqis as America's hand-picked choice to rule Iraq.
key beneficiary of both the oil security contract and last week's
Iraq army procurement contract is Nour USA Ltd., which was
incorporated in the United States last May. The security contract
technically was awarded to Erinys Iraq, a security company also
newly formed after the invasion, but bankrolled at its inception by
Nour. A Nour's founder was a Chalabi friend and business associate,
Abul Huda Farouki. Within days of the award last August, Nour became
a joint venture partner with Erinys and the contract was amended to
An industry source familiar with some of the
internal affairs of both companies said Chalabi received a
$2-million fee for helping arrange the contract. Chalabi, in a brief
interview with Newsday, denied that claim, as did a top company
official. Chalabi also denied that he has had anything to do with
the security firm.
Today security in the oil fields remains
problematic; the number of guards is being raised from 6,500 under
the original contract to 14,500, and so many changes are being made
to the contract that the Coalition Provisional Authority, which
governs Iraq, now says it may have to be rebid.
came into being last May, after the U.S.-led invasion. Saboteurs had
started blowing up oil pipelines and attacking other petroleum
facilities, plunging Baghdad and other Iraqi cities into darkness.
Blackouts and fuel shortages remain endemic.
solicited bids on the pipeline security contract in July. Just two
weeks later, the contract was awarded to Erinys Iraq.
founding partner and director of Erinys Iraq is Faisal Daghistani,
the son of Tamara Daghistani, for years one of Chalabi's most
trusted confidants. She was a key player in the creation of his
exile group, the Iraqi National Congress, which received millions of
dollars in U.S. funds to help destabilize the Saddam Hussein regime
before the coalition invasion last year.
The firm's counsel
in Baghdad is Chalabi's nephew Salem Chalabi.
The seed money
to start Erinys came from Nour, formed in May in the United States,
according to David Braus, Nour's managing director.
Web site says that it is a collaborative "arrangement" involving a
Farouki family company, HAIFinance Corp., and a Jordanian venture
called the Munir Sukhtian Group.
Braus said Nour arrived in
Iraq "with an intention of investing funds in the country as opposed
to picking up government contracts."
But it has nevertheless
won government contracts. Nour was the self-described "sponsor" of a
consortium of nine companies that won a fixed-price contract of
$327,485,798 to provide the Iraqi army with weapons, trucks,
uniforms and other equipment. At least three of those companies,
including Erinys, have financial ties to Farouki.
One of the
18 losing bidders, the large Polish defense contractor Bumar PHZ -
whose bid was more than $200 million higher - cried foul, publicly
charging that Nour's bid was suspiciously low and that the firm had
no experience in the arms trade, as stipulated in the authority's
request for bids. Bumar asked the authority to explain how it
selected Noor. And Polish prosecutors are now investigating a tiny
company that is part of Noor's consortium in the contract, Ostrowski
Arms, because it is not licensed to export arms.
founded Nour, is a Jordanian-American who lives in northern
Virginia. He and his wife are prominent socialites in the D.C. area
and frequently attended White House affairs during the Clinton
Farouki's many companies have done extensive
construction work for the Pentagon over the years.
contracts appear to be his first ventures into security and military
Though some of Erinys' principals have a background
in oil field security work in Africa and Colombia, the company
itself had no experience in the field. The Pentagon's request for
proposals required competing companies to list five contracts "of
the same or similar type to demonstrate previous
Farouki's businesses received at least $12
million in the 1980s from a Chalabi-controlled bank in Washington,
D.C. The Jordanian government says that bank was part of a massive
embezzlement scheme perpetrated by Chalabi on a bank he owned in
Chalabi, despite his status in Iraq as a possible
future leader of the country, is still wanted in Jordan after being
convicted and sentenced in absentia on bank fraud charges, Jordanian
officials in Washington said.
In a brief interview in a
Baghdad parking lot, Chalabi denied receiving any fees from Erinys.
"I have no involvement in Erinys," he said. "I have no financial
relationship with Farouki." Asked about his former bank's loans to
Farouki, he replied, "Farouki's my friend."
reached by phone recently in Cairo, described Chalabi as a "great
[Iraqi] patriot." He denied that Chalabi had received any fee or
that he has had any role in the company. "There's no basis, no
substantiation whatsoever" for those claims, he said. He said that
Chalabi was too busy as a statesman and politician to be involved in
Erinys guards are being recruited from the
ranks of the Iraqi Free Congress, the militia loyal to Chalabi's
Iraqi National Congress, Daghistani acknowledged to Britain's
Financial Times in December.
This concerns Ayad Allawi, who
runs the interior ministry in the U.S.-appointed interim Governing
Council. He publicly criticized Chalabi in Iraq in December for
allegedly undermining central authority by helping create a private
military company for the Erinys contract. Oil field security, Allawi
said, should be the responsibility of the state.
much influence Chalabi had in the decision to award the contract to
Erinys Iraq, Sam Kubba, president of the American Iraqi chamber of
commerce, a congressional candidate in Virginia and a businessman
with extensive connections in Iraq, said, "100 percent ... and you
can quote me on that."
Laith Kubba, a senior program officer
at the National Foundation of Democracy who helped Chalabi found the
Iraqi National Congress, said Chalabi's influence over Coalition
Provisional Authority contracts was "immense ... especially on
security contracts." Laith Kubba is a second cousin of Sam
Even with the infusion of additional guards, security
has been tenuous, with weekly attacks on pipelines and installations
slowing oil exports and forcing Iraqis, who sit atop the world's
second largest oil reserves, to line up for hours at gas stations.
Erinys Iraq's CEO was shot and gravely injured recently, and several
employees have been killed.
A veil of secrecy imposed by the
authority in the awarding of the contract makes it difficult to
reconstruct what happened. The project was probably flawed from the
start because of inefficiency by contracting officials and heavy
influence from Chalabi and his associates, industry and business
An industry official who knows and respects
Erinys Iraq's senior managers said Chalabi "got his contractor to
win that award ... Chalabi is backing Erinys big time." This
official, whose company has several security contracts in Iraq, said
that Erinys initially "had a hard time getting people and a hard
time getting equipment" but was now learning from
"They [the authority] didn't have a clue" of what
was needed, said this official, who considered bidding and drafted
an internal plan that would have cost more than three times what the
authority wanted to pay. But, he said, his firm concluded that
whatever the Coalition Provisional Authority was willing to accept
was unrealistic and "had no chance of success."
which is training Iraqi police under a $50-million contract, did
make an offer. A DynCorp official said that his company's bid was
three times higher than Erinys'. But unlike Erinys' proposal, he
said, his firm included helicopter surveillance, which is costly.
"There's no way in this godly earth that you can surveil the
pipeline with people in vehicles," which Erinys proposed, the
DynCorp official said.
Long after awarding the Erinys
contract, the authority came to the same conclusion. It recently
awarded a $10-million contract for helicopter surveillance of the
pipelines to Florida-based AirScan Inc. And it acknowledges the
original contract awarded in August for $39,454,896 a year over two
years and for hiring and training 6,500 guards was inadequate. It
said it had since modified the contract to provide for the air
surveillance and to increase the force. At the same time, the
authority acknowledges that so many modifications are being made
that it "could require [the contract] to be recompeted."
brief e-mailed responses to Newsday questions, the Coalition
Provisional Authority insisted that the contract with Erinys was
aboveboard and was awarded on technical merit and cost
The July 25 authority solicitation for
bids provided no detail of what would be required to provide
security for Iraq's "multibillion dollar oil infrastructure." It
did, however, ask that the bidder submit "a list of five (5)
contracts of the same or similar type to demonstrate previous
experience." Yet Erinys had never handled a job as large and
complicated as this one, and its partner, Nour, has never worked in
the security area.
Industry sources and contract experts said
Erinys may have bid low because it expected contract modifications
to bring in additional fees. "It's the oldest game in the Middle
East," said a former senior Reagan administration official and
businessman who specializes in the region. "... The contractor is
insured by his patron. 'Low ball,' he's told. 'Don't worry about
The official who considered bidding but worried that
the authority "didn't have a clue" said that Iraq is a war zone and
therefore, "I don't know if 65 million" guards can secure the 4,000
miles of pipelines. "You've got to make nice with the local people,
go to the local tribal leaders and hire his guys," he said.
Farouki and Nour's managing director, David Braus, referred
all questions about the operation to Jonathan Garratt, one of
Erinys' managers in Baghdad. After an initial early morning call to
Newsday when the reporter was not at the office, he did not return
further calls and e-mails.
Braus said Chalabi was not
involved in Erinys, but added, "In order to operate in Iraq our
people down there have had relations with all former opposition
groups." He said it was "absolutely untrue" Erinys had hired Iraqi
Free Congress militiamen as security personnel.
firm does not believe the contract will be rebid. Kroll, the risk
consulting and investigative firm, is negotiating with Nour and
Erinys to take over the Iraq operation, sources said.
Kroll buyout would affect Chalabi is unclear. A U.S. intelligence
official said Chalabi was "clearly looking to make money" now that
he has returned to Iraq after living in exile for the past five
decades. While declining to address the Erinys contract, the
official said that Chalabi is "interested in establishing businesses
that will benefit him, his associates and his party, the INC."
Chalabi helped influence the Bush administration's decision
to invade Iraq even as he remained a fugitive from a 1992 criminal
conviction in Jordan on charges of embezzling millions of dollars
from his Petra Bank, which collapsed in 1989. Other Chalabi family
enterprises, all financially interlocked, also succumbed that
While Chalabi's banking empire crumbled, it provided
millions of dollars in loans to construction firms owned by Farouki,
bankruptcy records show.
Farouki's own businesses were going
through bankruptcy proceedings in the late 1980s when he borrowed
heavily from the Washington-based Petra International Banking Corp.,
which was managed by Chalabi's nephew Mohamed Chalabi. Farouki's
companies had construction projects for the Pentagon and State
Department in Europe, the Middle East and Guantanamo Bay,
Petra International was an Edge Act bank in Washington
that was owned largely by the Petra Bank in Jordan. An Edge Act bank
is not permitted to conduct general banking activities but can make
international business loans. Mohamed Chalabi is a son of Ahmed
Chalabi's oldest brother, Rushdi, who was a cabinet minister in Iraq
before the toppling of the monarchy.
have complained that much of the Petra funds they claim was siphoned
off the Amman bank ended up at Petra International. By May 1989,
three months before Jordan seized Petra Bank, the bankrupt Farouki
companies owed Petra International more than $12 million, court
records show. Farouki's wife, Samia, and Mohamed Chalabi also were
officers of a Virginia firm that folded in 1995, according to public
Laith Kubba, who helped his cousin Ahmed Chalabi
form the Iraqi National Congress but has since had a falling out,
said Farouki became part of Chalabi's closely woven business network
some time in the '80s. "Back in 1988-91, when I worked with Chalabi
on the INC, I was aware of the people who were his confidants, close
to him, and I know Huda Farouki was one of them," Kubba
Tom Frank contributed to this article from Baghdad.
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