Sleeping With The Devil

by Robert Baer

  The attacks on Russian troops along the Tajik border continued until I was transferred out of Dushanbe in 1994, but Boris would never again ask me to trace any names.

  THINGS WOULDN’T GET any better. In 1997 Bill Lofgren, the chief of the Central Eurasian Division, which covered the former Soviet Union and East Europe, had borrowed the director’s Gulfstream to take a quick tour of Central Asia and the Caucasus. Six stops and God knows how many gallons of vodka later, we still didn’t have the answer we had come for: Was militant Islam a threat to the Caspian Sea region or not? No one would say a word about it, even the most senior officials who were presumably authorized to talk about it. It was the same sort of thing as Washington and Saudi Arabia - a consent of silence.

  The telling part of the trip came on the return. The morning we were getting ready to fly back to London from Alma-Ata, the pilot filed a flight plan to Tbilisi, Georgia. No problem with that - at first. We were told we could refuel and spend the day touring Tbilisi if we wanted. But as soon as the plane landed, we knew things were going wrong. A gun-toting soldier appeared at the Gulfstream’s door and yelled at us to close it back up and stay in the plane. Thirty minutes later, a man in a dirty jumpsuit appeared. He carried a bucket in one hand and a paintbrush in the other. He proceeded to paint a circle around the Gulfstream. As soon as he connected the ends, the border guard with the assault rifle reappeared. “You can get out now, but don’t step outside the circle.” An hour later, we were fueled up and on our way to London, missing out on our last chance to find out about the Islamic-fundamentalist threat. Ironically, our flight path took us over Georgia’s Pankisi Valley, a bin Laden stronghold.

  I DIDN’T UNDERSTAND how right Boris had been until 1998, when I came across some Russian documents related to the Chechen war.

  Chechnya declared its independence from Russia back in 1991, but it wasn’t until 1994 that Russian president Boris Yeltsin moved to bring the wayward child back into the Russian fold. I watched clips of Russian armor and artillery flattening Grozny. I read everything I could about the conflict, but the reporting was sparse. True to form, the CIA didn’t have a single source among the Chechen rebels. Other countries in the region, like Georgia and Azerbaijan, claimed to have no idea who was paying for and arming the Chechen rebels. The conflict seemed to go on forever. It had to be costing hundreds of millions of dollars.

  After I left the CIA I found my answer in a batch of Russian intelligence reports that drew a convincingly direct link between the Saudi government and the Chechen rebels. It was not a question of Saudi charity money finding its way to the Chechens. One report described how on June 22, 1998, forty Chechens were quietly brought to a secret military camp located seventy-five miles southeast of Riyadh. Over the next four months, they were trained in explosives, hand-to-hand combat, and small weapons. A lot of time was set aside for indoctrination into Wahhabi Islam. Salman, the governor of Riyadh and the full brother of King Fahd, was the camp’s sponsor.

  If the reports were accurate, Saudi Arabia’s critics had it wrong. The country wasn’t just committing sins of omission where the extremists and their jihads were concerned. Boris had been right to be so angry - the Saudis were directly sponsoring terrorism. But why?

  Part III

  Going Down

  10. Hard Landing

  FOR AMERICAN ARMS MAKERS, Saudi Arabia is an industry subsector all its own, with its own peculiar rules. We buy oil from Saudi Arabia, refine it, and put it in our automobiles, and a certain small percentage of what we pay for it ends up funding terrorist acts against America and American institutions at home and abroad. With the money it earns from oil sales, the Saudi royal family purchases arms from us to protect itself from within and without, but mostly from within. We sell the Saudis those arms knowing that X amount of the purchase price will go to cover the astronomical “commissions” paid to the very few Saudis who control the arms industry, and of that X amount, a smaller Y amount will go to funding Saudi-based groups that intend to do harm to the West, because otherwise, those same groups might do harm back home in the sunny suburbs of, say, Riyadh.

  It all sounds a little nuts. But buying armaments not only helps to protect the Al Sa’ud from its own subjects; it’s also the easiest way for rapacious Saudi princes to siphon money out of the national treasury. The financial transactions of Saudi Aramco, the national oil company, are still run by Westerners and too transparent to cheat on. That leaves two subsidiary industries, armaments and construction, as the greatest targets of opportunity, and the Bakr bin Laden family gets the lion’s share of the graft in the latter. From the U.S. point of view, selling Saudi Arabia its armaments is also the simplest way to make sure that our oil expenditures return to the United States in the form of defense-industry revenues. If that means having to hold our noses at the stink of corruption, well, that’s just realpolitik.

  The U.S. Arms Export Control Act requires that the executive branch inform Congress of all proposed government-negotiated foreign military sales agreements and direct commercial sales in excess of $14 million. Among the goodies approved for the kingdom in the six years beginning in 1994:

  • Upgrades of 1,500 Raytheon AIM-9L missiles and 300 AIM-7M air-to-air missiles. (Ex-CIA director John Deutch sits on the board of Raytheon.)

  • Upgrades of 700 GBU-10 Paveway II Laser Guided Bombs.

  • A hundred and thirty 90-mm turret weapon systems for integration into light-armored vehicles, 130 M240 machine guns and M2.50-caliber machine guns, and nearly 170,000 rounds of 90-mm ammunition.

  • Maintenance and support of airborne warning and control systems (AWACS), KE-3 aerial refueling tankers, and HAWK and Patriot air-defense systems.

  • Upgrades of Raytheon Hawk surface-to-air missiles.

  • Five hundred and fifty-six guided-bomb units for the Rockwell GBU-15, and on and on.

  But those are just the small-ticket items. In all, ever since then Secretary of State Henry Kissinger set up the arms-for-oil mechanism in the early 1970s, the Saudis have bought upward of $100 billion in U.S.-manufactured fighting machinery and related construction and support, everything from AWACs to Abrams M-1 tanks, fighting vessels, and more. For years upon years, the Saudis have been the world’s number-one consumer of American armament and weapon systems.

  For every deal, there’s a commission; and for every commission, there’s a Saudi royal waiting behind the door to take his cut. But there are other ways to get into the till than making a grab. The protocols that govern American foreign military sales to the Saudis call for funds to be taken from the Saudi treasury and placed in a trust fund administered by the U.S. Department of Defense. Specific payments to vendors are then disbursed from the trust fund. All of which might work fine if the Saudis paid their bills on time, but since they habitually don’t, an end-run system called reverse collection was set so that money could be paid to the Royal Saudi Air Force and, in theory, simply held there until needed. (Reverse collection is deeply complicated. Imagine a father who decrees that his children can have their allowances only if they meet certain strict criteria, then - because he’s rarely around to hand out the money - sets up an allowance account the kids can dip into whenever they declare themselves eligible.)

  Because reverse collection essentially takes military purchases off the books, it proved a godsend. Using it, the Saudis have been able to purchase advanced weapons systems, including the electronic reconnaissance Rivet Joint Aircraft, without the knowledge of the U.S. Congress, a clear violation of the intent of the legislation authorizing foreign military sales.

  Reverse collection has also sparked individual entrepreneurs. When a shipment of new Saudi uniform pants arrived without belt loops, the Saudis went ahead and reverse-collected $2.1 million to pay the local vendor. One Saudi lieutenant was sufficiently upset by the corrupt disbursement that he tracked the money down. A million dollars actually made it to the vendor. The other $1.1 million simply disappeared into someone’s pocket, a little bette
r than par for the course. The American who knew the story about reverse collecting, by the way, worked for the Royal Saudi Air Force under contract with BDM, back when it was a subsidiary of the protean Carlyle Group.

  Prince Bandar once estimated to a PBS interviewer that of the roughly $400 billion the Saudis have spent since the early 1970s to create a modern state, maybe $50 billion has been lost to corruption. (“So what?” Bandar memorably told the interviewer. “We did not invent corruption.”) Using that ratio as a guide, perhaps $12.5 billion of the $100 billion in armaments purchased from the U.S. has been kicked back to the Saudi royal family in bribes, about $800 million a year. On both sides of the equation, there has been plenty of opportunity to get filthy rich.

  IN THE SUMMER of 1992, George H. W. Bush approved the sale of up to seventy-two F-15s to Saudi Arabia, at a total cost of $9 billion, including weapons and ground support. Developed by McDonnell Douglas (now part of Boeing), the multirole fighters could carry over twelve tons of air-to-air and air-to-ground weapons, including Sidewinder and Sparrow missiles and more than 160 bombs on a single run. Although they were barely operational a year earlier, the F-15s had played a role in the first Gulf War, a prime demo run for potential Arab purchasers with a front-row seat to the action.

  Early in 1994, before delivery could begin, the Clinton administration approved the sale of up to twenty-five F-15s to the Israelis. (The Saudis’ fighters are designated F-15S; the Israelis’, F-15I, in case you’re keeping score.) For Boeing McDonnell Douglas, this is the sort of drive toward regional arms parity that fuels the bottom line and keeps the factories humming, but the Israelis have more reason than most states to worry about the massive sales of sophisticated weaponry to a government that sits atop a powder keg of Wahhabi-inspired Islamic extremism. As history has proved time and again, arms sales to unstable nations have a way of circling back and biting the seller in the ass. (The same, of course, could be said of CIA help provided to the Taliban when they were Afghan freedom fighters.)

  Strangely, though, it was a civilian aircraft sale to the Saudis that might have done the most harm to the stability of the kingdom. The contract was inked on October 26, 1995, at the kind of White House Oval Office signing ceremony that usually marks a major piece of legislation or a military or diplomatic pact. With President Clinton looking on along with the chairman of Boeing and the president of McDonnell Douglas, Prince Sultan, the Saudis’ second deputy prime minister and minister of defense and aviation (as well as Prince Bandar’s father), pledged that Saudia Airlines, whose board he also chairs, would purchase sixty-one jetliners manufactured by Boeing McDonnell Douglas. Included in the purchase were twenty-three long-range 777-200s, five 747-400 passenger jets, four MD-11F cargo planes, and twenty-nine MD-90s, as well as engines from General Electric and International Aero Engines, a joint venture of Pratt & Whitney and Rolls-Royce PLC. At a total price tag that topped $7 billion, the order was the largest single purchase of commercial airliners ever by a Middle East carrier. To celebrate the deal, Defense Secretary William Perry hosted an official dinner for Prince Sultan at Blair House, the official guest residence, a short walk from 1600 Pennsylvania Avenue.

  For Bill Clinton, the Saudia contract was the best sort of broadly distributed political windfall. The aircraft would be constructed at Boeing’s main facility in Washington State and at McDonnell Douglas in California. The General Electric engines would come from Ohio, the Pratt & Whitney engines from Connecticut. Missouri, Kansas, Arkansas, and Utah also got pieces of the pie. In all, the states represented in the deal stood to cast 122 electoral votes in 1996, out of 538 total votes. In a press release that accompanied the signing, the White House calculated that the Saudi order would provide work for a hundred thousand Americans - this right as the U.S. economy was starting to regain steam after the economic collapse in the final years of the Bush I administration.

  Always the campaigner, Clinton had lobbied hard for this one. In February 1993, barely a month in office, he sent Secretary of State Warren Christopher to Saudi Arabia to pressure King Fahd into buying Boeing. Commerce Secretary Ron Brown followed in May, spending two hours lobbying the king. Clinton got into the act directly in July, asking Prince Bandar to stop by the White House for a tête-à-tête. A month later, Bandar returned from Riyadh with news that the king was inclined to place the entire order with Boeing, rather than splitting it, as previously contemplated, with Europe’s Airbus. On October 28, 1994, Clinton met with King Fahd at King Khalid Military City, near the Saudi borders with Kuwait and Iraq, to push the Saudis toward finalizing the arrangement.

  Clinton wasn’t the only head of state interested in landing the Saudia contract. By the early 1990s, the world market for commercial aircraft was in decline. Jobs and votes were at stake, as were whole industry sectors. Whom the Saudis would buy from, how much they would buy, and what they would pay had become a matter of international significance and intrigue, as well as electoral survival.

  Not to be outdone by Christopher, Brown, and Clinton, the French president, François Mitterrand, flew to Saudi Arabia to meet with King Fahd and the royal family and argue the case for Airbus. John Major, then the British prime minister and soon to be the Carlyle Group’s man in the Middle East, jumped on the Riyadh shuttle in support of Airbus’s corporate partner, British Aerospace. Behind the scenes, both the CIA and the National Security Agency were pressed into service to “sniff out French bribes and generous financing terms,” according to a Washington Post article. Undoubtedly, the British and the French unleashed their own official snoops and sneaks on the U.S. This was a global stage, and much was at stake.

  But it was beneath the surface and away from government offices where the real groundwork was being laid. Every deal with the Saudis involves rake-offs, commissions, theft, bribes, graft. Call it what you want, that’s the cost of doing business with our self-styled best friend in the Arab world. Generally, though, the details stay murky, hidden in complicated transactions, protected by the Middle Eastern equivalent of the code of omerta. Not so the Boeing deal. Thanks to a prolonged lawsuit that played its way through the Washington State Superior Court, we have a pretty clear picture of what it takes to land a major contract with the Saudis, and just how far one of America’s leading corporate lights was willing to raise its skirts to land a fat chunk of Saudi Arabia’s trade.

  The case, Tahir Bawazir v. the Boeing Company and Sheikh Khalid bin Mahfouz, was filed on June 16, 1998, but its roots go back to the beginning of the decade. As soon as it became evident that Saudia Airlines was looking to update its aging fleet, Boeing swung into action. Business was flat; layoffs, imminent. High inflation and recession, in the U.S. and elsewhere, were causing customers to rethink their needs and, in some cases, cancel or delay existing orders. Just as bad, the company was about to roll out its wide-body 777 line without sufficient customers to pay for the launch.

  All Saudi airline purchases, military or commercial, must be approved by the royal family, and Boeing executives knew from previous experience that meant they would need a human conduit to the king and his entourage, including Prince Sultan. The search for a well-positioned consultant led the airplane manufacturer to Khalid bin Mahfouz. At the time Mahfouz was serving as deputy general manager and chief operating officer for the National Commercial Bank, one of Saudi Arabia’s largest financial institutions. (The Mahfouz family was the majority shareholder in NCB.) More important, Khalid bin Mahfouz enjoyed a reputation in Saudi Arabia as “banker to the king,” an invaluable entree.

  Mahfouz met with Boeing executives about the Saudia deal in 1991. To allay the Americans’ fear that his global financial holdings would distract him from the work at hand, Mahfouz agreed to form a partnership with someone who could oversee the day-to-day work the consulting relationship required. That someone turned out to be Tahir Bawazir, a Yemeni residing in Saudi Arabia. The Mahfouz clan had multiple business relationships with his family, going back several decades.

  In March 1
992 Boeing approved the team and signed the first of a series of one-year consulting agreements. Compensation would be on a purely contingent basis: a percentage commission to be calculated on the price at delivery of the aircraft - at least 5 percent of the total sales price, court documents suggest, more likely in the 10- to 12-percent range, the benchmark for such deals with the Saudis.

  Not long after that agreement was inked, Khalid bin Mahfouz began to have troubles, and we’re leaving aside his close links to royal charities whose money may have ended up with bin Laden, al Qaeda, and other terrorist organizations. Among Mahfouz’s holdings was a major stake in the Bank of Credit and Commerce International, the soon to be infamous BCCI. In July 1991 a New York grand jury indicted the bank, four of its affiliates, and two officers for fraud. A related indictment came down a year later for Mahfouz, and a warrant was issued for his arrest. Almost simultaneously, the United States Federal Reserve Board filed a civil complaint against Mahfouz charging that he violated federal banking laws. On July 8, 1992, U.S. District Judge Kimba Wood issued an order prohibiting the sheik from “withdrawing, transferring, removing, dissipating, or disposing of assets or other property which he owns or controls… within the jurisdiction of the United States.” Boeing, among others, was informed of the order and instructed that any proceeds from its consulting agreement with Khalid bin Mahfouz would be subject to attachment.

  Undeterred by the fact that its lead consultant on the Saudia deal was under indictment, unable to visit the United States for fear of arrest or to move his assets out of or around the country, and deeply embroiled in a global financial scandal, Boeing renewed the consulting agreement in May 1993 and continued to renew it annually for four more years. Clearly, the Boeing commission, if it was ever to be paid, wouldn’t be based on time spent on the job. Just as clearly, Boeing knew what it had hired bin Mahfouz for.