Rebuilding Aid Unspent, Tapped to Pay Expenses


By Jonathan Weisman and Ariana Eunjung Cha
Washington Post Staff Writers
Friday, April 30, 2004; Page A01
Seven months after Congress approved the largest foreign aid package in history to rebuild Iraq, less than 5 percent of the $18.4 billion has been spent and occupation officials have begun shifting more than $300 million earmarked for reconstruction projects to administrative and security expenses.
Recent reports from the Coalition Provisional Authority, the CPA's inspector general and the U.S. Agency for International Development attest to the growing difficulties of the U.S.-led reconstruction effort. And they have raised concerns in Congress and among international aid experts that the Bush administration's ambitious rebuilding campaign is adrift amid rising violence and unforeseen costs.
Rep. Jim Kolbe (R-Ariz.), chairman of the House Appropriations foreign operations subcommittee, cited "bureaucratic infighting" and a "loss of central command and control" at a hearing yesterday as he sharply questioned top administration officials: "I have very serious concerns about the pace of assistance in Iraq and the management of those funds."
Deputy Defense Secretary Paul D. Wolfowitz pointed to successes in rebuilding and blamed contracting snafus for some of the delays. But Richard L. Armitage, the deputy secretary at the State Department, which will take over from the CPA this summer, refused to make what he called "excuses."
"Of course we're not satisfied," he said. "We feel the same sense of urgency that Paul feels to get on with it."
Of the $18.4 billion in Iraqi aid approved by Congress in October, just $2.3 billion had been steered to projects through March 24, the CPA told Congress this month. Only $1 billion has actually been spent, the authority's inspector general told congressional aides Monday. In January, the CPA had said it had planned to spend nearly $8 billion during the first six months of this fiscal year.
The first round of rebuilding funds, about $4.5 billion, focused on rebuilding the electricity grid, restoring the flow of oil, Iraq's main source of revenue, and fixing schools and hospitals.
In a report this month, occupation officials warned Congress that security, project management and logistics expenses may "reduce slightly" the level of funding for reconstruction but said they were still working with the Office of Management and Budget to determine how much money would be moved.
So far, occupation officials have reassigned $184 million appropriated for drinking-water projects to fund the operations of the U.S. Embassy after the provisional authority is dissolved June 30. An additional $29 million from projects such as "democracy building" were reallocated to fund the U.S. development agency's administrative expenses.
And more diversions may be coming. Armitage said the State Department still faces a shortfall of $40 million to $60 million in embassy operating funds this year. And embassy construction and operations could consume as much as $2.5 billion in fiscal 2005, none of which has been requested by President Bush.
"The first time there' s talk of a supplemental [appropriations bill], we'll be up here early and often," Armitage told House members yesterday. Until then, he said, State will have to rely on its authority under last year's Iraqi aid law to divert as much as 10 percent of the aid -- $1.84 billion -- into overhead. In addition, the CPA, which was allocated $858 million for operating expenses, can spend up to additional 1 percent of the total funding on itself.
The shift of money has already raised objections from Capitol Hill and fueled worries that it could undermine the U.S. government's position with the Iraqi people.
Aides from both parties told CPA officials this week to find the embassy money somewhere else, said Tim Rieser, chief Democratic clerk for the Senate Appropriations foreign operations subcommittee.
"Cutting funds from water and sanitation makes no sense," Rieser said. "Potable water is desperately needed in that country."
Administration officials said the money was taken from drinking-water projects because such projects have been allocated $2.8 billion through 2005, of which only $14 million has been channeled to projects. They said they felt it would be easier to take the full $184 million they were allowed to shift to CPA expenses from one place, rather than siphoning off smaller amounts from various accounts.
"We worked with Congress to develop a package of options to ensure the embassy would have needed resources," said White House budget office spokesman Chad Kolton. "We are continuing to work with Capitol Hill as the process moves forward."
Attacks on foreign civilians have also made the CPA reassess its plan for rebuilding the Iraqi security forces. Some $93 million has been reallocated from facilities protection, border enforcement and the Iraqi Armed Forces to build a fortified police training facility in Baghdad, in addition to an $800 million training academy in Jordan. The reason is that international police trainers needed a secure place to work in the Iraqi capital, said Rep. Nita M. Lowey (D-N.Y.), the ranking Democrat on the House subcommittee responsible for aid funding.
Almost since the very beginning, the reconstruction of Iraq has been set back by problems including the widespread looting in the country and competition between various U.S. agencies. "At its worst," Kolbe said yesterday, the infighting "has led to different parts of the U.S. government pursuing different policies in a given country."
The first set of contracts was awarded before the war ended, and occupation authorities reported significant progress in rebuilding schools and power plants by last fall. But turning the new round of congressional funding into visible projects and jobs has been hampered by continuing administrative and security problems.
Shortly after Congress approved the funds in mid-November, senior government officials became embroiled in a debate over who would manage the money and whether proper financial controls were in place. The Pentagon had set up a new entity called the Program Management Office to coordinate between the various contracting agencies. Some officials argued that the idea of the new office was too experimental and that it might be better for USAID or another agency to take over. The result was that the first major group of contracts were awarded in March, instead of February.
The Program Management Office Web site now says $1.5 billion in work is "under way" on 42 projects, and its director, David J. Nash, a retired Navy rear admiral, said in Iraq last week that $5 billion of the funds "will be committed to construction" by July 1.
Meanwhile, the deteriorating security situation has forced CPA officials to change some spending priorities.
USAID spokesman Luke Zahner said the shift of funds from "democracy building," electricity, education and water to agency overhead was a technical adjustment. Limited funds were allocated for operations by Congress because it was unclear last fall which agency would oversee which projects in Iraq, he said.
Most of the reallocation is for security, said Lu'ay Eris, deputy president of Baghdad City Council, which he called a reasonable decision.
A spokesman for the Iraqi Oil Ministry, Asim Jihad, agreed: "Everything is linked to everything else. If there is no security, it will be impossible to do reconstruction projects."
But, Eris predicted, "taking this money will affect reconstruction. It will lengthen the period."
The CPA's recent report to Congress shows how little of Congress's latest rebuilding allocation has been spent since Oct 1.
Of the $279 million earmarked for irrigation projects, for instance, none has been spent. The same goes for $152 million allocated for dam repair and construction. The occupation government earmarked $240 million for road and bridge construction, of which $20 million has been "obligated" to projects so far. One bridge, at Al Mat, has been rebuilt, another at Khazir is partially reopened.
Some of the programs that generated objections as gratuitous and expensive when debated in Congress last fall also have yet to take hold. The administration's $75 million witness protection initiative got its first team of U.S. marshals on March 25 to begin designing the program.
Congress pared back Bush's $400 million request for two new prisons to $100 million; so far, only "the initial scope of work" has been approved. The Defense Department did shift $15 million from judicial security to prisons to fund 107 contractors "as trainers and mentors."
Special correspondent Omar Fekeiki in Baghdad contributed to this report.


? 2004 The Washington Post Company

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Rumsfeld's War, Powell's Occupation
Rumsfeld wanted Iraqis in on the action -- right from the beginning.

By Barbara Lerner

The latest post-hoc conventional wisdom on Iraq is that Defense Secretary Rumsfeld won the war but lost the occupation. There are two problems with this analysis (which comes, most forcefully, from The Weekly Standard). First, it's not Rumsfeld's occupation; it's Colin Powell's and George Tenet's. Second, although it's painfully obvious that much is wrong with this occupation, it's simple-minded to assume that more troops will fix it. More troops may be needed now, but more of the same will not do the job. Something different is needed -- and was, right from the start.




A Rumsfeld occupation would have been different, and still might be. Rumsfeld wanted to put an Iraqi face on everything at the outset -- not just on the occupation of Iraq, but on its liberation too. That would have made a world of difference.

Rumsfeld's plan was to train and equip -- and then transport to Iraq -- some 10,000 Shia and Sunni freedom fighters led by Shia exile leader Ahmed Chalabi and his cohorts in the INC, the multi-ethnic anti-Saddam coalition he created. There, they would have joined with thousands of experienced Kurdish freedom fighters, ably led, politically and militarily, by Jalal Talabani and Massoud Barzani. Working with our special forces, this trio would have sprung into action at the start of the war, striking from the north, helping to drive Baathist thugs from power, and joining Coalition forces in the liberation of Baghdad. That would have put a proud, victorious, multi-ethnic Iraqi face on the overthrow of Saddam Hussein, and it would have given enormous prestige to three stubbornly independent and unashamedly pro-American Iraqi freedom fighters: Chalabi, Talabani, and Barzani.

Jay Garner, the retired American general Rumsfeld chose to head the civilian administration of the new Iraq, planned to capitalize on that prestige immediately by appointing all three, along with six others, to head up Iraq's new transitional government. He planned to cede power to them in a matter of weeks -- not months or years -- and was confident that they would work with him, not against him, because two of them already had. General Garner, after all, is the man who headed the successful humanitarian rescue mission that saved the Kurds in the disastrous aftermath of Gulf War I, after the State Department-CIA crowd and like thinkers in the first Bush administration betrayed them. Kurds are not a small minority -- and they remember. The hero's welcome they gave General Garner when he returned to Iraq last April made that crystal clear.

Finally, Secretary Rumsfeld wanted to cut way down on the infiltration of Syrian and Iranian agents and their foreign terrorist recruits, not just by trying to catch them at the border -- a losing game, given the length of those borders -- but by pursuing them across the border into Syria to strike hard at both the terrorists and their Syrian sponsors, a move that would have forced Iran as well as Syria to reconsider the price of trying to sabotage the reconstruction of Iraq.

None of this happened, however, because State and CIA fought against Rumsfeld's plans every step of the way. Instead of bringing a liberating Shia and Sunni force of 10,000 to Iraq, the Pentagon was only allowed to fly in a few hundred INC men. General Garner was unceremoniously dumped after only three weeks on the job, and permission for our military to pursue infiltrators across the border into Syria was denied.

General Garner was replaced by L. Paul Bremer, a State Department man who kept most of the power in his own hands and diluted what little power Chalabi, Talabani, and Barzani had by appointing not six but 22 other Iraqis to share power with them. This resulted in a rapidly rotating 25-man queen-for-a-day-type leadership that turned the Iraqi Governing Council into a faceless mass, leaving Bremer's face as the only one most Iraqis saw.

By including fence-sitters and hostile elements as well as American friends in his big, unwieldy IGC and giving them all equal weight, Bremer hoped to display a kind of inclusive, above-it-all neutrality that would win over hostile segments of Iraqi society and convince them that a fully representative Iraqi democracy would emerge. But Iraqis didn't see it that way. Many saw a foreign occupation of potentially endless length, led by the sort of Americans who can't be trusted to back up their friends or punish their enemies. Iraqis saw, too, that Syria and Iran had no and were busily entrenching their agents and terrorist recruits into Iraqi society to organize, fund, and equip Sunni bitter-enders like those now terrorizing Fallujah and Shiite thugs like Moqtada al Sadr, the man who is holding hostage the holy city of Najaf.

Despite all the crippling disadvantages it labored under, Bremer's IGC managed to do some genuine good by writing a worthy constitution, but the inability of this group to govern-period, let alone in time for the promised June 30 handover -- finally became so clear that Bremer and his backers at State and the CIA were forced to recognize it. Their last minute "solution" is to dump the Governing Council altogether, and give U.N. Secretary General Kofi Annan's special envoy, Lakhdar Brahimi, the power to appoint a new interim government. The hope is that U.N. sponsorship will do two big things: 1) give the Brahimi government greater legitimacy in the eyes of the Iraqi people; and 2) convince former allies to join us and reinforce our troops in Iraq in some significant way. These are vain hopes.

Putting a U.N. stamp on an Iraqi government will delegitimize it in the eyes of most Iraqis and do great damage to those who are actively striving to create a freer, more progressive Middle East. Iraqis may distrust us, but they have good reason to despise the U.N., and they do. For 30 years, the U.N. ignored their torments and embraced their tormentor, focusing obsessively on a handful of Palestinians instead. Then, when Saddam's misrule reduced them to begging for food and medicine, they saw U.N. fat cats rip off the Oil-for-Food Program money that was supposed to save them.

The U.N. as a whole is bad; Lakhdar Brahimi is worse. A long-time Algerian and Arab League diplomat, he is the very embodiment of all the destructive old policies foisted on the U.N. by unreformed Arab tyrants, and he lost no time in making that plain. In his first press conferences, he emphasized three points: Chalabi, Talabani, and Barzani will have no place in a government he appoints; he will condemn American military action to restore order in Iraq; and he will be an energetic promoter of the old Arab excuses -- Israel's "poison in the region," he announced, is the reason it's so hard to create a viable Iraqi interim government.

Men like Chalabi, Talabani, and Barzani have nothing but contempt for Mr. Brahimi, the U.N., and old Europe. They know perfectly well who their real enemies are, and they understand that only decisive military action against them can create the kind of order that is a necessary precondition for freedom and democracy. They see, as our State Department Arabists do not, that we will never be loved, in Iraq or anywhere else in the Middle East, until we are respected, and that the month we have wasted negotiating with the butchers of Fallujah has earned us only contempt, frightening our friends and encouraging our mortal enemies.

The damage Brahimi will do to the hope of a new day in Iraq and in the Middle East is so profound that it would not be worth it even if empowering him would bring in a division of French troops to reinforce ours in Iraq. In fact, it will do no such thing. Behind all the bluster and moral preening, the plain truth is that the French have starved their military to feed their bloated, top-heavy welfare state for decades. They couldn't send a division like the one the Brits sent, even if they wanted to (they don't). Belgium doesn't want to help us either, nor Spain, nor Russia, because these countries are not interested in fighting to create a new Middle East. They're fighting to make the most advantageous deals they can with the old Middle East, seeking to gain advantages at our expense, and at the expense of the oppressed in Iraq, Iran, and every other Middle Eastern country where people are struggling to throw off the shackles of Islamofascist oppression.

It is not yet too late for us to recognize these facts and act on them by dismissing Brahimi, putting Secretary Rumsfeld and our Iraqi friends fully in charge at last, and unleashing our Marines to make an example of Fallujah. And when al Jazeera screams "massacre," instead of cringing and apologizing, we need to stand tall and proud and tell the world: Lynch mobs like the one that slaughtered four Americans will not be tolerated. Order will restored, and Iraqis who side with us will be protected and rewarded.

-- Barbara Lerner is a frequent contributor to NRO.


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Profitless Profiteering
Why can't Halliburton make good money in Iraq?
By Daniel Gross
Posted Thursday, April 29, 2004, at 12:47 PM PT

Is it war profiteering if you barely make a profit on your war work?
In March 2003, the KBR unit of Halliburton, the oil-services company formerly run by Vice President Dick Cheney, controversially received huge no-bid contracts to provide a range of services in Iraq--everything from fixing oil fields to delivering fuel to feeding soldiers. For many administration critics, KBR's central role in the reconstruction of Iraq stands as evidence that the war in Iraq was a pretext for crony capitalists to grow fat on borrowed taxpayer dollars.
But here's the funny thing. So far, the Iraq war hasn't proved much of a boon for Halliburton's shareholders. Because of incompetence, the chaos of working in the war zone, and a contract that limits profits, KBR's margins on its hazardous work are pretty marginal.
The Wall Street Journal notes that the Iraq contracts call for KBR to be reimbursed for its costs plus 1 percent. The company can also bill the military for a portion of its administration and overhead and can earn performance bonuses. KBR spends a lot of effort funneling taxpayer money to subcontractors, who may themselves be getting rich off of Iraq-related work. Meanwhile, the Iraq work has required KBR to incur big expenses of its own--higher insurance costs for operating in a hazardous region, recruiting costs for hiring new employees for dangerous duty, and administrative costs for handling a huge amount of new business quickly.
An excellent front-page article in yesterday's Wall Street Journal by Russell Gold shows that, depending on how you look at it, KBR has either made the best of a horrible situation or has screwed up big time. At times, KBR seems to function more like a dot-com on its last legs than the ultra-efficient logistics unit of a Fortune 500 company. Suppliers don't get paid and invoices are routinely lost. As KBR rushed into Iraq, "Many of its systems, from procurement to billing, got overloaded, creating a breeding ground for potential corruption and more inflated prices--not to mention inefficiency on a huge scale," Gold writes.
When you're a logistics company--and one working on a 1 percent profit margin--inefficiency is a killer. That's why for service companies like Halliburton, landing huge contracts is less than half the battle. Improperly executed, a huge contract can become a gigantic liability. So while KBR may land deals because of its connections and experience, it hasn't shown much ability of late to carry them out profitably.
According to Halliburton's most recent quarterly results, released yesterday, its KBR unit lost $15 million in the first quarter, largely because of a $97 million loss on an ill-fated project in Brazil, even though revenues for the unit doubled to $3.7 billion. Iraq was a fairly dim bright light. "Halliburton's Iraq-related work contributed approximately $2.1 billion in revenues in the first quarter 2004 and $32 million in operating income," the company reported. That's a margin of 1.5 percent.
The previous quarter, KBR reported $2.2 billion in Iraq-related revenues and operating income of $44 million--a 2 percent margin. And in the third quarter of 2003, KBR had $900 million in Iraq revenues and operating income of $34 million--a 3.7 percent margin. As time goes on, in other words, KBR's profits in Iraq are shrinking in both real and proportional terms. Worse, for KBR, this may be as good as it gets. Even though it received a $1.2 billion contract from the U.S. Army Corps of Engineers to continue working on the Restore Iraqi Oil program in January, the unit's backlog of work has shrunk.
What's more, KBR may ultimately pay the price for its success in monopolizing Pentagon business in Iraq. Halliburton and the Pentagon have become dependent on each other, and that may be bad for both of them. It would be extremely difficult for the Pentagon to switch master contractors in the middle of a war. And for Halliburton, the Pentagon may prove to be a capricious, highly demanding, and unpredictable client.
KBR is now under criminal investigation by the Pentagon over claims it overcharged for fuel delivered from Kuwait. The Pentagon is also looking into dining-hall contracts allegedly awarded without competitive bids. And annoyed at repeated billing screw-ups, the Pentagon is withholding hundreds of millions of dollars in payments to KBR. Any of these conflicts could further erode KBR's margins.
KBR hasn't lost money on its sweetheart Iraq contracts--yet. It has made a small profit. But the amounts are nothing to write home about--and they're certainly not worth starting a war over.


Daniel Gross (www.danielgross.net) writes Slate's "Moneybox" column. You can e-mail him at moneybox@slate.com.

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>> YELLOWCAKE JOE?

Book Names Iraqi in Alleged '99 Bid to Buy Uranium

By Susan Schmidt
Washington Post Staff Writer
Friday, April 30, 2004; Page A16
It was Saddam Hussein's information minister, Mohammed Saeed Sahhaf, often referred to in the Western press as "Baghdad Bob," who approached an official of the African nation of Niger in 1999 to discuss trade -- an overture the official saw as a possible effort to buy uranium.
That's according to a new book Joseph C. Wilson IV, a former ambassador who was sent to Niger by the CIA in 2002 to investigate reports that Iraq had been trying to buy enriched "yellowcake" uranium. Wilson wrote that he did not learn the identity of the Iraqi official until this January, when he talked again with his Niger source.
That knowledge has not altered Wilson's much-expressed view that the Bush administration distorted intelligence on Iraq's weapons capabilities to help make the case for going to war. Wilson maintains that someone in the administration retaliated against him by disclosing to columnist Robert D. Novak that his wife was a CIA operative, a leak now the subject of a grand jury investigation. The revelation about Sahhaf, contained in "The Politics of Truth: Inside the Lies that Led to War and Betrayed My Wife's CIA Identity," adds an odd bit of detail to the uranium saga.
Sahhaf was dubbed "Baghdad Bob" and "Comical Ali" by the Western news media for his often farcical televised pronouncements about how Iraq was winning the war last April even as U.S. troops were rolling into Baghdad. "Those Iraqi fighters are slapping those gangsters on the face, and then when they flee, they will kick their backsides," he asserted at one point.
Sahhaf, now a broadcast correspondent in Abu Dhabi, could not be reached for comment yesterday. He was interviewed when the U.S. military took control if Iraq but was not held. "He wasn't wanted for anything. Unfortunately, being a bad spokesman is not a crime," a U.S. official said.
Sahhaf's role casts more light on an aspect of Wilson's report to the CIA that was publicly disclosed last summer. On the heels of Wilson's public criticism that intelligence was exaggerated and his statement that his trip to Niger had turned up no uranium sales to Iraq, agency Director George J. Tenet took the blame for allowing President Bush to make assertions about the Iraqi quest for nuclear material in his 2003 State of the Union address. Tenet said the intelligence had been too "fragmentary" to merit inclusion in the speech.
Tenet's statement noted that Wilson had reported back to the CIA that a former Niger official told him that "in June 1999 a businessman approached him and insisted that the former official meet with an Iraqi delegation to discuss 'expanding commercial relations' between Iraq and Niger. The former official interpreted the overture as an attempt to discuss uranium sales."
In his book, Wilson recounts his encounter with the unnamed Niger official in 2002, saying, he "hesitated and looked up to the sky as if plumbing the depths of his memory, then offered that perhaps the Iraqi might have wanted to talk about uranium." Wilson did not get the Iraqi's name in 2002, but he writes that he talked to his source again four months ago, and that the former official said he saw Sahhaf on television before the start of the war and recognized him as the person he talked to in 1999.
Much of Wilson's book recounts the events surrounding the disclosure that his wife, Valerie Plame, worked for the CIA. A grand jury investigating the disclosure has been highly active in the past seven weeks, suggesting that it may have reached a new stage, people familiar with the probe said. Plame was a covert operative. Under the Intelligence Identities Protection Act of 1982, it is illegal to knowingly disclose the name of a covert CIA employee.
FBI agents and prosecutors have interviewed some current and former White House officials repeatedly, people involved in the case said. Several administration officials testified before the grand jury in recent weeks.
Staff writer Linton Weeks contributed to this report.
? 2004 The Washington Post Company


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Saddam regime may have planned insurgency before it fell

By John J. Lumpkin
Associated Press
Anti-U.S. violence in Iraq comes from multiple directions and sources, but Pentagon intelligence officials believe they have divined the most sophisticated: a group of Iraqi intelligence and security officers who dispersed around Iraq, preparing for guerrilla war, even as Saddam Hussein's regime fell.
Figuring out the enemy in Iraq has been a key struggle for the U.S. military ever since Saddam was toppled. And it has come to a head as American officials try to deal with an entrenched insurgency in Fallujah.
The insurgents fighting in Fallujah are thought to be a mix of several groups, Marine Maj. Gen. John Sattler, director of operations for the U.S. Central Command, said this week.
"We believe that there's a combination of former Baathist, some foreign fighters, some extremists, a combination of some Iraqi Republican Guard elements that were out there in the vicinity of Fallujah, some terrorists who have moved in from outside the country," he said.
Other groups are capable of almost as much violence as the group of Iraqi intelligence and security officers that U.S. officials have identified. Those others include supporters of Jordanian extremist Abu Musab Zarqawi, the Ansar al-Islam extremist group, and various militias that have emerged since the fall of Saddam, American officials say.
Attributing particular acts to specific groups is often difficult without a full investigation or a cooperative prisoner. But some patterns in attacks have emerged.
The group of Iraqi intelligence officers come from the Directorate of Special Operations and Antiterrorism, known as M-14, according to defense officials at the Pentagon who spoke on the condition of anonymity.
That was a part of Iraq's intelligence service, the Mukhabarat -- the same organization the U.S. government says tried to assassinate former President Bush in Kuwait in 1993.
Officials said they think members of the organization are working independently and probably in little communication with one another. The officials cited a recent report by the Pentagon's Defense Intelligence Agency.
The nature and extent of their connection to other violent groups in Iraq is unclear, although officials said their specialty is to train, fund and plan operations by others willing to carry them out.
Interviews with prisoners provided some information on M-14. But defense officials said another clue to its operations comes from similarities in certain bomb designs found around the country.
They also suspect some of these security officers are agitating in Fallujah, where Marines face an estimated 1,500 to 2,000 insurgents. Military officials say they see the insurgents using Soviet-style defense-in-depth military tactics, instead of the hit-and-run ambushes favored by Islamic mujahideen who fought in Afghanistan.
That suggests leadership by former members of Saddam's Soviet-style military, instead of foreigners, officials said.
The DIA report also blames the group for an April 14, 2003, attack that killed three U.S. soldiers, the official said. It said the group probably is working with other anti-U.S. groups and individuals to conduct some of their attacks.
Some reports put Zarqawi, an associate of Osama bin Laden, in Fallujah, as well.
Beyond Fallujah, intelligence and military officials suspect, in particular, that he is behind attacks in other regions of Iraq that appeared aimed at causing violence between Shiite and Sunni Muslims, and others aimed at driving U.S. allies, such as Italy, out of Iraq.
Officials cite an intercepted letter of his as evidence of his goals.
However, Zarqawi is thought to be more interested in bombings than in firefights.
"To what extent, if any, he is involved in Fallujah fighting is unclear," one counterterrorism official said.
Another active group is Ansar al-Islam, which officials also associate with Zarqawi. Members of the group, formed in the Kurdish parts of Iraq, have served as fixers for other Sunni Muslim extremists entering Iraq, U.S. officials believe. They also have experimented with chemical weapons in the past, and defense officials worry they could try such an attack inside Iraq.
Defense officials say the threat of violence from various militias is on the rise. The best known is the al-Mahdi Army, made up of followers of Muqtada al-Sadr, the Shiite cleric holed up in Najaf.
Still another group is Mohammed's Army, which is believed to be composed of former security and military officials from Saddam's regime.
Copyright 2003 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Syria's Assad backs Iraqi resistance
Admits in interview his belief in insurgents fighting U.S.
Posted: April 30, 2004
1:00 a.m. Eastern
? 2004 WorldNetDaily.com
Syrian President Bashar al-Assad called radical Islamic insurgents fighting coalition troops in Iraq a legitimate resistance.
"Certainly, what has happened on the popular level gives legitimacy to the resistance and shows that the major part of what is happening is resistance," Assad said in comments aired on the Qatar-based Arabic-language satellite channel al-Jazeera.
The interview will be broadcast in full Saturday on an "open dialogue" program.
It was the first time Assad publicly admitted his view of the Iraqi resistance, said the exiled opposition group Reform Party of Syria.
The party, based in Washington, D.C., said "Middle East experts" regard the president's remarks as a "declaration of war" because Damascus has sent Syrians to fight the U.S. in Fallujah.
Relations between Syria and the U.S. already are tense with Damascus on the State Department's list of terrorist-sponsoring nations and pressure from Washington to curb terrorism in the region.
The U.S.-led forces are battling threats from both Sunni Muslim guerrillas in Fallujah, near Baghdad, and Shiite fighters in the south.
"You are talking now about resistance which is against the occupation forces," Assad said in the interview.
Asked if the resistance was legitimate, he said: "Well, of course, it's understood that way."

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Some on Hill Seek to Punish Syria for Broken Promises on Iraq
By Robin Wright and Glenn Kessler
Washington Post Staff Writers
Friday, April 30, 2004; Page A24
Syria has failed to fulfill key promises to cooperate on Iraq, particularly to close down the traffic of foreign fighters, smugglers and others across its border, which is triggering new congressional efforts to impose tougher U.S. restrictions on Damascus, according to U.S. and congressional officials.
President Bashar Assad has also not returned to Iraq $3 billion from Saddam Hussein's government held in Syrian banks, or closed offices of Islamic extremists and Palestinian radicals in the Syrian capital, as he promised Secretary of State Colin L. Powell in talks a year ago, U.S. officials said.
At the time, Powell told Assad that if he wanted to avoid sanctions contained in a bill proposed in Congress, he needed to take action to satisfy U.S. concerns. But Syria often failed to live up to administration expectations. While Hussein's money was frozen, for instance, the Syrian government then used it to pay claims to Syrians who said they were owed money by Iraq, reducing the amount left, U.S. officials said.
The White House last fall lifted its objections to the bill, known as the Syrian Accountability Act, and now pressure is mounting on the Bush administration to finally impose the sanctions it outlines. The administration was expected to select from a list of possible sanctions more than six weeks ago, but has repeatedly deferred action.
Congressional sources said the administration intended to impose penalties in stages, to see if a gradual unrolling would prod the Syrian government to reverse course. The law requires the administration by June 12 to ban export to Syria of any dual-use goods that could be used to produce weapons of mass destruction -- though some exemptions will be made for products such as communications gear -- and then pick at least two of six punitive measures listed in the legislation.
But some House lawmakers said they were tired of waiting and intend to introduce a new Syria-Lebanon liberation act, modeled to some extent on the Iraq Liberation Act, that would mandate broader sanctions against Syria than are called for in the current law and, by implication, support government change.
"My patience has run out," said Rep. Eliot L. Engel (D-N.Y.), one of the co-sponsors.
U.S. officials said the Bush administration is also frustrated, in part because the Syrian government has been either unable or unwilling to stop the traffic across the 400-mile border that it originally encouraged or facilitated, despite repeated pledges of action.
"It's a mixed bag at best. On occasion they are cooperative when they're motivated to do so. They could do a lot more on the borders of Iraq and hint that they will, but we'd like to see more evidence of it," said a U.S. official familiar with the discussions. "There's not a lot of progress on stopping people going through or the money. They're reluctant to be excessively helpful, and there's no good explanation why -- maybe solidarity with neighbors or not wanting to be seen to collaborate with the Americans."
Because Syria does not require visas for Arabs, the Syrian border has been the main route into Iraq for foreign fighters, many of whom are now fighting in Fallujah, officials say. In the early days of the U.S.-led intervention, the Syrians helped arrange logistics and transportation for anyone interested in crossing into Iraq, U.S. officials say.
Under pressure from the United States, Syria has repeatedly promised to end its direct help, but has been unable or unwilling to cut off the infrastructure it put in place, the officials say.
Part of the problem is that the Syrian government does not totally control the border. In some cases, tribes along the border have facilitated cross-border travel because of bribes or disinterest in heeding the message from Damascus; in others, Syrian border guards have looked the other way for bribes, the officials say. Over the past year, traffic across the border has become good business. Many Syrians do not agree with government policy or any move that is seen to assist forces occupying an Arab country, U.S. officials say.
Many Syrians are among the fighters who have shown up in hospitals or in custody, another reason Washington has continued to pressure Damascus, U.S. officials say.
But the U.S. official called Syria's failure to comply over the past year "a missed opportunity," adding that the administration had not been surprised by the failure to follow through on its promises.
State Department officials said that the White House has not put into effect the provisions of the original sanctions law because it did not want to overshadow the scheduled Arab League summit last month or embarrass Egyptian and Jordanian leaders, who had just held talks with Assad, during their visits to Washington this month. But the Arab League summit and the visit of the Jordanian king have been postponed until May, further delaying White House actions, State Department officials add.
But congressional officials say the administration is divided on whether to sanction Syria when the United States needs cooperation. "There is obviously an internal debate going on pitting some inside the NSC [National Security Council] and Defense against State and [CIA director George J.] Tenet," said a senior congressional aide familiar with the conversations between Capitol Hill and the White House. "Tenet is the voice, saying, 'Slow down, slow down, no matter how big a trickle [of cooperation there] is, at least it is a trickle.'"
The State Department's annual report on terrorism, released yesterday, said Syria has cooperated in fighting al Qaeda and other terrorist groups and has discouraged signs of public support for al Qaeda within Syria. But it was faulted for continuing to provide "political and material support to Palestinian rejectionist groups." The report said that a number of groups continue to operate from Syria, "although they have lowered their public profiles since May, when Damascus announced that the groups had voluntarily closed their offices."


? 2004 The Washington Post Company
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Globalizing terror -- Khaddafy outsourced?

By John Metzler
SPECIAL TO WORLD TRIBUNE.COM

Friday, April 30, 2004
UNITED NATIONS -- The U.N. Security Council unanimously passed a terrorist weapons ban barring individuals, countries and states from trafficking in chemical, biological and nuclear arms. The resolution would punish "non-state actors" for possessing and selling weapons of mass destruction.
The resolution addresses the very real but growing role of non-State players in organized violence. The identifiable countries which long hosted terrorists -- Libya, Iraq, Islamic Iran -- are now fewer or under very close scrutiny. Thus while this unanimously backed resolution is a major victory for American diplomacy, somehow I don't feel the bad guys are running scared.
In parallel to economic globalization there's been a globalization of terrorism too -- the usual suspects have outsourced their grisly business to offshore entities from Yemen to the southern Philippines, Morocco and into the historic heart of Europe. Let us not forget that the German city of Hamburg hosted some key Al Qaida cells as much as did London and Paris.
In one sense business globalization -- easy communication, simple cross border movement and cash transfers -- indirectly abets the terrorists. Crossing European Union frontiers is quite easy with few exceptions. Beyond the positive benefits, naturally this facilitates illegal immigration, crime syndicates, and clandestine terrorist cells.
Beyond the horrific attacks on American September 11th and on Madrid March 11th, one finds that the grisly path has taken many curious turns from Istanbul to Jerusalem to Madrid.
Naturally those who instinctively know better will assure us that the problem remains for the most part -- somewhere else or somehow our fault. They refuse to acknowledge that America's once lax border controls and domestic surveillance in the 1990's allowed these militants to meticulously construct scores of sleeper cells in U.S. cities which were out of the reach of law enforcement. While our War on Terror has successfully rolled up many terrorist cells since September 11th, we must realistically assume many others have not been.
Now there's a nagging dimension which is also distinctly different. A recent upsurge in violence across the Middle East where Islamic fundamentalists have tried to create a spectacular chemical weapon attacks in the Jordanian capital but were thwarted, bombs in Saudi Arabia, and of course Iraqi militants continue to harasses coalition forces in Iraq. Moderate Arab governments from Morocco to Jordan feel the venomous hatred of fundamentalists. Even Syria, who hosts many militants, saw recent attacks. The violence in Damascus could be the fury from fundamentalists who were long suppressed by Assad's regime, or a provocation by the Syrians to crack down on rumbling dissent.
Interestingly Libya's leader Col. Khaddafy, longtime alleged patron saint of international terrorism, appears to have gone cold turkey. Given Khaddafy's genuine fear that his chemical weapons and nuclear research programs were putting him in the cross-hairs of the Bush Administration, the Libyan leader came clean. Not only has he surrendered some weapons nobody even knew he possessed, but he now has played an awkward political charm offensive with politicos from Tony Blair to the European Union's supremo Romano Prodi.
The images are surrealistic -- Blair posing with Khaddafy outside a Bedouin tent in the Libyan desert -- camels as the exotic backdrop. Khaddafy goes to Brussels and gets glad-handed by the Euroclass. Khaddafy's past terror has been outsourced. Maybe the mercurial Libyan Colonel is just too 1970's and 80's. Move over Moammar -- Osama Bin Laden is the new chief.
There are notable exceptions. Islamic Iran's President Mohammed Khatami stated recently, "Hizbullah are the pride of the Muslim and Arab world, the pride of Iran." Indeed this Teheran sponsored terrorist group has long been the bane of Lebanon and Israel.
Formal state sponsorship of terrorist groups, once a mainstay of militants from Tripoli to Teheran, is being outsourced to the shadowy Al Qaida network which lives among the target groups and countries. Realistically any regime who openly sponsors terrorists, knows it's on the Pentagon's short list for action. Such targets are too tempting in the post-September 11th world. America won't allow them.
Thus the terrorists are essentially outsourcing their operations and in many cases are now living among us.


John J. Metzler is a U.N. correspondent covering diplomatic and defense issues. He writes weekly for World Tribune.com.

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>> SAY WHAT?


Annan urges Arafat to crack down on terror
By JPOST.COM STAFF
UN Secretary-General Kofi Annan urged Yasser Arafat on Friday to give Israel's Gaza pullout plan a chance, saying Palestinians should crack down on terrorists to help revive a broader peace effort, Reuters news agency reported.
In unusually tough language, Annan - in a letter obtained by Reuters - also criticized the Palestinian Authority Chairman for failing to meet obligations under the road map plan including security reforms and putting an end to suicide bombings.
He said Israel must carry out its road map requirements to dismantle Jewish settler outposts and freeze construction in larger, established settlements.
"You are aware...that the Palestinian side too has obligations it has not fulfilled," Annan told Arafat. "The Palestinian Authority should immediately start taking effective measures to curb terrorism and violence."
"Decisive actions on your part would help the international community ensure that any withdrawal from Gaza is part of the implementation of the road map and not a substitute for it," he wrote.
Reuters reported that Annan's letter was a response to Arafat's written complaint on April 15 about Israeli Prime Minister Ariel Sharon's unilateral "disengagement" plan and President Bush's endorsement of it.

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Abu Mazen calls for PA reforms to counter Sharon
By JPOST.COM STAFF
The Palestinian leadership should begin reforms to counter Prime Minister Ariel Sharon and his unilateral disengagement plan, former Palestinian Authority Prime Minister Mahmoud Abbas (Abu Mazen) told Reuters on Friday.
Abbas, who resigned in September after his reform program, backed by Washington, was blocked by PA Chairman Yasser Arafat, said that the PA could take on Sharon and regain relevance in US eyes by tackling reforms.
Abbas called on the crumbling Authority to "unite the many security organs, control the armed and non-armed factions, make (democratic) reforms and then go to the Arabs and the world for backing.
"Israel and America will continue to have the upper hand if we don't work to activate the Palestinian Authority and prove we are partners, carrying out our duties, despite the occupation," Abbas said.

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MI5 goes online to detail UK terror threat
By Mark Huband, Security Correspondent
Published: April 30 2004 5:00 | Last Updated: April 30 2004 5:00
MI5, the security service, has emerged further into the public eye with a new website launched on Friday that outlines details of the threat of terrorsim and gives advice on how to prepare for attacks.
The website service, is directed mainly at businesses, signals a significant raising of MI5's public profile and comes partly in response to demands from companies that information from the security service be made more widely available.
Whitehall officials hope that by putting the MI5 stamp on the information, company boards will be more encouraged to implement the suggested security measures. The website will, for the first time, give the public access to MI5's assessment of the terrorist threat facing Britain.
"The most important part of the service will be the security advice," said a senior Whitehall official. "It will give more detail on the threat in the UK and the threat internationally. But it will also give advice on what to do about the threat, which will be intended to make people think about the measures they are taking. The emphasis will be on planning for staff security and business continuity."
MI5 has restricted its advisory role to utilities that form the critical national infrastructure. This was recently expanded to include food and chemicals companies, but is now seen as appropriate to all sectors. www.mi5.gov.uk
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DEPUTIES GIVE INITIAL APPROVAL TO BILL UNDERCUTTING GENERAL STAFF...
The Duma approved on 29 April a bill on the management of the military, Russian media reported. The bill amending the law on defense was approved in its first reading, with 424 votes in favor and one against, Interfax reported. If adopted, the bill will significantly reduce the role of the General Staff in managing the operations of the Russian armed forces. The draft stipulates that the defense minister, working through the Defense Ministry, exercises control over the Armed Forces. According to gazeta.ru, under Defense Minister Sergei Ivanov's plan for reforming military administration, the General Staff will become the "brain" of the army, an "intellectual center for the military-administration system." The website also reported that Ivanov has clashed repeatedly with General Staff chief General Anatolii Kvashnin since Ivanov took over the Defense Ministry. Kvashnin, who was a close associate of former President Boris Yeltsin, also had public conflicts with former Defense Minister Igor Sergeev. JAC

...OKAYS BILL EASING ADMINISTRATIVE REFORMS...
Also on 29 April, legislators approved in their first reading amendments to the law on government, Russian media reported. The bill, which was sponsored by the presidential administration, was supported by 425 legislators, with one vote against, RIA-Novosti reported. Presidential envoy to the State Duma Aleksandr Kosopkin explained that the bill gives the government the right to redistribute functions within executive bodies during reforms of government structure. It also updates legislation to reflect the new names of various federal agencies. The Duma's next plenary session will be on 12 May. JAC

...AND LAUNCH INTERNAL CORRUPTION COMMISSION
A 15-member commission to investigate corruption within the Duma will begin operating soon, "Rossiiskaya gazeta" reported on 29 April (see "RFE/RL Newsline," 22 April 2004). Among the issues the commission is expected to probe is lobbying by large corporations that have allegedly purchased influence by financing legislators' election campaigns. The case of former Duma Deputy Leonid Maevskii (Communist), who purchased a 25.1 percent stake in the mobile-phone company Megafon while he was chairman of the Duma Communications and Information Subcommittee, is one example of the activities the commission will examine, according to the daily. Unified Russia faction deputy head Mikhail Bugera recently sent an inquiry about Maevskii to the Prosecutor-General's Office, the daily reported. Maevskii was expelled from the Communist Party faction last year after charging that self-exiled tycoon Boris Berezovskii was financing the party in full (see "RFE/RL Newsline," 20 November 2003). JAC

CHUBAIS CALLED TO ACCOUNT FOR EES PR SPENDING
Unified Energy Systems (EES) CEO Anatolii Chubais will have to account to the EES board for the company's spending for "public relations" and "government relations," "Vedomosti" reported on 29 April. EES board member and Base Element holding company Vice President Devid Dzheovanis has asked EES board Chairman Aleksandr Voloshin to include Chubais's report in the agenda for the next board meeting. "We have read in the media that the company is paying journalists to write well of EES. We have also heard that the company financed a recent press campaign against Rusal," Dzheovanis told the daily. "We want to know if this is true. And if it is, we want this practice stopped." Another ESS board member, who asked not to be named, told the paper that "it is simply comic when Base Element accuses someone else of paying off journalists." Last year, the Yabloko party accused Chubais and EES of financing a public relations campaign aimed at discrediting the party and Yabloko leader Grigorii Yavlinskii (see "RFE/RL Newsline," 6 and 8 August and 16 September 2003). RC

COURT DENIES REQUEST TO COMBINE KHODORKOVSKII, LEBEDEV TRIALS
Moscow's Meshchanskii Raion Court on 29 April denied a defense motion to combine the trials of Menatep Chairman Platon Lebedev and of former Yukos CEO Mikhail Khodorkovskii, Russian media reported. The defense argued that since Lebedev and Khodorkovskii are charged in connection with identical alleged crimes, the cases should be tried together, "Nezavisimaya gazeta" reported on 30 April. Prosecutors countered that it was still uncertain when Khodorkovskii's case would be transferred to the courts, since the defendant is still reviewing the case materials (see "RFE/RL Newsline," 26 April 2004). Lebedev's lawyers said they will continue to seek the unification of the two trials and on 29 April they submitted an appeal to the court asking that Lebedev's trial be postponed until Khodorkovskii's case is submitted to the courts, the daily reported. RC

DID PROSECUTORS QUESTION POTANIN?
A spokeswoman for the Interros holding on 29 April denied media reports that Interros President Vladimir Potanin was questioned earlier that day by the Prosecutor-General's Office, ITAR-TASS reported. Ekho Moskvy, newsru.com, and "Russkii kurer," all citing unnamed Interros sources, reported the interrogation, adding that Potanin left Russia for Israel immediately after being questioned. The Prosecutor-General's Office refused to comment on the reports. Interros shares fell by 6.5 percent on 29 April on the strength of the rumors, strana.ru reported on 30 April. However, "Gazeta" reported, citing unnamed Interros sources, on 30 April that Potanin was indeed questioned, perhaps in connection with the 28 April murder of former Federal Bankruptcy Service Director Georgii Tal (see "RFE/RL Newsline," 29 April 2004). Tal headed the bankruptcy agency during a 1998-1999 conflict between Interros and the Tyumen Oil Company (TNK) over the firm Sidanko. In 1998, Interros was the major shareholder in Sidanko, but after a three-year battle in which TNK succeeded in having two Sidanko subsidiaries declared bankrupt, Interros sold its Sidanko stake to TNK in 2001. Less than a year later, TNK announced a major merger deal with British Petroleum (BP). RC

DRUG AGENCY WANTS TO CLEAN UP THE UNIVERSITIES?
The Federal Antinarcotics Agency has put forward a proposal under which all students at state institutions of higher learning would have to undergo drug testing or face expulsion, "Izvestiya" reported on 30 April. The initiative reportedly came from the agency's Primorskii Krai Directorate and has been approved by the agency at the federal level. "Institutions of higher education have the right to demand of their students -- no drugs," Federal Antinarcotics Agency Deputy Director Aleksandr Mikhailov told the daily. "Either you inject, or you study." Mikhailov, however, told newsru.com that the "Izvestiya" report is not true. "No such initiative from the agency has been put forward or could be put forward," Mikhailov was quoted by the website as saying. Moscow lawyer Mikhail Lyabakh told "Izvestiya" that it is illegal in Russia to divulge publicly the results of drug tests, meaning that it would not be possible to expel students who failed them. RC
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CHIEF JUSTICE SAYS IRAN HAS NO POLITICAL DETAINEES
Judiciary Chief Ayatollah Mahmud Hashemi-Shahrudi said in Tehran on 29 April that "we have no political prisoners in Iran" because Iranian law does not mention such offenses, IRNA reported that day. His statement contradicts President Hojatoleslam Mohammad Khatami's earlier admission that dissidents have been jailed (see "RFE/RL Newsline," 28 April 2004). "The world may consider certain cases, by their nature, political crimes, but because we do not have a law in this regard, these are considered ordinary offenses," IRNA reported. The judiciary, he said, has sent to parliament a bill governing political offenses, but it was rejected as "incomplete," IRNA reported. The judiciary believes a similar bill presented by parliament and the Interior Ministry "has a legal problem, because the law stipulates that it is the judiciary's duty to draft a [political offenses] bill." Shahrudi said the judiciary will soon propose a bill to downgrade financial offenses from criminal to civil offenses, and is drafting a bill on "electronic offenses" governing Internet use, IRNA reported. VS

IRANIAN PRESIDENT SAYS IRAN THE BEST ENERGY-TRANSIT ROUTE
President Khatami in Neka on 29 April stressed that Iran is the "cheapest, easiest and most secure" transfer route for Caspian Sea energy resources "to the world's free waterways...and there can be no doubt about that," IRNA reported that day. Speaking at the inauguration in northern Iran of the first phase of a project to pipe oil from Caspian littoral states to Iranian refineries, he criticized "inappropriate strictness and pressures" on Iran by the United States, which has opposed Iran as an energy transfer route. These "hostile policies have failed," he said. The project will allow an increase in swap deals, with Caspian oil flowing to Iranian refineries and Iran delivering Iranian oil to set clients from Persian Gulf terminals, the "Tehran Times" cited Reza Kazayizadeh, the head of a state oil-engineering firm as saying on 28 April. Oil Minister Bizhan Namdar-Zanganeh stated at the inaugural ceremony that Iran can now drill for oil in deeper waters of its section of the Caspian Sea, with the delivery of floating drilling platforms to support the drills, Farsnews.com reported on 29 April. VS

STATE DEPARTMENT NAMES IRAN AS TOP TERROR SPONSOR
The U.S. condemned Iran on 29 April as the leading "state sponsor of terrorism" in 2003, accusing it of fomenting terror attacks in the Mideast, AFP reported the same day. The State Department's annual report, "Patterns of Global Terrorism," stated that Iranian intelligence agents and Islamic Revolution Guards Corps have participated in the planning or supporting of terrorist acts, and that Iran has not honored pledges to confront the Al-Qaeda terrorist group or hand over Al-Qaeda suspects, AFP added. Iran, the report stated, has also had a "high-profile role in encouraging anti-Israeli activity" by such groups as Hamas or the Lebanese Hizbullah, which the U.S. has listed as terrorist groups but Iran considers legitimate resistance groups. The report also suggests that Iranian elements have stoked discontent among Iraqi Shi'ites and helped terrorists evade coalition forces, AFP added. Iranian officials habitually describe Iran as a victim of terrorism and have stated that the country supports global efforts to fight terrorism. VS

IRAN EXPORTS MORE FOOD PRODUCTS
Iran saw a 21.5 percent year-on-year rise in food exports in the year ending 20 March 2004, earning just over $210 million, Mehr News Agency reported on 29 April. Exports included chocolate, cookies, pasta, rose water, vinegar, mineral water, and soft drinks, the agency cited Ahmad Qasemi, head of exports at the Ministry of Mines and Industry as saying. The export of chemical products in the same period, worth some $147 million, jumped 48.1 percent year-on-year, and petrochemical exports, worth $434.3 million, rose 12.4 percent, Mehrnews.com cited Qasemi as saying. Separately, the EU has given Iran 40 days to act to resolve a fungal infection of pistachios, a key export that earned Iran $800 million in the year ending 20 March 2004, AFP reported on 29 April. The fungus can cause cancer, AFP added. VS
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THE NATIONAL PULSE


SPREADING THE MONEY AROUND
Changes to Campaign Financing Laws Boost Legal Profession as Biggest Donor
BY SUSAN KOSTAL
The Olympics and presidential elections have at least two things in common: They occur every four years, and they set new records.
But when it comes to contributions and spending, this year's campaign looks to be another gold-medal winner of all time.
George W. Bush has shattered fund-raising records, and is already sitting on more than $100 million. The John Kerry campaign expects to raise $80 million by the July convention, observers say. Other federal elections are also expected to garner huge sums.
And once again, lawyers as a group are not only the largest donors of any single profession tracked, they are also the most consistent, campaign watchers say. As of March 1, when the latest Federal Election Commission figures were available, the legal profession had contributed more than $65 million to federal campaigns since Jan. 1, 2003, according to the nonpartisan Center for Responsive Politics. The campaign cycle runs through Dec. 31, 2004.
That puts the profession well on its way to topping the 2000 presidential election year figure of $112 million, and keeps it in first place among industries, including health care, insurance and pharmaceuticals, according to the Washington, D.C.-based CRP.
"Lawyers are so much more civically engaged than most parts of society because of what they do," says Washington, D.C., attorney William Canfield, chair of the ABA's Standing Committee on Election Law. "It shouldn't come as any surprise to pick up a random FEC disclosure statement and see how many lawyers are contributing. Law is what they do."
This year, the legal profession is expected to play an even bigger role, especially with higher individual contribution levels and the loss of soft money--funds given to state organizations as a way of bypassing federal election regulations.
"It looks like lawyers are making a strong effort to make up for the lack of soft money," says CRP spokesman Steve Weiss.
Lawyers tend to be "well-to-do, aware and politically active," Weiss adds. And, he says, they are pragmatic. "Donations are an investment, and they want to spread [the money] around." Lawyers, he says, "are just trying to score as many points as they can."
There will likely be increasing political activism from individuals, partnerships and partnership political action committees, says Washington, D.C., attorney Trevor Potter, a former FEC chairman and current co-chair of the ABA Administrative Law Section's Elections Committee.
Potter and other experts also cite a closely divided electorate and the candidacy of former trial lawyer John Edwards as motivators for attorneys' contributing.
SMALL CONTRIBUTIONS MEAN MORE NOW
And then there's the bipartisan campaign reform Act, also known as the McCain-Feingold legislation, which last year was upheld almost in its entirety by the U.S. Supreme Court. The BCRA, which Potter helped to craft, prohibits soft money contributions and corporate and labor funding of issue ads that refer to federal candidates and run close to elections. The consequence is that donors feel it's a more level playing field and that their money will go further.
"Campaign finance reform democratized the process to a degree no one" anticipated, says John Merrigan, chairman of Piper Rudnick's federal affairs and legislative practice group in Washington. "There will be a lot more people contributing and participating in this process than ever before."
Merrigan should know. He is treasurer of the firm's PAC, the largest of any law firm and the second-most lucrative industry contributor, at more than $576,000, according to the CRP. Only the Association of Trial Lawyers of America PAC tops it, at $1.2 million.
All these changes in campaign finance law mean funds from individual donors are more valuable than in past cycles.
"For those who are active givers, who are known commodities to campaign committees, it's getting more expensive," says Canfield, a partner with Williams & Jensen.
"The system is so insatiable," says Joel Jankowsky, chairman of the public law and policy department with Akin Gump Strauss Hauer & Feld in Washington. "We barely have enough money to participate in the congressional process."
Akin Gump ranks No. 5 in campaign contributions thus far, according to the CRP. Like Piper Rudnick, the firm's PAC does not participate in presidential elections, leaving that to individual attorneys.
Nevertheless, PACs are the vehicles of choice for most large law firms, especially those with large Washington practices. Formed to raise and spend campaign money, most PACs are affiliated with business, labor or ideological interests. They must be registered with the FEC, and they are allowed to give up to $5,000 to a candidate's committee, and up to $15,000 to a national party.
"PAC funds are the cleanest political money out there," says Richard Gold, a partner at Holland & Knight's Washington office and treasurer of the firm's PAC, which ranks number nine on the list of law-profession donors. "It's all reported damned near instantaneously, and it's pretty clear who the money is going to."
Most Washington, D.C., firms with active legislative practices have active federal PACs, Gold says. "You have to have a PAC to have an active Capitol Hill practice," he says. "These folks are working really hard on client issues that are relevant to you. The only way to interact with them and be of help to them is on the fund-raising side. Until the public decides it wants to be taxed to run campaigns, this is how things work."
Adds Canfield: "More lawyers than you would suspect give money in Washington because so many of the law firms here have a lobbying component. Becoming friendly with various members of Congress is a method by which clients can achieve what they want."
At Piper Rudnick, the firm PAC requires lawyers to put up a 25 percent match. If Merrigan, for example, asks for $1,000 for his favorite senator, the PAC cuts a check for $750 and Merrigan writes a personal check for $250. "It's a way to gauge the seriousness of people's requests," Merrigan says.
While participation isn't universal within the firm, it is high. According to FEC records, Piper Rudnick donors gave 1,030 contributions of $200 or more to the firm PAC since January 2003. Some 30 attorneys--Merrigan is one--donated the maximum $5,000.
Not all firms have PACs--yet. Philadelphia's Blank Rome, the third-largest political contributor behind Piper Rudnick, does so completely outside a PAC. Chairman David Girard-diCarlo says his firm is considering forming both state and federal PACs. "Apparently there is a benefit to getting your name out there via a federal PAC. We may very well go down that path," Girard-diCarlo says.
Not that Girard-diCarlo has ever had trouble getting his fund-raising prowess noticed. He's a longtime friend of Homeland Security Secretary Tom Ridge, an early supporter of President Bush, and chairman of the president's fund-raising committee in Pennsylvania. He's also one of the president's coveted Rangers, fund-raisers who have pledged to raise $200,000 by soliciting donations from others, a process known as bundling.
According to the CRP figures, Blank Rome gives heavily to Republicans, who get 73 percent of the firm's contributions. Other firms follow different allocation standards. And ATLA swings toward the Democrats, who get 90 percent of the association's funds.
On the other hand, Piper Rudnick's PAC disbursements track the political makeup of the House and Senate: 52 percent of the money goes to Republicans, and 48 percent to Democrats. Merrigan predicts Piper Rudnick PAC giving to Republicans will increase as Republican power increases in both chambers.
For Merrigan, the firm's PAC helps balance the mixed marriage most firms find themselves in, with partners passionately active in both parties. Merrigan raises money for Kerry, while other partners are working for Bush. "You have to respect your partners' pursuits," he says.
But experts expect the change in campaign laws to keep the contests cleaner. "The absence of soft money in the national party fund-raising scheme is a big step forward," Potter says. "Corruption comes from huge contributions, not from a large war chest of small contributions."

?2004 ABA Journal
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Analysis: Medco Deal Lifts Secrecy Veil
Posted April 27, 2004
By Ellen Beck

A $29 million settlement outlined yesterday between the nation's largest pharmaceutical benefit-management (PBM) company and state and federal officials could begin to lift a veil of secrecy surrounding rebates and discounts paid to companies that will play a major role in the new Medicare prescription-drug benefit.
Medco Health Solutions of Franklin Lakes, N.J., agreed to settle allegations by a 20-state task force and partly resolve a federal whistle-blower lawsuit stemming from the common PBM practice of switching patients from one drug to a therapeutically equivalent, but different, medication. One example: A patient taking Celebrex for arthritis might be given Vioxx instead.
PBMs have argued such switches are necessary to help control drug costs, but state and federal officials claim a two-year investigation has shown such deals -- which resulted in higher rebates or discounts for the PBMs -- do not necessarily reduce prices for patients, health plans or employers.
David B. Snow Jr., Medco chairman and president, told reporters during a conference call the litigation had created an "unfair perception" of the company and the "business interests of our clients or investors of our company are best served through a settlement."
Medco, which provides drugs for some 62 million people, did not admit to any wrongdoing. It agreed to pay $20.2 million to the states, either in cash or through free prescription medications targeted for the low-income, elderly and disabled. It will pay another $6.6 million to the states to pay their investigation costs. And it will establish a $2.5 million fund to reimburse patients $25 for any additional testing costs or follow-up visits to their physician because of a medication switch.
The states included in the settlement are Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington. Ohio and West Virginia are in litigation with Medco, while Tennessee has expressed an interest in pursuing negotiations with the PBM.
The whistle-blower case, brought by the U.S. Attorney for the Eastern District of Pennsylvania, was settled from a business-operation perspective, with the same terms as the states' deal, but Medco and the feds still are negotiating monetary damages.
"Much of this industry's business practices are cloaked in secrecy," Maine Attorney General Steven Rowe told reporters in a separate teleconference. He called PBM drug switching an "intricate card trick" that the settlement "ends now, and all cards must be laid on the table."
PBM business practices are closely held secrets, as noted by General Accounting Office (GAO) investigations into how much savings PBMs provide to consumers and health plans. The GAO noted that although PBMs can save from 18 percent to more than 50 percent for consumers, depending on how a prescription is filled -- e.g., retail or mail-order pharmacy -- it is difficult to discern how much of the total rebates and discounts PBMs negotiate with pharmaceutical companies and others are passed along.
A January 2003 GAO report said therapeutic interchanges encouraged the "substitution of less expensive formulary brand-name medications considered safe and effective for more expensive nonformulary drugs within the same drug class." Two PBMs studied -- in an overall report that included Medco -- disclosed their savings ranged from 1 percent to 4.5 percent in addition to other rebates and discounts.
Medco is required by the settlement to inform physicians and patients the minimum or actual cost savings for health plans and the difference in copayments made by patients when switching medications. It must disclose its financial incentives for drug switches, advise physicians on differences in side effects between prescribed drugs and proposed drugs, reimburse patients for costs of drug switch-related health care, obtain permission from a doctor for all drug switches, tell patients they may decline drug switches and receive the initially prescribed medications, monitor the health effects of drug switches, and adopt a code of ethics and professional standards.
The settlement prohibits Medco from making drug switches when the net cost of the proposed drug exceeds the cost of the currently prescribed drug, when the prescribed drug has a generic equivalent and the proposed drug does not, when a change is made to avoid competition from generics, or if the change comes more than once in two years within a therapeutic class of drugs.
Snow said most of the operational changes stipulated in the agreement already are in practice and would help Medco become the "most transparent company in our industry." He said the deal would ensure a consistent standard of performance for Medco. He added that first-quarter 2004 earnings, which are to be announced today, would not be changed by the settlement.
Massachusetts Attorney General Tom Reilly said Medco has paid that state an additional $5.5 million to drop its plans to join the federal whistle-blower suit. "This is a vitally important case," he said, because Medco is expected to be one of the major players as a vendor of the upcoming Medicare prescription-drug discount card, which begins in June, as well as in the delivery of the formal prescription-drug coverage beginning for seniors in 2006.
"There is no framework for governing PBM practices," Reilly said. "We have begun to set standards to protect patients -- not just now but in two years when PBMs" begin to play a critical role in Medicare.
Iowa Attorney General Tom Miller said requiring the PBM to disclose total revenues and rebates on a macro level "opens up the ability to negotiate over those important issues that haven't been disclosed or have been negotiated" in the past. "We're very hopeful we've changed the course of an industry here," Miller said. "The potential for beneficial change here is high."
Snow called the settlement a "constructive approach to resolving issues raised by the attorneys general and the Justice Department" and said it "serves the interests of our company and our customers -- extending across our book of business elevated standards of practice that are designed to help our clients, and their employees or members, better understand and trust the value delivered through their pharmacy-benefit program."
Ellen Beck is the health-policy editor for UPI, a sister news organization of Insight magazine.
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