Pentagon urges repeal of Iraq phone contracts

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The Pentagon has asked the Coalition Provisional Authority in Baghdad to cancel three contracts for Iraqi cell phone networks worth about $500 million annually, citing fraud and the companies' links to an Iraqi-born Briton with ties to Saddam Hussein.

A June 14 memorandum from John A. Shaw, deputy undersecretary of defense for international technology security, says an investigation uncovered "fraud on the Ministry of Communications by Orascom, Atheer and AsiaCell."

The companies are suspected of rigging the bids for the cell phone contracts in favor of Nadhmi Auchi, who owns part of Orascom and a controlling interest in the bank BNP Paribas, which "is the French bank selected by Saddam Hussein to run the Oil for Food program."

"His role in assisting the Saddam regime, to his own immense profit, makes all three firms ineligible under Section 6.1.4 [of the contract] in that all the evidence strongly indicates Auchi had a direct or indirect ownership interest in all three firms at the time of signature, and his role continues today," the memorandum said.

The Orascom contract contains a provision prohibiting ownership of the license from being held by "supporters or beneficiaries of the Saddam Hussein regime," the Shaw memorandum said.

If the contracts are voided by CPA Administrator L. Paul Bremer, the three companies could be shut out of the cell phone business and their equipment confiscated until new contract bids are issued.

The memorandum was sent to Mr. Bremer, and a CPA official said it was forwarded to the authority's general counsel "for consideration."

Pentagon investigators have said bribes of up to $11.5 million were paid to Iraqis and other foreign nationals to win the contracts for the three companies with links to Auchi, who was convicted last year by a French court as part of an oil company financial scheme.

The contracts were signed in December and allow cellular telephone service to be set up in northern, central and southern Iraq as part of reconstruction efforts.

"Nadhmi Auchi's name arose as a central figure in the course of our investigation of the telecom tender, and is the reason that the three firms are in violation of [a provision of the Orascom license]," Mr. Shaw said.

Because the fraud took place while the Iraqi Communications Ministry was under CPA supervision, the licenses should be revoked before the June 30 transition to a new Iraqi government, the memorandum said.

Revoking the contracts immediately will allow the ministry and regulatory authorities "an opportunity to immediately recast the conditions of the licenses on Iraqi terms that have no taint of fraud," it said.

A defense official close to the issue said the failure to revoke the contracts before June 30 "will in effect ratify the CPA role in the corruption of the process over the past year."

However, if the cell phone licenses are voided, it will "send a clear message to those who would use the transition to ensure the success of similar nefarious schemes in other sectors," the official said.

U.S. officials said last week that the FBI is conducting a preliminary inquiry into whether Auchi or his associates bribed U.S. and Iraqi officials to fix bids for Iraqi cell phone contracts.

The preliminary probe was prompted by a report by the Pentagon's International Armament and Technology Trade Directorate that stated that cash payments of up to $11.5 million were made to two Iraqi officials, two British contractors and two Americans as part of the fix.

Orascom was described in the Pentagon report as Auchi's "principal corporate vehicle" and is made up of several Middle Eastern companies. Atheer is a Kuwaiti enterprise, and AsiaCell is a Kuwait-based consortium made up of U.S., German and Chinese companies. At least one of the Chinese companies is the same one that did business with the Saddam regime.