Table Of ContentFIRST: MILITARY SUPPLIES
Who Sold What to Iraq?
The U.S. aims to hunt down companies that supplied Saddam.
FORTUNE
Sunday, March 30, 2003
By Nelson D. Schwartz
When the first wave of American soldiers swept out of the desert
and headed north toward Baghdad, the Iraqis weren't the only
ones who experienced shock and awe. In the thick of battle, U.S.
commanders discovered that the Iraqi army was able to jam the
global-positioning systems the military uses to pinpoint
everything from cruise missile attacks to the location of troops
on the ground. "It was a technological preemptive strike," says a
senior military source.
It was also a prime example of how private companies violated
the embargo that the U.S. and the United Nations imposed on
Iraq more than a decade ago. Russian firms supplied the
jammers to Iraq in the past few years--they didn't exist during
the first Gulf war--prompting a personal protest from President
Bush to Russian leader Vladimir Putin.
The news about the GPS-blocking devices is just the beginning
of what's likely to be a series of revelations detailing how
companies--including American ones--helped supply Saddam
Hussein's war machine during the past decade. That's because in
addition to searching for weapons of mass destruction, U.S.
forces are scouring Iraq for evidence of who sold what to
Saddam. Military sources have told FORTUNE that special
teams are already on the ground, sifting through files to
determine where Iraq got everything from rocket parts to fiber-
optic technology.
Despite both U.S. laws and UN sanctions that prohibited all but
a handful of commercial dealings with Baghdad, there have been
persistent reports that companies from Russia, France, and
China, among others, were breaking the embargo. And when the
evidence in Iraq is analyzed, says a top Washington official who
deals with trade policy, it's likely that at least a few U.S.
companies will face fines or perhaps even criminal prosecution.
"The fact that American companies have broken the embargo
with Iran suggests that there will be some leads in Iraq," adds the
government official, who spoke with FORTUNE on condition of
anonymity. "Those of us in law enforcement certainly
contemplate that things will be found in Iraq."
Probing the byzantine web of deals that kept technology flowing
to Iraq is a complex job. It's likely to involve teams from the
Treasury, State, and Commerce departments, as well as the
Pentagon and the CIA. For now the main task is locating the
forbidden goods--and their paper trail. Sources say units made
up of both military personnel and representatives of the CIA and
other agencies have been trained to operate in volatile areas
inside Iraq, taking inventory of contraband items and poring over
records.
Similar task forces operated after the U.S. invasion of Panama in
1989 and NATO's intervention in the Balkans in the mid-1990s,
but this time the job is much bigger. Because of Iraq's oil riches,
Saddam had a far easier time of evading the embargo than did
former dictators like Manuel Noriega and Slobodan Milosevic.
Fixing blame can be tough, however. Business transactions with
embargoed nations are usually conducted through
intermediaries, with China and the United Arab Emirates as
common transshipment points.
To further complicate matters, U.S. companies might innocently
sell something to a Chinese buyer, only to learn later that it
ended up in Iraq. For example, says Kelly Motz of the
Wisconsin Project on Nuclear Arms Control, China's giant
Huawei Technologies is believed to have supplied Saddam's
army with sophisticated communications hardware even as it
was doing business with the likes of IBM, Motorola, Hewlett
Packard, and Qualcomm. "These companies might have thought
they were just selling telecom equipment into an emerging Asian
market," says Motz. "However, it's been known since early 2001
that Huawei has had dealings with Iraq. So any deals that might
have been done since then are questionable."
If it turns out that companies intentionally evaded the ban,
government officials say they are loaded for bear. "We won't
tolerate the breaking of the embargo," says Richard Newcomb,
director of the Treasury's Office of Foreign Assets Control. "If
there's a knowing violation, we would prosecute to the full
extent of the law." In 2001, the Commerce Department hit
McDonnell Douglas, a unit of Boeing, with a $2.12 million fine
for improperly selling machine tools to China. Fines for dealing
with Iraq are likely to be larger. And if evidence turns up that a
particular firm knowingly sold items like night-vision goggles or
gas masks to Iraq, federal agencies might impose what they call
the "death penalty"--a total ban on all exports by the guilty firm.
Criminal charges for executives are also a distinct possibility.
It's going to take time to determine just who did business with
Iraq. But the military, for one, seems eager to shine a light in
some otherwise dark corners. "We will have everything at our
disposal," says Maj. Max Blumenfeld, an officer with Army's V
Corps in Kuwait. Documenting Iraq's deals, he says, "will justify
this operation and show the world what we've been saying all
along about Saddam Hussein and his efforts to acquire weapons
of mass destruction." It could also cause a lot of companies to
wish they'd never done business with Baghdad.
