BAGHDAD — Businessmen with close ties to a leading -- and controversial -- member of Iraq's Governing Council have won large contracts for the country's reconstruction, leading to charges by some council members and other Iraqis that the actions are fueling a cronyism that threatens to sabotage the nation-building effort.
The men are associates of Ahmad Chalabi, an American-trained financier who has close ties to senior Pentagon officials and is a prominent member of the council, the U.S.-appointed interim government in Iraq.
For The Record
Los Angeles Times Friday November 14, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 43 words Type of Material: Correction
Iraqi contracts -- A Nov. 7 article in Section A about Iraqi reconstruction contracts stated incorrectly that Bechtel Group received a no-bid contract for work in Iraq. In fact, Bechtel was one of seven bidders for a $680-million limited-competition contract award in April.
Although it is perfectly legal for entrepreneurs with ties to top government officials to land reconstruction contracts, the perception of favoritism is setting back the rebuilding effort in Iraq by discouraging some foreign companies from seeking contracts, Iraqi and U.S. businessmen and officials said in interviews in Washington and Iraq.
It is further damaging the image of a reconstruction effort already hurt by the granting of huge no-bid awards to the politically connected U.S. firms Halliburton Co. and the Bechtel Group, Iraqis said.
"We have to show people that we are fair and aboveboard," said Sam Kubba, an Iraqi American architect who is also president of the American Iraqi Chamber of Commerce in Washington. Perceptions of insider influence, Kubba cautioned, "are hurting us.... They're driving people away."
The problem, said Iyad Allawi, a member of the Governing Council, "is on the conscience of everyone" in the interim government. After many of its members spent 30 years working to overthrow Saddam Hussein and other Baathists and replace them with a better government, the Governing Council "cannot indulge itself and its relatives in doing private business," Allawi said.
As U.S. and Iraqi authorities distribute billions of dollars worth of contracts in Iraq, two Chalabi associates have been awarded at least a portion of significant contracts.
Ahud Farouki, a longtime Chalabi business associate and family friend, got a substantial piece of an $80-million contract to provide security for the country's oil fields when a partnership that includes one of his companies landed the deal.
Mudar Shawkat, the No. 2 official at the Iraqi National Congress, the organization of anti-Hussein former exiles that Chalabi heads, won a significant share of the reconstruction effort when a consortium that includes his son's company got a contract to provide cell phone service for southern Iraq. Shawkat is a shareholder in his son's business.
U.S. authorities insist that ties between business and government officials have not tainted any contracts. "We're following all the standard federal rules" in awarding U.S. contracts, said a Pentagon official, who asked to remain unidentified.
But an official with the U.S. Agency for International Development, who also spoke on condition on anonymity, noted that although the U.S. has vetted bids in awarding the 11 prime contracts given by USAID, for instance, it was up to the companies that won the contracts to vet the thousands of subcontractors carrying out the work -- and they rarely did.
U.S. officials note that they are working with Iraqis to develop rules for Iraqi contracts that will increase disclosure requirements and bar people close to officials from benefiting from contracts.
But stricter rules to avoid conflicts of interest and influence peddling, Iraqi and U.S. officials acknowledge, would run counter to a strong Iraqi cultural tradition of including family and friends in business ventures.
And tough restrictions could shut out some people the new Iraq needs: former exiles and other educated Iraqis who have business experience, strong ties to the country and a willingness to take risk.
Since U.S. forces seized control of Iraq seven months ago, Iraqis and foreign companies have scrambled to build alliances that would help them land contracts with the occupation authorities.
International companies quickly realized the value of having an Iraqi representative or partner who knew the country and could win local support. In a still-tribal society, it is difficult for foreigners to function without support of Kurdish leaders in the north, for example, Sunni Muslims in the center or Shiite Muslims in the south.
Iraqis -- including officials and people close to them -- sometimes use surrogates to approach foreign firms and offer partnerships or to serve as local representatives to make vital connections, U.S. and Iraqi businesspeople say.
Ed Kubba, an Iraqi American who runs a Michigan marketing consulting firm and is Sam Kubba's cousin, said he has talked to several European firms in detail about the possibility of bidding for infrastructure projects in Iraq.
But the talks with one European company abruptly broke off, he said, when an e-mail message sent from one company official to another was accidentally copied to Kubba.