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Iraq Cellular Project Leads to U.S. Inquiry

A Pentagon official acted to award a contract to a group that included his friends.

April 29, 2004|T. Christian Miller | Times Staff Writer

For the coalition, creating a workable communication network was crucial to getting the war-ravaged country on its feet. Less than 2% of the population of Iraq had a phone.

For private industry, Iraq was one of the world's last wide-open markets. By some estimates, a nationwide cellular network for the country's 26 million people could generate as much as $500 million in annual revenue.

For Qualcomm, the creation of a CDMA network would establish a foothold in the Middle East and ease the company's entry into nearby countries.

Early on, Qualcomm found a champion for its technology in Liberty Mobile, a consortium headed by Declan Ganley, a 35-year-old Irish entrepreneur.

The consortium first approached the coalition in the spring of 2003 for permission to build a cellphone network using CDMA technology, and was turned down. The consortium tried a second time when it entered a cellular phone license competition in the fall. Again it lost.

By then the consortium had found a friend at the Pentagon in Shaw.


Shaw, who had worked in the White House for Republican presidents from Nixon to Reagan, was appointed to his current post in 2001. His task was to reform U.S. controls on the export of sensitive American technology and to investigate illegal arms dealing.

Although his office does not normally do government contracting and Shaw had no experience with cellular phone technology, he threw himself into the effort to rebuild Iraq's telecommunications and transportation sectors. He came to focus on the effort to establish a CDMA-based network in Iraq after conversations with an old friend, Don DeMarino.

DeMarino used to work under Shaw at the Department of Commerce, and the two had been friends for decades. DeMarino had also befriended Ganley in the 1990s, working with him in several business projects, and was a member of Liberty Mobile's board of directors.

DeMarino introduced Ganley to Shaw last spring during a visit to Shaw's office.

After Liberty Mobile lost out in the competition for a cellphone contract in Iraq, Shaw said he became convinced by DeMarino, Ganley and others that the bidding had been rigged.

Shaw pointed to the involvement of Nadhmi Auchi, a wealthy, Iraqi-born British citizen who had been convicted in France in a massive kickback scheme. Auchi's lawyer did not return calls for comment, but Auchi has publicly acknowledged holding a small interest in one of the winning companies.

Shaw took his concerns to the Pentagon's inspector general, triggering an investigation into allegations that coalition officials had taken bribes.

"We have huge circumstantial evidence that we're dealing with the most sophisticated money-laundering operation and ruthless group, as ruthless and sophisticated as you'll find in the world," Shaw said.

The investigation ended in December, clearing U.S. officials of any crime. Shaw criticized the inquiry as being incomplete.


Meanwhile, Shaw said he hit on a new way to get CDMA into the Iraqi market.

The Coalition Provisional Authority was trying to create a communications system that would link Iraqi police, fire and security agencies, called the first-responder network.

Although Shaw had no direct authority over Sudnick, Shaw suggested in an e-mail to Sudnick in November that Sudnick could "graft" a CDMA system onto the first-responder contract that could then "morph into a commercial service with our having total control over it."

"Believe we could concoct a new configuration of Liberty CDMA bid with emergency system grafted on top of it," Shaw wrote Sudnick in November, according to an e-mail obtained by The Times.

By coincidence, Shaw had been approached earlier in the fall by a lobbyist on behalf of a company called Nana Pacific, a small business owned by Alaskan natives that was interested in doing business in Iraq. Alaska native-owned small businesses, as part of a special Small Business Administration program, can be awarded large government contracts without having to go through the usual competitive bidding process.

Shaw said he seized on that as a way to avoid the lengthy bidding process and to get work done quickly on the first-responder contract. Shaw's office arranged for Nana Pacific's president, Janet Reiser, to meet Ganley. They agreed to work together on a telecommunications project in Iraq, Reiser and Ganley said.

By January, Ganley had formed a new consortium called Guardian Net. According to documents obtained by The Times, Guardian Net and Liberty Mobile have nearly identical boards of directors.

On Jan. 12, Shaw called a meeting at his office at the Pentagon. Sudnick attended, along with Pentagon officials and contractors, including Lucent and Qualcomm. Shaw introduced what he called a fast-track solution to getting the first-responder network up and running, unveiling the pairing of Nana and Guardian Net.

Sudnick and Carroll told Pentagon investigators that they did not realize Ganley headed Liberty Mobile.

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