Oil Companies Fueling Nuclear Proliferation in Burma Complicit in Targeted Killings and Forced Labor | EarthRights International

The Yadana Pipeline

ERI has been documenting earth rights abuses along the Yadana Pipeline since 1994. Our latest reports were published in September, 2009.

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Sun, 07/04/2010 - 22:13

• Burma Project

EarthRights International released an explosive new report Energy Insecurity: How Total, Chevron, and PTTEP Contribute to Human Rights Violations, Financial Secrecy, and Nuclear Proliferation in Burma (Myanmar) on July 5, 2010 in Paris. The report describes how the oil companies Total (France), Chevron (US), and PTTEP (Thailand) have generated over US $9 billion dollars in military-ruled Burma (Myanmar) since 1998, making their Yadana Natural Gas Project the single largest source of revenue for the country’s notoriously repressive dictatorship.

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The report documents how over half the total project revenue — nearly $5 billion — went directly to the Burmese military junta, and examines recent refusals from the Yadana companies to disclose their payments to the Burmese military regime. The report alleges the funds have enabled the country’s autocratic junta to maintain power and pursue an expensive, illegal nuclear weapons program while participating in illicit weapons trade in collaboration with North Korea, threatening the domestic and regional security balance.

In the report, EarthRights International further asserts that gas revenues are stored in private offshore bank accounts, where the money “could be used for many purposes, including the illicit acquisition of nuclear technology and ballistic weaponry.” This follows a report by ERI in 2009 that exposed two offshore banks in Singapore as repositories of the Burmese generals’ ill-gotten gains from foreign investment including the gas project. Both named banks – the Overseas Chinese Banking Corporation (OCBC) and DBS Group – previously denied the allegations.

The report also reveals on-going, serious human rights abuses associated with the Yadana project, including the recent extra-judicial killing of two ethnic Mon villagers in the pipeline area confirmed by EarthRights International in February of this year. The report goes on to analyzes how both Total and Chevron remain liable for these and other serious human rights abuse in their home countries.

EarthRights International previously sued Unocal Corporation (now Chevron) for complicity in murder, rape, torture, and forced labor in connection to the same gas pipeline. In 2005, Unocal paid Burmese plaintiffs a confidential settlement before the company was acquired by Chevron.

• Energy Insecurity (Full Report, English)
• Executive Summary & Recommendations (French)
• Press Release
• Media Advisory)

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Thailand top court seizes part of Thaksin fortune

Security was increased in Thailand ahead of the court's verdict

Thailand's Supreme Court has ruled that former PM Thaksin Shinawatra's family should be stripped of more than half a contested $2.3bn fortune.

The court said $1.4bn (£910m) of the assets were gained illegally through conflict of interest when Mr Thaksin was prime minister.

The funds were frozen after Mr Thaksin's elected government was overthrown in a military coup in 2006.

Mr Thaksin, who is living abroad, has denied any wrongdoing.

The Supreme Court said "to seize all the money would be unfair since some of it was made before Thaksin became prime minister".

ANALYSIS By Vaudine England, BBC News, Bangkok By choosing to confiscate some, but not all of Mr Thaksin's known assets, the court has managed to dampen arguments from his "red shirt" supporters that the entire judiciary is suborned to a military-bureaucratic elite which intends to finish off Mr Thaksin once and for all. But it will also weaken the government's demonisation of Mr Thaksin. It appears to be saying that the former prime minister did cheat on the hiding and increase of his fortune, but he was significantly and legitimately wealthy when he entered office. He remains a rich man by any standards. What this verdict will not do is heal the divisions in this country, polarised by Mr Thaksin's hugely popular appeal and the threat this poses to the military-bureaucratic elite. The 2006 coup that deposed him continues to damage the legitimacy of the current military-backed government of Abhisit Vejajjiva - this basic issue also goes well beyond one man and his money. Ruling unlikely to heal divide

The court took several hours to deliver its verdict, with security forces on high alert amid government predictions of violence by Mr Thaksin's red-shirted supporters if the court decision went against him.

The judges said that Mr Thaksin shaped government mobile phone and satellite communications policy to benefit his firms.

He abused his power to benefit telecoms company Shin Corp, which he owned then, earning wealth from shares sales in the company through "inappropriate means", they ruled.

The sale of Shin Corp to Singapore state investment firm Temasek in January 2006 was one of the main catalysts for widespread protests calling for Mr Thaksin to resign, and the government applied for the seizure of the proceeds from the sale.

The court dismissed defence arguments that the anti-corruption commission that instigated the proceedings against Mr Thaksin was illegitimate.

Mr Thaksin addressed his supporters from Dubai after the verdict.

"This is total political involvement. The government knew the result in advance," he said, according to Associated Press.

"I've been prepared for the result since yesterday. I knew that I would get hit, but they are kind enough to give me back 30 billion [baht]."

He had previously told them he would continue his political fight against the "military-bureaucratic elite" that deposed him - with or without his family fortune.

He has said the money he and his family earned was acquired legally. The full extent of fortune is unknown, but he is thought to be very wealthy.

Tensions in Thailand remain high. Tens of thousands of extra police have been placed in and around the capital, and in areas of the north-east of the country where some of Mr Thaksin's supporters are based.

THAKSIN TIMELINE 2001: Elected prime minister 19 Sept 2006: Ousted in military coup 25 Sept 2006: Corruption investigation begins 11 June 2007: Thaksin family assets frozen 25 Aug 2008: Prosecutors ask Supreme Court to seize frozen assets 21 Oct 2008: Sentenced in absentia to two years for conflict of interest in land deal 26 Feb 2010: Court seizes $1.4bn of $2.3bn in contested assets Coup rumours circle ruling Profile: Thaksin Shinawatra

There were only small numbers of Thaksin supporters outside the court. The pro-Thaksin United Front for Democracy against Dictatorship (UDD), which leads the red shirts, has said it has no plans for any demonstration until mid-March.

Local media had predicted huge disruption, counting down to what they called "judgement day".

The judges looked at whether Mr Thaksin illegally deposited his fortune with family members because he was not allowed to hold company shares while prime minister, and whether his administration implemented policies to benefit his family's businesses.

They have also considered whether telecoms liberalisation measures unfairly benefited the country's main mobile phone service provider, then controlled by Mr Thaksin's family.

And they have investigated whether he unfairly promoted a $127m low-interest loan to neighbouring Burma to benefit a satellite communications company also controlled by his family.

Kabul Bank's Sherkhan Farnood feeds crony capitalism in Afghanistan

Image via Wikipedia

By Andrew Higgins
Monday, February 22, 2010; A01

KABUL -- Afghanistan's biggest private bank -- founded by the Islamic nation's only world-class poker player -- celebrated its fifth year in business last summer with a lottery for depositors at Paris Palace, a Kabul wedding hall.

Prizes awarded by Kabul Bank included nine apartments in the Afghan capital and cash gifts totaling more than $1 million. The bank trumpeted the event as the biggest prize drawing of its kind in Central Asia.

Less publicly, Kabul Bank's boss has been handing out far bigger prizes to his country's U.S.-backed ruling elite: multimillion-dollar loans for the purchase of luxury villas in Dubai by members of President Hamid Karzai's family, his government and his supporters.

The close ties between Kabul Bank and Karzai's circle reflect a defining feature of the shaky post-Taliban order in which Washington has invested more than $40 billion and the lives of more than 900 U.S. service members: a crony capitalism that enriches politically connected insiders and dismays the Afghan populace.

"What I'm doing is not proper, not exactly what I should do. But this is Afghanistan," Kabul Bank's founder and chairman, Sherkhan Farnood, said in an interview when asked about the Dubai purchases and why, according to data from the Persian Gulf emirate's Land Department, many of the villas have been registered in his name. "These people don't want to reveal their names."

Afghan laws prohibit hidden overseas lending and require strict accounting of all transactions. But those involved in the Dubai loans, including Kabul Bank's owners, said the cozy flow of cash is not unusual or illegal in a deeply traditional system underpinned more by relationships than laws.

The curious role played by the bank and its unorthodox owners has not previously been reported and was documented by land registration data; public records; and interviews in Kabul, Dubai, Abu Dhabi and Moscow.

Many of those involved appear to have gone to considerable lengths to conceal the benefits they have received from Kabul Bank or its owners. Karzai's older brother and his former vice president, for example, both have Dubai villas registered under Farnood's name. Kabul Bank's executives said their books record no loans for these or other Dubai deals financed at least in part by Farnood, including home purchases by Karzai's cousin and the brother of Mohammed Qasim Fahim, his current first vice president and a much-feared warlord who worked closely with U.S. forces to topple the Taliban in 2001.

At a time when Washington is ramping up military pressure on the Taliban, the off-balance-sheet activities of Afghan bankers raise the risk of financial instability that could offset progress on the battlefield. Fewer than 5 percent of Afghans have bank accounts, but among those who do are many soldiers and policemen whose salaries are paid through Kabul Bank.

A U.S. official who monitors Afghan finances, who spoke on the condition of anonymity because he was not authorized to comment publicly, said banks appear to have plenty of money but noted that in a crisis, Afghan depositors "won't wait in line holding cups of latte" but would be "waving AK-47s."

Kabul Bank executives, in separate interviews, gave different accounts of what the bank is up to with Dubai home buyers. "They are borrowers. They have an account at Kabul Bank," said the bank's chairman, Farnood, a boisterous 46-year-old with a gift for math and money -- and the winner of $120,000 at the 2008 World Series of Poker Europe, held in a London casino.

The bank's chief audit officer, Raja Gopalakrishnan, however, insisted that the loan money didn't come directly from Kabul Bank. He said it was from affiliated but separate entities, notably a money-transfer agency called Shaheen Exchange, which is owned by Farnood, is run by one of Kabul Bank's 16 shareholders and operates in Kabul out of the bank's headquarters.

The audit officer said Farnood "thinks it is one big pot," but the entities are "legally definitely separate."

A new economy

In some ways, Kabul Bank is a symbol of how much has changed in Afghanistan since 2001, when the country had no private banks and no economy to speak of. Kabul Bank has opened more than 60 branches and recently announced that it will open 250 more, and it claims to have more than $1 billion in deposits from more than a million Afghan customers.

Kabul Bank prospers because Afghanistan, though extremely poor, is in places awash with cash, a result of huge infusions of foreign aid, opium revenue and a legal economy that, against the odds, is growing at about 15 percent a year. The vast majority of this money flows into the hands of a tiny minority -- some of it through legitimate profits, some of it through kickbacks and insider deals that bind the country's political, security and business elites.

The result is that, while anchoring a free-market order as Washington had hoped, financial institutions here sometimes serve as piggy banks for their owners and their political friends. Kabul Bank, for example, helps bankroll a money-losing airline owned by Farnood and fellow bank shareholders that flies three times a day between Kabul and Dubai.

Kabul Bank's executives helped finance President Hamid Karzai's fraud-blighted reelection campaign last year, and the bank is partly owned by Mahmoud Karzai, the Afghan president's older brother, and by Haseen Fahim, the brother of Karzai's vice presidential running mate.

Farnood, who now spends most of his time in Dubai, said he wants to do business in a "normal way" and does not receive favors as a result of his official contacts. He said that putting properties in his name means his bank's money is safe despite a slump in the Dubai property market: He can easily repossess if borrowers run short on cash.

A review of Dubai property data and interviews with current and former executives of Kabul Bank indicate that Farnood and his bank partners have at least $150 million invested in Dubai real estate. Most of their property is on Palm Jumeirah, a man-made island in the shape of a palm tree where the cheapest house costs more than $2 million.

Mirwais Azizi, an estranged business associate of Farnood and the founder of the rival Azizi Bank in Kabul, has also poured money into Dubai real estate, with even more uncertain results. A Dubai company he heads, Azizi Investments, has invested heavily in plots of land on Palm Jebel Ali, a stalled property development. Azizi did not respond to interview requests. His son, Farhad, said Mirwais was busy.

Responsibility for bank supervision in Afghanistan lies with the Afghan central bank, whose duties include preventing foreign property speculation. The United States has spent millions of dollars trying to shore up the central bank. But Afghan and U.S. officials say the bank, though increasingly professional, lacks political clout.

The central bank's governor, Abdul Qadir Fitrat, said his staff had "vigorously investigated" what he called "rumors" of Dubai property deals, but "unfortunately, up until now they have not found anything." Fitrat, who used to live in Washington, last month sent a team of inspectors to Kabul Bank as part of a regular review of the bank's accounts. He acknowledged that Afghan loans are "very difficult to verify" because "we don't know who owns what."

Kabul Bank's dealings with Mahmoud Karzai, the president's brother, help explain why this is so. In interviews, Karzai, who has an Afghan restaurant in Baltimore, initially said he rented a $5.5 million Palm Jumeirah mansion, where he now lives with his family. But later he said he had an informal home-loan agreement with Kabul Bank and pays $7,000 a month in interest.

"It is a very peculiar situation. It is hard to comprehend because this is not the usual way of doing business," said Karzai, whose home is in Farnood's name.

Karzai also said he bought a 7.4 percent stake in the bank with $5 million he borrowed from the bank. But Gopalakrishnan, the chief audit officer, said Kabul Bank's books include no loans to the president's brother.

Also in a Palm Jumeirah villa registered in Farnood's name is the family of Ahmad Zia Massoud, Afghanistan's first vice president from 2004 until last November. The house, bought in December 2007 for $2.3 million, was first put in the name of Massoud's wife but was later re-registered to give Farnood formal ownership, property records indicate.

Massoud, brother of the legendary anti-Soviet guerrilla leader Ahmad Shah Massoud, said that Farnood had always been the owner but let his family use it rent-free for the past two years because he is "my close friend." Massoud added: "We have played football together. We have played chess together." Farnood, however, said that though the "villa is in my name," it belongs to Massoud "in reality."

Haseen Fahim, the brother of Afghanistan's current first vice president, has been another beneficiary of Kabul Bank's largesse. He got money from Farnood to help buy a $6 million villa in Dubai, which, unusually, is under his own name. He borrowed millions more from the bank, which he partly owns, to fund companies he owns in Afghanistan.

In an interview at Kabul Bank's headquarters, Khalilullah Fruzi, who as chief executive heads the bank's day-to-day operations, said he didn't know how much bank money has ended up in Dubai. If Karzai's relatives and others buy homes "in Dubai, or Germany or America . . . that is their own affair," Fruzi said, adding that the bank "doesn't give loans directly for Dubai."

Fruzi, a former gem trader, said Kabul Bank is in robust health, makes a profit and has about $400 million in liquid assets deposited with the Afghan central bank and other institutions. Kabul Bank is so flush, he added, that it is building a $30 million headquarters, a cluster of shimmering towers of bulletproof glass.

The bank is also spending millions to hire gunmen from a company called Khurasan Security Services, which, according to registration documents, used to be controlled by Fruzi and is now run by his brother.

The roots of Kabul Bank stretch back to the Soviet Union. Both Fruzi and Farnood got their education and their start in business there after Moscow invaded Afghanistan in 1979.

While in Moscow, Farnood set up a successful hawala money-transfer outfit to move funds between Russia and Kabul. Russian court documents show that 10 of Farnood's employees were arrested in 1998 and later convicted of illegal banking activity. Fearful of arrest in Russia and also in Taliban-ruled Afghanistan, Farnood shifted his focus to Dubai.

In 2004, three years after the fall of the Taliban regime, he got a license to open Kabul Bank. His Dubai-registered hawala, Shaheen Exchange, moved in upstairs and started moving cash for bank clients. It last year shifted $250 million to $300 million to Dubai, said the chief audit officer.

The bank began to take in new, politically connected shareholders, among them the president's brother, Mahmoud, and Fahim, brother of the vice president, who registered his stake in the name of his teenage son.

Fahim said two of his companies have borrowed $70 million from Kabul Bank. Insider borrowing, he said, is unavoidable and even desirable in Afghanistan because, in the absence of a solid legal system, business revolves around trust, not formal contracts. "Afghanistan is not America or Europe. Afghanistan is starting from zero," he said.

Fahim's business has boomed, thanks largely to subcontracting work on foreign-funded projects, including a new U.S. Embassy annex and various buildings at CIA sites across the country, among them a remote base in Khost where seven Americans were killed in a December suicide attack by a Jordanian jihadiist. "I have good opportunities to get profit," Fahim said.

'Like wild horses'

Kabul Bank also plunged into the airline business, providing loans to Pamir Airways, an Afghan carrier now owned by Farnood, Fruzi and Fahim. Pamir spent $46 million on four used Boeing 737-400s and hired Hashim Karzai, the president's cousin, formerly of Silver Spring, as a "senior adviser."

Farnood said he also provided a "little bit" of money to help Hashim Karzai buy a house on Palm Jumeirah in Dubai. Karzai, in brief telephone interviews, said that the property was an investment and that he had borrowed some money from Farnood. He said he couldn't recall details and would "have to check with my accountant."

Noor Delawari, governor of the central bank during Kabul Bank's rise, said Farnood and his lieutenants "were like wild horses" and "never paid attention to the rules and regulations." Delawari said he didn't know about any property deals by Kabul Bank in Dubai. He said that he, too, bought a home in the emirate, for about $200,000.

Fitrat, the current central bank governor, has tried to take a tougher line against Kabul Bank and its rivals, with little luck. Before last year's presidential election, the central bank sent a stern letter to bankers, complaining that they squander too much money on "security guards and bulletproof vehicles" and "expend large-scale monetary assistance to politicians." The letter ordered them to remain "politically neutral."

Kabul Bank did the opposite: Fruzi, its chief executive, joined Karzai's campaign in Kabul while Farnood, its poker-playing chairman, organized fundraising events for Karzai in Dubai. One of these was held at the Palm Jumeirah house of Karzai's brother.

The government has returned the favor. The ministries of defense, interior and education now pay many soldiers, police and teachers through Kabul Bank. This means that tens of millions of dollars' worth of public money sloshes through the bank, an unusual arrangement, as governments generally don't pump so much through a single private bank.

Soon after his November inauguration for a second term, President Karzai spoke at an anti-corruption conference in Kabul, criticizing officials who "after one or two years work for the government get rich and buy houses in Dubai." Last month, he flew to London for a conference on Afghanistan, attended by Secretary of State Hillary Rodham Clinton and other leaders, and again promised an end to the murky deals that have so tarnished his rule.

Also in London for the conference were Farnood, who now has an Afghan diplomatic passport, and Fruzi, who served as a financial adviser to Karzai's reelection campaign and also owns a house in Dubai. "If there is no Kabul Bank, there will be no Karzai, no government," Fruzi said.

Correspondent Joshua Partlow in Kabul and special correspondent Anna Masterova in Moscow contributed to this report.

Thai Political Uncertainty Causes Investor Concern

Ron Corben | Bangkok22 February 2010

Photo: AP

Former Thai prime minister Thaksin Shinawatra (file)

Thailand's finance minister says the political uncertainty gripping the country could damage economic growth and investor confidence. Some investors are concerned a Thai Supreme Court verdict against former Thai Prime Minister, Thaksin Shinawatra, due later this week could lead to protests that could destabilize the fragile economy.

Thai Finance Minister Korn Chatikavanij warned Monday that political uncertainties in the country could adversely affect economic growth.

Korn's comments come just ahead of a Friday Supreme Court verdict on whether former Prime Minister Thaksin Shinawatra is guilty of corruption.

If the court finds Mr. Thaksin guilty of corruption, the state could seize up to two billion dollars worth of illegally acquired assets. Some observers believe a guilty verdict could also lead to fresh street demonstrations by his supporters, known for wearing red shirts.

Mr. Thaksin was ousted from power in a coup in 2006. Two years later he fled Thailand ahead of another conviction on corruption charges. A court sentenced the former prime minister to a two year jail term in absentia.

Thai business and industrial leaders say the business climate and the economy could be hit if protests erupt.

Krianglit Sukcharoensin, president of the 500-member Plastic Industries Association says the uncertainties have undermined investor and business confidence.

"The international market they are not confident we can supply product 'just in time' for their requirement of their demand. They will switch and then order from another place," said Krianglit. "Then the investor will suffer so we will have to see."

The concerns from business leaders come just as the economy appears to be recovering from the global recession, on the strength of strong exports. The government has predicted a better than four percent growth for 2010.

But analysts warn the gains may be lost amid fears a guilty verdict will lead to potential violence from pro-Thaksin supporters. The Thai share market has weakened due to the jittery climate.

Vikas Kawatra, head of institutional research for Kim Eng Securities, says the local share market's outlook depends on Thaksin's future plans after the verdict.

"It pretty much depends on what Thaskin will do next," said Vikas. "One thing is for sure, is that he's not going to like it and the extent of money confiscated will increase his frustration but diminish his ability to come back."

Concerns over possible violence has led to the United States, Britain and Australia to issue travel advisories warning their nationals to avoid locations where protests could occur. The tourism industry, with around 14 million arrivals annually, accounts for about six percent of Thailand's national output.

Richard Chapman, general manager of the Sheraton Grande Hotel, says the tourism industry has suffered in recent times because reports of political instability has undermined traveler confidence.

"I'm just hoping and praying that our friends in the world of communications and media will give a fairly good ride over the next few weeks and we can come out of it no worse that we are today," said Chapman.

Potential damage to the economy was evident in 2008 when anti-Thaksin protesters occupied a government administration building against pro-Thaksin government steps to open the way for his return to the country. Later the anti-government protesters occupied the international airport for a week at a cost of millions of dollars in lost tourism and trade revenue.

Mr. Thaksin gained popularity among the urban and rural poor for his populist economic policies. But the urban middle class, that largely backed the 2006 coup, accused him of corruption and abuse of power.

Haiti's elite spared from much of the devastation

Image by Fly For Fun via Flickr

By William Booth
Washington Post Foreign Service
Monday, January 18, 2010; A08

PETIONVILLE, HAITI -- Through decades of coups, hurricanes, embargoes and economic collapse, members of the wily and powerful business elite of Haiti have learned the art of survival in one of the most chaotic countries on Earth -- and they might come out on top again.

Although Tuesday's 7.0-magnitude earthquake destroyed many buildings in Port-au-Prince, it mostly spared homes and businesses up the mountain in the cool, green suburb of Petionville, home to former presidents and senators.

A palace built atop a mountain by the man who runs one of Haiti's biggest lottery games is still standing. New-car dealers, the big importers, the families that control the port -- they all drove through town with their drivers and security men this past weekend. Only a few homes here were destroyed.

Image by treesftf via Flickr

"All the nation is feeling this earthquake -- the poor, the middle class and the richest ones," said Erwin Berthold, owner of the Big Star Market in Petionville. "But we did okay here. We have everything cleaned up inside. We are ready to open. We just need some security. So send in the Marines, okay?"

As Berthold stood outside his two-story market, stocked with fine wines and imported food from Miami and Paris, his customers cruised by and asked when he would reopen. "Maybe Monday!" he shouted, then held up his hand to his ear, for customers to call his cellphone.

So little aid has been distributed that there is not much difference between what the rich have received and what the poor have received. The poor started with little and now have less; the rich simply have supplies to last.

But search-and-rescue operations have been intensely focused on buildings with international aid workers, such as the crushed U.N. headquarters, and on large hotels with international clientele. Some international rescue workers said they are being sent to find foreign nationals first.

There is an extreme, almost feudal divide between rich and poor in Haiti. The gated and privately guarded neighborhoods resemble a Haitian version of Beverly Hills, but with razor wire.

Elias Abraham opened the door of his pretty walled compound, a semiautomatic pistol on his right hip and his family's passports in his back pocket.

His extended family's four-wheel-drive sport-utility vehicles are filled with gas. He has a generator big enough to power a small hotel. And even if his kids are sleeping in the courtyard because they are afraid of the continuing aftershocks, his maids are dressed in crisp, blue uniforms and his hospitable wife is able to welcome visitors with fresh-brewed coffee.

Abraham has not been unaffected by the quake. His Twins Market grocery store collapsed Tuesday and fell prey to looters Wednesday.

"They took everything," said Abraham, the Haitian-born son of a Syrian Christian merchant family. "I don't care. God bless them. If they need the food, take it. Just don't take it and sell it for a hundred times what it is worth.

"This is not the time to think about making money," he added. "We need security. We need calm."

Up in the mountains, there are flower vendors selling day-old roses across the street from refugees in tents. There are beauty salons, fitness gyms and French restaurants. All of them are shuttered but mostly undamaged.

Few buildings collapsed in Petionville and the surrounding area, but a drive through the hillsides found only three or four spilling into ravines.

"Thank God for the mountain," said Wesley Belizaire, who escaped to the hills above Petionville with 15 friends and family members to camp out in a sprawling stucco. "It is so safe, safe, safe." The house belongs to his boss, the owner of a travel agency, who was visiting the Bahamas when the quake struck.

The police are operating out of a well-supplied station in Petionville, where the parking lot was filled with idle police trucks. There have been few reports of looting here, even though the town has banks on every corner. Hervé Delorme, executive marketing director of Sogebank, stood outside a branch and said the building was safe and sound. "Only because of the electricity and communications we do not have the technology available to open," he said.

Across the street, one of the few pharmacies in the area was open. It was guarded by three Haitian police officers with rifles who let one customer in at a time. Down at the General Hospital, families wandered through the courtyard filled with patients with amputated limbs and open wounds, begging foreigners for medicine.

For better or worse, it will likely be the residents of Petionville who through their government connections, trading companies and interconnected family businesses will receive a large portion of U.S. and international aid and reconstruction money.

After a service at St. Louis Catholic Church in Port-au-Prince early Sunday, Yva Souriac was warning fellow parishioners what would come next with international assistance. "They only give the aid money to the same big families, over and over. So I ask, what is the point? They have given money to these families to help Haiti for 50 years, and look at Haiti. I say the Americans need to make up a new list."

In Indonesia, Middlemen Mold Outcome of Justice

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By NORIMITSU ONISHI

JAKARTA, Indonesia — They have long worked illegally in the shadows of Indonesia’s police stations, attorney general’s office and courts, the common link in what is called Indonesia’s “judicial mafia.” Called “markuses,” they are middlemen who can persuade corrupt police officers, prosecutors and judges to drop a case against a client for the right amount of money.

The markuses gained national attention last month after they were featured prominently in wiretaps involving a long-running battle between the nation’s law enforcement agencies and anticorruption officials.

With that leap into unaccustomed and unwanted prominence, they were transformed overnight into symbols of this country’s broken justice system. President Susilo Bambang Yudhoyono said that he would make eradicating the judicial mafia of markuses and corrupt officials a priority of his second term.

Indonesians, who in the past were aware only dimly, if at all, of the markuses, are now urged to report wrongdoing to the government by mailing in envelopes marked with the message “Ganyang mafia,” or just “Crush the mafia.”

But lawyers, officials and watchdog groups warn that uprooting the so-called judicial mafia will require an overhaul of the country’s law enforcement and justice systems. They say that Mr. Yudhoyono, who shies away from confrontation, is unlikely to push through changes inside the nation’s powerful police force, attorney general’s office and courts, institutions that are considered among Indonesia’s most corrupt.

Most experts agree that it will take years, or even decades, to reform the criminal justice system in Indonesia, which is ranked as one of the world’s most corrupt countries by Transparency International, a Berlin-based anticorruption organization. The 32-year rule of President Suharto, which ended just a decade ago, left behind law enforcement agencies that perpetuate graft, the experts say.

Kuntoro Mangkusubroto, the leader of a new presidential task force to reform the justice system, said Indonesia’s criminal justice system was fertile ground for middlemen representing moneyed clients.

Image via Wikipedia

“We want to have a system that is fair for everybody, not dependent on whether he or she has power or money,” Mr. Mangkusubroto said in an interview, adding that cleaning up the current system would take years.

Last month, wiretapped conversations revealed a plot by a prominent businessman, along with police officials and prosecutors, to fabricate a case against officials at the Corruption Eradication Commission, the nation’s chief anticorruption agency. The people heard in the wiretaps spoke of bribing key officials by handing out cash through a network of middlemen.

What shocked most Indonesians was not the brazenness of the speakers but the fact that the practices mentioned in the wiretaps seemed routine. By contrast, Indonesians without money have seemed increasingly at the mercy of a legal system that metes out severe punishment for seemingly harmless offenses.

“There is no normative standard of punishment in this country,” said Adnan Buyung Nasution, 75, one of Indonesia’s most prominent lawyers. “The punishment is very heavy in some cases, very light in others. That’s why people are disgusted at the justice system.”

The investigation, prosecution and judgment of a particular case follow rules dictated less by the law than by the free market of the middlemen. “It depends on how much money you have,” said Mr. Nasution, who recently led a presidential advisory group that recommended far-reaching changes in the country’s law enforcement agencies.

He added: “Each stage — the police, the attorney general’s office, the courts — has its markuses. But there are markuses that are so dominant, they can arrange everything in one package.”

In dealing with the police, the markuses — who are typically relatives of police officials, lawyers, journalists or anyone with contacts in law enforcement agencies — bribe police officials on behalf of a client in trouble with the law. With money, they persuade the police to change evidence or drop a case, according to watchdog groups, police officials and lawyers.

Because the money is usually distributed to the officer’s supervisors, police officers with a good nose for potentially lucrative cases tend to rise quickly in the force, said Neta Pane, executive director of Indonesia Police Watch, a private group.

Mr. Pane said that police officers had a strong incentive to engage in corrupt practices from the very beginning of their careers. To get into the national police force, applicants must pay bribes, which here in the capital range from $6,000 to $9,000, he said. Typically, the applicants are in a hurry to repay the sum, which they have borrowed and cannot repay on a low-ranking officer’s monthly salary of $100.

“The system requires corruption to survive,” Mr. Pane said.

Aryanto Sutadi, 58, a retired official who ran the national police’s legal division until last month, estimated that 25 percent of police officers bent the law to earn extra income. But Mr. Sutadi estimated that 90 percent of police officers accepted some form of “gifts.”

“If someone is satisfied with the service he has received and gives gifts to show his gratitude, that is not considered bad,” Mr. Sutadi said.

Accepting gifts is an illegal, though commonly accepted, practice among police officers, prosecutors and judges. In fact, many people draw an ethical line between those who actively seek bribes and those who passively accept gifts. Markuses also hand out gifts on behalf of a client or a lawyer.

“That’s our culture,” said Otto C. Kaligis, a prominent lawyer whose office walls are adorned with photographs of him standing next to Suharto and President Obama. “Then it’s O.K. No problem if the clients, as a sign of gratitude, are willing to give.”

But Mr. Kaligis said a lawyer unwilling to give gifts to judges would not win many cases. “When, for instance, as a lawyer you open a law firm and then you lose 40 percent, then you are not marketable,” he said.

So far, attempts to reform or monitor the police, prosecutors and judges have been largely cosmetic, experts say.

Created in 2005 to oversee the nation’s judges, the Judicial Commission recently moved into a gleaming, six-story building with the capacity to house a staff far larger than the commission’s 200 employees. Inside, the commission’s posters display mafia-like judges wielding guns and holding stacks of money. The posters urge people to report corrupt judges, saying, “Don’t let them kill justice.”

Since its founding, the commission has received 6,555 complaints about judges, said Busyro Muqoddas, the commission’s chairman, adding that Indonesia had 6,900 judges. But with limited powers of investigation and no authority to summon judges for interrogation, the commission has been able to recommend sanctions against only 39 judges suspected of corruption.

Indonesia’s Supreme Court, which oversees the conduct of all the nation’s courts, has mostly ignored the commission’s recommendations, choosing instead to protect colleagues, Mr. Muqoddas said.

Of the 39 judges suspected of corruption, only 2 have been fired, for accepting bribes.

A bill to strengthen the commission’s powers sits in the Parliament, Mr. Muqoddas said, but he added that he held little hope for its passage. Parliament, ranked as the country’s most corrupt institution by Transparency International, recently announced a list of 55 priority bills it planned to take up next year.

“We weren’t on the list,” Mr. Muqoddas said.

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Mexico's drug cartels siphon liquid gold

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Bold theft of $1 billion in oil, resold in U.S., has dealt a major blow to the treasury

By Steve Fainaru and William Booth
washington post foreign service
Sunday, December 13, 2009

MALTRATA, MEXICO -- Drug traffickers employing high-tech drills, miles of rubber hose and a fleet of stolen tanker trucks have siphoned more than $1 billion worth of oil from Mexico's pipelines over the past two years, in a vast and audacious conspiracy that is bleeding the national treasury, according to U.S. and Mexican law enforcement officials and the state-run oil company.

Using sophisticated smuggling networks, the traffickers have transported a portion of the pilfered petroleum across the border to sell to U.S. companies, some of which knew that it was stolen, according to court documents and interviews with American officials involved in an expanding investigation of oil services firms in Texas.

The widespread theft of Mexico's most vital national resource by criminal organizations represents a costly new front in President Felipe Calderón's war against the drug cartels, and it shows how the traffickers are rapidly evolving from traditional narcotics smuggling to activities as diverse as oil theft, transport and sales.

Oil theft has been a persistent problem for the state-run Petroleos Mexicanos, or Pemex, but the robbery increased sharply after Calderón launched his war against the cartels shortly after taking office in December 2006. The drug war has claimed more than 16,000 lives and has led the cartels, which rely on drug trafficking for most of their revenue, to branch out into other illegal activities.

Authorities said they have traced much of the oil rustling to the Zetas, a criminal organization founded by former military commandos. Although the Zetas initially served as a protection arm of the powerful Gulf cartel, they now call their own shots and dominate criminal enterprise in the oil-rich states of Veracruz and Tamaulipas.

"The Zetas are a parallel government," said Eduardo Mendoza Arellano, a federal lawmaker who heads a national committee on energy. "They practically own vast stretches of the pipelines, from the highway to the very door of the oil companies."

The Zetas earn millions of dollars by "taxing" the oil pipelines -- organizing the theft themselves or taking a cut from anyone who does the stealing, according to Mexican authorities. The U.S. Treasury Department this summer designated two Zeta commanders as narcotics "kingpins," which allows authorities to seize assets.

The Zetas often work with former Pemex employees, according to Ramón Pequeño García, chief of anti-drug operations at Mexico's Public Security Ministry. The former employees "are highly skilled people who have the technical knowledge to extract oil from the pipelines. They are now under the control of the Zetas," Pequeño said.

Across the border

This year, executives of four Texas companies pleaded guilty to felony charges of conspiring to receive and sell millions of dollars worth of stolen petroleum condensate. U.S. law enforcement officials said in interviews that they have no evidence showing that the men were connected to drug traffickers.

During his September arraignment in Houston, Arnoldo Maldonado, president of Y Gas & Oil, pleaded guilty to receiving about $327,000 to coordinate at least three deliveries of tankers filled with stolen condensate to another Texas company, Continental Fuels, according to a court transcript of the hearing.

Asked by U.S. District Judge Ewing Werlein Jr. how the condensate had been stolen from Pemex, Maldonado replied: "I have no idea on that, sir."

Donald Schroeder, a former president of Houston-based Trammo Petroleum, pleaded guilty in May to buying $2 million worth of stolen Mexican condensate, according to a transcript of the hearing. Schroeder re-sold the condensate to another company, BASF, for a $150,000 profit, prosecutors told the court.

A spokesman for BASF, which has not been implicated in the case, said the company was unaware that the material was stolen and is cooperating with the investigation.

In August, U.S. authorities presented the Mexican government with an oversize check for $2.4 million as a repayment.

A sophisticated operation

Pemex reported losing $715 million worth of oil to theft last year. The company said it discovered 396 clandestine taps. This year, Pemex projects it will lose at least $350 million to oil pilfering. Nearly half of the thefts occur in the rugged hills around Veracruz, a largely rural state situated in a region with 2,136 miles of pipeline running from the Gulf of Mexico to refineries in other parts of the country.

To steal the oil, Mexican authorities said, thieves sometimes use safe houses from where they build extensive tunnel networks leading to the pipelines. They fabricate powerful drills that enable them to puncture the highly pressurized steel pipes and extract the oil without causing spills or suspicious drops in pressure. Pemex officials said they have found clandestine taps with as many as five spigots.

In Maltrata, in central Veracruz, Pemex officials showed a reporter a four-foot-deep, six-foot-wide trench ringed by yellow police tape that they said had been dug by thieves to reach an underground pipeline in a clearing near a federal highway last month.

After perforating the exposed two-foot pipeline using a hand-tooled drill and connecting valves to regulate the pressure, the officials said, the traffickers ran a 300-yard hose through the brush to a tanker and filled it with about 200 barrels of crude oil.

"They are very sophisticated -- in some cases, it's three kilometers from the pipeline to the tanker where they deposit the oil," said Mauro Cáceres, who oversees the pipeline network in the region. "It is just constant. They take, and they take, and they take, and they take."

Pemex lost 140,141 barrels of oil to theft last month in the Veracruz region alone, the company reported. At $75 a barrel, the current market price for Mexican oil, the loss comes to $10 million. The company reports that oil rustlers are stealing from the pipelines in all 31 Mexican states.

Defending the pipelines

"When they steal this oil, it's not just a regular crime," said Mendoza, the federal deputy. "It becomes a crime against society, because the people who steal this oil the next day are using it to kidnap us. Tomorrow, with that oil money, they are shipping drugs."

The theft is both a symbolic and financial blow to the Mexican government. Taxes paid by Pemex account for 40 percent of the federal budget. Pemex still owns and operates almost every gas station in Mexico. Juan José Suárez, Pemex's chief executive officer, said in an interview at the company's headquarters in Mexico City that the oil theft is a crime against all Mexican citizens: "This is not taking from Pemex; it's taking from the owners of Pemex. This is the net worth of everybody."

Mexico has launched an all-out campaign to defend the pipelines, drawing in the army, the attorney general's office, the Interior Ministry and the customs service. During the past two years, the government has conducted helicopter overflights, installed electronic detection devices inside the pipelines and beefed up Pemex's private security force.

Suárez estimates that Pemex will spend hundreds of millions of dollars over the next three years defending its pipelines. With the company's maintenance staff overwhelmed, Pemex assembled 20-man teams this year to repair breaches caused by theft.

"The teams are working day and night," Cáceres said.

Pemex sent out a call for help to the federal government in 2007. In June that year, Mexican customs officials informed U.S. Immigration and Customs Enforcement (ICE) that they had discovered dozens of Mexican companies that appeared to be conspiring with U.S. firms to export stolen petroleum products across the border.

Working closely with the Mexican customs service, ICE investigators said, they soon uncovered a network of Mexican and American companies that shipped stolen oil to the United States in tankers, stored it in aboveground containers in Texas and then shipped it in barges to end users in the United States.

With oil prices then at record highs, the scheme allowed U.S. companies to buy petroleum products at below-market value. The scam involved hundreds of people, according to Jerry Robinette, special agent in charge of the ICE office of investigations in San Antonio, which is overseeing the probe.

"The folks that made the most amount of money are the people who are going to harm us the most, and that was the organized crime in Mexico," Robinette said.

Staff researcher Julie Tate in Washington contributed to this report.

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Indonesia: Timber Corruption’s High Costs

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(Jakarta) - Corruption in Indonesia's lucrative forestry industry costs the government US$2 billion annually, detracting from the resources available to meet its obligations on economic and social rights, Human Rights Watch said in a report released today. Inadequate oversight and conflicts of interest also raise a red flag over whether Indonesia can be a reliable carbon-trading partner. Carbon trading schemes are likely to be an important topic at the United Nation's Climate Change Conference, which begins December 7, 2009, in Copenhagen.

The 75-page report, "Wild Money: The Human Rights Consequences of Illegal Logging and Corruption in Indonesia's Forestry Sector," found that more than half of all Indonesian timber from 2003 through 2006 was logged illegally, with no taxes paid. Unreported subsidies to the forestry industry, including government use of artificially low timber market prices and currency exchange rates, and tax evasion by exporters using a scam known as "transfer pricing," exacerbated the losses. Using industry methods, including detailed comparisons between Indonesia's timber consumption and legal wood supply, the report concluded that in 2006 the total loss to Indonesia's national purse was $2 billion.

Recent challenges to the country's Anti-Corruption Commission (Komisi Pemberantasan Korupsi, KPK), including an alleged conspiracy by police and prosecutors to discredit the commission as it began looking into possible police corruption, exemplify the harmful effects of corruption on the country's governance, Human Rights Watch said.

"Widespread corruption in the forest industry is the dirty secret no one wants to talk about," said Joe Saunders, deputy program director at Human Rights Watch. "But until the lack of oversight and conflicts of interest are taken seriously, pouring more money into the leaky system from carbon trading is likely to make the problem worse, not better."

Some reduction in revenue loss has been reported since 2006, attributed to a dramatic increase in plantation timber production, doubling in a single year. But the area of established plantation required to produce the high volumes of timber reported call these new numbers into question, the report says.

The domestic impacts of corruption and revenue loss, especially on the nation's rural poor, are significant, Human Rights Watch said. Indonesia is a party to the International Covenant on Economic, Social and Cultural Rights, the key international treaty under which it has agreed to use maximum available resources to ensure its citizens enjoy their rights to such services as health, education, and housing. Yet, the scale of lost revenue to corruption demonstrates Indonesia is in violation of these obligations.

The roughly $2 billion in annual lost revenue is equal to the country's entire spending on health at national, provincial, and district levels combined. The annual loss is also equal to the amount that the World Bank estimates would be sufficient to provide a package of basic health care benefits to 100 million of the nation's poorest citizens for almost two years. Indonesia has among the lowest per capita health spending in the region, even compared with countries of much lower per capita GDP.

"It's a particularly cruel irony that in many of the rural areas that generate the country's forestry income, basic health care services are among the worst in the country," Saunders said. "People who live next door to the very forests being ravaged to line officials' pockets must travel huge distances to reach the nearest doctor."

Indonesia has one of the largest areas of forest in the world, but also one of the highest deforestation rates. Reported exports from its lucrative timber industry were worth $6.6 billion in 2007, second only to Brazil and more than all African and Central American nations combined.

The individuals who profit the most from illegal logging and the associated corruption are rarely held accountable, the report found, in part because of corruption in law enforcement and the judiciary. Bribes go to the police to manipulate evidence or even to sell seized illicit timber back to illegal loggers; to prosecutors to manipulate indictments (sometimes deliberately using a charge for which the evidence is weak); and to judges for favorable rulings.

Forestry Ministry officials have taken steps to improve timber reporting and tracking systems, the report says, but they have to contend not only with shady dealings in the private sector but with entrenched interests within their own ministry. Reporting of timber production and revenue collection is compromised by conflicts of interest within the forest agencies and unclear jurisdictions between central and local forest authorities. Bribes to officials in exchange for allowing logging without, or in violation of, proper permits create a powerful incentive to neglect accurate data keeping or to fail to make regular reports to the central ministry.

While the government of President President Susilo Bambang Yudhoyono has taken steps to combat corruption, there is strong resistance from some high-level officials. Increasing tensions between the Anti-Corruption Commission (KPK) and police and prosecutors led to the arrest and removal of two of the commissioners after the police accused them of extortion and abuse of authority.

In November, a presidential fact-finding team found insufficient evidence for the charges against the commissioners and recommended they be dropped, although it is not clear if the commissioners will be returned to their posts. The team further recommended a full investigation into corruption in the judiciary to eradicate "case brokers" inside the judiciary and police who act as go-betweens to deliver bribes, and a full inquiry into abuse of authority by the police, with sanctions for officers responsible for wrongdoing in the arrests of the anti-corruption commissioners.

"This is a critical juncture," Saunders said. "If Indonesia can curb the corruption, it can be a global forestry leader. As it is, a lot of trees and a lot of money are going missing and the country's poor are bearing the brunt of the losses."

Human Rights Watch called on prosecutors to use the strong sanctions available in anti-corruption and anti-money laundering laws to reduce forestry corruption. The Forestry Ministry should create a mandatory revenue tracking and auditing system for all Indonesian timber from harvest to point of export to ensure legality, and allow for independent oversight.

Indonesia's trading partners should also ensure that they are not complicit in logging corruption. Consumer countries should enact laws to prohibit trafficking in these illicit products, as the US did recently by amending its Lacey Act. The EU should immediately pass pending legislation that would require a certification of legality for wood products to enter European markets, Human Rights Watch said.

"It will take strong action at the top levels of Indonesia's government and international trading partners to halt the corruption in the timber industry," Saunders said. "The stakes are huge for the country's ability to improve living standards for its citizens and its standing in the world."

U.S. part of global crackdown on counterfeit medicines - washingtonpost.com

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RAIDS HELD WORLDWIDE
Fake medicines a growing enterprise

By Ylan Q. Mui
Washington Post Staff Writer
Friday, November 20, 2009

NEW YORK -- In highly orchestrated raids around the world this week, Interpol officers in Europe, drug agents in the United States and task forces from Sweden to Singapore hunted down counterfeit prescription drugs in an effort to stem a rapidly growing criminal business preying on financially pressed consumers looking for bargains.

The operation, code-named Pangea, is expected to be disclosed Friday in an effort to put fraudulent businesses on notice that police around the world are fighting back against what has become a $28 million industry in the United States alone.

The national crackdown uncovered nearly 800 alleged packages of fake or suspicious prescription drugs including Viagra, Vicodin, and Claritin, and shut down 68 alleged rogue online pharmacies. Some counterfeit drugs may have as much as three times more of an active ingredient than is typically prescribed; others may be placebos. Drywall material, antifreeze and yellow highway paint have been found in counterfeit pills.

The front line of the operation is deep in the bowels of a sprawling mail center in the industrial outskirts of John F. Kennedy International Airport. This week, federal agent Stephen Buzzeo, wielding a letter opener, ripped open a manila envelope lined with cardboard from a diaper package and pulled out three packages of what looked like diet pills, anxiety medicine and OxyContin, an often abused painkiller.

Hundreds of packages of potentially fake medicines were dumped into orange bins, piled on skids and stacked high around him and the half-dozen others from the alphabet soup of government agencies -- ICE, CBP, FDA, DEA -- hoping to intercept them before they were shipped to often unwitting consumers. Overseas, Interpol officers and task forces stormed suspected counterfeit drug warehouses and distribution centers.

"We don't know what's in here, actually," Buzzeo said as he inspected the pills. "All this is shady."

Counterfeit drugs are the latest -- and potentially most dangerous -- front in the long-running battle against intellectual-property crimes. Law enforcement officials said consumers typically think of counterfeited products as fake Louis Vuitton purses or Nike sneakers. Although shoes are the most common phony product, accounting for 38 percent, or $102 million, of counterfeit products seized by customs officials last year, pharmaceuticals are one of the fastest-growing categories.

In 2007, they made up about 6 percent of total seizures. Last year, they accounted for 10 percent to become the third-largest category, with an estimated market value of $28 million. Federal officials say that trend is particularly disturbing because of the health dangers that such drugs present.

"The public safety part of intellectual property has really taken off in the last couple years and become the moving force," said John T. Morton, an assistant secretary of U.S. Immigration and Customs Enforcement, which spearheaded the Pangea operation. "This is a huge problem."

Though counterfeit drugs have a history as old as snake oil, the high cost of many prescription drugs has driven some consumers to hunt for cheaper alternatives on the Internet. According to the National Association of Chain Drug Stores, a trade group, Americans spent $254 billion on prescription drugs last year, up 1.8 percent from 2007. The long-running recession has made such costs more difficult for many consumers, experts said.

Meanwhile, the rise of Internet pharmacies has expanded the marketplace and supply chain for the drugs. One site under federal investigation that is selling a "power pack" of erectile dysfunction drugs Cialis and Viagra purports to have a warehouse in New Delhi, headquarters in Canada and a license to sell medicine in the United States through Minnesota.

However, the investigation found that the site was registered in China and its server was hosted in Russia. Its headquarters had previously been listed in Louisiana. ICE agents have placed several orders and are trying to build a case against the site.

The National Association of Boards of Pharmacy maintains a list of roughly 4,000 online pharmacies it says is questionable. It also certifies legitimate sellers through its Verified Internet Pharmacy Practice sites program. Seventeen have passed the test.

"The Internet is just the wild, wild West," said Dr. Bryan A. Liang, vice president of the Partnership for Safe Medicines, an advocacy group.

Last fall, a new law was enacted that prohibited Internet pharmacies from dispensing prescription drugs over the Internet without a prescription and also increased some criminal penalties. Another bill sponsored by Rep. Steve Israel (D-N.Y.) this summer proposed increasing penalties for drug counterfeiters and enhancing the Food and Drug Administration's ability to track them. It stalled in committee.

In 2004, ICE began targeting drug counterfeiters under what it called Operation Apothecary. It has since expanded into a veritable global surveillance system encompassing half a dozen U.S. agencies and 24 countries for a week of intense enforcement. In the United States, task forces descended on seven major mail hubs this week, including in San Francisco, Miami and Cincinnati, and inspected 7,088 packages.

In New York, federal agents spent the week at Kennedy Airport pulling suspicious packages from China, India, Peru, Pakistan, Brazil, Turkey, Taiwan and Russia, trying to spot distribution trends and gathering leads. The leads can take months or years to track down, but officials said they need to start somewhere.

"For the criminals, at least," said Richard Halverson, unit chief at the National Intellectual Property Rights Coordination Center, "we're telling them that everybody's looking."

Afghan minister accused of taking bribe - washingtonpost.com

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$30 MILLION PAYMENT ALLEGED
Massive mining project awarded to Chinese firm

By Joshua Partlow
Washington Post Foreign Service
Wednesday, November 18, 2009

KABUL -- The Afghan minister of mines accepted a roughly $30 million bribe to award the country's largest development project to a Chinese mining firm, according to a U.S. official who is familiar with military intelligence reports.

The allegation, if proved true, would mark one of the most brazen examples of corruption yet disclosed in a country where the problem has become so pervasive that it is now at the heart of Obama administration doubts over Afghan President Hamid Karzai's reliability as a partner. The question of whether Karzai can address his government's graft and cronyism looms large as he prepares for his inauguration Thursday for a new term, and as President Obama completes a months-long strategy review that will define the future of U.S. involvement in Afghanistan after eight years of war.

Karzai is coming under intense international pressure to clear his cabinet of ministers who have reaped huge profits through bribery and kickback schemes. Although he announced a new anti-corruption unit this week, the president has been reluctant to fire scandal-tainted ministers in the past, and it is unclear whether he is ready to do so now. Meanwhile, Afghans' perceptions that they are ruled by a thieving class have weakened support for the government and bolstered sympathy for the Taliban insurgency.

In the case of the minister of mines, there is a "high degree of certainty," the U.S. official said, that the alleged payment to Mohammad Ibrahim Adel was made in Dubai, United Arab Emirates, within a month of December 2007, when the state-run China Metallurgical Group Corp. received the contract for a $2.9 billion project to extract copper from the Aynak deposit in Logar province. Aynak is considered one of the largest unexploited copper deposits in the world.

The selection of the Chinese firm, known as MCC, has angered some Afghan and American officials who worked on the bidding process with Adel. They say he was biased toward the company and did not give a fair hearing to the proposals of Western firms. But the issue has also gained urgency because the ministry is reviewing offers for another massive mining deal -- this time for an iron ore deposit west of Kabul known as Haji Gak -- for which MCC is the front-runner.

"This guy has done this already; we're in the same situation again," said the official, who spoke on the condition of anonymity.

In an interview, Adel denied repeatedly that he has received any bribes or illicit payments during his three-year-old tenure as minister and said that MCC won the contract after a fair review process. The Chinese company's investment -- including plans to build a railroad and a 400-megawatt power plant, and to make an $808 million bonus payment to the Afghan government -- far exceeded that of other firms, Adel said.

"I am responsible for the revenue and benefit of our people," Adel said. "All the time I'm following the law and the legislation for the benefit of the people."

The performance of the Mines Ministry under Adel typifies the weakness of Karzai's government. Afghanistan's wealth of mineral resources represents a potential bright spot in an otherwise feeble economy. Flush with copper, iron, marble, gold and gemstones, the mining sector could become a major source of revenue for the country.

But today, no major mines are functioning, and current and former U.S. and Afghan officials said incompetence and corruption have hindered the industry's development and frightened away potential investors.

"There is a pattern of improprieties that have gone on. We do know that the World Bank procedures, and the government of Afghanistan procedures, were badly breached repeatedly," said one former American adviser to the ministry. "There is every reason to believe there were probably gratuities exchanged."

Adel trained as a mining engineer in what was then the Soviet city of Leningrad, and his autocratic style has alienated current and former Afghan and American officials who have worked with him. It also has prompted widespread allegations that he or his deputies have received payments to award lucrative contracts to allies.

The first major contract of Adel's tenure was to privatize the Ghori cement factory, the country's only functioning cement plant, set in the limestone hills of Baghlan province in northern Afghanistan. The former mines minister, Mir Mohammad Sediq, said that Mahmoud Karzai, the head of the Afghan Investment Co. and the brother of the Afghan president, approached him, asking to take over the factory.

President Karzai replaced Sediq and installed Adel as minister in March 2006. Adel moved quickly on the cement proposal. A competitor for the project, the Aria Zamin company, said Adel used his influence to deny the firm a fair chance. The company's representative in the bidding, Nasir Khisrow Parsi, said that in the final days of the bidding process, Adel told him his company needed to present $25 million in cash to the ministry as a guaranty to show that the firm was serious.

"I told the minister, 'This violates the rules of the process. This is totally wrong,' " Parsi recalled. "In a country like Afghanistan, a person cannot carry even $100,000 from one place to another."

But Mahmoud Karzai's Afghan Investment Co. (AIC) came up with the money. The cash for the guaranty was carried in a cardboard box, flanked by gunmen, and placed on a desk in the ministry's headquarters in Kabul, officials said. One former deputy minister who witnessed the spectacle feared violence, but the deal went smoothly and AIC won the right to rehabilitate and expand the factory.

Adel defended the process but acknowledged that he has changed his procedures. "It was unusual. It was our first bidding," he said.

To Parsi, it was a blatant example of influence peddling in the ministry.

"They can do whatever they want," said Parsi, who now works in the geology department of the Mines Ministry. "The whole ministry is corrupt. No one is clean there. I don't see how this is going to end. Only God can stop this corruption."

Mahmoud Karzai could not be reached for comment. Adel said he exerted no influence over the ministry's decision. "If Mahmoud comes here, he has to sit there 30 minutes or one hour waiting for me," Adel said in his office.

The contract called for a massive increase in production -- from the 40,000 tons produced this year to 3 million tons -- by refurbishing the functioning plant, finishing construction on a second, adjacent factory, and building a third. But on a recent visit to the factory, the grounds were quiet and nearly abandoned. A manager blamed technical problems.

The work on the Aynak copper mine, in the high desert terrain of Logar province, has also gone slowly. The Chinese company has fallen about a year to 18 months behind schedule. The railroad project has not started. The company has complained about security threats from neighboring villages, despite an on-site force of more than 1,500 Afghan national policemen.

The deposit is estimated to hold enough copper to generate more than $200 million a year in government royalties, an amount equivalent to about a third of Afghanistan's budget last year, according to a report on the project by James R. Yeager, an American geologist who served as a ministry adviser.

Yeager's report criticized what he called a "murky and insufficient tender process" led by a "strong-willed minister unrelenting in his preference to see this award through with Asian partners." In ministry meetings to evaluate the bids, which included proposals from American and Canadian firms, Adel was a dominant force, several officials said.

"Anytime somebody brought up anything, he would squelch it," Yeager said in an interview. "We never really had any discussion."