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Last Updated: Thursday, 17 April 2003, 06:52 GMT 07:52 UK
Chalabi's chequered finances
By Jeremy Scott-Joynt
BBC News Online business reporter

INC leader Ahmed Chalabi addresses a crowd in Nasiriyah
The INC's leader is back for only the second time in 50 years
Many expect the leader of the Iraqi National Congress to take a senior role in post-Saddam Hussein Iraq even though he has said he is not seeking office. But will his financial reputation get in the way?

Meet Ahmed Chalabi.

A charming man, by all accounts - personable, friendly, very outgoing when you meet him in person, and the owner of a successful software company.

An expatriate Shia Iraqi whose arrival last week in the town of Nasiriyah, with some 700 friends, was only his second return visit to his homeland in almost half a century.

A veteran of a decade-long push to oust Saddam Hussein, and the founder of the best-known - famous to some, notorious to others - opposition group, the Iraqi National Congress.

The man seemingly anointed by the hawks in the Pentagon to help shape a post-Saddam Iraq, despite being deeply distrusted by much of the rest of Washington DC's foreign policy establishment.

Oh, yes. And a former financier who has been linked to two bank failures in the Middle East, and who still faces a 22-year jail sentence with hard labour in Iraq's neighbour, Jordan, should he ever return there. Both cases, apparently, are mired in politics as well as finance.


The Jordan end of the story, or at least the outline of it, is relatively well known.

Mr Chalabi built Petra Bank into the third biggest bank in the country.

Petra was the only bank which would not help Saddam during his war with Iran, so when it was over it suffered the consequences
Haider Ahmed
Iraqi National Congress
"There were minor discrepancies since the early 1980s, but nothing criminal," Mohammed Said Nabulsi, then-governor of Jordan's Central Bank, told BBC News Online.

But in 1989, at which time Mr Chalabi was chairman, Petra Bank was liquidated amid accusations of embezzlement and false accounting, forcing a $350m central bank bailout.

Jordan was facing a crippling foreign exchange shortage at the time, and Mr Nabulsi asked the country's banks to deposit 35% of their holdings in the central bank to prop up the Jordanian dinar.

All complied except Petra, and the resulting investigation by auditors Arthur Andersen, according to Mr Nabulsi, suggested that some of the foreign-exchange assets it said it was holding were not really there.

That was what precipitated a trial in absentia in a military court - Mr Chalabi had left in 1989 - which sentenced Mr Chalabi to 22 years in jail with hard labour.

The Lebanon connection

What is less well known is that at the same time another bank, run by Mr Chalabi's brother, Jawad, was going under in Lebanon.

Ahmed Chalabi, it is important to note, had no management role in Mebco, as the bank was called.

"As far as I know, Dr Chalabi has never been involved in (Mebco)," Haider Ahmed, the INC's spokesman in London, told BBC News Online.

But according to Mr Nabulsi, Arthur Andersen's investigation indicated that Petra assets were being used to keep Mebco afloat, and vice versa.

INC leader Ahmed Chalabi
Then a run on Mebco's finances brought the bank to its knees, a situation associates of Mr Chalabi say was engineered for political reasons.

Coming at the same time as the liquidity crunch in Jordan and the crackdown on foreign exchange dealings, the stress was apparently too much for the Chalabi family's financial empire.

"It's probable that the trouble at Petra had an effect at Mebco, but I can't be certain," said the INC's Haider Ahmed.

The Jordanian Central Bank went to the Banque du Liban (Lebanon's central bank) for restitution, given that Petra assets were reported as being in Mebco's hands.

"But they ended up asking us to repay them, " Mr Nabulsi said. "It was the same with Switzerland."

The result: Mebco was liquidated by the Lebanese authorities in 1989, just as its Swiss branch's licence was being taken away by the Swiss authorities for lax accounting and poor liquidity.

That effectively shut it down as well, leaving Jawad and a third brother, Hazem, facing six-month suspended sentences in Switzerland. Another family investment vehicle, Socofi, was also closed down by the Swiss authorities.

It won't be the Americans we deal with, it'll be the (Iraqi National) Congress... No doubt at all
Iraqi debt trader
In Lebanon, the case never made it to the criminal courts.

Foreign exchange

How much of this was fraud or embezzlement? And how much was a certain laxity in record-keeping, a relaxedness about keeping different family businesses afloat?

Or was it political persecution?

Certainly in Jordan, part of Petra's problems were the tight foreign exchange regulations.

For Mr Chalabi's supporters, a key point is that a military court tried the case, not a civil one. Why, they ask, was this necessary for a self-evidently civil case unless it was part of a political agenda?

Mr Nabulsi's response is that from 1967 - when martial law was instituted following the Arab-Israeli war that year - until the early 1990s, all allegations of financial impropriety that went to court were prosecuted in military courts.

Mr Chalabi's supporters add that the publicity surrounding the Petra case is simply a matter of his enemies attacking the man because it is easier than picking holes in his politics.

'The trail leads to Baghdad'

INC spokesman Haider Ahmed told BBC News Online that, despite years of international travel, Mr Chalabi had never encountered an extradition request or arrest warrant issued by the Jordanian government.

And if you track back the scandal to its real source, the trail ends in Baghdad, Mr Ahmed said.

"Saddam had a lot of influence in Jordanian policy at that time," he told BBC News Online.

"Petra was the only bank which would not help Saddam during the 1980-88 war with Iran. So when it was over, Petra suffered the consequences."

Almost everyone got their money back, he insisted.

Wait and see

It remains to be seen whether the black marks on Mr Chalabi's financial reputation are justified.

A member of the Free Iraqi Forces
The INC and other US-backed Iraqi forces were flown in
Some of the bad press can be traced to the mid-1990s, when CIA money given to the INC for use in Iraqi Kurdistan was said by critics to have been redirected.

Later investigations seem to indicate that poor accounting - and an attitude that once the money was in INC hands, how it was spent was no longer the CIA's business - appear to have been the main problem there.

And Mr Chalabi continues to insist that he is not seeking a formal role in post-Saddam Iraq, although associates are at pains to stress that he would undoubtedly obey the call "if the people should want it".

Head of the table

But those involved with Iraq's tattered finances are in little doubt that the INC will be the people to talk to, irrespective of the questions raised over Mr Chalabi or the group's finances.

Traders in Iraq's massive debts - as much as $120bn, not to mention another $250bn in contracts and compensation from the last Gulf War - are keen to get round a table and see what they can get back.

"Most of the debts are owed to the Gulf States, and they just want their money," one told BBC News Online.

And they're not worried about the possibility of Americans sitting at the head of the table either, the trader said.

"It won't be the Americans we deal with. It'll be the (Iraqi National) Congress," the trader said. Sure? "No doubt at all."

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