Monday

The Red Revolution Rolls On

Another Latin American nation has joined the list of countries south of the border that have elected populist progressive leaders who reject the neo-mercantilism of the United States. Rafael Correa, a U.S.-trained economist and friend of Venezuela's Hugo Chavez, roundly defeated his conservative, Bush administration-backed banana plantation tycoon opponent, Alvaro Noboa. Correa received 57 percent of the vote to Noboa's 43 percent.

Correa's win follows the victory of progressive populist Daniel Ortega in Nicaragua.


Ecuador's Rafael Correa joins Hugo Chavez, Evo Morales, Daniel Ortega, Tabare Vazquez, and Raul Castro in anti-neo-mercantile Latin American alliance.

During the campaign, Noboa quoted the Bible and bragged about his close ties to the international bankers' class, including the Rockefeller family. It is clear that a commanding majority of the Ecuadorian people are wiser than a number of Americans who consistently fall for Bible-thumping hypocrites with fat bank accounts.

Confessions of a Healthcare Hitman

How Multinational Corporations Evade Taxes

By Peter Rost, M.D.


Drug companies and other multinational companies based in the U.S. systematically avoid paying tax in the U.S. on their profits. The companies elect to realize profits in low-tax countries and because of this the rest of us have to pay billions of unnecessary taxes to make up for the shortfall, writes Peter Rost, an ex-pharmaceutical executive.

The biggest tax scam on earth has a very innocent sounding name. It is called "transfer prices." That almost sounds boring. It is, however, anything but boring. Abuse of transfer prices is a key tool multinational corporations use to fool the U.S. and other jurisdictions to think that they have virtually no profit; hence, they shouldn’t pay any taxes.

Corporations involved in this scam are "model corporate citizens,"or so they would like us to believe. The truth is that they rob us all blind. The money we lose can be estimated in the tens of billions, or possibly hundreds of billions of dollars every year. We all end up paying higher taxes because rich corporations make sure they don’t.

But don’t take my word for this.

A few weeks ago U.K.-based GlaxoSmithKline (GSK), one of the largest pharmaceutical companies in the world, together with the Internal Revenue Service (IRS) announced that GSK will pay $3.4 billion to the IRS to settle a transfer pricing dispute dating back 17 years. The IRS
alleges that GSK improperly shifted profits from their U.S. to the U.K. entity.

And U.K. pharmaceutical companies are not alone with these kinds of problems. Merck, one of the largest U.S. drug companies, also this month disclosed that they face four separate tax disputes in the U.S. and Canada with potential liabilities of $5.6 billion. Out of that amount,
Merck disclosed that the Canada Revenue Agency issued the company a notice for $1.8 billion in back taxes and interest "related to certain inter-company pricing matters." And according to the IRS, one of the schemes Merck used to cheat American tax payers was by setting up a subsidiary in tax-friendly Bermuda. Merck then quietly transferred patents for several blockbuster drugs to the new subsidiary and then paid the subsidiary for use of the patents. The arrangement in effect allowed some of the profits to disappear into Merck’s own "Bermuda triangle."

I have described many more ways the global drug industry cheats and defrauds our government in my recent book, "The Whistleblower, Confessions of a Healthcare Hitman." In this article, however, I’m going to focus on how they, and other rich multinationals, use the tax system to defraud us.

So what’s going on here, how have multinational drug companies been able to gouge us for years selling expensive drugs and then avoid paying tax on their astronomical profits?

The answer is simple. For companies in certain businesses, such as pharmaceuticals, it is very easy to simply "invent" the price a company charges their U.S. business for buying the company’s product which they manufacture in another country. And if they charge enough, poof; all the profit vanishes from the US, or Canada, or any other regular jurisdiction and end up in a corporate tax-haven. And that means American and Canadian tax payers don’t get their fair share.

Many multinational corporations essentially have two sets of bookkeeping. One set, with artificially inflated transfer prices is what they use to prepare local tax returns, and show auditors in high-tax jurisdictions, and another set of books, in which management can see the true profit and lost statement, based on real cost of goods, are used for the executives to determine the actual performance of their various operations.

Of course, not every multinational industry can do this as easily as the drug industry. It would be difficult to motivate $6,000 toilet seats. But the drug industry, where real cost of goods to manufacture drugs is usually around 5% of selling price, has a lot of room to artificially increase that cost of goods to 50% or 75% of selling price. This money is then accumulated in corporate tax-havens where the drugs are manufactured, such as Puerto Rico and Ireland. Puerto Rico has for many years attracted lots of pharmaceutical plants and Ireland is the new destination for such facilities, not because of the skilled labor or the beautiful scenery or the great beer—but because of the low taxes. Ireland has, in fact, one of the world’s lowest corporate tax rates with
a maximum rate of 12.5 percent.

In Puerto Rico, over a quarter of the country’s gross domestic product already comes from pharmaceutical manufacturing. That shouldn’t be surprising. According to the U.S. Federal Tax Reform Act of 1976, manufacturers are permitted to repatriate profits from Puerto Rico to the U.S. free of U.S. federal taxes. And by the way, the Puerto Rico withholding tax is only 10%.

Of course, no company should have to pay more tax than they are legally obligated to, and they are entitled to locate to any low-tax jurisdiction. The problem starts when they use fraudulent transfer pricing and other tricks to artificially shift their income from the U.S. to a tax-haven. According to current OECD guidelines transfer prices should be based upon the arm’s length principle – that means the transfer price should be the same as if the two companies involved were indeed two independents, not part of the same corporate structure. Reality is that standard operating procedure for multinationals is to consistently violate this rule. And why shouldn’t they? After all, it takes 17 years for them to pay up, per the GSK example above, even when they get caught.

Another industry which successfully exploits overseas tax strategies to cheat us all is the hi-tech industry. In fact, Microsoft Corp. recently shaved at least $500 million from its annual tax bill using a similar strategy to the one the drug industry has used for so many years. Microsoft has set up a subsidiary in Ireland, called Round Island One Ltd. This company pays more than $300 million in taxes to this small island country with only 4 million inhabitants, and most of this comes from licensing fees for copyrighted software, originally developed in the U.S. Interesting thing is, at the same time, Round Island paid a total of just under $17 million in taxes to about 20 other countries, with more than 300 million people. The result of this was that Microsoft's world-wide tax rate plunged to 26 percent in 2004, from 33 percent the year before. Almost half of the drop was due to "foreign earnings taxed at lower rates," according to a Microsoft financial filing. And this is how Microsoft has radically reduced its corporate taxes in much of Europe and been able to shield billions of dollars from U.S. taxation.

But remember, this is only one example. Most of the other tech companies are doing the same thing. Google recently also set up an Irish operation that the firm credited in a SEC filing with reducing its tax rate.

Here’s how this is done in the software industry and any other industry with valuable intellectual property. A company takes a great, patented, American product and then develops a new generation. Then, of course, the old product disappears. Some, or all, of the cost and development work for the new product takes place in Ireland, or at least, so the company claims. The ownership of the new generation product and all income from licensing can then legally be shared between the U.S. parent company and the offshore corporation or transferred outright to the tax-haven. The deal, to pass IRS scrutiny, has to be made using the "arms-length principle." Reality is that the IRS has no way of controlling all these transactions.

Unfortunately those of us working and paying tax in the U.S. can’t relocate our jobs and our income to Ireland or another tax haven. So we have to make up the income shortfall. In the U.S. we have a highly educated society with a very qualified workforce, partly supported by our tax payers. This helps us generate breakthrough products. But once a company has a successful product, they have every incentive to move the second generation of a successful product overseas, to Ireland and a few other corporate tax havens.

There is only one problem for U.S. companies with this strategy, and that is that if they repatriate this money to the U.S. they have to pay full corporate taxes. In fact, according to BusinessWeek, U.S. multinational corporations have built up profits of as much as $750 billion overseas, much of it in tax havens such as the Ireland, Bahamas, and Singapore to avoid the stiff 35% levy they'd face if they repatriated the funds back into the U.S.

But of course, Congress, which is basically paid for by our multinational corporations, generously provided for a one-time provision in the corporate tax code, so that they could repatriate profits earned before 2003, and held in foreign subsidiaries, at an effective 5.25% tax rate.

And so the game goes on.

In the end, multinational corporations live in a global world which allows them to pretty much send their money to corporate tax havens at will, and then repatriate this money almost tax free, with the help of the U.S. Congress.

The people left holding the bag are you and me. If you want to know learn more about the corruption in the drug industry, read my new book, "The Whistleblower, Confessions of a Healthcare Hitman."

Sunday

Nanotechnology Kills: The Bionic Hornet

JERUSALEM (Reuters) - Israel is using nanotechnology to try to create a robot no bigger than a hornet that would be able to chase, photograph and kill its targets, an Israeli newspaper reported on Friday.

The flying robot, nicknamed the "bionic hornet", would be able to navigate its way down narrow alleyways to target otherwise unreachable enemies such as rocket launchers, the daily Yedioth Ahronoth said.

It is one of several weapons being developed by scientists to combat militants, it said. Others include super gloves that would give the user the strength of a "bionic man" and miniature sensors to detect suicide bombers.

The research integrates nanotechnology into Israel's security department and will find creative solutions to problems the army has been unable to address, Deputy Prime Minister Shimon Peres told Yedioth Ahronoth.

"The war in Lebanon proved that we need smaller weaponry. It's illogical to send a plane worth $100 million against a suicidal terrorist. So we are building futuristic weapons," Peres said.

The 34-day war in Lebanon ended with a U.N.-brokered ceasefire in mid-August. The war killed more than 1,200 Lebanese, mostly civilians, and 157 Israelis, mostly soldiers.

Prototypes for the new weapons are expected within three years, he said.

Friday

Introducing the nano battery

Introducing the nano battery, as thick as a strand of hair.
Huge Old-School Battery

TEL AVIV — A university here has developed and patented nano-battery technology suitable for military applications.

Professor Menachem Nathan, head of the nano-battery project at Tel Aviv University, said the new battery, with the thickness of a strand of hair, was safer and could recharge faster.

Tel Aviv University has sponsored an effort to develop and patent nano-battery technology. A team of university scientists developed the technology for fast charge/discharge batteries that eliminates fire hazards of lithium-based batteries and could mark an alternative source of power for mobile devices.

"The battery would be especially sought for military applications in equipment used under extreme heat conditions," an industry source said.

Nathan said the safety advantage over lithium was not the focus of the research.

Sunday

Dick Cheney is next on the chopping block

According to Washington insiders, there are moves afoot to dump Vice President Dick Cheney and replace him with either John McCain or Rudolph Giuliani prior to the 2008 presidential election. Whoever succeeds Cheney will be able to campaign for the presidency with the perks that come with being an incumbent Vice President.

Since the increasingly-besieged Cheney has signaled he has no intention of voluntarily stepping down, the strategy by the Bush camp may be to force him out by presenting evidence before Special Counsel Patrick Fitzgerald that it was Cheney who was responsible for the compromise of CIA non-proliferation covert officer Valerie Plame Wilson and her Brewster Jennings & Associates cover firm.

Observers note the unusual professional relationship between Fitzgerald and Karl Rove's defense attorney Robert Luskin. Insiders believe that Fitzgerald may be proffered a carefully crafted deal by Luskin whereby Rove will testify to Cheney's primary role in the outing of Mrs. Wilson and her firm. The sealed indictment of Rove will then be retired permanently. If such a deal is worked out, Fitzgerald may then offer a deal to Lewis I. "Scooter" Libby, Cheney's former Chief of Staff, to also testify against Cheney. With such double-barreled testimony, President Bush will then be compelled to ask Cheney for his resignation or face a very nasty and public indictment.

Cheney is next on the chopping block.

The game plan appears to be what DC insider Sally Quinn foresaw in her Washington Post op-ed last month, an article that suggested she has spoken extensively to a Donald Rumsfeld who was aware of his impending firing. The op-ed stated that Rumsfeld would not be the scapegoat for Iraq and planned to resign shortly after the election. Quinn, seemingly channeling Rumsfeld, stated that after Rumsfeld left, there will be only two scapegoats left: Dick Cheney and George W. Bush. The article concluded by asking which person would be served up as the official scapegoat for Iraq.

This editor wrote, "based on the arrival of James Baker and a coterie of George H. W. Bush old hands on the scene to bail out Dubya, it is clear that the Bush family does not intend to allow one of its own to be declared scapegoat."

With word from White House sources that Cheney was opposed to the sacking of his old mentor Rumsfeld and even more resistant to the naming of Bush family loyalist Robert Gates to take his place, it is clear that Cheney doesnot want to be placed in a position of exposure. However, even Cheney neo-con allies like Richard Perle and Ken Adelman, sensing that Cheney is the designated scapegoat, have bellowed about the Iraq war being a mistake and are now distancing themselves from the Cheney group, once the most powerful operating cell within the Bush administration.

Saturday

The Secret World of Robert Gates


By Robert Parry

Robert Gates, George W. Bush’s choice to replace Donald Rumsfeld as Defense Secretary, is a trusted figure within the Bush Family’s inner circle, but there are lingering questions about whether Gates is a trustworthy public official.

The 63-year-old Gates has long faced accusations of collaborating with Islamic extremists in Iran, arming Saddam Hussein’s dictatorship in Iraq, and politicizing U.S. intelligence to conform with the desires of policymakers – three key areas that relate to his future job.

Gates skated past some of these controversies during his 1991 confirmation hearings to be CIA director – and the current Bush administration is seeking to slip Gates through the congressional approval process again, this time by pressing for a quick confirmation by the end of the year, before the new Democratic-controlled Senate is seated.

If Bush’s timetable is met, there will be no time for a serious investigation into Gates’s past.

Fifteen years ago, Gates got a similar pass when leading Democrats agreed to put “bipartisanship” ahead of careful oversight when Gates was nominated for the CIA job by President George H.W. Bush.

In 1991, despite doubts about Gates’s honesty over Iran-Contra and other scandals, the career intelligence officer brushed aside accusations that he played secret roles in arming both sides of the Iran-Iraq War. Since then, however, documents have surfaced that raise new questions about Gates’s sweeping denials.

For instance, the Russian government sent an intelligence report to a House investigative task force in early 1993 stating that Gates participated in secret contacts with Iranian officials in 1980 to delay release of 52 U.S. hostages then held in Iran, a move to benefit the presidential campaign of Ronald Reagan and George H.W. Bush.

“R[obert] Gates, at that time a staffer of the National Security Council in the administration of Jimmy Carter, and former CIA Director George Bush also took part” in a meeting in Paris in October 1980, according to the Russian report, which meshed with information from witnesses who have alleged Gates’s involvement in the Iranian gambit.

Once in office, the Reagan administration did permit weapons to flow to Iran via Israel. One of the planes carrying an arms shipment was shot down over the Soviet Union on July 18, 1981, after straying off course, but the incident drew little attention at the time.

The arms flow continued, on and off, until 1986 when the Iran-Contra arms-for-hostages scandal broke. [For details, see Robert Parry’s Secrecy & Privilege. For text of the Russian report, click here. To view the actual U.S. embassy cable that includes the Russian report, click here.]

Iraqgate Scandal

Gates also was implicated in a secret operation to funnel military assistance to Iraq in the 1980s, as the Reagan administration played off the two countries battling each other in the eight-year-long Iran-Iraq War.

Middle Eastern witnesses alleged that Gates worked on the secret Iraqi initiative, which included Saddam Hussein’s procurement of cluster bombs and chemicals used to produce chemical weapons for the war against Iran.

Gates denied those Iran-Iraq accusations in 1991 and the Senate Intelligence Committee – then headed by Gates’s personal friend, Sen. David Boren, D-Oklahoma – failed to fully check out the claims before recommending Gates for confirmation.

However, four years later – in early January 1995 – Howard Teicher, one of Reagan’s National Security Council officials, added more details about Gates’s alleged role in the Iraq shipments.

In a sworn affidavit submitted in a Florida criminal case, Teicher stated that the covert arming of Iraq dated back to spring 1982 when Iran had gained the upper hand in the war, leading President Reagan to authorize a U.S. tilt toward Saddam Hussein.

The effort to arm the Iraqis was “spearheaded” by CIA Director William Casey and involved his deputy, Robert Gates, according to Teicher’s affidavit. “The CIA, including both CIA Director Casey and Deputy Director Gates, knew of, approved of, and assisted in the sale of non-U.S. origin military weapons, ammunition and vehicles to Iraq,” Teicher wrote.

Ironically, that same pro-Iraq initiative involved Donald Rumsfeld, then Reagan’s special emissary to the Middle East. An infamous photograph from 1983 shows a smiling Rumsfeld shaking hands with Saddam Hussein.

Teicher described Gates’s role as far more substantive than Rumsfeld’s. “Under CIA Director [William] Casey and Deputy Director Gates, the CIA authorized, approved and assisted [Chilean arms dealer Carlos] Cardoen in the manufacture and sale of cluster bombs and other munitions to Iraq,” Teicher wrote.

Like the Russian report, the Teicher affidavit has never been never seriously examined. After Teicher submitted it to a federal court in Miami, the affidavit was classified and then attacked by Clinton administration prosecutors. They saw Teicher’s account as disruptive to their prosecution of a private company, Teledyne Industries, and one of its salesmen, Ed Johnson.

But the questions about Gates’s participation in dubious schemes involving hotspots such as Iran and Iraq are relevant again today because they reflect on Gates’s judgment, his honesty and his relationship with two countries at the top of U.S. military concerns.

About 140,000 U.S. troops are now bogged down in Iraq, 3 ½ years after President George W. Bush ordered an invasion to remove Saddam Hussein from power and eliminate his supposed WMD stockpiles. One reason the United States knew that Hussein once had those stockpiles was because the Reagan administration helped him procure the material needed for the WMD production in the 1980s.

The United States also is facing down Iran’s Islamic government over its nuclear ambitions. Though Bush has so far emphasized diplomatic pressure on Iran, he has pointedly left open the possibility of a military option.

Political Intelligence

Beyond the secret schemes to aid Iran and Iraq in the 1980s, Gates also stands accused of playing a central role in politicizing the CIA intelligence product, tailoring it to fit the interests of his political superiors, a legacy that some Gates critics say contributed to the botched CIA’s analysis of Iraqi WMD in 2002.

Before Gates’s rapid rise through the CIA’s ranks in the 1980s, the CIA’s tradition was to zealously protect the objectivity and scholarship of the intelligence. However, during the Reagan administration, that ethos collapsed.

At Gates’s confirmation hearings in 1991, former CIA analysts, including renowned Kremlinologist Mel Goodman, took the extraordinary step of coming out of the shadows to accuse Gates of politicizing the intelligence while he was chief of the analytical division and then deputy director.

The former intelligence officers said the ambitious Gates pressured the CIA’s analytical division to exaggerate the Soviet menace to fit the ideological perspective of the Reagan administration. Analysts who took a more nuanced view of Soviet power and Moscow’s behavior in the world faced pressure and career reprisals.

In 1981, Carolyn McGiffert Ekedahl of the CIA’s Soviet office was the unfortunate analyst who was handed the assignment to prepare an analysis on the Soviet Union’s alleged support and direction of international terrorism.

Contrary to the desired White House take on Soviet-backed terrorism, Ekedahl said the consensus of the intelligence community was that the Soviets discouraged acts of terrorism by groups getting support from Moscow for practical, not moral, reasons.

“We agreed that the Soviets consistently stated, publicly and privately, that they considered international terrorist activities counterproductive and advised groups they supported not to use such tactics,” Ekedahl said. “We had hard evidence to support this conclusion.”

But Gates took the analysts to task, accusing them of trying to “stick our finger in the policy maker’s eye,” Ekedahl testified

Ekedahl said Gates, dissatisfied with the terrorism assessment, joined in rewriting the draft “to suggest greater Soviet support for terrorism and the text was altered by pulling up from the annex reports that overstated Soviet involvement.”

In his memoirs, From the Shadows, Gates denied politicizing the CIA’s intelligence product, though acknowledging that he was aware of Casey’s hostile reaction to the analysts’ disagreement with right-wing theories about Soviet-directed terrorism.

Soon, the hammer fell on the analysts who had prepared the Soviet-terrorism report. Ekedahl said many analysts were “replaced by people new to the subject who insisted on language emphasizing Soviet control of international terrorist activities.”

A donnybrook ensued inside the U.S. intelligence community. Some senior officials responsible for analysis pushed back against Casey’s dictates, warning that acts of politicization would undermine the integrity of the process and risk policy disasters in the future.

Working with Gates, Casey also undertook a series of institutional changes that gave him fuller control of the analytical process. Casey required that drafts needed clearance from his office before they could go out to other intelligence agencies.

Casey appointed Gates to be director of the Directorate of Intelligence [DI] and consolidated Gates’s control over analysis by also making him chairman of the National Intelligence Council, another key analytical body.

“Casey and Gates used various management tactics to get the line of intelligence they desired and to suppress unwanted intelligence,” Ekedahl said.

Career Reprisals

With Gates using top-down management techniques, CIA analysts sensitive to their career paths intuitively grasped that they could rarely go wrong by backing the “company line” and presenting the worst-case scenario about Soviet capabilities and intentions, Ekedahl and other CIA analysts said.

Largely outside public view, the CIA’s proud Soviet analytical office underwent a purge of its most senior people. “Nearly every senior analyst on Soviet foreign policy eventually left the Office of Soviet Analysis,” Goodman said.

Gates made clear he intended to shake up the DI’s culture, demanding greater responsiveness to the needs of the White House and other policymakers.

In a speech to the DI’s analysts and managers on Jan. 7, 1982, Gates berated the division for producing shoddy analysis that administration officials didn’t find helpful.

Gates unveiled an 11-point management plan to whip the DI into shape. His plan included rotating division chiefs through one-year stints in policy agencies and requiring CIA analysts to “refresh their substantive knowledge and broaden their perspective” by taking courses at Washington-area think tanks and universities.

Gates declared that a new Production Evaluation Staff would aggressively review their analytical products and serve as his “junkyard dog.”

Gates’s message was that the DI, which had long operated as an “ivory tower” for academically oriented analysts committed to an ethos of objectivity, would take on more of a corporate culture with a product designed to fit the needs of those up the ladder both inside and outside the CIA.

“It was a kind of chilling speech,” recalled Peter Dickson, an analyst who concentrated on proliferation issues. “One of the things he wanted to do, he was going to shake up the DI. He was going to read every paper that came out. What that did was that everybody between the analyst and him had to get involved in the paper to a greater extent because their careers were going to be at stake.”

A chief Casey-Gates tactic for exerting tighter control over the analysis was to express concern about “the editorial process,” Dickson said.

“You can jerk people around in the editorial process and hide behind your editorial mandate to intimidate people,” Dickson said.

Gates soon was salting the analytical division with his allies, a group of managers who became known as the “Gates clones.” Some of those who rose with Gates were David Cohen, David Carey, George Kolt, Jim Lynch, Winston Wiley, John Gannon and John McLaughlin.

Though Dickson’s area of expertise – nuclear proliferation – was on the fringes of the Reagan-Bush primary concerns, it ended up getting him into trouble anyway. In 1983, he clashed with his superiors over his conclusion that the Soviet Union was more committed to controlling proliferation of nuclear weapons than the administration wanted to hear.

When Dickson stood by his evidence, he soon found himself facing accusations about his psychological fitness and other pressures that eventually caused him to leave the CIA.

Dickson also was among the analysts who raised alarms about Pakistan’s development of nuclear weapons, another sore point because the Reagan-Bush administration wanted Pakistan’s assistance in funneling weapons to Islamic fundamentalists fighting the Soviets in Afghanistan.

One of the effects from the exaggerated intelligence about Soviet power and intentions was to make other potential risks – such as allowing development of a nuclear bomb in the Islamic world or training Islamic fundamentalists in techniques of sabotage – paled in comparison.

While worst-case scenarios were in order for the Soviet Union and other communist enemies, best-case scenarios were the order of the day for Reagan-Bush allies, including Osama bin Laden and other Arab extremists rushing to Afghanistan to wage a holy war against European invaders, in this case, the Russians.

As for the Pakistani drive to get a nuclear bomb, the Reagan-Bush administration turned to word games to avoid triggering anti-proliferation penalties that otherwise would be imposed on Pakistan.

“There was a distinction made to say that the possession of the device is not the same as developing it,” Dickson told me. “They got into the argument that they don’t quite possess it yet because they haven’t turned the last screw into the warhead.”

Finally, the intelligence on the Pakistan Bomb grew too strong to continue denying the reality. But the delay in confronting Pakistan ultimately allowed the Muslim government in Islamabad to produce nuclear weapons. Pakistani scientists also shared their know-how with “rogue” states, such as North Korea and Libya.

“The politicization that took place during the Casey-Gates era is directly responsible for the CIA’s loss of its ethical compass and the erosion of its credibility,” Goodman told the Senate Intelligence Committee in 1991. “The fact that the CIA missed the most important historical development in its history – the collapse of the Soviet Empire and the Soviet Union itself – is due in large measure to the culture and process that Gates established in his directorate.”

Confirmation Battle

To push through Gates’s nomination to be CIA director in 1991, the elder George Bush lined up solid Republican backing for Gates and enough accommodating Democrats – particularly Sen. Boren, the Senate Intelligence Committee chairman.

In his memoirs, Gates credited his friend, Boren, for clearing away any obstacles. “David took it as a personal challenge to get me confirmed, Gates wrote.

Part of running interference for Gates included rejecting the testimony of witnesses who implicated Gates in scandals beginning with the alleged back-channel negotiations with Iran in 1980 through the arming of Iraq’s Saddam Hussein in the mid-1980s.

Boren’s Intelligence Committee brushed aside two witnesses connecting Gates to the alleged schemes, former Israeli intelligence official Ari Ben-Menashe and Iranian businessman Richard Babayan. Both offered detailed accounts about Gates’s alleged connections to the schemes.

Ben-Menashe, who worked for Israeli military intelligence from 1977-87, first fingered Gates as an operative in the secret Iraq arms pipeline in August 1990 during an interview that I conducted with him for PBS Frontline.

At the time, Ben-Menashe was in jail in New York on charges of trying to sell cargo planes to Iran (charges which were later dismissed). When the interview took place, Gates was in a relatively obscure position, as deputy national security adviser to President George H.W. Bush and not yet a candidate for the top CIA job.

In that interview and later under oath to Congress, Ben-Menashe said Gates joined in meetings between Republicans and senior Iranians in October 1980. Ben-Menashe said he also arranged Gates’s personal help in bringing a suitcase full of cash into Miami in early 1981 to pay off some of the participants in the hostage gambit.

Ben-Menashe also placed Gates in a 1986 meeting with Chilean arms manufacturer Cardoen, who allegedly was supplying cluster bombs and chemical weapons to Saddam Hussein’s army. Babayan, an Iranian exile working with Iraq, also connected Gates to the Iraqi supply lines and to Cardoen.

Gates has steadfastly denied involvement in either the Iran-hostage caper or the Iraqgate arms deals.

“I was accused on television and in the print media by people I had never spoken to or met of selling weapons to Iraq, or walking through Miami airport with suitcases full of cash, of being with Bush in Paris in October 1980 to meet with Iranians, and on and on, Gates wrote in his memoirs. “The allegations of meetings with me around the world were easily disproved for the committee by my travel records, calendars, and countless witnesses.

But none of Gates’s supposedly supportive evidence was ever made public by either the Senate Intelligence Committee or the later inquiries into either the Iran hostage initiative or Iraqgate.

Not one of Gates’s “countless witnesses who could vouch for Gates’s whereabouts was identified. Though Boren pledged publicly to have his investigators question Babayan, they never did.

Perhaps most galling for those of us who tried to assess Ben-Menashe’s credibility was the Intelligence Committee’s failure to test Ben-Menashe’s claim that he met with Gates in Paramus, New Jersey, on the afternoon of April 20, 1989.

The date was pinned down by the fact that Ben-Menashe had been under Customs surveillance in the morning. So it was a perfect test for whether Ben-Menashe – or Gates – was lying.

When I first asked about this claim, congressional investigators told me that Gates had a perfect alibi for that day. They said Gates had been with Senator Boren at a speech in Oklahoma. But when we checked that out, we discovered that Gates’s Oklahoma speech had been on April 19, a day earlier. Gates also had not been with Boren and had returned to Washington by that evening.

So where was Gates the next day? Could he have taken a quick trip to northern New Jersey? Since senior White House national security advisers keep detailed notes on their daily meetings, it should have been easy for Boren’s investigators to interview someone who could vouch for Gates’s whereabouts on the afternoon of April 20.

But the committee chose not to nail down an alibi for Gates. The committee said further investigation wasn’t needed because Gates denied going to New Jersey and his personal calendar made no reference to the trip.

But the investigators couldn’t tell me where Gates was that afternoon or with whom he may have met. Essentially, the alibi came down to Gates’s word.

Ironically, Boren’s key aide who helped limit the investigation of Gates was George Tenet, whose behind-the-scenes maneuvering on Gates’s behalf won the personal appreciation of the senior George Bush. Tenet later became President Bill Clinton’s last CIA director and was kept on in 2001 by the younger George Bush partly on his father’s advice.

Now, as the Bush Family grapples with the disaster in Iraq, it is turning to an even more trusted hand to run the Defense Department. The appointment of Robert Gates suggests that the Bush Family is circling the wagons to save the embattled presidency of George W. Bush.

To determine whether Gates can be counted on to do what’s in the interest of the larger American public is another question altogether.


Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Secrecy & Privilege: Rise of the Bush Dynasty from Watergate to Iraq, can be ordered at secrecyandprivilege.com. It's also available at Amazon.com, as is his 1999 book, Lost History: Contras, Cocaine, the Press & 'Project Truth.'


Monday

Commies in Nicaragua

Ortega heads to Nicaragua vote victory

MANAGUA, Nicaragua (Reuters) - Former Marxist revolutionary and U.S. Cold War enemy Daniel Ortega headed back toward power on Monday in Nicaragua's presidential election 16 years after voters threw him out to end a war against U.S.-trained rebels.

With returns in from 40 percent of polling stations in Sunday's election, the 60-year-old Ortega had just above the 40 percent of votes that would seal a first-round win.

Two quick counts by respected observer groups also gave Ortega a big enough lead to win without facing a runoff.

An Ortega victory would be a blow to Washington, which backed Contra rebels in the 1980s civil war and fears the leftist would join an anti-U.S. bloc in Latin America led by Venezuelan President Hugo Chavez.

Ortega kept a low profile on Monday but thousands of Sandinista supporters set off fireworks through the night and raced through the streets waving black-and-red party flags.

"We have to leave behind all the serious problems our country has suffered in the past, and move forward," said Ortega's vice presidential running mate Jaime Morales, a former Contra leader who joined his old enemy's camp early this year.

Ortega led the Sandinista revolution that toppled U.S.-backed dictator Anastasio Somoza in 1979 and then allied Nicaragua with the Soviet Union as much of Central America became a Cold War battleground.

When asked in Washington on Monday about the possibility that Ortega has had a change of heart, U.S. Secretary of State Condoleezza Rice appeared skeptical. "We'll see," she said.

Although Ortega says he is now more moderate and campaigned on a vague center-left program, U.S. officials warned of a cut in aid and investment to Nicaragua if Ortega won.

CORRUPTION, POVERTY

Voters in Nicaragua, the second poorest country in the Western Hemisphere after Haiti, apparently ignored the U.S. warnings. They instead punished conservative candidates after three straight pro-U.S. governments failed to tackle poverty and were hit by a series of corruption scandals.

Conservative rival Eduardo Montealegre, who was Washington's favored candidate, trailed with 32.7 percent in the partial results, although he insisted his party's numbers showed he won enough votes to force a runoff next month.

Two election observer organizations -- Ipade and the Ethics and Transparency group -- released quick count results on Monday that both gave Ortega a first-round victory.

Ortega needs 40 percent of the vote, or 35 percent with a 5-point lead, to avoid a runoff he would almost certainly lose as Montealegre would pick up votes from third-placed candidate Jose Rizo.

Still, Montealegre refused to concede defeat and said the election was loaded with irregularities. "This is not over until the last vote is counted," he said.

U.S. officials in Nicaragua said they found irregularities in voting and refused to back the election until the returns were in and problems of polling stations opening late and closing early were investigated.

Roberto Rivas, head of Nicaragua's top electoral body, angrily insisted it was a clean, transparent election.

This was Ortega's third comeback attempt since 1990, when voters weary of the Contra war, a deep economic crisis and Sandinista mismanagement turned against him.

His defeat was celebrated by then U.S. President George Bush, whose son would now have to deal with a new Ortega presidency.

Although Ortega now speaks more of God than revolution, he worries many Nicaraguans who blame Sandinista rule for 30,000 civil war deaths, hyperinflation and rationing in the 1980s.

"That man took our children and sent them to war. We had no food, it was impossible to live here," said Claudia Ruiz, a middle-aged woman in Managua. "How is it possible that people voted for him?"

Ortega supporters say the Sandinistas tried to help the poor but were crippled by a U.S. embargo and the Contra war.

"They never let Ortega govern," said Adela Martinez as she voted on Sunday in Managua. "Let's give him another chance."


By Kieran Murray and Catherine Bremer