Seven Questions

Seven Questions: The Russian Connection

What does Viktor Bout know? FP spoke with analyst and author Douglas Farah about the surprise arrest of the world’s most notorious arms dealer, his ties to everyone from Colombian narcoterrorists to the U.S. government, and how he might get off the hook—again.

To learn more about Vitkor Bout, read Douglas Farahs article for the November/December 2006 issue of FP, The Merchant of Death.

Foreign Policy: What are the extent of the ties between Viktor Bout, the Russian arms dealer who was recently arrested in Thailand, and the Revolutionary Armed Forces of Colombia (FARC), whose commander, Ral Reyes, was just killed by the Colombia military?

Douglas Farah: [My coauthor Stephen Braun and I] have documented Bouts dropping of weapons to them in 1998/1999 at a time when he was delivering weapons to the Peruvian government. To the best that we could determine, he was not in direct contact with the FARC. It was the Peruvian drug traffickers who were asking him to drop the weapons on his way into Peru. That is the only sort of concrete bit of information we have on his contact with the FARC. It was about 10,000 AK-47s, and it was crucial for the FARC to get those weapons at the time because they were taking a hammering militarily and the weapons really improved their firepower.

FP: So, the documents that were found at the FARC camp recently showed no further evidence of any connection between Bout and the FARC?

DF: No. The [U.S. Drug Enforcement Administration (DEA)] operation [against Bout] was a pure sting operation. They pretended to be FARC but the FARC wasnt actually involved, and the DEA told me they hadnt even seen the documents at the time of the arrest. As far as I know, theres nothing in the documents that links back [to Bout]. And if you look at the complaint they filed, its clear that the sting operation had been underway for months before the hit on Ral Reyes.

FP: What does Viktor Bout know? Now that he has been captured, what kind of information do you think he could give the United States?

DF: Well, its huge. He could give a lot of information about Russian intelligence structures or the Russian weapons industry. He could probably give a lot of information on a lot of different non-state actors that are still active that he armed, from Hezbollah to the Islamic Courts Union in Somalia and others, if he chose to talk. I doubt that will be the case, though. Hes staunchly committed to Russia and it would be hard to turn him at this point. [If he did start talking,] he could embarrass a lot of people, primarily the Russians. He would certainly get to the United States and Britain, without any question.

FP: Youve alleged that the United States has used Bout to fly cargo shipments to places like Iraq and Afghanistan. Has that stopped now?

DF: The last time we were able to document a Bout airline flight into Iraq was January of 2007. So to the best of my knowledge, that did stop. Theres no hard evidence that the U.S. government was affording him protection. But one of the reasons [the DEA] set up the whole separate operation to ensnare him was precisely because they can argue in court that any past associations dont have anything to do with these particular charges. Theres no mitigating circumstance for what he was doing here. Whereas if they had been trying to get him on current charges or charges that had to do with gun-running around the time he was going into Iraq, he would have had a much clearer shot at that defense.

FP: How do you think Bout will play it? Youve suggested that he wont be interested in cutting a deal with the United States, so how do you think hell handle his arrest? And how and where might he be prosecuted?

DF: I think hes going to work extremely hard to get out while hes in Thailand. If hes going to make an exit, that would be the place to make it from. If he were to end up in the United States, Im sure he would play and this is obviously just my speculation the card of what the Americans give him and how much money he got from them. But I would guess that hes not overly worried, because I dont think he believes hes actually going to end up in the United States. Between his Russian friends and his money and his other contacts, he can probably get out of this somehow.

[If not,] he could be prosecuted in the United States and face up to 15 years for attempting to aid a designated terrorist organization. Thats the charge against him that he was knowingly dealing with people that identified themselves repeatedly as members of the FARC, and repeatedly asked for the weapons on behalf of the FARC. The question is, is Thailand going to keep him and try to try him first on different immigration and weapons-buying charges before they extradite him or not? Apparently if he were convicted in Thailand it would be 10 years. But I know from talking to the DEA that they are very confident that they will get him extradited in the not-too-distant future.

FP: Do you think that this arrest will put Bout out of business?

DF: It will hurt his organization considerably, yes. It will have a short- and maybe mid-term effect on people trying to acquire large quantities of really sophisticated weapons. Ultimately, they will be able to acquire them elsewhere but it will probably cost them more and they will probably have to operate through a less efficient system. Youll have a lot of people vying for his turf or his market share, and one of them will be his brother, Sergey, who will try to maintain what is left of the organization. But it would take a long time for anyone else to be able to reach the level of efficiency and global reach that Bout had.

FP: Finally, what would you ask Viktor Bout if you met him?

DF: [Laughs] What would I ask Viktor Bout if I met him? I guess what would interest me enormously, because we know nothing about it, is the incident of his very narrow escape from being captured in Athens in 2003, I think it was. Operation Bloodstone. I would ask him what happened there, and then I would ask him about his motivation: how the hell he got to be where he is, to do what he did. But would he answer anything truthfully? Thats the question [laughs].

Douglas Farah is an investigative consultant with the NEFA Foundation and the coauthor of Merchant of Death: Money, Guns, Planes, and the Man Who Makes War Possible (New York: Wiley, 2007), a profile of Viktor Bout.

Seven Questions

Seven Questions: Iraq's Economy

To defeat the Iraqi insurgency, there are few tasks more vital than improving the country’s struggling economy.Prior to Iraq’s December parliamentary elections, FP sat down with Ali Allawi, Iraq’s finance minister, to talk about reconstruction, corruption, and the U.S. presence in Iraq.

FOREIGN POLICY: What do you think of the U.S. approach to Iraqs economy following the fall of Saddam?

Ali Allawi: There was work done on the economy in seminars and discussion groups organized by the State Department. These reports did not filter into the policymaking apparatus. If there was a policy theme, it was a kind of crude version of the Washington Consensusthat all Iraq needed was quick and surgical action, shock therapy. And there was a group, then led by M. Peter McPherson, the former president of Michigan State University, that tried to introduce radical economic reforms in the first few weeks. But it ended chaotically, because the economy wasnt the top priority of the political administration.

In the banking sector, there was an attempt to offset basically all the government deposits against government liabilities. [U.S. officials] also wanted to sell off the state-owned enterprises, expecting that they would then be reorganized under the private sector. They also talked about a radical undoing of the price subsidies for the food basket and rolling back subsidies for petroleum products. There was an attempt to create a legal framework for a quickly privatizing economy, but there was no follow-through or implementation.

FP: Did U.S. officials or Iraqi officials discover that this approach wasnt working?

AA: Very few [formerly exiled] Iraqis who came back had any awareness of the economys structure or understanding of how it functioned. There were even fewer Americans [who understood]. The coalition came with a certain perspective, which quickly clashed with the bureaucratic realities. The best way to keep government going was to simply continue with the old and tested ways. Then the second phase was when the governing council was formed in September of 2003 and then began to pursue a kind of alternative, or a guerrilla war, against the economic team led by the Coalition Provisional Authority [CPA]. And the whole thing turned into a big messy stalemate.

Paul Bremer, the head of the CPA [from May 2003 to June 2004] was not aware of the nuances of economic policy or economic management. He let most of the work devolve to his deputies who were supposed to be interested in that field. The representative from the Treasury Department knew what was going on because his taskthe reform of the central bank and currency reformswas narrowly defined and was done expeditiously and well. The rest had very little understanding of what their theories and experiences were going to be worth. For example, a friend of mine who came in as a privatization expert made his fortune in leveraged buyouts. It was improbable that the same rules applied in the context of Iraq, where there is no functioning banking system. So after a period of months of knocking his head against the wall, he just left. There wasnt any serious work done to increase the investments going into the oil sector through the oil ministry, because the prevailing paradigm early on was that all investment in the oil sector was going to be done by private foreign companies.

FP: Some expertshave suggested to FPthat as much as 50 percent of Iraqs national budget may be wasted through corruption. Is that true?

AA: That figure is off the wall. But you can easily say that corruptionwhich ranges from bribe taking and influence peddling to contract padding and price gouginghas been very, very widespread in the country. It takes up a significant portion of the national income. Whether its 50 percent of the budget, I dont know. All in all, Id say 25 to 30 percent is a more realistic figure. In the Ministry of Defense, for example, there is significant information that indicates that there has been a lot of alleged theft and plunder.

FP: Do you think that Iraq has the ability to take over reconstruction when the U.S. troops leave?

AA: Yes and no. If we dont undertake serious administrative reforms to the way that decisions are made and that projects are managed, the answer would be no. [Reforms] would go into a black hole; they would be subject to the same abuses. But if you have the right management structures in the public sector, and if we are able to increase our oil production revenues to a level of 2.5 to 3 million barrels a day of exports, then I think we have a fair chance of solving, first, the revenue gap, and second, the implementation, effectiveness, and governance issue. If we pursue the right policies of forming effective reconstruction, management, and administration in a different guise from what we have now, and we simultaneously increase our oil production, I think we stand a good chance.

FP: Do you have any sense of the distribution of reconstruction funds? How much is going toward actual reconstruction, as opposed to security and other ancillary costs?

AA: Ive seen the figures from the U.S. Government Accounting Office. Something like 30 percent of the U.S. reconstruction budget goes to security. Id say that another 30 percent goes to layering. That is, they use subcontractorswhich are necessary given the procurement policieswhose costs may be too high for Iraq. So Id say that 60 percent, maybe even 70 percent, of reconstruction aid goes into nonproductive expenditures.

The U.S. taxpayer is paying $20 billion to support Iraq and we are getting something like $6 or $7 billion in actual hard assets. There is also the issue of the ongoing management of these projects and the operations and maintenance. This frequently costs quite a lot; it can sometimes cost as much as 20 percent of the capital cost. On the Iraqi side, I think the cost effectiveness ratio is much better. [As of late 2005], our investment budget[was] the equivalent of something like $6 billion, and the grant assistance program and loans[were] about the same. So the effect of foreign assistance is very high in terms of reconstruction. I believe that is going to go back down drastically by 2007, because by then, the United States will have committed all of its funds and dispersed them. Therefore, we will have to either rely on international aid agencies or bilateral aid. And it wont be on that scale that it is now.

FP: What is your opinion on how the U.S. has handled military and nonmilitary contracts?

AA: I think, by and large, if I was grading it, Id give it a D, maybe a D+. But, I mean, [Iraqis] should not look a gift horse in the mouth. The United States is our majorfrequently our onlyally, so I wouldnt be too harsh on them. But the procurement policies of the Pentagon and USAID are designed mainly for U.S. conditions. And in the chaos of Iraq, I think there has been a lot of slackness in controls and in the way that these contracts have been allocated.

FP: Do you think the U.S. should set a timeline for withdrawing troops?

AA: No. I dont think the U.S. should even consider discussing this unless it leaves behind a political order that is able to stand on its feet. Whatever the order is, it should have the necessary scaffolding to live by. Im not very good at these things, but this would be maybe two or three years, at a minimum.