Investigation

Can You Fight Poverty With a Five-Star Hotel?

The story of how the World Bank's investment arm hands out billions in loans to wealthy tycoons and giant multinationals in some of the world's poorest places.

Accra is a city of choking red dust where almost no rain falls for three months at a time and clothes hung out on a line dry in 15 minutes. So the new five-star Mövenpick hotel affords a haven of sorts in Ghana's crowded capital, with manicured lawns, amply watered vegetation, and uniformed waiters gliding poolside on roller skates to offer icy drinks to guests. A high concrete wall rings the grounds, keeping out the city's overflowing poor who hawk goods in the street by day and the homeless who lie on the sidewalks by night.

The Mövenpick, which opened in 2011, fits the model of a modern international luxury hotel, with 260 rooms, seven floors, and 13,500 square feet of retail space displaying $2,000 Italian handbags and other wares. But it is exceptional in at least one respect: It was financed by a combination of two very different entities: a multibillion-dollar investment company largely controlled by a Saudi prince, and the poverty-fighting World Bank.

The investment company, Kingdom Holding Company, has a market value of $12 billion, and Forbes ranks its principal owner, Prince Alwaleed bin Talal, as the world's 29th-richest person, estimating his net worth at $18 billion. The World Bank, meanwhile, contributed its part through its International Finance Corporation (IFC), set up back in 1956 to muster cheap loans and other financial support for private businesses that contribute to its planet-improving mandate. "At the World Bank, we have made the world's most pressing development issue -- to reduce global poverty -- our mission," the bank proclaims.

Why, then, did the IFC give a Saudi prince's company an attractively priced $26 million loan to help build the Mövenpick, a hotel the prince was fully capable of financing himself? The answer is that the IFC's portfolio of billions of dollars in loans and investments is not in fact primarily targeted at helping the impoverished. At least as important is the goal of making a profit for the World Bank.

I reached this conclusion after traveling to Ghana -- in many ways typical of the more than 100 countries where the IFC works -- to see firsthand the kinds of problems the World Bank's lenders are supposed to tackle and whether their efforts are really working on the ground. I pored through thousands of pages of the bank's publicly available reports and financial statements and talked to dozens of experts familiar with its performance in Ghana and many other countries.

In case after case, the verdict was the same: The IFC likes to work with huge corporations, funding projects these companies could finance themselves. Its partners are billionaires and massive multinationals, from oil giants like ExxonMobil to Grupo Arcor, the huge Argentine candy-maker. Its projects include not only glitzy hotels and high-end shopping malls, but also gritty gold and copper mines and oil pipelines, some of which end up benefiting the very corrupt, authoritarian regimes that the rest of the World Bank is urging to change. Nearly a quarter of the IFC's paid-in capital from member governments -- now standing at $2.4 billion -- came from U.S. taxpayers, and every president in the World Bank's 69-year history has been an American. But the United States has had little complaint with these practices, even when they have become a subject of public controversy.

Not long ago, the World Bank's internal watchdog sharply criticized the IFC's approach, saying it gives little more than lip service to the bank's poverty-fighting mission. The report, a major 2011 review by the bank's Independent Evaluation Group, found that fewer than half the IFC investments it studied involved fighting poverty. "[M]ost IFC investment projects generate satisfactory returns but do not provide evidence of identifiable opportunities for the poor to participate in, contribute to, or benefit from the economic activities that the project supports," the report concluded. In fact, it said, only 13 percent of 500 projects studied "had objectives with an explicit focus on poor people," and even those that did, the report found, had a "limited" impact. The IFC did not dispute the conclusions.

There is certainly need in countries like Ghana, whose per capita GDP ranks in the bottom third of the world, with life expectancy in the bottom 15 percent and infant mortality in the bottom fourth. The IFC committed about $145 million in loans and equity in Ghana just in fiscal year 2012. Yet Takyiwaa Manuh, who advises the Ghanaian government on economic development as a member of the National Development Planning Commission, told me she doesn't think of the IFC's investments "as fighting poverty. Just because some people are employed, it is hard to say that is poverty reduction."

But the policies continue. Why? Tycoons and megacompanies offer relatively low risk and generally assured returns for the IFC, allowing it to reinvest the earnings in more such projects. Only a portion of this money ends up benefiting local workers, and critics contend that the IFC's investments often work against local development needs. "The IFC's model itself is a problem," says Jesse Griffiths, director of the European Network on Debt and Development (Eurodad), a Belgian-based nonprofit. "The IFC undermines democracy with its piecemeal, top-down approach to development that follows the priorities of private companies."

"We're not saying we're perfect," Rashad Kaldany told me. He is a veteran IFC executive and currently its vice president for global industries. The IFC operates "at the frontier," he said. "We know that not every project will work. It's about trying to make a difference to the poor and about achieving financial sustainability" -- twin goals that are challenging in combination.

When it comes to luxury hotels like the Mövenpick in downtown Accra, however, the IFC offers no apology for its investments, even making the case for them as an economic boon for poor countries. A January 2012 report from the World Bank says hotels "play a critical role in development as they catalyze tourism and business infrastructure," noting its partners include such "leading" firms as luxury chains Shangri-La, Hilton, Marriott, InterContinental -- and, of course, Mövenpick.

In Accra, Mary-Jean Moyo, the IFC's in-country manager for Ghana, told me the new hotel fights poverty by creating jobs. To illustrate, she recalled how the Mövenpick's manager "noticed that a few boys roller-skate on Sundays outside the hotel. The manager decided to hire them to work at the pool. That is development and helping local people." How many were hired, I asked. Six, Moyo responded.

When I spoke with Stuart Chase, the Mövenpick's manager, he told me that other kinds of investments besides the new hotel he was clearly proud of would do far more to stimulate Ghana's economy and reduce poverty. Chase, who has lived and worked in Ghana for years, mentioned the country's congested and potholed roads, poor electricity system, limited food supplies, and lack of trade schools. "There is no hotel school and no vocational training in the country," he complained. As a result, all the top staff members among his 300 employees are foreign.

Besides, Accra already has close to a dozen luxury hotels. Before taking over the Mövenpick, Chase managed another nearby five-star hotel owned by Ghana's Social Security and National Insurance Trust, the country's pension system. So when the IFC decided to finance Prince Alwaleed's hotel, it was entering into direct competition with the people it claims it wants to lift out of poverty. Moyo acknowledged to me that the IFC didn't study the local hotel scene before making this investment, unlike its standard practice. "We knew the company and had another successful investment in Kingdom that made the Ghana deal attractive to us," she said. The other investment? A $20 million deal in 2010 to help develop five luxury venues in Kenya, complete with heated swimming pools, golf courses, and organized safaris.

U.S. Sen. Patrick Leahy, a Vermont Democrat who sits on the Senate Appropriations subcommittee that has jurisdiction over U.S. participation in the World Bank, called the Ghana loan "not an appropriate use of public funds" when alerted to it by a 2011 Washington Times article. The U.S. Treasury Department, which administers American participation in the World Bank, defended the loan, telling the newspaper that the IFC package replaced funding expected from private banks that pulled out when market conditions soured, putting the entire $103 million project at risk. When I was in Accra in July, however, at least two other major hotel projects were under construction with private financing obtained in the same period. The prince's representatives didn't respond to requests for comment.

LUXURY HOTELS AND RESORTS are hardly the only IFC investments that offer at best limited prospects for serving its poverty-fighting mandate. Founded just a dozen years after the World Bank itself, the IFC has in recent years become its fastest-growing unit. It now has a staff of some 3,400 people in 103 countries and made $15 billion in loan commitments in 2012 across about 580 projects -- more than double its 2006 total and a figure that's projected to grow to about $20 billion in the next few years.

The original notion was that while the World Bank was lending directly to poor countries, the IFC would stimulate the growth of private business, entrepreneurship, and financial markets in some of those same countries by lending to and investing in for-profit corporations. The founders, notably including a General Foods executive named Robert Garner, emphasized that the IFC would participate only in projects for which "sufficient private capital is not available on reasonable terms."

That concept has become muddied over the years, as well-heeled borrowers with excellent credit have sought to take advantage of the IFC's relatively attractive loan terms and other investment vehicles, plus, in some cases, the cachet associated with World Bank support. The IFC's growth got a boost in the early 1980s when it was permitted for the first time to raise money from the global capital markets by issuing bonds. More recently, its growth has accelerated as it has entered new businesses, including trade finance, derivatives, and private equity, sometimes to the annoyance of private banks with which it competes.

Today, the IFC's booming list of business partners reads like a who's who of giant multinational corporations: Dow Chemical, DuPont, Mitsubishi, Vodafone, and many more. It has funded fast-food chains like Domino's Pizza in South Africa and Kentucky Fried Chicken in Jamaica. It invests in upscale shopping malls in Egypt, Ghana, the former Soviet republics, Eastern Europe, and Central Asia. It backs candy-shop chains in Argentina and Bangladesh; breweries with global beer behemoths like SABMiller and with other breweries in the Czech Republic, Laos, Romania, Russia, and Tanzania; and soft-drink distribution for the likes of Coca-Cola, PepsiCo, and their competitors in Cambodia, Ethiopia, Mali, Russia, South Sudan, Uzbekistan, and more.

The criticism of most such investments -- from a broad array of academics and watchdog groups as well as local organizations in the poor countries themselves -- is that they make little impact on poverty and could just as easily be undertaken without IFC subsidies. In some cases, critics contend, the projects hold back development and exacerbate poverty, not to mention subjecting affected countries to pollution and other ills.

The debate is swirling as the World Bank has a new leader, installed in July: Jim Yong Kim, an American physician who recently stepped down as president of Dartmouth College. The bank declined to make him available to comment for this article, and in his brief tenure so far, he has given little hint of his view of the IFC. In both his statement when he took office in July and on his first overseas visit, to Ghana's neighbor to the west, Ivory Coast, he did note briefly the importance of the IFC within the World Bank Group and of the private sector to global job creation.

The IFC is also in the middle of a change in leadership. Its former head, Lars Thunell, recently completed his term, and Chinese national Jin-Yong Cai, a Goldman Sachs partner who was in charge of the firm's Chinese banking operations, succeeded him in October. At that time, Kaldany, who had been serving as the IFC's acting CEO, stepped back to the post of vice president for global industries.

The IFC's operations have been the subject not only of outside criticism but of significant parts of 2011's stinging internal report and other critiques from within the World Bank. The 2011 document, in which the bank's Independent Evaluation Group examined the IFC's activities over the previous decade, portrayed a profit-oriented, deal-driven organization that often fails to reach the poor, and at times may even sacrifice the poor, in a drive to earn a healthy return on its investments: "Greater effort is needed in translating the strategic intentions into actions in investment operations and advisory services to enhance IFC's poverty focus."

But the IFC's money-generating strategy has at least one benefit: It sustains the jobs of the people who work for it. The "more money the IFC makes, the more the bank has [available] to invest," says Griffiths, the director of Eurodad. "Staff is incentivized to make money."

Francis Kalitsi, a former IFC employee who is now a managing partner at private-equity firm Serengeti Capital in Accra, has a similar view. "To get ahead, you had to book big transactions," he recalls of his time at the IFC. "The IFC is very profit-focused. The IFC does not address poverty, and its investments rarely touch the poor."

The IFC sets annual targets for the number, size, and types of deals employees should complete, and it awards performance bonuses for reaching these targets, according to several current and former IFC staffers. "If you don't reach the target, you don't get a bonus," says Alan Moody, a former IFC manager who now works elsewhere at the World Bank. Deals often come to the IFC from private companies, not the other way around. "We choose our projects by identifying key clients and asking them what their needs are," says the IFC's Moyo. That means, though, that by following private companies' priorities, the IFC makes investments that are not necessarily aligned with countries' own development strategies.

Even if the IFC focused more of its resources on poverty, it doesn't have a good way to track whether its work has any impact. The 2011 report -- which advises that the IFC "needs to think carefully about questions such as who the poor are, where they are located, and how they can be reached" -- criticizes the IFC for lacking metrics for its investments, saying it fails to "[d]efine, monitor, and report poverty outcomes for projects."

The IFC does not contest these criticisms. Its management responded to the evaluation group's report by stating, "We broadly agree with [the] report's lessons and recommendations" and conceded that the "IFC has not been consistent in stating … the anticipated poverty reduction effects of a project." The IFC notes that it several years ago began using a Development Outcome Tracking System (DOTS) to measure the effectiveness of its projects at spurring economic development and alleviating poverty. This system, however, has drawn snickers from a number of IFC clients. They note that the DOTS ratings rely heavily on self-reporting by the recipient companies and depend to some extent on financial data for the entire firm, often with multiple divisions around the world, rather than focusing on the specific area of the IFC-funded project. Still, Kaldany expresses enthusiasm for the effort, saying it is pathbreaking and getting better.

Meanwhile, there has been little evidence of change on the ground. Everywhere I looked -- in Ghana, in nearby West Africa, and globally -- the IFC still seems to be giving its mandate to fight poverty short shrift.

In finance, for example, R. Yofi Grant, executive director of Databank, one of Ghana's largest banks, told me that the IFC's practice of providing loans at attractive terms to multinational companies "crowds out local banks and private-equity firms by taking the juiciest investments and walking away with a healthy return."

Grant says that the IFC recently organized a $115 million financing package for global telecom giant Vodafone to expand its operations in Ghana, even though six telecom companies already operate in the country. Despite such robust private investment, the IFC's loan package for Vodafone was its second in two years. "That is not poverty reduction, and these are not frontier investments," Grant says, referring to the IFC's refrain that it invests where other financiers might not. "The IFC says all the right things and does all the wrong things."

A THOUSAND MILES EAST of Ghana are Cameroon and Chad, which exemplify a major and highly controversial domain of IFC investment, one where the stakes are often higher than with hotels and shopping malls. That domain is energy.

As of the end of 2011, the IFC reported a $2 billion oil-and-gas portfolio, investing with 30 companies in 23 countries and, the IFC boasted, achieving "Award Winning Recognition from the Market." But critics, including environmentalists and nonprofit groups such as the Bretton Woods Project and Christian Aid, contend that the projects often exacerbate the poverty they are supposed to alleviate. The projects, they say, frequently escalate local conflict and corruption, displace communities, disrupt livelihoods, and contribute to the emission of greenhouse gases and other pollutants.

In 2003, an independent review panel within the World Bank even recommended that the bank, including the IFC, pull out of all oil, natural gas, and coal-mining projects by 2008, saying such loans do not benefit the poor who live where the natural resources are found. But the World Bank's board overruled these recommendations. The bank ultimately agreed to an approach that is "business as usual with marginal changes," Emil Salim, the Indonesian official who led the bank's review, told Bloomberg News in 2004. In a conference call with reporters at the time, IFC executive Kaldany said, "There was very broad consensus that we should remain engaged; we do add value."

The example of Chad and Cameroon, however, offers a more complicated picture. In 2000, the IFC invested roughly $200 million with ExxonMobil, Chevron, and others, along with the governments of Chad and Cameroon, to support the construction of a nearly $4 billion oil-pipeline project that experts estimate will generate more than $5 billion in revenue over the 25-year life of the project from wells mainly in landlocked Chad to a port in Cameroon.

The two countries are even poorer than Ghana to the west. Per capita income in Chad ranks 193rd in the world, compared with 185th place for Cameroon and 172nd for Ghana. Life expectancy at birth in Chad, at 48.7 years, is the world's absolute worst, and the country has been ruled for the last two decades by heavy-handed dictator Idriss Déby.

"Conditions were and are a hardship and horrible," says Peter Rosenblum, co-director of the Human Rights Institute at Columbia University, who argued that the pipeline project should demand protections for the civilian population. The bulk of the oil revenue was supposed to be set aside for food, education, health care, and infrastructure. But in the face of attacks from rebel groups supported by neighboring Sudan, and asserting a need to defend the pipeline, Déby instead channeled substantial chunks into arms purchases, bringing criticism not only from human rights groups but from the World Bank. As critics of the project had warned, the oil bonanza increased the stakes for control of the country and added to the civil strife.

What happened with Chad is not an isolated incident. Despite perennial controversies over energy and mining projects, often the subject of fierce disputes related to everything from their environmental impacts to the extent they boost authoritarian regimes, the IFC continues to invest in them extensively. Just in 2012, the IFC announced investments in mining projects for gold, copper, and diamonds in places like Mongolia, Liberia, and South Africa, as well as investments in oil and gas projects in Colombia, Ivory Coast, the Middle East, and North Africa.

Moreover, as with Chad's Déby, the IFC continues to lend and invest in countries with heavy-handed rulers such as Syria (Bashar al-Assad) and Venezuela (Hugo Chávez). Kaldany told me there were about a dozen dictatorships, which he wouldn't name, where the IFC would simply not do business. But then there is a second tier, where he is inclined to work. "It is a tradeoff. We can have a positive influence," he said, referring to a recent IFC deal in now civil war-torn Syria to fund microfinance. He said the IFC is insisting on increasingly tight financial controls in such countries to ensure that the proceeds from the projects are targeted directly to the poor rather than to sustaining the dictators' hold on power. He acknowledged that the controls in the Chad case were not nearly tight enough and that the IFC ultimately had to pull out.

The IFC's critics see two obvious ways to fix it: dramatically overhaul its priorities or sharply reduce its funding and channel those resources toward the type of World Bank projects that more closely align with its anti-poverty mission.

Kaldany said that the IFC is seeking to increase its number of small projects, of under $5 million and tightly targeted on the poor, and to devote more attention to the poorest of the poor countries. In the most recent fiscal year, it generated 105 of the smaller projects, 20 percent of its total deals, although a much smaller percentage of its total dollar outlays. (IFC officials couldn't immediately provide that number.)

But don't count on a new direction. Although its new leadership has remained publicly mum, the IFC's new chief, Cai, has told people he strongly supports its current strategy.

IN ACCRA, NOT FAR from the new Mövenpick, the IFC's posh offices -- sporting a lawn, flowers, and private parking -- sit amid a slum, surrounded by an imposing concrete wall topped by coils of barbed wire. The only paved part of the road to the IFC is directly in front of the guarded complex, which has no sign announcing its identity. The rest of the road is a winding, dusty dirt path filled with potholes and surrounded by hovels erected out of battered metal or wood.

Barefoot children sit amid goats and roving chickens, on ground dotted by garbage and litter. Women cook tiny fish strung onto sticks over an open fire, ignoring the near-100-degree temperatures. I approached them one day in July, and some of them said they had lived there for 15 years. When asked whether they knew what the World Bank is, they said no. When told that it fights poverty, many of them laughed.

"We need help, and we know there are places that help," said one woman who was cooking as two young boys clung to her legs. "But we have never heard of them."

Pam McLean

National Security

Does the F.B.I. Have an Informant Problem?

How the bureau is playing fast and loose in its fight against domestic terrorism.

There's an American trope we all know and love -- the loose-cannon cop who doesn't play by the rules. Whether it's Dirty Harry, Raylan Givens, or Jack Bauer, the story is as reassuring as it is trite. There's someone out there who can get the job done and doesn't worry about coloring inside the lines.

In counterterrorism circles, that figure is known as the professional informant. And the truth is far more complicated and troubling than the comforting fiction. Professional informants are paid by law enforcement to infiltrate criminal or extremist circles, sometimes on a full-time basis. Yet they're not considered employees of the government and are not subject to the same rules. From warrantless searches to sex with targets to constructing terrorist plots out of thin air, the informant problem is not new, but this powerful investigative tool is under pressure like never before after being exposed to the harsh light of day in a series of recent terrorism trials. Growing media scrutiny and a pending civil lawsuit in California are aggressively challenging whether the benefits of aggressive informant tactics outweigh the risk to civil liberties and are raising troubling questions about the legitimacy of terrorism investigations.

The risks to recruiting informants from within criminal organizations have been amply documented over the years -- but usually with mobsters, not terrorists. Law enforcement can get too cozy with informants inside criminal organizations, leading to corruption and other complications, as in the cases of Whitey Bulger and Gregory Scarpa.

Other challenges are less obvious. Consider the professional informant, who is not primarily employed by a criminal enterprise but by a law enforcement agency. In a number of cases, these informants are chosen because they fit a profile -- such as "wealthy Muslim" or "pretty girl" -- and not because they have any prior connection to the targets of the investigation.

Because they are not insiders but infiltrators, these informants exist in a netherworld somewhere between snitch and cop. But while agents are rigorously trained about what's legal, ethical, and fair, informants are often just given a stipend and sent to work. In an ideal world, that work is supposed to be limited in scope.

"Usually what the informant provides is an opportunity to introduce an undercover operative," says Mike German, a former FBI undercover agent who now works for the American Civil Liberties Union (ACLU). "And then you push the informant out of the case because you want the FBI agent there. He understands the law. He or she would be much more sensitive to any kind of privilege issues or sensitive techniques."

In a significant number of cases, however, the informant simply becomes the undercover operative, sometimes for months or years at a stretch. The practice has endured for decades, though details have only become available to the public in recent years.

In one of the earliest known examples, an FBI informant covering the Black Panthers helped arm the group prior to its violent conflicts with Oakland, California, police in the 1960s, according to a new book and accompanying story by the Center for Investigative Reporting. The informant, Richard Masato Aoki, was recruited by the FBI when he graduated from high school. Although he had brushes with the law as a troubled youth, he did not become involved in left-wing politics until an FBI agent recruited him to penetrate California communist circles. Aoki did that and more, rising to become a legendary radical activist even as he regularly met with FBI handlers. When the Black Panthers formed, Aoki was there, providing both guns and training on how to use them.

Aoki was not the only member of an extremist group to become prominent under the FBI's tutelage. During the 1990s, an FBI informant named Vince Reed rose to a top leadership position in the white-supremacist Aryan Nations organization. Reed had always dreamed of being a law enforcement officer, but an injury disqualified him from working on the street, according to his former FBI handlers. Instead, Reed became a professional informant, monitoring the Hells Angels for the FBI after being recruited into the gang in prison.

When that assignment ended, he infiltrated the Aryan Nations, a group with which he had no prior affiliation (a swastika tattoo left over from his biker days helped). The FBI invested considerable resources, including multiple undercover operations, in support of his efforts, and Reed served for years before testifying against some of the group's members in 1996.

Such cases are not representative of the vast majority of informants, a label that can be applied to almost anyone who provides information on an investigation. The overwhelming majority of informants fall into noncontroversial categories. Some are paid for information; others receive leniency regarding their own criminal behavior. Many informants are simply good people who happen to live next door to bad people.

"They're the prototypical good citizen who's going to take some personal risk in order to make sure their community is safe," says German.

That's an apt description of Karen Wister-Kearns, an informant in the traditional sense -- found, not made. After the 1995 Oklahoma City bombing, the FBI recruited her to collect information on her neighbor, white supremacist Mark Thomas, an Aryan Nations preacher sporting a Hitler mustache who held white-power rock concerts at his rural Pennsylvania farm as a tool to recruit skinheads and neo-Nazis into the world of organized racism.

"I would receive phone calls. 'Could you drive up to [Thomas's] compound and see if there's a particular vehicle with out-of-state license plates?'" Wister-Kearns recalls. "They would always end it with: 'Don't do anything that puts you in danger.'"

To gain more insight, Wister-Kearns served as an intermediary in a child-custody dispute in which Thomas was embroiled, but her unpaid role was limited to passive collection of information. She informed, but didn't get involved in her target's world. (Thomas was arrested in 1997 and pleaded guilty to using cash from bank robberies to finance white-supremacist causes.)

While most informants do their jobs the same way, some are asked to play a more active role. These operational informants can have a disproportionate impact, taking part in multiple investigations over long time periods and playing a role that much more closely resembles that of an agent than that of a concerned citizen.

One paid informant, who asked not to be named, contacted the FBI in the early 1990s after hearing longtime associates discuss a planned anti-government crime. He was recruited to monitor them over the long term and proved so reliable he received additional assignments involving white supremacists and other extremists.

Although he came to the FBI for all the right reasons, the informant was soon employed full time as a kind of utility player, spending most of his time on his duties and performing tasks that would have been prohibited for an undercover agent.

"The things I could do that they couldn't do was I could go around and make a mess of people's houses," he said in an interview. "I could be nosy to where they couldn't be nosy without a warrant."

The informant was not specifically instructed to break the law, but he never received any coaching on the legal limits of a search. Instead, his handlers made what he characterized as "suggestions" about what they wanted to know. As long as he reported back with answers, no one ever commented on his methods.

Searches by the informant -- and other informants from that period, according to former FBI agents -- were not restricted to the "plain view doctrine," which under the Fourth Amendment allows law enforcement to seize items left out in the open and observed under normal, lawful circumstances.

Instead, informants looked in drawers, closets, sheds, and hiding places. These searches, which multiple sources referred to as "snooping and pooping," could involve scouting the location of weapons or explosives in a suspect's home prior to a raid. But often, they were exercises in intelligence gathering. Anything that might be interesting in a suspect's home was noted and reported.

"Nobody ever told me nothing about the Fourth Amendment or anything else," the informant said. "I could go in and do those things because I wasn't a sworn officer."

Searches aren't the only gray area for professional informants.

Dennis Mahon was a big-talking white supremacist who moved in some of the same circles as Thomas and even Oklahoma City bomber Timothy McVeigh. During the 1990s, Mahon's girlfriend -- a blond bombshell sporting a swastika tattoo -- was recruited to inform on him to the Bureau of Alcohol, Tobacco and Firearms (ATF). Her reporting never led to his arrest, but investigators retained one crucial piece of information: Mahon had a fatal weakness for women, especially if he thought he had a shot at sex.

In late 2004, the ATF decided it needed another informant next to Mahon, but this time she would be made, not found.

According to the Arizona Republic, ATF agent Tristan Moreland recruited Rebecca Williams, a former stripper with no criminal record and no previous connection to Mahon or white supremacy. Moreland preferred to "cast" his informants like a Hollywood director, rather than work with what he found, the newspaper reported.

By all accounts, Williams's motives for taking part in the investigation were pure. Her father and an uncle had been in law enforcement. "I kind of wanted to be a cop," she told the Republic.

Williams became, for all intents and purposes, a paid employee of the ATF. But because she was classified as an informant, she was not subject to the same scrutiny and regulation that would tie the hands of a trained undercover agent.

Much of her work was standard fare, flirting and talking with Mahon and getting him to open up (often on tape) about the 2004 mail-bombing of an Arizona diversity official, a case that Moreland was investigating. Mahon was ultimately convicted, based in significant part on Williams's testimony and recordings.

On one such video recording, Mahon lay naked in bed while talking with Williams, who ultimately put a towel over the camera to obscure what happened next.

Williams denied having sex with Mahon. Prosecutors claimed that "there was no use of sex to obtain evidence," which was not quite the same thing as saying, "There was no sex." Mahon's attorney asserted in closing arguments that Williams had slept with Mahon, though in an email interview she stipulated that "at the risk of sounding like President Clinton, it depends on how one defines 'sex.'"

Another counterterrorism case where the question of sex entered the scene involves Craig Monteilh, a paid FBI informant who says he was tasked to search for possible terrorist sympathizers among mosques in Orange County, California, where he pretended to convert to Islam to gain access.

Monteilh said he approached the job with considerable enthusiasm, taping hours of religious and cultural events before going public with a series of alarming, and often contradictory, stories about his misadventures, which are the centerpiece of an ongoing lawsuit against the FBI by southern California Muslim organizations.

In March, Monteilh claimed his FBI handlers had given him explicit permission to have sex with Muslim women in the community as part of his infiltration. An undercover law enforcement officer would be subject to severe disciplinary action for having sex with a target.

"Big problem. You'd get fired, and there'd be criminal prosecution as well," says David Gomez, a former FBI agent who spent years investigating domestic terrorism. "The sex itself is not criminal, but depending on the outcome and what the court says, it would be very bad."

Even though Monteilh was not an agent, his handlers could still be on the hook for his activities -- but likely only if they explicitly told him to do it.

"There are degrees of participation, and it depends on how much you're acting on the direction of the FBI," Gomez explains. "In other words, if the FBI directed you to have sex with somebody and you had sex with them, the FBI would be liable for that."

Monteilh's blizzard of claims are best taken with a large grain of salt, at least until they are resolved in court, but other sources have raised questions about his behavior. Monteilh was so zealously militant that some of his targets informed on the informant, voluntarily reporting his "jihad talk" to the FBI.

Such aggressive plays in the post-9/11 era have come under heavy scrutiny. Shahed Hussain is a Pakistani national who made tens of thousands of dollars working as a professional informant for the FBI in an unknown number of investigations on at least three continents since 2002. His work became the center of controversy in 2011 during the trial of four U.S. citizens for a synagogue bombing plot two years earlier in New York.

Once again, the informant had no prior connection to the subjects of his investigation. Hussain showed up at the local mosque and probed for anyone who would join him in radical talk. He eventually "revealed" himself as a flush terrorist financier and threw money around liberally to prove it. In a key exchange, Hussain offered $250,000 to one of the suspects, James Cromitie, who was wavering about taking part in the bombing.

"That case wasn't a terrorism plot. It was a murder-for-hire case," says the ACLU's German. "If I get $250,000, I guarantee you I can find a lot of people willing to do a lot of really horrible things."

During sentencing, U.S. District Judge Colleen McMahon also excoriated the FBI's handling of the investigation.

"The essence of what occurred here is that a government, understandably zealous to protect its citizens from terrorism, came upon a man both bigoted and suggestible, one who was incapable of committing an act of terrorism on his own," McMahon said, adding at a different point in the proceeding, "Only the government could have made a terrorist out of Mr. Cromitie."

But for all her harsh language, McMahon conceded that the men were indeed guilty of committing crimes and sentenced them each to 25 years in prison.

Similar concerns were raised in the case of Rezwan Ferdaus, a Massachusetts man arrested in 2011 who believed he was part of a terrorist cell plotting to bomb the Pentagon. Everyone else in his "cell" worked for the government, including two undercover agents and an informant with a heroin problem. During bail proceedings, his attorneys tried to impeach the informant's credibility based on drug use, but their arguments fell on deaf ears. Ferdaus pleaded guilty in July and faces 17 years in prison.

Therein lies the rub. In the vast majority of cases, the government's use of professional informants has stood up in court, year after year and case after case. For the most part, these tactics withstand the legal test, and the courts have substantial power to correct excesses when they occur. Perhaps the more important question is whether these tactics are desirable and whether Americans will continue to accept them.

What's fair play?

Should law enforcement officials be able to employ virtual agents who can skirt restrictions that would tie the hand of sworn officers? Is it acceptable for professional informants to use sex to establish themselves with suspects? Is it fair to prosecute someone whose path toward terrorism is shepherded, prodded, cajoled, and financed at every stage of the plot?

"You come to a situation where a person has indicated they want to do something, perhaps something illegal, but has taken no actual steps to accomplish that until the government arrives in the guise of Santa Claus," says the ACLU's German. "It has a bag full of treats that can help the plot along, when the person actually made no effort to do it themselves. And it puts them in the strange position of saying, 'Do I embarrass myself by saying I didn't really mean it, or do I go along?'"

The informant who "snooped and pooped" among white supremacists during the 1990s believed at the time that his work was justified, to keep someone from getting hurt or stop bombs from going off.

"Years ago, I thought it was fair play," he says. "But nowadays I look at things a little differently than I did back then."

He eventually became frustrated with the inconsistency of the Justice Department's prosecution of his targets. Over time, he came to see his efforts as intelligence-gathering without clear limits.

One thing was clear, however -- the contract the FBI asked him to sign, many months after he was put on the payroll. The document, variations of which are still used with informants today, made the informant responsible for whatever he did in the course of his work. It also stipulated that the full-time, paid informant was "not an employee, partner, member of a joint venture, associate, or Agent of the FBI."

He was simply a concerned citizen, who took "suggestions" and received a regular paycheck, for the better part of a decade.

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