WASHINGTON - Air cargo companies allegedly tied to reputed Russian arms trafficker Victor Bout have received millions of dollars in federal funds from U.S. contractors in Iraq, even though the Bush administration has worked for three years to rein in his enterprises.
Planes linked to Bout's shadowy network continued to fly into Iraq, according to government records and interviews with officials, despite the Treasury Department freezing his assets in July and placing him on a blacklist for allegedly violating international arms sanctions.
Largely under the auspices of the Pentagon, U.S. agencies including the Army Corps of Engineers and the Air Force, and the U.S.-led Coalition Provisional Authority, which governed Iraq until last summer, have allowed their private contractors to do business with the Bout network.
Four firms linked to the network by the CIA and international investigators have flown into Iraq nearly 200 times on U.S. business, government flight and fuel documents show. One such flight landed in Baghdad last week.
The list of the Bout network's suspected clients over the years includes the Taliban, which allegedly bought airplanes for a secret airlift of arms to Afghanistan. The Taliban is known to have shared weapons with Al Qaeda.
CIA officials expressed concern more than a year ago that air cargo firms linked to Bout were cashing in on U.S.-funded reconstruction efforts, but the warning did not reach the Coalition Provisional Authority until May. After conducting its own inquiry, the Coalition Provisional Authority allowed the companies to keep flying, insisting military officials who signed the contracts should deal with the problem. In other cases, officials said it was difficult to know if Bout was behind a particular air cargo firm because he continually changed company names and aircraft registrations.
Other federal officials said they had not known about the ban on dealing with Bout or about the Bush administration's effort to target Bout's network until relatively recently.
In a letter to Sen. Russell D. Feingold (D-Wis.) in June, Paul V. Kelly, an assistant secretary of State for legislative affairs, acknowledged that the department had "inadvertently" allowed contractors to deal with "air charter services believed to be connected with ... Bout." Feingold, a member of the Senate Foreign Relations Committee, has taken a lead role in investigating Bout's activities.
"It befuddles the mind that the Pentagon would continue to work" with suspected Bout firms, said Lee Wolosky, a former White House official who tracked Bout for the Clinton and current Bush administrations.
Feingold said Monday, "What's obviously wrong is that U.S. taxpayer dollars are going to fatten the wallet of someone associated with the Taliban and with atrocities in places like Liberia and Sierra Leone."
An unreleased report prepared for the British Parliament, a copy of which was obtained by the Los Angeles Times, accused one cargo firm reputedly tied to Bout of flying weapons to war-wracked eastern Congo this year. The company is not involved in Iraq.
Reached by phone in Moscow, Bout responded angrily.
"You are not dealing with facts. You are dealing with allegations," he snapped before hanging up. His Moscow lawyer refused to answer questions.
During the chaotic period after the collapse of the Soviet Union, Bout was among the Russian entrepreneurs who seized opportunities to make a fortune. He built a global air cargo network by obtaining old Russian planes and using them to deliver, among other things, munitions to world trouble spots in defiance of U.N. arms embargoes.
A confidant of dictators, warlords and guerrilla leaders, Bout juggled a murky group of companies for much of the 1990s, transferring his planes' registrations from country to country. His fleet, which grew to nearly 60 aircraft by 2000, often carried legitimate wares such as flowers and fish. But U.N., American and British officials who tracked his activities say his empire's stock in trade was weapons, ammunition and helicopter gunships.
"He had his name on some companies but he has been removing himself from the scene, at least in name. He is finding more people to work for him that have no apparent connection to him," a U.S. official said.
Although Bout is wanted for money laundering by Interpol and Belgian authorities and various agencies raised red flags during the last year, his network continued to do business with some U.S. agencies and their contractors, officials said.
U.N. investigations and American officials have linked Air Bas, incorporated in Texas but based in the United Arab Emirates, and Irbis, a company registered in Kazakhstan, to Bout's aviation empire.
The same officials have also scrutinized two other airlines that flew into Iraq, British Gulf International and Jetline, for possible ties to Bout.
Among the firms holding U.S. government contracts that officials said were using the network's services: FedEx and KBR. The latter, formerly known as Kellogg Brown & Root, is a subsidiary of Halliburton, the Houston conglomerate formerly headed by Vice President Dick Cheney and holder of a massive no-bid contract for reconstruction projects in Iraq.
Under pressure to move quickly on the crisis in Iraq, officials have paid little attention to the welter of subcontractors and sub-subcontractors involved in the massive reconstruction effort.
"We have a saying in the Marine Corps: 'If you want it bad, you get it bad,' " said former Marine Lt. Gen. Jeffrey Oster, who was among the first to raise an alarm about the Bout-linked firms in May, when he worked as the Coalition Provisional Authority's deputy administrator and chief operating officer.
CIA officials expressed concern about possible dealings with Bout in October 2003 and the CPA investigated. The authority allowed the suspect companies to keep flying, saying that only military officials could terminate their contracts.
The Air Force did not act until September, when it pressed FedEx to stop using Air Bas.
Even then, some suspect companies continued to use flight facilities in Iraq under U.S. control, records show.
In the United Arab Emirates, for instance, a Sharjah International Airport official confirmed that on Oct. 28, an Irbis flight returned from Balad, the Iraqi central depot for military and reconstruction supplies. Military officials reported that an Irbis Ilyushin Il-18 freighter flew into Iraq in late November. Military and former CPA officials who oversaw flights in Baghdad say there appeared to be little oversight in the hiring and contract monitoring when it came to cargo firms that flew into Baghdad.
Concern over the Bout dealings has prompted several U.S. agencies to tighten regulations, officials said. Some Pentagon logistics officials say they have begun demanding more disclosure from contract firms using U.S. fuel facilities. And the State Department has warned its diplomatic posts to use caution in contracting decisions.
Air Bas officials denied any connection to Bout, but U.N. and U.S. officials said the firm had ties to the entrepreneur.
Victor Lebedev, Air Bas' general manager, was identified two years ago by U.S. officials as a Bout operative. He confirmed in an interview that his firm's planes had flown into Balad four times in October, carrying supplies for KBR, the Halliburton subsidiary.
Halliburton spokeswoman Wendy Hall said KBR had hired Falcon Express Cargo, a Dubai-based freight company. Falcon, in turn, subcontracted with Air Bas to haul the KBR cargo, Hall said. She said KBR is no longer using Falcon.
"KBR had no knowledge of a relationship between Falcon and Air Bas, and if we had known, we would have terminated the contract," she said.
FedEx spokeswoman Sandra Munoz said the company expected Falcon to "stick to the same standards we do," investigating subcontractors' safety records and operating authority. "We believe our procedures are still very solid procedures."
Defense Logistics Agency records show that Irbis planes bought fuel 142 times from military stocks in Baghdad - at a cost of $534,383. A FedEx official in the Emirates said Irbis was paid $22,000 for each of its round-trip flights.
Baghdad flight records obtained by The Times show that British Gulf also flew for KBR. Like the Air Bas executives, British Gulf officials denied any connection to Bout's network.
But intelligence agencies have linked Bout to some of the firm's planes. U.N. investigators examining bank records in the United Arab Emirates in 2001 found frequent money transfers between British Gulf and another Bout-linked air company, San Air General Trading.
"These were clearly suspicious money flows," said Johan Peleman, an Antwerp, Belgium-based investigator and weapons-trafficking expert who has worked for the U.N.
Igor Zhuravylov, British Gulf's flight manager, confirmed in an interview that his firm frequently flew supplies into Baghdad and other Iraqi locations. He said transport firms like his and Air Bas flew military materiel and other supplies into Baghdad with little supervision from U.S. contracting officials.
"We fly to Iraq and Afghanistan all the time, mostly for the U.S. government. But we never had a direct contract with them. We can't even approach them. All the contracts are made for us by other contractors."
A 2003 U.N. Security Council report on violations of the arms embargo in Somalia implicated both Air Bas and Irbis in Bout's aviation network.
Jetline also flew into Iraq twice for the British government, said Shavia Ejav, a spokeswoman for the British Department for International Development. Jetline has been identified by U.S. intelligence officials as tied to Bout. Company officials did not respond to requests for comment.
The propeller-driven Antonov and Ilyushin freighters flown by Irbis pilots "were coming in full speed all winter," said Air Force Reserve Maj. Christopher Walker, who worked from August 2003 until August 2004 as the CPA's supervisor of all aircraft flying into Iraq.
Walker and other officials who oversaw flight clearance at the Baghdad airport said they were not warned about Bout's suspected ties to the aviation companies until May, when an account in the French newspaper Le Monde revealed that British Gulf was flying to Iraq.
The CPA's Oster said he promptly ordered an investigation.
Bush administration officials said the Treasury Department had circulated a compilation of blacklisted individuals to military planners. But the list never reached the CPA, Walker said.
Bout's name, but not his firms or planes, was not added to it until July 22.
A U.S. official confirmed that now, "Air Bas is being considered for designation" by the Treasury's Office of Foreign Assets Control.
British Gulf's Zhuravylov recently recounted a story illustrating the agencies' lax procedures. In December 2003, he said, he struck up a conversation with a U.S. military fuel truck operator at the Balad airfield. Zhuravylov said the soldier gave him a blank government form, urging him to fill it out and mail it to military officials.
In April, "to my big surprise, I received a plastic card for each of our planes which allowed us to get military fuel," Zhuravylov said. British Gulf's business boomed.
"It was really so good," Zhuravylov said. "All by the mail. No inspectors, nothing like that. Write a letter, fill a form, get a card."
Braun, Pasternak and Miller reported from Washington. Times staff writers Sergei L. Loiko in Moscow and Bob Drogin in Washington and researcher John Beckham in Chicago contributed to this report.