US: Pentagon's Top Watchdog Resigned Amid Claims of Stonewalling Inquiries

WASHINGTON - The Pentagon's top investigator has resigned amid accusations that he stonewalled inquiries into senior Bush administration officials suspected of wrongdoing.

Defense Department Inspector General Joseph E. Schmitz told staffers this week that he intended to resign as of Sept. 9 to take a job with the parent company of Blackwater USA, a defense contractor.

The resignation comes after Sen. Charles E. Grassley (R-Iowa) sent Schmitz several letters this summer informing him that he was the focus of a congressional inquiry into whether he had blocked two criminal investigations last year.

Grassley, chairman of the Finance Committee, accused Schmitz of fabricating an official Pentagon news release, planning an expensive junket to Germany and hiding information from Congress. Schmitz is the senior Pentagon official charged with investigating waste, fraud and abuse.

"I am writing to inform you that I intend to conduct an oversight investigation into allegations that you either quashed or redirected two ongoing criminal investigations last year," Grassley said in a July 7 letter obtained by The Times.

Grassley's office said Friday that the inquiry was continuing.

"Many questions need to be answered," spokeswoman Beth Levine said. Grassley has long acted as a watchdog over the inspector general.

The inspector general's office denied any connection between Schmitz's resignation and the inquiries, saying Schmitz had previously said he intended to leave after President Bush's first term.

A Schmitz spokesman, Gary Comerford, declined to comment on the allegations in Grassley's letters, saying: "This is a matter between the senator and the inspector general."

The first of the criminal investigations in which Schmitz allegedly intervened involved John A. "Jack" Shaw, the former deputy undersecretary of Defense for international technology security.

Shaw, who was the subject of a series of articles in The Times last year, tried to manipulate a lucrative contract in Iraq in 2004 to favor a telecommunications company whose board included a close friend, according to whistle-blowers who worked for the U.S.-led Coalition Provisional Authority in Iraq.

Shaw had signed an unusual agreement with Schmitz that gave him some investigative authority. Shaw told U.S. officials in Iraq that he was conducting investigations under that agreement during a trip to Iraq in December 2003. The results of those investigations were later used in his effort to push for contracts of firms tied to his friends and their clients, according to the whistle-blowers.

Shaw, who was forced out of office last year after refusing to resign, has denied any wrongdoing.

Schmitz referred the whistle-blowers' accusations to the FBI, despite the protests of senior criminal investigators in his office who had already found "specific and credible evidence" of wrongdoing by Shaw, according to Grassley's letter.

The FBI has not placed a high priority on the investigation, which has since stalled, according to one person with knowledge of the case.

Schmitz then helped craft a news release in which his office denied ever investigating Shaw, according to Grassley's letter. Grassley has repeatedly asked for an explanation of the news release, most recently in a letter Aug. 8.

"A formal investigation was conducted. The investigation was, in fact, completed and closed and referred to the FBI. How do you square that information with the press release?" Grassley wrote to Rumsfeld on July 27. "There is a paper trail that appears to show that Mr. Schmitz was personally and directly involved in crafting the language in this press release. And second, I understand that Mr. Schmitz was repeatedly warned by his own staff 'to take it down' because it was 'patently false.' "

The second investigation in which Schmitz allegedly interfered involves Mary L. Walker, the general counsel for the Air Force.

Grassley said in the July 7 letter that the information he had was "sketchy" but that the accusation appeared to involve Walker "lying under oath," possibly during investigations of either the Air Force Academy or Boeing Co.

The Air Force Academy has been rocked by controversies in the last few years, including allegations of the rape of female cadets. Separately, an Air Force procurement officer was sentenced to nine months in jail after receiving favors from Boeing officials during the negotiation of a $23-billion deal to lease refueling planes.

Grassley wrote that senior criminal investigators had "specific and credible evidence" regarding Walker but that the case was "allegedly shut down for unexplained reasons and possibly referred to the FBI." Grassley's letter said Schmitz was a "personal acquaintance" of Walker.

The Air Force said Friday that Schmitz's office had cleared Walker of wrongdoing.

Walker could not be reached for comment.

"Ms. Walker's conduct was looked at by the [Department of Defense inspector general] and ... no negative findings were made," said Air Force spokeswoman Jennifer Stephens.

Grassley also expressed concern that Schmitz had withheld information from Congress on the Boeing investigation. Schmitz was criticized this year for redacting the names of top White House officials in his report on the Boeing deal. He first submitted his report to the White House for review.

"That decision ... raises questions about your independence," Grassley wrote in his Aug. 8 letter.

Finally, Grassley reprimanded Schmitz this year for planning to take a ceremonial trip to Potsdam, Germany, that would have cost taxpayers $16,000. Schmitz later canceled the trip.

Schmitz - the son of John G. Schmitz, the fiercely conservative former congressman from Orange County - was approved by the Senate as inspector general in March 2002. He previously worked for the Washington law firm Patton Boggs.

Schmitz will go to work for Prince Group, the Virginia-based parent company of Blackwater USA, as chief operating officer and general counsel. Schmitz formally recused himself in June from any cases involving Blackwater, a private security company with millions of dollars in contracts in Iraq.

Still, Schmitz's departure to the private sector raised concerns among government watchdog groups.

"He's a person who did not put the appearance of ethics above all else," said Danielle Brian, the executive director of the Project on Government Oversight. "That is not the way the government should function. These are the kind of things that make the general public distrust government."

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