A Test Case on Sanctions?

If there’s one thing most Americans support in foreign policy, it’s sanctions against Iran to halt its alleged drive for nuclear weapons. From President Obama to Mitt Romney, Rick Santorum, and Newt Gingrich, leading candidates all want to put the economic squeeze on Tehran and to signal their support for Israel. President Obama recently announced he will ratchet up sanctions on the country’s oil exports and declared a “national emergency” to deal with the Islamic Republic. The Senate will try to iron out its differences over anti-Iran measures in coming weeks, as bus stations around Washington, DC, are studded with advertisements questioning the President’s resolve on the issue.

In this politicized environment, the last thing any candidate or legislator would countenance is gobs of U.S. taxpayer money going to a military contractor caught doing business with the Islamic Republic. Indeed, Congress specifically addressed that possibility in 2010, when contractors were required to certify in writing that they have no ties to Iran’s sanctioned enterprises.

And that’s why the current situation surrounding one big military contractor known as Kuwait and Gulf Link Transport Company, or KGL, seems so puzzling. Amid renewed allegations that the Kuwait-based behemoth is involved in dealings with Iranian shipping interests, ports, and front companies, KGL continues to hold up to $1 billion worth of contracts with America’s armed forces. No contractor to the U.S. military has ever been debarred for doing business with Iran, so KGL could emerge as a test case.

At the Pentagon, its number two official has repeatedly told skeptical Members of Congress that KGL is free of ties to Iran and has broken no law. Yet documents reviewed and interviews conducted by POGO show that the FBI and the Pentagon’s own Defense Criminal Investigative Service (DCIS) are apparently conducting a non-public probe of KGL that is at least a year old, taking evidence from former employees and others about alleged business dealings that could violate Iran sanctions laws.

The upshot is that instead of projecting a message of American resolve and clarity, the case of KGL seems to offer an ambiguous quagmire of mixed signals as key issues surrounding the company remain to be sorted out. Indeed, as the undisclosed federal probe of KGL drags on, the giant logistics provider continues to have access to U.S. military facilities and provide support for American troops in the tense Gulf theater.

The Pentagon Response: All is Well

The letter from the Pentagon, dated July 15, 2011, was polite.

And categorical.

Addressed to Senator Mark Kirk (R-IL), it said that, “we have found no substantial information” to support reams of internal company documents purporting to show KGL’s illegal business ties to Iran. Kirk had provided the documents to the Pentagon, and asked for an explanation.

The reply came from Ashton Carter, who has since become the number two official at the Department of Defense (DoD). Carter asserted that, after a careful check, he could offer nothing to support the contractor’s purported links to Iran. There was “no indication,” he wrote, that the company had ever “violated U.S. law,” notably U.S. sanctions designed to thwart Iran’s alleged drive for nuclear weapons.

Sen. Kirk is not the only Member of Congress upset about KGL’s supposed ties to Iran. In fact, the company has long been a nexus of controversy over Iran and other matters. Sen. Claire McCaskill (D-MO), who chairs the Senate Subcommittee on Contracting Oversight, Sen. Marco Rubio (R-FL), who sits on the Intelligence Committee, and Sen. Tom Coburn (R-OK), Ranking Member of the Permanent Subcommittee on Investigations, as well as current and former House Members Brad Sherman (D-CA) and Ron Klein (D-FL) have all posed their own pointed questions about ties to Iran, and received similar assurances from Carter.

Now, months after Carter’s last public pronouncement on the issue, Sen. Bob Menendez (D-NJ) is expressing his own concerns. On March 19, 2012, he sent a letter to the Treasury and its Office of Foreign Assets Control (OFAC), which draws up the official language defining U.S. sanctions against Iran. Menendez’s new letter cites a number of the same troubling issues about KGL and Iran that Carter knocked down last year, with a few additional queries of his own. Menendez also says this:

I understand that the FBI and Defense Criminal Investigative Service may be actively investigating these allegations [about Iran].

What Gives? An Ongoing U.S. Probe

As the Iranian nuclear crisis continues to occupy center stage, POGO has seen evidence of what Menendez alluded to in his letter: an undisclosed, apparently ongoing, multi-agency U.S. inquiry into KGL, an investigation that seems aimed at answering the same questions about ties to Iran that Dep. Sec. Carter told Members of Congress are groundless.

As one witness in the case told POGO several weeks ago, “The investigators are very clearly looking for evidence that any U.S. [military contract] money went to Iran.”

In light of the apparent probe (unmentioned in any of Carter’s letters to lawmakers), his assurances that everything is fine appear, at the least, incomplete and possibly misleading. According to documents and interviews, the FBI, the Defense Criminal Investigative Service, and other U.S. agencies have been actively examining links between Iran and KGL—a process that apparently began well before Carter sent many of his reassuring letters and that seems to be continuing.

KGL has long denied any intentional links to banned entities in Iran, and continues to do so in a little-noticed lawsuit pending in Washington, DC. In the lawsuit, the company does acknowledge a few past ties to Iranian shipping interests, but claims they were quickly severed after the U.S. imposed a ban on those enterprises. KGL also claims that allegations of its continuing connections to Iran originate in “fabricated” documents given to Members of Congress, who, in turn, sent queries to the Pentagon and elsewhere—all part of what the company calls a slander campaign tied to one of its chief competitors and others.

But the FBI’s probe apparently remains active. A number of sources close to the case report that as recently as January 2012, federal agents pulled a senior KGL executive out of line for hours of questioning about the firm’s ties to Iran as the executive tried to enter the country, supposedly at Washington’s Dulles airport. It has been impossible to officially verify these accounts of the incident. Neither the FBI nor KGL would deny it occurred. Both declined any comment. An FBI spokesman noted that Bureau policy in many cases precludes confirming an investigation, or discussing what, if anything, might be involved.

A lawyer speaking on KGL’s behalf also would not comment on whether the firm faces an ongoing federal inquiry. The lawyer added that if there were such a probe, KGL would be cooperating fully.

KGL, which trades on the Kuwait stock exchange, participates in U.S. military contracts worth up to $1 billion. Last May, KGL won a share of a five-year, $870 million contract with the U.S. Army to provide logistical services in Kuwait, Iraq, and Saudi Arabia. In February 2011, it was awarded a U.S. military storage contract that could be worth up to $157 million. The contracts required the company to certify in writing that it is not engaged in business activity with Iranian entities subject to sanctions under U.S. law. A KGL executive, who is an American citizen, signed at least one of the certifications.

As for Dep. Sec. Carter at the Pentagon, it’s unclear whether he was aware of FBI and DoD inquiries at the time he gave KGL a clean bill of health last year in letters to lawmakers. Made aware of questions raised by Sen. Menendez about a federal investigation of KGL, a Pentagon spokesperson told POGO that Carter’s position on KGL was unchanged.

“We’ve checked again carefully, gone through all our databases, and we have no indication of any changes,” the spokesperson said.

What the Whistleblowers Say

“As an American citizen and a taxpayer, I am not happy that this company [KGL] is dealing with Iran, and is also getting large U.S. military contracts,” a whistleblower and witness who has spoken to federal investigators told POGO. The witness is an American citizen and former executive at a KGL subsidiary who apparently spoke to the FBI and whose name is being withheld at his request due to the sensitivity of the matter.

Another whistleblower and former KGL employee in Kuwait said she had a series of meetings with the FBI and other U.S. agency investigators last year, amid threats to her safety that she says caused her to ask the Bureau for help. According to emails she supplied, one of the Bureau’s special agents wrote back saying:

This case is very difficult and political, even within the U.S. Government, and there is little that we can do to protect you…

That statement, dated last September, and seen by POGO, appears to be to an unusual admission by a federal law enforcement officer that political considerations are impacting whistleblower safety, as well as the conduct of a criminal inquiry into a contractor to the U.S. military.

Protecting Whistleblowers from Alleged Threats

The existence of what appears to be an ongoing investigation raises important policy questions about the status of whistleblowers who work for U.S. military contractors. Are employees who say they wish to expose wrongdoing at KGL and other military contractors being afforded adequate protection by U.S. law, U.S. law enforcement, and the Pentagon’s own DCIS, which is charged with conducting criminal inquiries?

As POGO’s Director of Public Policy Angela Canterbury testified before a Senate panel last December, current law does a woefully inadequate job of protecting DoD contract employees. The fix, she argued, is Sen. McCaskill’s pending bill, the Non-Federal Employee Whistleblower Protection Act of 2011(S. 241), which would strengthen whistleblower rights for all federal contractors. While that bill wouldn’t guarantee the safety of every whistleblower, it would help to deter the kind of retaliation that is reported in this case, and provide a stronger remedy when it occurs.

That said, there are some rights available under current law (10 U.S.C. § 2409) for DoD contractor employees who report wrongdoing. The DoD’s Inspector General should expand its investigation to include not only any ties between KGL and Iran, but also the treatment of whistleblowers in the KGL case.

One of KGL’s whistleblowers is Mrs. Mona Abdul Wahab, 34, a former KGL employee in Kuwait. Documents appear to show her extensive and recent contact with FBI and DoD investigators, both before and after Dep. Sec. Carter gave written assurances to Sen. Kirk and other lawmakers.

Mrs. Abdul Wahab also claims to be the target of recent anonymous death threats stemming from her whistleblowing activity. With the help of her legal counsel, she furnished Arabic text and English translations of those purported death threats, which she says were sent weeks ago to her Kuwait cell phone.

Unpleasant Consequences

If links between KGL and Iran are proven as a result of current investigations, the company could face debarment as a U.S. military contractor, have current contracts terminated, and/or face false claims actions in U.S. civil court. American citizens or U.S. legal residents involved in sanctioned activity, if any, could face criminal prosecution.

That result is far from certain, however, because the federal probe does not appear to be complete. But according to documents and interviews, the KGL case does involve a variety of whistleblowers, including at least two American citizens who worked for the company and who say they were fired after objecting internally to what they say were KGL attempts to do business with Iran as well as Syria, countries that face U.S. sanctions and have been officially accused of supporting terrorism.

Sounding the Alarm

The American whistleblowers declined to comment on or directly confirm their contacts with the FBI, but POGO has been told by a variety of sources that both have given evidence to Bureau agents.

Mrs. Abdul Wahab is the former head of Human Resources at KGL Investment Company, a KGL subsidiary. The mother of three small children and an Egyptian national long resident in Kuwait, she says she was fired by KGL in 2010 in part because of her objections to the company’s dealings with Iran. According to emails that she supplied, she was twice jailed last year in Kuwait (before the death threats began) after KGL complained to local authorities, who have charged her and three other defendants with facilitating the removal of confidential, internal KGL documents at a time when she was allegedly using the offices and staff of a major KGL competitor to process the material. She has denied culpability.

Many of those KGL internal documents later reached Members of Congress, and some were interpreted by Sen. Kirk and other lawmakers as possible evidence of KGL’s ties to Iran. KGL has said key elements in the material are “fabricated.”

Kuwait’s Al-Jarida newspaper has reported that a woman—who turns out to be Mrs. Abdul Wahab—has brought a legal case in the sheikhdom charging a member of the Kuwait parliament, who it says is an investor in KGL, with money laundering in support of the Iranian nuclear program. The newspaper did not identify the member of parliament by name.

A Smear Campaign?

When the U.S. imposed sanctions on the Islamic Republic of Iran Shipping Lines (IRISL) in 2008—accusing it of transporting nuclear and missile components—KGL quickly sought to comply, severing its business ties with the company and related entities, KGL has said in court filings and other public statements.

But that hasn’t stopped accusations that it’s still in business with Tehran. KGL has spent $350,000 on a high-powered Washington lobbying campaign designed to, congressional staffers say, combat these allegations. And last year, it launched a lawsuit in the District of Columbia. The lawsuit blames reports of its ties to Iran on a shadowy smear campaign engineered in part by one of its principal competitors, in cahoots with a diverse group that includes Mrs. Abdul Wahab, the former KGL employee in Kuwait, as well as Pam Baragona, the sister of a U.S. Army officer killed in Iraq in 2003 when his vehicle crashed with a truck driven by a KGL employee.

In a March 21, 2012, amendment to the lawsuit, KGL also charged that emails sent under a phony pseudonym to U.S. agencies highlighting its supposed Iran connections actually originated from an internet provider belonging to KGL’s competitor.

KGL has served the U.S. military for nearly two decades and, according to the firm’s website, received a variety of commendations from the U.S. military for a job well done. The company prides itself on having the U.S. military as one of its biggest customers, and claims to be “the premier provider of integrated Supply Chain Management services in the Middle East,” fulfilling the “Transportation, Logistics, Port Management, Shipping and Freight Forwarding needs of countless regional and international clients.”

Last June, a 317-count indictment obtained by the Manhattan District Attorney cited an Iranian businessman, Moghaddami Fard, whose name figures in dozens of purported emails between him and top KGL executives that were given to Members of Congress. The man allegedly sat on the five-member board of a company, RAK Shipping, of which KGL and IRISL (the Islamic Republic of Iran Shipping Lines) had part ownership. IRISL and many of its affiliates appear on an official list of entities banned from doing business with the U.S. As detailed by Sen. Menendez, KGL’s claims to have divested its share in RAK shipping are bogus. “This is not a divestiture, it is a transfer of ownership to another company shared by KGL and the Iranian government,” the Senator’s letter says.

“We must come down hard on this company so others realize they will pay a price for doing business with Iran,” Sen. McCaskill said after the indictment was made public. “Our sanctions must have sharp teeth.”

The chairman of KGL Holding Company, Dr. Ali Dashti, also spoke out. He was quoted by ABC News claiming that, “KGL has been the victim of a campaign to spread false and altered documents attempting to show an improper relationship between KGL and sanctioned parties.” He denied that Fard, the Iranian businessman, ever represented KGL. The case is still pending in New York.

FBI Gathers Evidence

Documents seen by POGO indicate that both the FBI and the Defense Criminal Investigative Service have spoken to Mrs. Abdul Wahab and other witnesses. She says she was interviewed by senior FBI agents in Kuwait on multiple occasions in 2011, the time frame within which Members of Congress were being told that KGL was above suspicion. The tone and content of email exchanges between her and FBI agents strongly suggest that the agents view her as a valued cooperator.

One email from last April shows Mrs. Abdul Wahab telling an FBI agent that:

KGL is currently tampering with evidence that would demonstrate that they lied to the U.S. Government about their activities in Iran, the misrepresentations were in order to win U.S. Government contracting business.

In reply, another FBI agent set up what appear to have been a series of meetings at the U.S. Embassy in Kuwait. According to one message, the FBI agent wrote that “security staff has arranged for us to meet in an area away from the main building where we should be free from interruption.”

Mrs. Abdul Wahab says that in July 2011, she and her husband were locked up in a Kuwait jail for several days. Anxious to return to her three small children, Mrs. Abdul Wahab appealed directly to FBI agents who, she says, facilitated her release through the U.S. Embassy in Kuwait. At one point, she says they offered her assistance in fleeing Kuwait at a time when she was also facing criminal charges in the country that are still pending.

“We are going to do everything we can to get you released,” one FBI agent wrote, apparently in connection with the effort.

“[FBI agent’s name withheld by POGO] is meeting with people at the U.S. Embassy in Kuwait to see what we can do. I hope that we will be able to get you very soon out [of jail] and see justice done. After you are out we can talk about options for getting you out of the country,” reads another email.

Just over a month later, in September 2011, Mrs. Abdul Wahab says she was again put in jail, and then released after a few days. She again appealed to the FBI, who told her they might be able to offer little help this time.

“This case is very difficult and political, even within the U.S. Government, and there is little that we can do to protect you…” the agent informed her.

In the meantime, though, Mrs. Abdul Wahab told the FBI how to get in touch with witnesses in the U.S.— several American citizens and former executive-level KGL employees. POGO interviewed two members of this group; neither would comment about the FBI.

But both affirmed that during their employment with KGL they had been deeply concerned about the company’s dealings with Iran. Both said they had been asked repeatedly to give KGL assistance with Iran, which they refused to do. Both were eventually fired, they said, in large measure because of this refusal.

One ex-KGL executive, a senior financial professional, was very specific. He wrote of being “Continuously pressured and asked multiple time [sic] participate in assisting companies in Iran… to raise funds and other work for these Irani [sic] companies.”

He named the companies as Valfajr and its parent company, IRISL (the Islamic Republic of Iran Shipping Lines), both sanctioned entities since 2008—when the U.S. accused the Iranian state-owned firm of serial deception and direct involvement in the transport of missile and other components related to Iran’s nuclear program.

“Upon refusal,” the KGL executive later wrote, “this was again used to force my dismissal…” He also complained of being asked to engage in “fund raising activities in Russia for the purpose of providing funds to Iran [sic] companies,” and to facilitate a company bid to acquire and operate a port facility in Syria designated by the U.S. as a state sponsor of terror.

In March 2011, the U.S. Treasury issued public a warning that reads in part:

Given the active and ongoing attempts at sanctions evasion by IRISL, OFAC advises all persons to exercise enhanced due diligence to ensure that they do not unwittingly process fraudulent shipping documents or facilitate prohibited activities.

As if taking a page from OFAC, over which Sen. Menendez exercises oversight, the Senator’s March 19 letter to the Treasury cites ties between Iran and KGL, relaunching the controversy that the Deputy Secretary of Defense supposedly settled last year.

The Senator’s letter highlights a pair of cargo vessels, the Merjan and the Awafi, that have been, “moved around in a shell game from banned companies to KGL,” transporting cargoes back and forth to the Islamic Republic. Citing public sources, Menendez adds that the vessels were, “as recently as March 2011, still chartered to” an Iranian-linked company outlawed under U.S. sanctions. “It appears those banned ships have never changed their practices but have been moved around in a shell game from banned companies to KGL, who appears to have chartered them back to banned entities,” the Senator writes.

For the period after March 2011, a time frame not addressed in Menendez’s letter, POGO found public databases which seem to show still more dates, the latest in January 2012, when the same merchant vessels shuttled around the Gulf with stops at Iran’s ports of Bandar Khomeini and Khoramshahr, as well as the port of Jebel Ali in the United Arab Emirates.

At a time when the attention of the American public and debate in the Senate focuses on strengthening sanctions against Iran, the time has come to set the record straight about what is going on with KGL, and its big DoD contracts. After what seems like many months of investigation, when will someone in the U.S. government provide clarity, as Congress considers legislation to better protect employees who allege wrongdoing at contractors, like KGL, that work for the U.S. military?