Pentagon's fuel deal with Kyrgyzstan is a big lesson

by David S. Cloud

The family's involvement at the base, a critical site for refuelling Air Force aircraft flying over Afghanistan, is a story of everyday cronyism in an impoverished country where the coming of the Americans was seen as a financial windfall for the well connected.
But the case also illustrates the risks of alliances with nations that are unstable and rife with corruption. Mr Akayev's abrupt departure in March has put the Pentagon in an awkward bind. It needs continued access to the base, but the $ 207 mm spent on fuel contracts has created resentment among the country's new leaders, some of whom contend that the United States knew where the proceeds were going.

"We are currently the only country in the region willing to provide the United States with an air base," said Zamira Sydykova, the country's ambassador to Washington.
"Over the last four years the US has paid little in the way of rent. Yet at the same time, the US was paying inflated fuel prices to companies stolen by the family of the former president."

A lawyer representing the family, Maksim Maksimovich, said the former president had not been involved in improper business dealings connected with the base and described the Kyrgyz investigation as politically motivated.
Pentagon officials say the two businesses, Manas International Services and Aalam Services, were used not because of their connections but because they were the only ones with facilities to transport and store fuel at the air base in Bishkek, the capital.

Though the Akayevs may have benefited, the officials said, Pentagon rules do not bar contracts with companies that have ties to a foreign leader.
"There is nothing per se improper about relatives of a foreign leader having an ownership interest in a company that is a US government contractor or subcontractor," said Lana Hampton, a spokesman for the Defence Energy Support Centre, the Pentagon agency that oversees the contracts. She would not address whether Pentagon officials had known of the Akayev family ties to the two fuel companies.

Scott Horton, an American lawyer and an expert on Central Asia, said the Pentagon's handling of the matter had damaged its standing in Kyrgyzstan.
"The Pentagon was doing contracts that they knew were going to benefit the ruling family," said Mr Horton, who said the Kyrgyz government had informally consulted him when the base was established. "It was very clear that this was an effort to secure the support of the old regime. But it had the exact opposite effect that the Pentagon wanted it to have."

The current president, Kurmanbek Bakiyev, is insisting that the United States make retroactive lease payments of $ 80 mm and help recover the contract money that he says should have gone to the Kyrgyz government -- not to the Akayevs and their supporters. Lease payments since 2002 have been only $ 2 mm a year, the Kyrgyz complain.
But Pentagon officials say the demand amounts to asking them to pay twice for use of the base for the last four years.
"Any possible misappropriation of funds is an internal Kyrgyz matter," a Pentagon spokesman, Bryan Whitman, said.

An internal FBI report given to Kyrgyz prosecutors in September found that the two businesses might have been involved in money-laundering through accounts at Citibank in New York and the Dutch bank ABM Amro. The companies also had transactions with "a myriad of suspicious US shell companies" associated with Mr Akayev, his family and arms traffickers, the report said.
The FBI, whose involvement in the investigation has not been previously reported, began looking into Akayev family assets this summer after Kyrgyzstan's new leaders requested the bureau's help.

In one of many large transactions at American banks, Saadat Akayev, the former president's daughter, made "a series of cash deposits on successive days totalling $ 79,500 in 2003”, the FBI report says, describing Ms Akayev as a target of the Kyrgyz investigation. Her father, in exile in Moscow with much of his family, did not respond to requests through intermediaries to be interviewed.
According to Kyrgyz prosecution documents, the Aalam company was formed in an illegal privatisation of refuelling operations at the government-owned airport in Bishkek in the late 1990's. Manas was started later as a competitor, the documents say. After the Americans arrived, the companies were paid tens of millions of dollars as subcontractors. The proceeds were transferred improperly to overseas bank accounts, the documents say.

The Pentagon's dealings with Manas and Aalam began in late 2001. With combat under way in Afghanistan, the military needed up to 250,000 gallons of jet fuel a day. Defence Department fuel experts who arrived in Bishkek found Manas and Aalam refuelling jetliners there. But the companies' facilities and equipment were in such poor shape that they could not meet the military's needs, the team concluded, according to a Pentagon document.
They ended up as suppliers anyway. Lacking its own facilities in Bishkek, Avcard, a Maryland aviation fuel company, proposed using Manas and Aalam as its only subcontractors there, said Warren E. Boin Jr., a company vice president.

The Pentagon awarded the Maryland company the contract in early December 2001 without soliciting any other bidders, documents show. Kathryn Fantasia, a Defence Energy Support Centre official, said that Avcard had been brought in because it had promised to meet the military's needs, using Manas and Aalam or other suppliers.
In practice, the Kyrgyz companies made all of the fuel purchases, Mr Boin said, noting that his company did not even have a full-time employee in Bishkek. There were occasional problems with the quality of jet fuel and shortages in some months, but over all the companies performed adequately, he said.

Soon after the fuel deliveries began, Avcard's president, Linda Kropp, said she had learned that Aydar Akayev, the president's son, was a part owner of Manas. The general manager of Manas boasted about the Akayevs' involvement, she said. She then asked about Aalam, where an executive told her that Adil Toiganbayev, the president's son-in-law, was one of the owners, she said.
The discovery led her to call Ms Fantasia and Deborah L. Vankleef, the Defence Energy Support Centre officials responsible for the fuel contract, to report that the president's family members were benefiting from the deal.
"They said they were aware of it from other sources and there really wasn't anything they could do about it," Ms Kropp said.

Ms Hampton, the agency's spokeswoman, said the two women did not recall that conversation. Mr Maksimovich, the lawyer, denied that Aydar Akayev owned Manas, though he said, "The owners of the company were his friends."
The Pentagon said it paid Avcard $ 31.7 mm in 2002 for fuel. Company officials would not disclose how much it gave Manas and Aalam.

In early 2003, after the Pentagon reopened the contract for bidding, Avcard was replaced by Red Star Enterprises, a London-based company. Chuck Squires, a former American Army lieutenant colonel hired to handle the contract, said he was introduced to Aydar Akayev and Adil Toiganbayev when he took over at the Bishkek base in 2003.
Over the next three years Red Star received $ 175 mm from the Pentagon for fuel, the Defence Energy Support Centre said. The company paid Manas more than $ 87 mm and Aalam more than $ 32 mm for deliveries from 2003 to this year, according to company records provided to the Pentagon.

But the Akayevs' ties to Manas and Aalam ended abruptly in March when Mr Akayev and his family fled the country after crowds protesting corruption and electoral fraud seized the presidential palace. Executives at the two companies said in interviews that the ownership was soon changed to exclude the former president's relatives.
The fuel deals have become a liability with Kyrgyzstan's new leaders at a time when the American military needs the base more than ever. Uzbekistan, where the United States also opened an air base to support operations in Afghanistan, ordered the base there closed in July after the State Department joined calls for an international investigation of the violent suppression of antigovernment demonstrations.

Loss of the Uzbek base has required the American military to shift more air operations to Kyrgyzstan. The FBI agreed to assist in tracing the fuel proceeds overseas, but Pentagon officials have rebuffed Kyrgyz demands for retroactive lease payments for the airport.
"The US has said it would discuss these back payments," Ambassador Sydykova said. "However, to date the Pentagon has refused to honour these commitments."

Kyrgyz officials, noting that they are under pressure from Russia and other countries in the region to kick out the American military, say they could still ask the Americans to leave.
"We made an agreement between the governments of the United States and Kyrgyzstan to find out about all the sales, all the affairs of Aalam Services and Manas," said Miroslav D. Niyazov, head of Kyrgyzstan's national security council. "There is a basis to believe there were serious embezzlements and harmful misdeeds."

Source: Wall Street Journal