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Kurdistan's Covert Back-Channels

How an ex-Mossad chief, a German uberspy, and a gaggle of top-dollar GOP lobbyists helped Kurdistan snag 15 tons of $100 bills.

| Wed Apr. 11, 2007 3:00 AM EDT

Yatom said he and Michaels were introduced to key Iraqi Kurdish players by a European intelligence official whom he wouldn’t name; interviews with his associates revealed that it was Bernd Schmidbauer, West Germany’s intelligence chief in the 1990s. Dubbed “008” for his intelligence adventures during the waning days of the Cold War, Schmidbauer—now a member of the German parliament—did not respond to numerous messages left with his offices in Berlin and in Heidelberg.

Shlomi Michaels was similarly elusive, despite messages left at several of his far-flung residences. Fifty-two years old, six feet tall, and built, according to an acquaintance, “like a brick shithouse,” with the commando’s trademark shaved head and a black belt in karate, Michaels splits his time between Israel and the United States, with detours to Switzerland, Turkey, and Kurdistan. The elite counterterror officer turned entrepreneur and multimillionaire is well networked in Tel Aviv, Washington, and New York, where he taught a counterterrorism course at Columbia University in 2003. For a time, according to one source, he even ran a security consulting business in Los Angeles.

When the United States was preparing to invade Iraq, Michaels evidently saw an opportunity: According to his business associates, as well as public records and Israeli media reports, he reached out to contacts in Washington, seeking high powered lobbying help to get the Kurds a greater share of United Nations Oil-for-Food Program money, a fund set up by the UN in 1995 to use Iraq’s oil revenues to provide Iraqis humanitarian supplies during international economic sanctions against Iraq. During Saddam Hussein’s rein, the Oil-for-Food “revenue was spent in Arab parts of Iraq but not in Kurdistan,” according to the Los Angeles Times. “Kurdistan’s share of the fund was set at 13%. At least $4 billion accrued in Kurdistan’s name, Kurdish officials say, and some contend that the amount could be as much as $5.5 billion.” The paper reported that in late June 2004, just five days before he turned Iraq back over to domestic rule and flew out of Iraq, then-top US official in Iraq Paul Bremer ordered the transfer by three U.S. military helicopters of $1.4 billion in 100 dollar bills to Kurdistan—his calculation of the Kurds’ share of Oil-for-Food funds; but the Kurds and their advocates believe they are owed a few billion more. It was so much cash—15 tons’ worth—the paper further reported, that no bank could be found in which to deposit it.

Even as he helped connect the Kurds to those who lobbied for them to receive more money, Michaels positioned himself to be in line for some of the cash. A year before the invasion of Iraq, Yatom and Michaels had formed an investment and security consulting company called the Interop Group (short for international operations group) that has since done millions of dollars of business in Kurdish Iraq. Michaels’ main business in Iraq is a joint venture called the Kurdish Development Organization, or KUDO. One American source describes Kudo as a joint venture between Michaels’ company and the Barzani part of a Kurdish governmental entity. According to a second American source (who has at times offered differing accounts), KUDO is a venture between Michaels, Schmidbauer, Yatom, and members of the powerful Barzani Iraqi Kurdish political family. According to this source, KUDO serves as a general service contractual liaison between the Kurdish Regional Government and the contractors for the massive $300 million project to build a new international airport in the Kurdish city of Irbil. The main contractor on the airport project is a Turkish company called Mak-yol. A third Michaels’ company, Coloseum Consulting, is registered in Switzerland as an affiliated company of Interop, according to Swiss federal corporate registration papers.

More covertly, the Israeli newspapers Yedioth Ahronoth and Haaretz have reported, Michaels has also brought in former Israeli military officers to provide counterterrorism training to Kurdish security forces at a secret “camp Z” in Iraq. Sources say the contract was mere “bupkas”—a few million dollars—and Michaels undertook the work out of friendship with then-Kurdish Minister of Interior and security chief Karim Sinjari, and also because the Kurds faced a threat from al Qaeda.

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