From Kurdistan to K Street

Inside Washington's covert foreign policy apparatus, middlemen like Shlomi Michaels are key.

The routine of Washington foreign policymaking is straightforward and, well, a little boring. Presidents and secretaries of state issue pronouncements in speeches. Diplomats have discussions in ornate ceremonial rooms. That's the official version, anyhow, and even if we're well aware that reality departs from the C-Span, Foreign Affairs version of things, the rhythm, pomp, and ceremony shape our understanding of how countries relate to each other.

This is a story of the other world, the one whose real power players never show up in the CNN headline crawl. It's the story of a man with a habit of popping up, Zelig-like, at the nexus of foreign policy and the kinds of businesses that thrive in times of war—security contracting, infrastructure development and postwar reconstruction, influence and intelligence brokering.

It's also the story of how this entrepreneur and middleman, in the shadowy environment created by the 9/11 attacks and Washington's advance on Iraq, seized the opportunity to propel himself from small-time businessman into global player. The trajectory of Shlomi Michaels is testament not only to one man's driven intensity, but also to the opportunities the war on terror has presented to those with the information, connections, and ambition to seize them.


I. The Dossier: In Which an Ex-Israeli Commando Tries to Save George W. Bush

On a spring afternoon in 2004, up the street from the White House, former CIA officer Whitley Bruner was on his way to meet a new contact. An old-school, Harvard-trained Arabist, Bruner had been to a lot of meetings like this—some mundane, some of greater consequence, like the time, back in 1991, when he got instructions to contact an Iraqi named Ahmad Chalabi. ("I told him, 'My name is Whitley Bruner, we have mutual friends, and I'd like to talk to you about Iraq.'") Low-key and efficient, Bruner had retired from the Agency in late 1997 and in 2004 landed a job with the private intelligence outfit Diligence LLC. The assignment, which had him shuttling between Washington and the Middle East for clients seeking opportunities in the Wild West of post-Saddam Iraq, didn't look all that different from his old job, and it brought him into contact with a continuing array of intriguing characters.

That spring day, Bruner was headed for the office of one of the most powerful Republican lobbyists in Washington—Ed Rogers, a former White House aide in the Reagan and first Bush administrations. Rogers had a soft Alabama drawl and an unsurpassed GOP resume; he was also known to like spooks, so much so that his company, Barbour Griffith & Rogers, had acquired a controlling stake in Diligence. Bruner had only to go upstairs.

As Bruner took a seat in Rogers' office, he noticed a man who "radiated clandestinity," he recalls, with close-cropped hair and military bearing. They shook hands, and "He broke every bone in my hand. When I heard his Israeli accent, it was not hard to guess his background."

The intense stranger introduced himself as Shlomi Michaels. He was a former commando with Israel's elite internal counterterrorism force, the Yamam; he had since become one of the middlemen who work the seams between the worlds of security, intelligence, and international business, along with a few more colorful sidelines including a private investigations/security business in Beverly Hills. Even as ex-Israeli commandos turned security experts go, Bruner thought, this one seemed unusually well connected—his business partner was former Mossad head Danny Yatom. Before arriving in Washington, Michaels, a dual Israel-US citizen, ran a string of businesses in Beverly Hills: a coffee/chocolate shop franchise, a martial arts training outfit, real estate investments, and a high-tech security business aimed at "high worth" Hollywood clients. After 9/11 he left Los Angeles, alighting first in New York (where he taught counterterrorism for a semester at Columbia University) and then in DC, where he would soon launch a lucrative venture to cash in on the Iraq War and its aftermath.

But on this day, Michaels had a different proposition for the former CIA officer—one, he suggested, that could make the assembled men a handsome commission and even help President George W. Bush get reelected. He had a well-placed Iraqi source—a former officer in an Iraqi military psychological operations unit, he said—who had gathered hundreds of pages of contracts, maps, and photographs documenting meetings between Iraqi and Ukrainian officials. The information, Michaels said, would prove that Iraq had pursued a covert chemical weapons program. Michaels wanted Bruner to set up a meeting for him and the Iraqi source with the CIA. To turn over the whole dossier, he wanted $1 million.

Was this guy a spook, a political operative, or just an aggressive businessman? Bruner wasn't exactly sure—no one who has met Michaels ever seems to be. "It is what it is" is a favorite Michaels expression, one associate told me. "He says that a lot." (Rogers did not return calls about the attempted dossier sale and his role in it.)

What is known is that Michaels has appeared in Washington at key times over the past few years to engineer complicated international partnerships and shop politically useful information. By 2002, he was meeting with various Washington foreign policy hands in the lobby of the Mayflower Hotel to discuss a joint venture to do business with the Iraqi Kurds; after the invasion, those talks left him well positioned to win lucrative reconstruction contracts handed out by the Kurdish government. He helped introduce information in Washington that the United Nations' Iraq oil-for-food scheme was riddled with corruption—a matter that became a key GOP talking point for promoting the war. Later Michaels helped the Kurds find Washington lobbyists (Rogers' BGR) who would make the case that Kurdistan was owed some $4 billion in oil-for-food back payments. In June 2004, during his last days in Iraq, US Iraq proconsul Paul Bremer sent three US military helicopters loaded with $1.4 billion in 100-dollar bills to Kurdistan, according to the Los Angeles Times. The money helped finance Kurdish infrastructure and development contracts that Michaels and his business partners then contracted with the Kurdish government to build and secure. What was Michaels' motivation in shopping the WMD dossier? No one claims to know. But, as Bruner puts it, "Everyone was aware that the Americans were sufficiently desperate and might pay big money for something not true."

Bruner asked to see some of Michaels' documents before agreeing to fly to Jordan to meet the Iraqi source. He says he was given Arabic-language contracts and "pictures of various Iraqis who were supposed to have been involved with weapons of mass destruction. There were photos of meetings, everybody sitting around a table at trade missions." The photos and documents looked authentic, Bruner thought, but he wasn't sure they proved anything. There had been lots of meetings between Iraqi and former Soviet bloc officials. Who knew what they'd led to?

Still, he and Rogers decided it was worth checking out. A few days later Bruner was in the cigar bar of the Le Royal Hotel, a cement wedding cake of a building in bustling downtown Amman, meeting Michaels' mysterious Iraqi. Though still skeptical, he eventually decided to call up a former Langley colleague who was then serving as the CIA's Amman station chief. Soon after, Michaels and the Iraqi got their meeting with the Agency.

It didn't go very well. The CIA wasn't interested in the dossier, not then and not during a second pass associates said Michaels attempted. Michaels, according to Bruner and others, was furious.

II. Amman, London

I first learned about Michaels' meeting with the CIA while sitting in a frigid apartment in Amman in January. I was there meeting with a string of Middle Eastern operators who had had dealings with Michaels over the years. In the Casablanca that is Amman these days—a trade hub full of Iraqis, Jordanians, Americans, Lebanese, Israelis, and wealthy Gulf investors seeking opportunities in postwar Iraq—Michaels emerged as an enigmatic figure: part business hustler, part agent, via Yatom, of a covert foreign policy agenda. In either role, he was larger than life. "I argued with the [Le Royal] hotel to get him a good foreigner rate," one Jordanian associate told me. "Then I come by later, and he's moved to the fanciest suite in the hotel."

For men like Michaels, Amman was a gateway to business opportunities in Iraq. One Michaels/Yatom joint venture, Kudo AG (short for Kurdish Development Organization), registered in Switzerland, won a major contract to serve as the Kurdish government's general contractor for the $300 million project to rebuild Irbil's Hawler International Airport. According to an associate familiar with Michaels' Kurdish ventures, the deal was structured such that Kudo (a joint venture between Michaels and Yatom and their Kurdish associate representing one of Kurdistan's two ruling parties) was to get paid 20 percent of every contract awarded in the airport project. Though it's not clear how much Kudo was ultimately paid, that ratio would have made its contract worth roughly $60 million. (Michaels declined to comment for this story.)

Michaels also won a smaller contract with the Kurdish Minister of Interior to provide counterterrorism training and equipment; in 2004, Michaels brought several dozen Israeli ex-security officials as well as bomb-sniffing dogs, secure communications equipment, and other military gear into a camp in northern Iraq. The traffic did not go unnoticed by Turkey, which was alarmed by any hint of possible Western support for Kurdish separatism; after Israeli media reported evidence of the activities, Michaels' crew was forced to beat a hasty retreat from Iraq. The Israeli presence in Kurdistan even blipped on the radar of US intelligence agencies, which in 2004 apparently got reports that Iranian agents planned to target Israeli and US personnel operating in northern Iraq. One Pentagon official, Larry Franklin, caught sharing Iran information with Washington hawks, got recruited by the FBI for a July 2004 sting operation, in which he was directed to tell an AIPAC official about the alleged threat to Israelis operating in northern Iraq; later Franklin pled guilty to leaking classified information and was sentenced to 12 years in prison.

For their part, Israeli authorities vowed to investigate the training activity. (Israeli nationals are not allowed to enter Iraq without explicit permission or deal in defense equipment without a Defense Ministry license, according to Israeli government spokesmen.) The probes have since been closed with no charges brought. Perhaps that's because, as Haaretz correspondent Yossi Melman recently reported, a former senior Israeli Defense Ministry official had given Yatom verbal permission for the Kurdish activities—just as the official was leaving his post to go into the private defense business himself.

The irony, according to a close business associate of Michaels', is that for all the trouble the training deal caused when it was exposed, Michaels was desperate to get out of the security business. "Shlomi looks like a special forces guy," the associate said. "That shit oozes from him. But he wanted to change his identity. If he could change himself to a college professor with glasses and a tweed jacket, he would do in three seconds.

"What he wanted was very, very simple," the associate added. "He wanted to become a billionaire, and he wanted to do it in Kurdistan. That is the real Shlomi Michaels. That training thing—he threw that in just to get the other projects."

"During all of the time I spent with Shlomi, he was extremely consistent in his desire to pursue infrastructure development projects, perhaps hold a position on the board of a bank and pursue other business of that nature," Russell Wilson, a former senior staffer for the House international relations committee, who helped advise the Kurds on Washington representation and who has had a long business association with Michaels, told me. "People assume because he was former special forces that security was his thing. This was not the case."

Regarding Michaels' dossier, Wilson said only, "I believe that as a result of his foreign travels he came across that information and felt obligated to pass it on."

Double standards seem to be everywhere in Amman. Alliances are made and just as quickly dissolved; the legal strictures of the West run up against the realities of the Middle East and postwar Iraq, where kickbacks and contract skimming in partnership with top officials are standard practice. Some associates walked away from the Kudo deal concerned that it was too opaque and might violate US law by providing a share of Kurdish government contracts to relatives of the same officials awarding those contracts. But if such a close relationship with the Kurdish leadership worried some, it was part of the attraction for others. Kurdistan is one of the few places in the world with known significant unclaimed oil and gas reserves; in the scramble for contracts to develop them, energy operators have been willing to pay millions of dollars for the right introductions.

After a day's worth of interviews, I got to my Amman hotel room and found a message that Michaels was in London that very weekend. This time he was meeting with a clutch of international oil and security men seeking to tap his and Yatom's Kurdish connections. The résumés of those in attendance, as I was able to piece them together over several months, read like the cast of characters for a thriller. There was Steve Lowden, previously the CEO of Suntera Resources, a subsidiary of a Russian energy company, Itera. (Itera is reportedly under FBI investigation in the United States for alleged organized crime ties and attempted corruption of US officials. Among those reportedly under investigation is former Congressman Curt Weldon [R-Pa.].) There was a Geneva-based private security official, Abraham Golan, who specializes in providing security for energy clients in Africa. Yatom, then a member of the Israeli Knesset prohibited from using his position to benefit himself, did not attend the meeting with the oilmen. But Yatom joined Michaels, Golan and his wife, and Wilson, as well as an Israeli real estate tycoon, and the tycoon's young escort for a night out afterward, at an elite members-only London gaming club.

III. A Discreet Project

There was one more story Michaels' Israeli associate in Jordan told me. Yatom, he said, claimed to be working with Michaels in partnership with the former head of the CIA, James Woolsey, and former FBI chief Louis Freeh. Could this be true? I decided to ask the ex-Mossad chief himself.

Danny Yatom met me in May at a café in his home village of Nof Yam, a simple outpost on a grassy plateau in Israel's Sharon valley, near the city of Natanya. Straight backed, suntanned, and fit, his white hair cropped close to his head, the 63-year-old former Sinai general projects an air of genuine guilelessness: Ethical concerns that might bother others simply do not trouble him. In the 1990s, after he was forced to leave his job as the head of the Mossad (in the wake of a botched assassination attempt against a Hamas leader), Yatom went into business with Russian-born businessman Arkadi Gaydamak. In the late 1990s, Yatom said, the two became partners in a business, the Geo-Strategic Consultancy, involved in Kazakhstan and Africa. This past October, Gaydamak and his former partner, Pierre Falcone, were among a slate of high-profile defendants facing trial in France over their alleged role in what has been dubbed "Angolagate." They are accused of illegally selling almost $800 million worth of former Soviet bloc weapons to Angola's communist president Eduard dos Santos during a UN arms embargo imposed on the country. Yatom told me he did not have any ethical qualms about having worked with Gaydamak.

When I asked him about what I'd heard in Amman, Yatom was unfazed. Yes, "I had this idea to do a business with Woolsey," former FBI director Louis Freeh, as well as former German intelligence chief Berndt Schmidbauer and other international security leaders, he explained. The idea was to create a discreet strategic consultancy called Interop, Yatom explained, with Michaels as the key operational front man. "Woolsey and Schmidbauer agreed. But it never happened,"—because, Yatom said, by 2003, he'd been elected to a seat in the Israeli parliament. Facing Israel's conflict-of-interest rules, he put his business interests into a blind trust that Michaels ran.

Asked just how blind the trust really was, given his frequent dealings with Michaels, Yatom was adamant. "I don't know what Michaels does," he told me. "Schmidbauer did give us an introduction to the Kurds, [but] once the introductions were made, I joined the government, and could no longer be involved." That restriction, however, was about to come to an end. Just a few weeks after we spoke in May, Yatom announced his resignation from his Knesset seat. He was, he told me, headed for a second turn in business—security, real estate, construction.

When I asked Woolsey about the aborted consultancy last March, he acknowledged being friends with Yatom and Michaels (Woolsey and Yatom were speakers for Michaels' Columbia University class in 2002, for instance), but denied any partnership. "I don't think so," he said. "Let me know if you get more." Contacted again in October, Woolsey categorically denied having gone into business with Yatom and Michaels. "Must be some misunderstanding," he wrote in an email. "Maybe somebody exaggerating hypothetical discussions over wine following some conference somewhere?" Freeh did not respond to my request for comment about Interop. Schmidbauer acknowledges being friends with Yatom and Michaels, but denied having a connection to their Kurdish business. "Danny Yatom is a friend of Bernd Schmidbauer," his office wrote in an email. "He also knows Shlomi Michaels. Mr. Schmidbauer was not involved in the activities in…north Iraq." Corporate documents obtained by Mother Jones show Freeh and Schmidbauer listed as members of Interop's board of advisors.

Another Michaels associate familiar with the incorporation of Interop described the business plan this way: "The idea was that it was a think tank to provide security advisory related services around the world. It was a clever business model. The basic organization was going to have the [former] heads of security agencies from around the world having offices located where their expertise and contact levels gave rise to their contacts. Schmidbauer in Germany, former KGB head [Sergei] Stepashin in Russia, his Japanese equivalent. Shlomi would coordinate and refer clients to where their needs would be met. For instance, if someone was going to do business in the former Soviet Union, we would create a contract and run it through the Moscow desk. It was all because of Danny's network." Despite Yatom's insistence that he was no longer involved after he took his Knesset seat, incorporation and marketing documents for the company suggest it continued to exist somewhat longer. Delaware incorporation papers show an Interop Group, Ltd. registered in March 13, 2002; Swiss corporation registration documents show an Interop Group LTD registered February 3, 2003, with liquidation beginning in 2007. Swiss records also show that Yatom and Michaels' Kurdish partnership, Kudo, began the process of official dissolution in May 2007.

The recent liquidation of the businesses may be a result of the pressures on Michaels to reduce the Israeli presence in Kurdistan, as well as what associates say are financial and other disputes with the Kurds. But they also reflect a new direction for both Michaels and Yatom. In the past two years, Michaels has pursued business opportunities in Africa, Morocco, Serbia, and, according to one American associate, post-US-sanctions Libya. As for Yatom, according to a September report in the Paris-based newsletter Africa Energy Intelligence, he and Golan have formed a new company, Global Strategic Group, which will focus on providing security and training for corporations, individuals, and governments, with a focus on the African energy market. The new business, Global Strategic Group (GSG), listed a Ramat Gan office tower address where Gaydamak also has maintained his offices.

When I reached Yatom by phone in early October, he said he did not want to talk about his new business or its backers. "We want to operate under the radar," he said. "It's better for many businessmen to operate silently."