In this issue:

Pentagon Corruption Could Surpass 'Oil For Food' Fraud by Wide Margin

Rumsfeld Considering a Strike on Hezbollah

British Expert: Bush Admin. Desperate To Change Subject from Iraq

Israel's Labor 'Mafia' Tries To Block 'New Dealer'

Pentagon Corruption Could Surpass 'Oil For Food' Fraud by Wide Margin

A U.S. Congressional report by Rep. Henry Waxman (D-Calif.), the ranking Democrat on the powerful House Government Reform Committee, charges that the U.S.-run occupation of Iraq engaged in "substantial waste, fraud, and abuse," to the tune of billions of dollars.

This matter had not been investigated until June 21, when a hearing was held by the committee, which is chaired by Christopher Shays (R-Conn.). Instead, the Republican-run Congress and Senate had fixated on doing the White House bidding, in holding a dozen hearings to investigate alleged fraud and money laundering by the UN-run "Oil for Food" program funded by Iraqi government monies. In the U.S. investigations of the UN fund, unsubstantiated accusations were made against British Labour MP George Galloway, and against UN Secretary General Kofi Annan.

The Waxman report, entitled "Rebuilding Iraq: U.S. Mismanagement of Iraqi Funds," hits Vice President Dick Cheney, the former CEO of Halliburton, by exposing the fact that the oil-services giant has defrauded the U.S. government, and Iraq's new government, by overcharging hundreds of millions of dollars in various billion-dollar contracts. The report lambastes the Bush Administration for "substantial waste, fraud, and abuse" in the use of Iraqi government funds—including the $8 billion the U.S. took over from the UN Oil for Food program. Waxman cautioned that the full extent of the fraud cannot be known without extensive investigations, and the U.S. Occupation's misappropriation of Iraqi government money may in fact be far bigger than the Oil for Food scandal.

That the hearing took place at all, is one more sign the White House is losing control over the Republican Party. Waxman commended Shays for holding the hearing, the first to look into the Development Fund for Iraq (DFI), successor to the UN Oil for Food program.

In preparing the report, Waxman's staff reviewed documents and interviews from the Federal Reserve, the Pentagon, U.S. audit agencies, international investigators, and Iraqi officials.

Waxman noted that "literally billions of dollars of Iraqi assets taken from the DFI cannot be accounted for." Highlights from the report, which is available at www.democrats.reform.house.gov, include:

* "Federal Reserve documents show, cash withdrawals on a previously unimaginable scale were ordered by U.S. officials in Iraq," including "nearly $12 billion in cash, comprised of 281 million individual currency notes on 484 pallets weighing a total of 363 tons. This included more than 107 million $100 bills." A huge portion of the withdrawals occurred in the last week of existence of the U.S.-run Coalition Provisional Authority, which "ordered the urgent delivery of more than $4 billion, including the largest one-day transfer in the history of the Federal Reserve—a single shipment of $2.4 billion in cash."

* "U.S. officials cannot account for billions of dollars in cash.... One contractor received a $2 million payment in a duffel bag stuffed with shrink-wrapped bundles of currency.... Cash payments were made from the back of a pickup truck, and cash was stored in unguarded sacks in Iraqi ministry offices. One official was given $6.75 million in cash and ordered to spend it in one week, before the interim Iraqi government took control of Iraqi funds."

* There is no reliable accounting of these funds, but there is "evidence that the expenditure and disbursement of these funds was characterized by significant waste, fraud, and abuse."

Number 1 in cases of "wasteful and potentially corrupt spending" is Cheney's Halliburton. The report says, "The largest single recipient of Iraqi funds is Halliburton, which received $1.6 billion in Iraqi oil proceeds [about 8% of the total $19 billion in DFI funds] to import fuel and repair oil fields. According to [Defense Department] auditors, Halliburton's overcharges under this contract are more than $218 million."

The Senate Democratic Policy Committee has scheduled a June 27 hearing in Washington, D.C., which will be co-chaired by Waxman. The SDPC, which is a body of the Democratic caucus, is holding the hearing because the White House (i.e., Cheney) has forbidden the Republican majority in the Senate to investigate administration activities.

Rumsfeld Considering a Strike on Hezbollah

Beginning on June 22, Arab-language publications, and their English websites, were summarizing an yet-unpublished article in Jane's Intelligence Digest, which reports that U.S. Secretary of Defense Donald Rumsfeld is considering provoking a military confrontation with Syria by striking Hezbollah bases near the Syrian border in Lebanon. The multi-faceted U.S. attacks would be conducted within the framework of the global "war on terror," and would most likely focus on Hezbollah bases in Lebanon's Bekaa Valley. The article notes that deployment of U.S. special forces there would be highly inflammatory, and "almost certainly involve a confrontation with Syrian troops."

The article outlines the U.S. objectives in such a confrontation:

* Pressuring Syria to end its support for Palestinian resistance groups.

* Persuading Syria to abandon its alleged WMD program, and withdraw remaining agents from Lebanon.

* Stimulating a situation where Syrian President Bashar al-Assad would be ousted from power.

* Crushing Hezbollah and ending its alleged connections with groups such as al-Qaeda.

These objectives, based on exaggerated or fabricated intelligence, have been a prime goal of Vice President Dick Cheney's "pre-emptive war" campaign against Arab nations.

The article notes the risk to the destabilization of Lebanon and the fueling of Muslim and Arab hostility towards the United States. Taking on the Hezbollah in the Bekaa valley "is likely to prove a highly risky undertaking."

The article alleges that Iran and the United States are drawing toward some form of tactical understanding as a consequence of covert diplomacy, and that at the same time Iran is moving to distance itself from Syria. However, EIR's sources note that the opposite is true—that the ties between Iran and Syria have gotten closer since the U.S. invasion of Iraq, and that both countries are seeking cooperation with their neighbor, Iraq.

While outlining the risks of such a military move for the U.S., the Jane's article also notes that "given the Bush Administration's doctrine of pre-emptive strikes, it remains entirely possible that Washington will soon launch military strikes against Lebanon, regardless of the consequences for wider regional stability."

Sources in the region take this report seriously, fearing the insanity factor in the U.S. administration. At a forum of the Brookings Institute on June 22, a former National Security Council staffer in the Clinton Administration, Flint Levearett, said that the administration's frequent verbal attacks on Syria are intended to "build a case" for an Iraq-style attack, which he thought would be a disaster. The administration is committed to regime change in Syria, he said.

British Expert: Bush Admin. Desperate To Change Subject from Iraq

A senior British Arabist, commenting on a report in Jane's Defense Weekly, told EIR on June 24, that the Bush Administration is likely planning an attack on Hezbollah in Lebanon and/or Syria. "I have no evidence to that effect, but this administration could at any time decide to throw some bombs at Syria. It would be a very stupid thing to do, but then again, this administration has been doing very stupid things all along." Speaking of Iraq, he said, "I am surprised how rapidly the situation is deteriorating. They probably want to distract attention from that situation.

The source also pointed to the hearings on the "Downing Street Memo" held by Congressman John Conyers (D-Mich.) as having a useful effect. He said the memo, which revealed that President Bush was already planning an attack on Iraq in the summer of 2002, was probably leaked by someone in the cabinet office, where hatred for Prime Minister Tony Blair is running high.

He also said that the fact that former MI6 head John Dearlove, who is quoted extensively in the memo, has not denied the contents, indicates that the memo is authentic. Several Labour Party members of Parliament are trying to make use of them against Blair as well.

Israel's Labor 'Mafia' Tries To Block 'New Dealer'

The move, announced by Israeli Labor Party chief Shimon Peres on June 23, to postpone Party elections, is widely seen as an attempt to prevent Amir Peretz, the head of the Histadrut labor federation, from winning the elections. The latest polls shows that Peretz would receive the second-highest vote total after Peres, which could mean that if there is a run-off, Peretz could win.

Old Guard leader Shimon Peres is not the only candidate who has called for a postponement because of allegations that the recent Labor Party voter registration drive involved irregularities. The others include former Prime Minister Ehud Barak and Benjamin Ben Eliezer. This is despite a recent statement by Danny Yatom, who is in charge of the registration, that widespread irregularities have not been found.

In a commentary in the June 23 Ha'aretz, Prof. Danny Gutwein, who is an economic adviser to Peretz, wrote that Peretz "is offering Israeli society a 'new deal' as a basis for reconciliation among its sectors, which are in conflict with one another.... [A]s one of the heads of the peace camp, he made people aware of the link between social welfare and political compromise, and as chair of the Histadrut labor federation, he turned it into an island of Jewish-Arab cooperation, brought about industrial calm and rapproachment between the employees and employers, and did not shy away from an uncompromising battle against the Thatcherite policy of the Finance Ministry.

"Support for Peretz is therefore a litmus test: The Labor Party has the choice of continuation on the path of atrophy, or revival as a social democratic party."