Volume 1 - Iraq Watch

• The IIS completely controlled all procurement fromNorth Korea, according to a senior MIC official.Iraq signed a contract with North Korea to add aninfrared-homing capability to the Volga missileto provide jamming resistance in 1999. Iraq alsosought to improve the accuracy of its Al-Samudand Al-Fat’h ballistic missiles by obtaining inertialnavigation systems, gyros, and accelerometers fromNorth Korea. The IIS also completely controlledprocurement via a Russian and Ukrainian companynamed Yulis that supplied small arms, Kornet antitankguided missiles, and night-vision equipmentbetween 1999 and 2000.• Iraq sought assistance from the Russian companyTechnomash in developing a test bench for missileengines, missile guidance and control systems, andaerodynamic structures. The ARMOS Companysigned a contract with a company in Poland toobtain Volga missile engines. The IIS completelycontrolled this transaction, which sought approximately250 Volga engines.• The IIS facilitated a visit by a delegation from theSouth Korean company Armitel, and contracts weresigned to procure fiber-optic equipment for militarycommunications between 1997 and OIF, accordingto a former MIC senior executive. The contractswere valued at $75 million, and Iraq received morethan 30 containers during two shipments, the firstvia Syria and the second via Lebanon. Middlecompanies in Syria and the UAE covered thesecontracts.• From 2000 until OIF, the IIS used the MIC Al-Basha’ir front company to facilitate a deal with theBulgarian JEFF Company to obtain T-72 tank partsand Igla MANPADS, according to a former MICsenior executive.IIS Front CompaniesThe IIS ran a number of front companies that wereused to procure specialized items for its own useand for other security elements. The primary IISDirectorate handling these transactions was the M4/8Directorate, previously known as the M19 Directorate.As of 1994, M4/8 was organized into three differentsections, the domestic section, the foreign section,and the trading section (for more information on theIIS structure see the RSI IIS annex).The Domestic Section, also known as Section One,was primarily responsible for creating front companiesinside Iraq and facilitating trade with thesecompanies to import/export oil, batteries, copperand food products. Section One also maintained frontcompanies in the restaurant and retail businesses onbehalf of the IIS Directorate of Counterintelligence(M-5). These M-5 front companies included the Al-Zaytun and Al-Amhassi restaurants (see Figure 47).Although M-5 owned these business establishments,they were leased to Iraqi nationals who were notassociated with the Iraqi Government. Section Onemanaged a total of eight companies within the trade,travel, and hauling industries, but as of June 2003, Al-Dala and Al-Yarmuk travel companies were the onlyfront companies still operating in Baghdad.The Foreign Section, also known as Section Two,conducted covert trade with overseas companies.Sadiq Sha’ban was the director of this section from1994 to 1995 Salih Faraj was director in 1995, SadiqSha’bi from 1995 to 1997, and Husayn al-Ani from1997 to 2003.The Trading Section, also known as Section Three,dealt with the import and export computers, electronicequipment, listening devices, copper, and industrialproducts for use within the IIS and other governmentagencies. Starting in 1995, this section, while it washoused within the Projects Department, operateddirectly under the management of the IIS GeneralDirector. According to a former high-level official atthe IIS, Walid Hadi, who served as the section’s directorfrom 1989 until 2003, basically became a figureheadfrom 1995.In 1997, M-19 Director Mana ‘Abdallah Rashidordered a halt to all the activities of Section Two,because of the failure of one of the sections companiesto deliver spare parts, tires, batteries, electronicequipment, and vehicles to the Office of the Presidency.During this same period, Hassan Khushnaw,the manager of a Section One front company, Al-WadiAl-Akhad Trading, was caught attempting to smugglecopper out of Iraq. Khusnaw was subsequentlyarrested and jailed, along with the previous directorof M-19, Sami Hanna. These incidents resulted inthe permanent closure of the companies, except forAl-Yarmuk and Al-Dala. Sections One and Two wereremoved from M-19 and placed within the CounterespionageDirectorate (M-5) and Directorate of SecretService (M-4), respectively (see Figure 48). SectionThree remained under the IIS Director’s office.80