Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXIV No. 408

WASHINGTON (AP) -- Dozens of U.S. troops in Iraq fell sick at bases using "unmonitored and potentially unsafe" water supplied by the military and a contractor once owned by Vice President Dick Cheney's former company, the Pentagon's internal watchdog says.

A report obtained by The Associated Press said soldiers experienced skin abscesses, cellulitis, skin infections, diarrhea and other illnesses after using discolored, smelly water for personal hygiene and laundry at five U.S. military sites in Iraq.

The Defense Department's inspector general's report, which could be released as early as Monday, found water quality problems between March 2004 and February 2006 at three sites run by contractor KBR Inc., and between January 2004 and December 2006 at two military-operated locations.

It was impossible to link the dirty water definitively to all the illnesses, according to the report. But it said KBR's water quality "was not maintained in accordance with field water sanitary standards" and the military-run sites "were not performing all required quality control tests."

The report said KBR took corrective steps and was providing adequate water quality by November 2006. But military units at the two sites they controlled were still failing to perform required quality control tests and maintain appropriate records by that time.

"Therefore, water suppliers exposed U.S. forces to unmonitored and potentially unsafe water," at the military sites by late 2006, the report said.

The problems did not extend to troops' drinking water, but rather to water used for washing, bathing, shaving and cleaning. Water used for hygiene and laundry must meet minimum safety standards under military regulations because of the potential for harmful exposure through the eyes, nose, mouth, cuts and wounds.

The KBR sites were Camp Ar Ramadi, Camp Q-West and Camp Victory. The military sites were Logistics Support Area Anaconda and Camp Ali.

The inspector general's study confirmed AP reports on the contaminated water in early 2006 and provided additional details on the scope of the problem at the Iraq bases. In January that year, interviews and internal company documents disclosed the problems at Ar Ramadi and showed that KBR employees could not get the company to inform base residents.

Halliburton Co., then KBR's parent company, disputed the allegations even though they were made by its own employees and documented in company e-mails. In March 2006, the AP obtained an internal Halliburton report that, in one instance, the company missed contamination that could have caused "mass sickness or death" at Ar Ramadi.

The report said the event at Ar Ramadi could have been prevented if KBR's reverse osmosis units on the site had been assembled, instead of relying on the military's water production facilities.

Halliburton is the oil services conglomerate that Cheney once led. Congressional Democrats long have complained that KBR has benefited from its former ties to Cheney.

KBR, responding to the inspector general's report, said its water treatment "has met or exceeded all applicable military and contract standards." The company took exception to many of the inspector general's assertions. "KBR's commitment to the safety of all of its employees remains unwavering," the company said in a statement to the AP.

KBR provided water treatment to U.S. troops under a large-scale defense contract that also included housing and food to soldiers in Iraq, Afghanistan, Kuwait, Djbouti and Georgia.

The military has "taken the appropriate measures to correct the problem and ensure we provide the appropriate oversight of the system," said Navy Capt. James Graybeal of the U.S. Central Command, which oversees U.S. troops in the Middle East.

North Dakota Sen. Byron Dorgan, who has led Democratic inquiries into contracting abuses in Iraq, said the inspector general has backed up what those earlier hearings uncovered. "KBR was not doing its job" and U.S. forces had water that did not meet Army standards, Dorgan said.

"I think it's outrageous that KBR tried to deny that there was a problem, especially when it turned out that there were dozens of U.S. troops reporting water-related illnesses," he said.

The inspector general investigated the 2006 reports at Dorgan's request.

The inspector general's report said some troops noticed problems with the water. Between October 2004 and May 2005, troops at Camp Ar Ramadi said bathwater was discolored and had an unusual odor. The report said KBR failed to treat the nonpotable water and monitor water quality during the same period.

At Camp Q-West, KBR inappropriately delivered chlorinated wastewater for showers and latrines without informing military preventive medicine officials, the report said. "KBR did not monitor or record the quality of water at point-of-use containers before April 2006, even though the ... contract required the company to do so," the report added.

Medical records for troops at Camp Q-West indicated 38 cases of illnesses commonly attributed to problem water. These include skin abscesses, cellulitis, skin infections and diarrhea. Doctors diagnosed 24 of the cases in January and February 2006, the same period when medical officials warned of a rise in bacterial infections at the base.

In addition, military medical records -- tied to no particular base in Iraq -- showed 26 cases of food and waterborne diseases, including hepatitis, giardiasis (an intestinal illness caused by a microscopic parasite) and typhoid fever.













By Henry Weinstein and Ashley Powers
LAS VEGAS -- The American Civil Liberties Union filed a class-action suit against the governor of Nevada and other state officials Thursday, alleging that they had failed to rectify "a pervasive pattern of grossly inadequate medical care" at the state's maximum-security prison in Ely.

"These deprivations are so extreme that they subject all the men confined there to constant significant risk of serious injury, medical harm [and] premature death," according to the suit filed in federal court in Reno by ACLU lawyers from Washington and Nevada.

In December, a Los Angeles Times investigation based on records and interviews described how prisoners at Ely had been denied care for heart problems, diabetes and other serious medical conditions. Last year, a nurse was fired after complaining about substandard care at the facility, which she said led to one inmate needlessly dying of gangrene.

At the time, the ACLU submitted to prison officials a scathing report about inadequate medical care at the facility written by Dr. William K. Noel of Boise, Idaho.

Noel, who had reviewed medical records of 35 inmates at the prison, concluded that the conditions at Ely amounted to "the grossest possible medical malpractice, and the most shocking and callous disregard for human life and human suffering that I have ever encountered in my 35 years of practice."

After Noel's report, ACLU lawyers said they met with state officials seeking swift change, but none came.

Amy Fettig of the ACLU's National Prison Project said the lawsuit was necessary because "the state just hasn't shown a sense of urgency in addressing the crisis at Ely. They assured us that they were going to carry out far-reaching reforms to address the problems . . . but that was months ago, and they've made only half-hearted gestures to fix their broken system."

Greg Smith, a spokesman for the Nevada Department of Corrections, said prison officials had been attempting to respond to the ACLU's concerns and were blindsided by the suit.

"Frankly, we're shocked by this development," Smith said. Nonetheless, he said, prison officials think the medical care at Ely is "more than adequate."

A spokesman for Gov. Jim Gibbons did not comment on the suit.

The suit names six inmates as plaintiffs but was filed on behalf of every inmate at the prison, including 60 men on death row. It alleges that Nevada officials have violated the inmates' right to due process and have inflicted cruel and unusual punishment on them.

Among the plaintiffs is inmate David Riker, who suffers from rheumatoid arthritis and fibromyalgia, conditions "which cause debilitating and chronic pain," the suit said.

A doctor who examined Riker in August 2006 prescribed medications and X-rays, but the prison's medical staff did not follow her orders, the suit said.

Instead, Max Carter, the prison's physician assistant, took him off the medications ordered by the doctor and stated that Riker did not have rheumatoid arthritis, even though he had been previously treated and diagnosed by several rheumatologists, the suit said.

Noel's report said Riker's untreated nerve pain was "a living hell." Noel said he found it "simply unimaginable" that a medical professional would refuse to treat severe, chronic pain of this type.

When another prisoner, John O. Snow, asked for pills in July to ease pain from his deteriorating joints, Carter's denial came with a missive saying that he was "gonna let you suffer," according to internal prison records.

ACLU lawyers said they were even more troubled by the response Carter sent to death row inmate Charles Randolph last year when he asked for a specific medicine to address his heart condition.

Carter said the medication was the wrong kind and potentially lethal, but he would be happy to prescribe it "so that your chances of expiring sooner are increased."

"The level of medical care provided at Ely is as horrific as any we have ever seen at any of the prison systems that we track across the country," said Margaret Winter of the ACLU's National Prison Project.

Lawyers for some Ely inmates say they think the lack of medical care has played a role in a high percentage of death row inmates giving up their appeals and "volunteering" to be executed. All but two of the 12 inmates executed in the state have been volunteers.

No other state in the nation has had close to that percentage of volunteers, records show.














By Jane Harman
The stories are shocking in their simplicity and brutality: A female military recruit is pinned down at knifepoint and raped repeatedly in her own barracks. Her attackers hid their faces but she identified them by their uniforms; they were her fellow soldiers. During a routine gynecological exam, a female soldier is attacked and raped by her military physician. Yet another young soldier, still adapting to life in a war zone, is raped by her commanding officer. Afraid for her standing in her unit, she feels she has nowhere to turn.

These are true stories, and, sadly, not isolated incidents. Women serving in the U.S. military are more likely to be raped by a fellow soldier than killed by enemy fire in Iraq.

The scope of the problem was brought into acute focus for me during a visit to the West Los Angeles VA Healthcare Center, where I met with female veterans and their doctors. My jaw dropped when the doctors told me that 41% of female veterans seen at the clinic say they were victims of sexual assault while in the military, and 29% report being raped during their military service. They spoke of their continued terror, feelings of helplessness and the downward spirals many of their lives have since taken.

Numbers reported by the Department of Defense show a sickening pattern. In 2006, 2,947 sexual assaults were reported -- 73% more than in 2004. The DOD's newest report, released this month, indicates that 2,688 reports were made in 2007, but a recent shift from calendar-year reporting to fiscal-year reporting makes comparisons with data from previous years much more difficult.

The Defense Department has made some efforts to manage this epidemic -- most notably in 2005, after the media received anonymous e-mail messages about sexual assaults at the Air Force Academy. The media scrutiny and congressional attention that followed led the DOD to create the Sexual Assault and Response Office. Since its inception, the office has initiated education and training programs, which have improved the reporting of cases of rapes and other sexual assaults. But more must be done to prevent attacks and to increase accountability.

At the heart of this crisis is an apparent inability or unwillingness to prosecute rapists in the ranks. According to DOD statistics, only 181 out of 2,212 subjects investigated for sexual assault in 2007, including 1,259 reports of rape, were referred to courts-martial, the equivalent of a criminal prosecution in the military. Another 218 were handled via nonpunitive administrative action or discharge, and 201 subjects were disciplined through "nonjudicial punishment," which means they may have been confined to quarters, assigned extra duty or received a similar slap on the wrist. In nearly half of the cases investigated, the chain of command took no action; more than a third of the time, that was because of "insufficient evidence."

This is in stark contrast to the civilian trend of prosecuting sexual assault. In California, for example, 44% of reported rapes result in arrests, and 64% of those who are arrested are prosecuted, according to the California Department of Justice.

The DOD must close this gap and remove the obstacles to effective investigation and prosecution. Failure to do so produces two harmful consequences: It deters victims from reporting, and it fails to deter offenders. The absence of rigorous prosecution perpetuates a culture tolerant of sexual assault -- an attitude that says "boys will be boys."

I have raised the issue with Defense Secretary Robert Gates. Although I believe that he is concerned, thus far, the military's response has been underwhelming -- and the apparent lack of urgency is inexcusable.

Congress is not doing much better. Although these sexual assault statistics are readily available, our oversight has failed to come to grips with the magnitude of the crisis. The abhorrent and graphic nature of the reports may make people uncomfortable, but that is no excuse for inaction. Congressional hearings are urgently needed to highlight the failure of existing policies. Most of our servicewomen and men are patriotic, courageous and hardworking people who embody the best of what it means to be an American. The failure to address military sexual assault runs counter to those ideals and shames us all.

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXIV No. 407

By Martin Crutsinger

The Federal Reserve announced Friday it will auction another $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two seeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will fact questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

By Kimberly Hefling

Laura Youngblood clutched her husband's photo as she drove alone to the hospital. She'd become pregnant nearly nine months earlier, the day he'd left for training for Iraq. Hours later, after the baby was born, she placed the photo in the bassinet next to the infant he'd named Emma in his last letter home. He would never hold her.

Petty Officer 3rd Class Travis L. Youngblood, 26, had died two months earlier, killed by an improvised explosive device.

Laura Youngblood is just 29 years old, but she insists she will not remarry. Her life is her children, now ages 2 and 7. One day, she says, she'll be buried in the plot with her husband at Arlington National Cemetery.

"I tell people I'm a happily married woman," she says, crying.

Five years after U.S. troops invaded Iraq, there are many tears — though not everyone is crying. For the great majority of Americans, this is a war seen from afar. They turn off the news and forget about what is happening a world away.

Then there's the other war, the one that's a very vivid and present part of some Americans' lives.

It's the war that more than a million U.S. soldiers have fought, leaving nearly 4,000 dead and more than 29,000 wounded in action. The one in which thousands of contractors rushed in to serve and to make a buck — though some paid the ultimate price, as well.

Around military bases across America, vacations are planned around deployment schedules. Mini baby booms occur nine months after troops come home. Support groups for widows and injured soldiers have come together.

At small town National Guard armories, the focus has shifted from one weekend a month to filling out life insurance forms and packing a rucksack for war.

"'How did I end up in this kind of a situation?' There were a lot of guys that said that," says Jeff Myers, 48, a tech sergeant in the Pennsylvania Air National Guard from Pillow, Pa. His lips still discharge shrapnel shreds, the residue of two roadside bombs he survived in 2004; a neurologist monitors the concussions he sustained.

In his job as a gunner guarding Army convoys, he saw men so paralyzed by fear they wouldn't go outside the wire. He saw others die 15 minutes after he was chatting with them.

It's not a matter of whether you will have to deal with things like irritability and nightmares after you get home, he says: "It's how you deal with it when it does happen."

And how you deal with your fellow Americans who experience Iraq from a distance.

Amanda Jordan, whose Marine husband was killed three days into the war, says she doesn't know what bothers her more — the days that go by when no one speaks of the war, or the punditry. At a local diner she frequents with her 11-year-old son near their home in Enfield, Conn., she's contemplated standing up and leaving so he doesn't hear when people say Iraq was unnecessarily invaded.

"This is like my life. You're saying my spouse, my child's father, is dead for no reason," says Jordan, a 39-year-old former paralegal who is studying to be a therapist specializing in grief. "That's a pretty harsh thing to hear all the time."

___

Some can tell you exactly when their lives changed.

For Hazel Hoffman, from outside Grand Rapids, Mich., it was when the phone rang and she learned her son, Josh, was shot by a sniper. He was left a quadriplegic, unable to speak.

"I cried so hard that I had tears of blood. I remember looking down wondering, where is all this blood coming from? And it took a few seconds for me to realize this was coming out of me," says Hoffman, who has lived more than a year in an apartment with her son's girlfriend near his hospital in Richmond, Va.

Suzanne Stack, 48, was soaking in the bathtub in their house at Fort Campbell, Ky., when the doorbell rang. There were two officers at the door.

Afterward, still numb from the news of her husband's death, she walked her kids to the school bus. She sensed that people were looking at her fearfully, as if they were afraid they would be next. Even before the funeral, one spouse told her there was a waiting list for post housing. When would she be moving out?

"One day you're one thing. The next thing you're not. It's really quite a shock," says Stack, of Fredericksburg, Va., who now volunteers as an advocate for widows on Capitol Hill.

Walter Lajuane Williams, 33, of Fremont, Calif., was stoned when his turning point came. He was couch surfing, unemployed and in an abusive relationship after he left the Army, which took him to Iraq and Afghanistan. Even his service was criticized: "I had a person tell me, `How could you kill another person?'"

He went to the nonprofit Swords to Plowshares, looking for help finding work. A caseworker, wise to his drug use, took him aside. "I'm going to tell you candidly how I feel and what I smell," he said. "I'm going to work with you. Don't make me regret it."

Williams now helps other vets find jobs.

"All we need is a chance," Williams says.

___

Recently, an Iraq veteran came to Daniel Fox's office and asked to take a screening exam for post-traumatic stress disorder a second time. He'd lied the first time, he said.

"When I asked him why he wasn't honest, he said because I had just gotten home and everybody's like saying, 'Welcome home hero,'" Fox says. "And how could he tell him that this hero was not doing well?"

Fox, 47, works for the Department of Veterans Affairs as a case manager, assisting Iraq and Afghanistan veterans. For a year, Fox, an Army Reservist, worked as an intensive care nurse at Landstuhl Regional Medical Center in Germany; the injured would be airlifted from Iraq and Afghanistan.

Fox and his fellow nurses called themselves the ICU angels on the ICU angels tour. To lighten the mood, they made T-shirts with the slogan. Their bravado just helped mask their intense emotions.

"You had a mom and dad and the new wife with the babies in their arms standing in the door of this patient's room and he's got a gunshot wound to the head," says Fox, of Wichita, Kan. "How do you explain that to them? You can't console them."

"After a while, you go home and you cry about it," he says.

He used to be more macho and unemotional. Today, "I have more sympathy, more compassion," he says.

Lt. Col. Douglas Etter's job was sympathy and compassion. Etter, a minister, was a chaplain with the Pennsylvania National Guard in Al Anbar Province; his battalion lost 13 soldiers and two Marines.

He laid his hands on some of the men and delivered last rites. One morning, after he memorialized two of the dead, he says his stoicism dissolved; jogging by the Euphrates River, he cried.

In blunt newsletters home, he chronicled what the troops were seeing and experiencing, from delivering shoes and school supplies to happy Iraqi children to the story of a dead soldier wrapped in a flag by his fellow soldiers in the middle of a firefight because nothing else was available.

"As excited as we are to go home, many are equally afraid," he wrote in one of his last letters.

When Etter himself returned on leave to Pennsylvania to officiate at the funeral of a close friend, he turned to his wife and said he wanted to go home.

"I said, `OK, get in the car. Let's go home,'" said Jodi Etter. "And you said, 'No, my home in Iraq. I just want to go home.'"

When his tour was over, and he went with his wife to buy furniture for their new house in Lebanon, Pa., he had to remind himself that it was important to her — even if it seemed trivial to him after the war. He drove fast, and bought a BMW so he could do it. One day, Jodi pointed out that he was drinking more.

With time, his life settled down, and he came to feel that his months in Iraq were a time of growth. Now executive director of the Pennsylvania Bureau of Veterans Affairs, Etter says a deployment is like a magnifying glass.

"Personalities that are strong become stronger," he says. "Personalities which are weaker are made to become weaker."

___

Phil Nesmith came away from Iraq with a certain clarity.

It wasn't the money that lured him to Iraq, he insists. He was like most of the U.S. troops he was living with at the time — idealistic about the mission.

He had been an Army paratrooper, but now he was among the first group of government contractors to arrive in Iraq after the invasion in 2003. His task was to help get telecommunications running.

At night, rockets flew into their compound. Sometimes they missed and hit apartments nearby, killing Iraqis. On the ground near where he was sleeping, a young officer shot and killed himself.

Violence did not account for all the stress. While he was there, Nesmith says, his relationship with his girlfriend of three years ended and she got pregnant by another man. "Pretty much every other soldier around me, husband, wife, boyfriend, girlfriend, whatever, had left them or they suspected them cheating on them."

It was hard. "You've left your life and you're wanting to maintain some kind of connection with that, but everything you left behind is continuing on even though your life is kind of suspended while you're there."

As he left Iraq, he crossed paths with a contractor who bragged about what he was going to buy with the money he was going to make in Iraq.

"I was just like, well, `You know, everybody's got their reasons, but I've got to ask you this: You lose both your legs, is that $160,000 going to be worth it?'" he says.

By that point, Nesmith says he knew what he wanted, what was important. He wanted to backpack through Australia, visit Montana, and go to photography school.

He did all three.

He had taken pictures in Iraq. Now he took some of those shots and manipulated them to look like they were taken in the Civil War era. They were shown at Washington, D.C.'s Irvine Contemporary Gallery in Washington, D.C., and priced at $1,500 each.

One photo depicts a single soldier standing alone in the desert. It reminds him of his own plight. "I knew I was on my journey back and when I got there I was going to be alone," Nesmith says. "No one was going to understand what that year was like."

Another photo, his favorite, is of an Iraqi flag flying outside a government utility office. Some Iraqis had just put it up. It was a time of optimism.

But now, he says, "it just seems like a more naive time, when you thought there was so much more that could possibly happen."

___

Before Travis Youngblood left for Iraq, he and his wife watched a TV interview with a pregnant woman whose husband had died in Iraq. Laura Youngblood cried.

"I felt so sorry for her," Youngblood says.

But then, "When my husband died, my first words were, 'I became her.'"

Today in nearly every room of her Florida house, there's a photo of her husband.

"It is hard. I feel bad for my son because he's 7. He doesn't know how to ride a two-wheel bike. His daddy was going to teach him," she says. "I can't do all the boy things that he wants to do."

She put together videos so her daughter will know the father she never met.

"I'm a survivor of the war. I'm a surviving spouse," Youngblood says. "That's the best way I can say it because every day you're surviving."

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXIV No. 406

By C.J. Chivers, Eric Schmitt and Nicholas Wood

Since 2006, when the insurgency in Afghanistan sharply intensified, the Afghan government has been dependent on American logistics and military support in the war against Al Qaeda and the Taliban.

But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur.

With the award last January of a federal contract worth as much as nearly $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.

Since then, the company has provided ammunition that is more than 40 years old and in decomposing packaging, according to an examination of the munitions by The New York Times and interviews with American and Afghan officials. Much of the ammunition comes from the aging stockpiles of the old Communist bloc, including stockpiles that the State Department and NATO have determined to be unreliable and obsolete, and have spent millions of dollars to have destroyed.

In purchasing munitions, the contractor has also worked with middlemen and a shell company on a federal list of entities suspected of illegal arms trafficking.

Moreover, tens of millions of the rifle and machine-gun cartridges were manufactured in China, making their procurement a possible violation of American law. The company’s president, Efraim E. Diveroli, was also secretly recorded in a conversation that suggested corruption in his company’s purchase of more than 100 million aging rounds in Albania, according to audio files of the conversation.

This week, after repeated inquiries about AEY’s performance by The Times, the Army suspended the company from any future federal contracting, citing shipments of Chinese ammunition and claiming that Mr. Diveroli misled the Army by saying the munitions were Hungarian.

Mr. Diveroli, reached by telephone, said he was unaware of the action. The Army planned to notify his company by certified mail on Thursday, according to internal correspondence provided by a military official.

But problems with the ammunition were evident last fall in places like Nawa, Afghanistan, an outpost near the Pakistani border, where an Afghan lieutenant colonel surveyed the rifle cartridges on his police station’s dirty floor. Soon after arriving there, the cardboard boxes had split open and their contents spilled out, revealing ammunition manufactured in China in 1966.

“This is what they give us for the fighting,” said the colonel, Amanuddin, who like many Afghans has only one name. “It makes us worried, because too much of it is junk.” Ammunition as it ages over decades often becomes less powerful, reliable and accurate.

AEY is one of many previously unknown defense companies to have thrived since 2003, when the Pentagon began dispensing billions of dollars to train and equip indigenous forces in Afghanistan and Iraq. Its rise from obscurity once seemed to make it a successful example of the Bush administration’s promotion of private contractors as integral elements of war-fighting strategy.

But an examination of AEY’s background, through interviews in several countries, reviews of confidential government documents and the examination of some of the ammunition, suggests that Army contracting officials, under pressure to arm Afghan troops, allowed an immature company to enter the murky world of international arms dealing on the Pentagon’s behalf — and did so with minimal vetting and through a vaguely written contract with few restrictions.

In addition to this week’s suspension, AEY is under investigation by the Department of Defense’s inspector general and by Immigration and Customs Enforcement, prompted by complaints about the quality and origins of ammunition it provided, and allegations of corruption.

Mr. Diveroli, in a brief telephone interview late last year, denied any wrongdoing. “I know that my company does everything 100 percent on the up and up, and that’s all I’m concerned about,” he said.

He also suggested that his activities should be shielded from public view. “AEY is working on a moderately classified Department of Defense project,” he said. “I really don’t want to talk about the details.”

He referred questions to a lawyer, Hy Shapiro, who offered a single statement by e-mail. “While AEY continues to work very hard to fulfill its obligations under its contract with the U.S. Army, its representatives are not prepared at this time to sit and discuss the details,” he wrote.

As part of the suspension, neither Mr. Diveroli nor his company can bid on any further federal work until the Army’s allegations are resolved. But he will be allowed to provide ammunition already on order under the Afghan contract, according to internal military correspondence.

In January, American officers in Kabul, concerned about munitions from AEY, had contacted the Army’s Rock Island Arsenal, in Illinois, and raised the possibility of terminating the contract. And officials at the Army Sustainment Command, the contracting authority at the arsenal, after meeting with AEY in late February, said they were tightening the packaging standards for munitions shipped to the war.

And yet after that meeting, AEY sent another shipment of nearly one million cartridges to Afghanistan that the Combined Security Transition Command-Afghanistan regarded as substandard.

Lt. Col. David G. Johnson, the command spokesman, said that while there were no reports of ammunition misfiring, some of it was in such poor condition that the military had decided not to issue it. “Our honest answer is that the ammunition is of a quality that is less than desirable; the munitions do not appear to meet the standards that many of us are used to,” Colonel Johnson said. “We are not pleased with the way it was delivered.”

Several officials said the problems would have been avoided if the Army had written contracts and examined bidders more carefully.

Public records show that AEY’s contracts since 2004 have potentially been worth more than a third of a billion dollars. Mr. Diveroli set the value higher: he claimed to do $200 million in business each year.

Several military officers and government officials, speaking on condition of anonymity because of the investigations, questioned how Mr. Diveroli, and a small group of men principally in their 20s and without extensive military or procurement experiences, landed so much vital government work.

“A lot of us are asking the question,” said a senior State Department official. “How did this guy get all this business?

The intensity of the Afghan insurgency alarmed the Pentagon in 2006, and the American unit that trains and equips Afghan forces placed a huge munitions order through an Army logistics command.

The order sought 52 types of ammunition: rifle, pistol and machine-gun cartridges, hand grenades, rockets, shotgun slugs, mortar rounds, tank ammunition and more. In all, it covered hundreds of millions of rounds. Afghan forces primarily use weapons developed in the Soviet Union. This meant that most munitions on the list could be bought only overseas.

AEY was one of 10 companies to bid by the September 2006 deadline.

Michael Diveroli, Efraim’s father, had incorporated the company in 1999, when Efraim was 13. For several years, a period when the company appeared to have limited activity, Michael Diveroli, who now operates a police supply company down the street from AEY’s office, was listed as the company’s sole executive.

In 2004, AEY listed Efraim Diveroli, then 18, as an officer with a 1 percent ownership stake.

The younger Diveroli’s munitions experience appeared to be limited to a short-lived job in Los Angeles for Botach Tactical, a military and police supply company owned by his uncle, Bar-Kochba Botach.

Mr. Diveroli cut off an interview when asked about Botach Tactical. Mr. Botach, reached by telephone, said that both Michael and Efraim Diveroli had briefly worked for him, but that after seeing the rush of federal contracts available after the wars began, they had struck out on their own.













(AFP)
Wall Street was roiled by a bleak US jobs survey Friday which pushed the Dow Jones Industrial Average stock index to a 17-month low below 12,000 points amid growing recession fears.

The selloff occurred after a Labor Department report showed US employers cut 63,000 positions in February, marking the biggest monthly loss in nonfarm payrolls in five years.

The Dow tumbled 145.23 points (1.21 percent) to 11,893.69, slumping to its lowest close since October 11, 2006.

The tech-dominated Nasdaq composite shed a lesser 8.01 points (0.36 percent) to 2,212.49 and the Standard & Poor's 500 broad-market index closed down 10.97 points (0.84 percent) at 1,293.37.

Traders blamed the market decline on the weak job report which renewed concerns the US economy could be on the verge of a recession, although some analysts believe the economy is already in a downturn.

US stock markets have fallen heavily in recent months in reaction to an ongoing housing market downturn, a widespread credit crunch and rocketing oil prices which hit a record 106.54 dollars per barrel Friday.

Job losses can now also be added firmly to that mix.

The worsening job picture provoked a reaction from US President George W. Bush who said: "Losing a job is painful, and I know Americans are concerned about our economy; so am I."

Bush voiced hope that a giant economic stimulus package would help kick start economic momentum.

"The payrolls report had recession written all over it," said Avery Shenfeld, a senior economist at CIBC World Markets.

In a bid to shore up market confidence, the Federal Reserve announced just before Wall Street

opened for trading that it was making up to 200 billion dollars available to the stressed banking sector through a series of money auctions and loan programs.

The Fed hopes to soothe rattled credit markets by opening up its cash spigots in a bid to stop the financial markets gumming up.

Fed officials also likely read over the troubling job report before its official release.

"The Federal Reserve announced that it will increase the size of the TAF (Term Auction Facility) auctions to address the heightened liquidity pressures," Andrew Busch, a market analyst at BMO Capital Markets, said in a briefing note.

"They stand ready to do more if needed. They are acting because the credit markets have seized up," Busch said.

Bank stocks were mixed amid wider market losses.

Citigroup, which announced a major overhaul of its mortgage business on Thursday, saw its shares close down 1.2 percent at 20.91 dollars.

Bank of America's shares finished up 0.6 percent at 36.74 dollars and Merrill Lynch declined 1.5 percent to 45.19 dollars.

Credit jitters persisted as the Dutch stock market authorities announced they had suspended share trading in a troubled fund managed by the US private equity giant, the Carlyle Group.

The fund, Carlyle Capital Corporation, said some securities backed by real estate loans had been "liquidated" by investors who had bought them according to an agreement that Carlyle would ultimately buy them back.

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXVI No. 405

By Donald Macintyre

The British Government should end its boycott of Hamas and work to lift a crippling blockade of Gaza which has left humanitarian conditions at their worst level for 40 years, the top UK charities say today.

The call on Britain to spearhead a radical change of EU policy by promoting reconciliation between Hamas and Fatah comes in a stark report that describes the Gaza Strip overwhelmed by steeply rising poverty, power cuts of up to 12 hours a day, and water and sewage systems close to collapse.

The report condemns rocket attacks on Israel but warns that the "failing" international policy of isolating Hamas has not "reaped any benefits". Instead both the UK Government and the EU should begin a "political dialogue with all Palestinian parties" as a first step towards the establishment of a "credible" peace process with Israel involving both the West Bank and Gaza.

The report was published as the Palestinian President, Mahmoud Abbas, yesterday bowed to US pressure and current international policy by agreeing to resume his negotiations with Israel only hours after warning that he would not do so until there was a ceasefire between Israel and Hamas in Gaza.

The agencies, including Oxfam, Amnesty International, Save the Children UK, Care International UK and Christian Aid, say that last weekend's "upsurge in violence and human misery" in which more than 100 Palestinians were killed in Israeli military operations against rocket attacks "underlines the urgency of this report". They call for pressure on Israel to reopen the Gaza crossings.

The report says that with 80 per cent of families in Gaza are currently dependent on food aid humanitarian conditions in Gaza are now worse than "at any time since the beginning of the Israeli occupation in 1967".

With unemployment set to rise to 50 per cent, 95 per cent of Gaza's industrial operations have halted because of the closures of Gaza crossings. It says that between 40 million and 50 million litres of untreated sewage continue to pour into the Mediterranean daily because of a lack of fuel for treatment plants and warns of a current "60-70 per cent" shortage of diesel required for hospital power generators.

It quotes World Health Organisation estimates that the proportion of patients given permits to leave Gaza for medical treatment has fallen from 89 per cent in January 2007 to an "unprecedented low" of 64.3 per cent in December 2007 and that 20 per cent of patients, including five children, have died while waiting for permits. Christian Aid's director, Daleep Mukarji, said yesterday: "The UK Government should acknowledge that a new strategy is needed for Gaza. The current policy does not secure vital security for Israeli citizens, and even if it did the blockade policy would still be unacceptable and illegal."

He added: "Humanitarian aid can help stave off total collapse but it will not provide a long-term solution. Gaza cannot become a partner for peace unless Israel, Fatah and the Quartet engage with Hamas and give the people of Gaza a future."

Mr Abbas's U-turn came as the US Secretary of State, Condoleeza Rice, wound up her mission to the region by saying that the US brokered negotiations – which deliberately exclude Hamas – would resume and that while the Palestinian President would like to see an end to the violence in Gaza, "this is not a condition".

As 10 Qassam rockets landed in open areas in Israel yesterday, the Israeli security cabinet backed further military operations after last weekend's incursion – in which Israeli and Palestinian human rights groups estimate that more than half the deaths were of civilians.

Mr Abbas's espousal of two diametrically opposite policies in a single day appeared to reflect a deepening conflict between the goal of satisfying the demands of the international community and pursuing negotiations on the outlines of a future two-state solution, which show little sign of making progress.

The Israeli religious party Shas, which at present occupies a pivotal role in Israeli Prime minister's Ehud Olmert's coalition, has threatened to walk out if the "core issue" of Jerusalem – essential to any future negotiated deal – is discussed in the talks.

CAYMAN ISLANDS - Kellogg Brown & Root, the nation's top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.

More than 21,000 people working for KBR in Iraq - including about 10,500 Americans - are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands.

The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies, and officials said the move allowed KBR to perform the work more cheaply, saving Defense dollars.

But the use of the loophole results in a significantly greater loss of revenue to the government as a whole, particularly to the Social Security and Medicare trust funds. And the creation of shell companies in places such as the Cayman Islands to avoid taxes has long been attacked by members of Congress.

A Globe survey found that the practice is unusual enough that only one other ma jor contractor in Iraq said it does something similar.

"Failing to contribute to Social Security and Medicare thousands of times over isn't shielding the taxpayers they claim to protect, it's costing our citizens in the name of short-term corporate greed," said Senator John F. Kerry, a Massachusetts Democrat on the Senate Finance Committee who has introduced legislation to close loopholes for companies registering overseas.

With an estimated $16 billion in contracts, KBR is by far the largest contractor in Iraq, with eight times the work of its nearest competitor.

The no-bid contract it received in 2002 to rebuild Iraq's oil infrastructure and a multibillion-dollar contract to provide support services to troops have long drawn scrutiny because Vice President Dick Cheney was Halliburton's chief executive from 1995 until he joined the Republican ticket with President Bush in 2000.

The largest of the Cayman Islands shell companies - called Service Employers International Inc., which is now listed as having more than 20,000 workers in Iraq, according to KBR - was created two years before Cheney became Halliburton's chief executive. But a second Cayman Islands company called Overseas Administrative Services, which now is listed as the employer of 1,020 mostly managerial workers in Iraq, was established two months after Cheney's appointment.

Cheney's office at the White House referred questions to his personal lawyer, who did not return phone calls.

Heather Browne, a spokeswoman for KBR, acknowledged via e-mail that the two Cayman Islands companies were set up "in order to allow us to reduce certain tax obligations of the company and its employees."

Social Security and Medicare taxes amount to 15.3 percent of each employees' salary, split evenly between the worker and the employer. While KBR's use of the shell companies saves workers their half of the taxes, it deprives them of future retirement benefits.

In addition, the practice enables KBR to avoid paying unemployment taxes in Texas, where the company is registered, amounting to between $20 and $559 per American employee per year, depending on the company's rate of turnover.

As a result, workers hired through the Cayman Island companies cannot receive unemployment assistance should they lose their jobs.

In interviews with more than a dozen KBR workers registered through the Cayman Islands companies, most said they did not realize that they had been employed by a foreign firm until they arrived in Iraq and were told by their foremen, or until they returned home and applied for unemployment benefits.

"They never explained it to us," said Arthur Faust, 57, who got a job loading convoys in Iraq in 2004 after putting his resume on KBRcareers.com and going to orientation with KBR officials in Houston.

But there is one circumstance in which KBR does claim the workers as its own: when it comes to receiving the legal immunity extended to employers working in Iraq.

In one previously unreported case, a group of Service Employers International workers accused KBR of knowingly exposing them to cancer-causing chemicals at an Iraqi water treatment plant. Under the Defense Base Act of 1941, a federal workers compensation law, employers working with the military have immunity in most cases from such employee lawsuits.

So when KBR lawyers argued that the workers were KBR employees, lawyers for the men objected; the case remains in arbitration.

"When it benefits them, KBR takes the position that these men really are employees," said Michael Doyle, the lawyer for nine American men who were allegedly exposed to the dangerous chemicals. "You don't get to take both positions."

Founded by two brothers in Texas in 1919, the construction firm of Brown & Root quickly became associated with some of the largest public-works projects of the early 20th century, from oil platforms to warships to dams that provided electricity to rural areas.

Its political clout, particularly with fellow Texan Lyndon Johnson, was legendary, and it became a major overseas contractor, building roads and ports during the Vietnam war.

Halliburton, a Houston-based oil conglomerate, acquired Brown & Root in 1962. And after the Vietnam cease-fire agreement in 1973, it all but stopped doing overseas military work for two decades.

But in 1991, during the Gulf War, Halliburton decided to try to revive its military business. The next year, Brown & Root won a $3.9 million contract from the Defense Department under Secretary Dick Cheney to develop contingency plans to support, feed, house, and maintain the US military in 13 hot spots around the world.


That small contract soon grew into a massive logistical-support contract under which the company did everything from building military camps to cooking meals and providing transportation for troops. Under the contract, the military agreed to reimburse Brown & Root for all expenses, and to pay a profit of between 1 and 9 percent, depending on performance.

In Somalia, starting in December 1992, Brown & Root employees helped US soldiers and UN workers dig wells and collect garbage, among many other tasks. The company quickly became the largest civilian employer in the country, with about 2,500 people on its payroll. Its headquarters in Texas had a "war room," where executives would get daily updates about events in Mogadishu.

Later the company would play similar roles supporting US troops in Haiti, Rwanda, Bosnia, Uzbekistan, and Afghanistan.

As its military work increased, Brown & Root sent more American workers overseas. Americans working and living abroad receive significant breaks on their income tax, but still must pay Social Security and Medicare taxes if they work for an American company. The reasoning is that such workers are likely to return to the United States and collect benefits, so they and their employers ought to help pay for them.

But the taxes drive up costs. A former Halliburton executive who was in a senior position at the company in the early 1990s said construction companies that avoid taxes by setting up foreign subsidiaries have obvious advantages in bidding for military contracts.

Payroll taxes can be a significant cost, he said, speaking on the condition of anonymity. "If you are bidding against [rival construction firms] Fluor and Bechtel, it might give you a competitive advantage."

Service Employers International was set up in 1993, as Brown & Root was ramping up its roster of overseas workers. Two years later, the company set up Overseas Administrative Services, which serves more senior workers and provides a pension plan.

The parent company became Kellogg Brown & Root in 1998, when it joined with the oil-pipe manufacturer, M. W. Kellogg.

Around that time, KBR lost its exclusive contract to provide logistical support to the US military. But in 2001 it outbid DynCorp to win it back, by agreeing to a maximum profit of 3 percent of costs.

Then, in 2002, the firm received a secret contract to draw up plans to restore Iraq's oil production after the US-led invasion of Iraq. The Defense Department has said the firm was chosen mainly for its assets and expertise, not its ability to control costs.

Nonetheless, KBR's top competitors in Iraq do not appear to have gone to the same lengths to avoid taxes. Other top Iraq war contractors - including Bechtel, Parsons, Washington Group International, L-3 Communications, Perini, and Fluor - told the Globe that they pay Social Security and Medicare taxes for their American workers.

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXVI No. 404

By Julie Steenhuysen

Exposure to pesticides, nerve agents and other chemicals may explain the chronic, multi-symptom health problems experienced by up to one-third of Gulf War veterans, U.S. researchers said on Monday.

They said an analysis of a host of studies offers compelling evidence that the fatigue, muscle or joint pain, memory and sleep problems, rashes and breathing troubles experienced by these veterans are due to chemicals known as acetylcholinesterase inhibitors and organophosphates, which includes nerve gas.

"Convergent evidence now strongly links a class of chemicals -- acetylcholinesterase inhibitors -- to illness in Gulf War veterans," Dr. Beatrice Golomb of the University of California, San Diego, said in e-mailed comments.

She said some of the chemicals linked to these illnesses continue to be used in agriculture, and in homes and offices for pest control in the United States and throughout the world.

Golomb's prior research found that pills known as carbamate pyridostigmine bromide were given to service members to protect against exposure to nerve agents -- a practice that has since been discontinued.

For the latest study, Golomb combed through several studies linking Gulf War veterans' symptoms with all of the chemicals. She found that returning Gulf War veterans who had been exposed to chemicals suffered multi-symptom complaints at a higher rate than those who were not deployed, or who were deployed elsewhere.

"Evidence, taken together, provides a case for causal connection of carbamate, organophosphates and acetylcholinesterase inhibitor exposure to illness in Gulf War Veterans," Golomb wrote in the Proceedings of the National Academy of Sciences.

She also found a link between the amount of exposure to the chemicals and how common symptoms were in these veterans.

Golomb believes genetic variants make some people more susceptible to such chemicals, and when

exposed, these people had a higher risk of illness.

"A lot of attention has gone to psychological factors in illness in Gulf War veterans," Golomb said. But she said the ground conflict in the Gulf War lasted only four days, unlike the current conflict.

"Psychological stressors are inadequate to account for the excess illness seen," she said.

She said this knowledge should help protect troops from such problems arising in the future. Her team is also looking at ways to mitigate symptoms in Gulf War veterans.

By Steven Lee Myers and Thom Shanker

WASHINGTON — Troop levels in Iraq would remain nearly the same through 2008 as they have been through most of the five years of war there, under plans presented to President Bush on Monday by the senior American commander and the top American diplomat in Iraq, senior administration and military officials said.

Mr. Bush announced no final decision on future troop levels after the video briefing by the commander, Gen. David H. Petraeus, and the diplomat, Ambassador Ryan C. Crocker. The briefing took place on the day when the 4,000th American military death of the war was reported and just after the invasion’s fifth anniversary.

But it now appears likely that any decision on major reductions in American troops from Iraq will be left to the next president. That ensures that the question over what comes next will remain in the center of the presidential campaign through Election Day.

General Petraeus, speaking to Mr. Bush by secure videoconference during a two-hour meeting of the National Security Council, recommended putting off decisions on further troop reductions for a month or two after the departure in July of five extra brigades sent last year to help secure the nation, the officials said. They spoke on the condition of anonymity in order to speak freely about internal deliberations.

There would be more frequent reviews after that to see when withdrawals might be allowed to resume, without any predetermined outcome and, given the time required to put troops into motion, little likelihood of big reductions on short timetables.

During the briefing to the president, General Petraeus laid out a number of potential options, the officials said, but avoided using the term “pause.” That word has gained traction here in Washington over recent weeks to describe the plateau in troop levels that is widely expected to last through the fall elections and perhaps beyond.

Instead, he described the weeks after the departure of the extra brigades ordered to Iraq in January 2007 as a period of “consolidation and evaluation,” a phrase first used publicly by Defense Secretary Robert M. Gates during a visit to Iraq in February.

The officials said that Mr. Bush and General Petraeus, recognizing public and Congressional wariness about the toll of the war, would publicly hold out the possibly of withdrawing more troops, but only if conditions allowed it. Mr. Bush, in particular, is eager to end his presidency with the appearance that things are getting better in Iraq.

A review of conditions in Iraq roughly once a month, as opposed to the large, formal reviews that have taken place every six months, would be likely to prevent long debates like the one that began almost the moment General Petraeus and Ambassador Crocker reported to Congress last September on the progress of the troop increase up to that point. The withdrawal of the additional troops began in December and will be completed in July.

The two men are to appear on Capitol Hill again on April 8 and 9.

These more frequent reviews are advocated, officials said, by the Joints Chiefs of Staff and by the military’s Central Command, which is responsible for operations across the region, including those in Afghanistan. The reviews would determine how many more brigades, if any, could be ordered out of Iraq in the final months of the Bush presidency.

Reducing the troops in Iraq as much as is feasible has been a priority of the Joint Chiefs of Staff, who are to brief Mr. Bush this week. The Joint Chiefs have argued in favor of finding ways to ease the strain of the war in Iraq on military training and morale and to balance General Petraeus’s plans for Iraq with the need to prepare for other potential conflicts. A decision to suspend further reductions has already prompted criticism from Democrats in Congress, especially as the presidential primary campaign has intensified.

By John Crawley

U.S. aviation regulators on Thursday proposed to fine Southwest Airlines Co a record $10.2 million for allegedly failing to inspect planes for structural cracks.

The Federal Aviation Administration (FAA) said Southwest continued to fly uninspected aircraft even after the carrier notified the agency that it had missed a mandatory deadline to complete the work.

"The FAA is taking action against Southwest Airlines for a failing to follow rules that are designed to protect passengers and crew," said Nicholas Sabatini, the agency's associate administrator for safety.

The FAA said there were no safety incidents related to the missed inspections of Boeing Co 737 aircraft but the allegations and the fine amounted to a startling mark against the airline that has been an industry model for efficient operation for nearly 40 years.

"This is going to hurt Southwest in the image of the public," said Richard Gritta, a professor of finance and transportation at the University of Portland. "This is not just a toilet that's not functioning. This is serious."

Southwest said it acted promptly and responsibly and that flight safety was never compromised. It said the inspections were routine and redundant.

After discovering the missed inspection area, Southwest said it promptly reinspected the aircraft. It said the FAA approved of its actions, which were supported by Boeing.

Shares in Southwest, the biggest U.S. carrier by market value, closed down 3.8 percent to $12.50 on the New York Stock Exchange on Thursday, burdened by soaring oil prices.

UNINSPECTED PLANES

Southwest flies only 737 planes and the inspection program was part of an industry-wide FAA initiative to examine older planes more closely for signs of structural fatigue.

While commercial jetliners are built to fly for decades, the repetitive fuselage inspections imposed in 2004 are aimed at finding any minor skin cracks or other structural issues that occur with heavy use.

They usually can be fixed easily.

But the FAA asserted that Southwest operated 46 planes on nearly 60,000 flights while "failing to comply" with the inspection requirement between June 2006 and March 2007.

The carrier continued for eight days to operate the same planes on more than 1,400 additional flights after discovering last March that it missed the inspection deadline, the FAA said. This breach, the FAA said, prompted the heavy fine.

Cracks were found on six planes after the inspections were completed, the FAA said.

Southwest said it acted promptly once it discovered the lapse and reported it to the FAA.

The carrier consulted Boeing about the airlines' plan to reinspect the planes over a period of up to 10 days, while continuing to operate them. Boeing agreed that the plan did not pose a safety issue, Southwest said. A Boeing official confirmed the consultation.

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXVI No. 403

By Josh Meyer
WASHINGTON -- The U.S.-led effort to choke off financing for Al Qaeda and other terrorist groups is foundering because setbacks at home and abroad have undermined the Bush administration's highly touted counter-terrorism weapon, according to current and former officials and independent experts.

In some cases, extremist groups have blunted financial anti-terrorism tools by finding new ways to raise, transfer and spend their money. In other cases, the administration has stumbled over legal difficulties and interagency fighting, officials and experts say.

But the most serious problems are fractures and mistrust within the coalition of nations that the United States admits it needs to target financiers of terrorism and to stanch the flow of funding from wealthy donors to extremist causes.

"The international cooperation and focus is dropping, the farther we get from 9/11," said Michael Jacobson, who was a senior advisor in the Treasury Department's Office of Terrorism and Financial Intelligence until March 2007. "Some countries lack political will. Others just don't have the basic capacity to govern their countries, much lesscreate a viable financial intelligence unit."

Many current and former officials and experts say that because of political, legal, cultural and technical problems, the administration-led coalition is deteriorating.

"Al Qaeda, the Taliban and other terrorist groups continue to have access to the funds they need for active and expanded indoctrination, recruitment, maintenance, armament and operations," said Victor D. Comras, a former United Nations terrorism finance official.

Internationally, the sense of urgency over terrorism financing has waned since the 2001 attacks. As political climates have changed and negative perceptions of the United States have risen, key allies are cooperating less, current and former officials say.

In the Middle East and elsewhere, many countries have resisted U.S. pressure to investigate and identify financiers.

Saudi Arabia, Pakistan and other key nations have not taken the necessary steps to crack down on terrorist financing or suspect money flowing across their borders. Other countries, including Afghanistan and some African nations, lack the financial infrastructure to cooperate meaningfully.

Also, the most deadly terrorist attacks since Sept. 11, 2001, have cost so little -- often less than $10,000 -- that they are virtually impossible to detect by following a money trail.

Terrorist networks need larger sums to travel, train operatives, bribe government officials, evade capture and expand support bases. Increasingly, however, they are moving funds below the radar of U.S.-led enforcement and intelligence-gathering efforts, officials and experts said.

Cash couriers use donkeys and camels in places like Pakistan and Afghanistan, for instance, and private jets are used in oil-rich Persian Gulf kingdoms to move cash, gold and jewels. The networks continue to rely on a centuries-old informal banking system known as hawala, which leaves virtually no trail.

Overall, it is nearly impossible to distinguish funds meant for potential terrorism from legitimate transactions, said a senior State Department official, who, like some of the those interviewed, spoke on condition of anonymity because of prohibitions against commenting on the record on counter-terrorism.

Current and former U.S. officials acknowledge they are struggling, especially because much-needed allies are unwilling or unable to assist.

"It's not as much that we're not properly executing our strategy," said Robert Grenier, a former senior CIA official. "It's that the strategy is of limited utility in countering terrorism financing given the mechanisms that terrorists use."


















By Tom Petruno
The credit crunch is showing signs of worsening, defying efforts by the Federal Reserve to restore confidence in the financial system.

Bond and stock markets were rocked Thursday by mounting credit woes of hedge funds and other investment firms that bought securities with borrowed money.

Some of those firms now are facing demands by their lenders to put up more capital against the falling value of their investments -- which in some cases are high-quality securities, not the low-quality mortgage debt at the heart of the housing crisis.

Despite the Fed's deep cuts in short-term interest rates in recent months, "what the market is telling you is that there isn't any credit available," said Christopher Whalen, an analyst at Hawthorne-based research firm Institutional Risk Analytics, which analyzes risk for financial firms.

Further strain on borrowers could weaken the already fragile economy.

Late Wednesday, Carlyle Capital Corp., a $21-billion European investment fund that had borrowed heavily to buy high-quality mortgage-backed bonds, said it was unable to satisfy all of the lender demands, known as margin calls, that it received in recent days. The firm, a unit of private-equity firm Carlyle Group, said one lender had served it with a notice of default.

Another home-loan investor, Santa Fe, N.M.-based Thornburg Mortgage Inc., also said it couldn't meet margin calls. Its shares plunged $1.75 to $1.65 on worries that it might file for bankruptcy protection from creditors.

Fear of spreading margin calls hammered shares of other mortgage investment companies that had survived the industry shakeout of the last year. Annaly Capital Management in New York dived $3.47 to $15.81; Santa Monica-based Anworth Mortgage Asset Corp. sank $2.62 to $6.23.

Wall Street, facing another round of turmoil rooted in the housing market debacle, drove share prices down across the board. The Dow Jones industrial average tumbled 214.60 points, or 1.8%, to 12,040.39, its lowest since Jan. 22.

What has unnerved some investors is that the margin calls this week have stemmed in part from a drop in the prices of mortgage bonds issued by Freddie Mac and Fannie Mae, the two government-sponsored home loan finance giants.

As mortgage defaults continue to surge, investors' concerns about the financial health of the two companies have been evident in the deep declines in their stock prices. Shares of Fannie plummeted $2.57 to $21.70 on Thursday and are down 22% for the week; Freddie's shares slid $1.50 to $20.14 on Thursday and are down 20% for the week.

Some investors also have been dumping the companies' bonds despite their top-rank credit ratings. That has pushed down prices of the bonds and boosted their yields.

The falling value of the bonds has in turn triggered margin calls by nervous lenders who financed investment funds' purchases of the securities. The funds used leverage to juice their bets, but in a falling market that debt magnifies the funds' losses.

"The whole leverage game is unwinding," Whalen of Institutional Risk Analytics said.

As lenders pull back, they are fueling a vicious circle: Leveraged investment funds facing margin calls are forced to dump securities they bought on credit, which further drives down the value of the securities in the market, in turn triggering margin calls against other funds.

For the financial system, "margin calls can metastasize the problem" of credit-market woes, said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.

Last week the normally low-key municipal bond market was upended by margin calls against some hedge funds that had bought the tax-free securities with borrowed money. Forced selling helped to drive yields on long-term muni bonds to their highest levels in nearly six years.

By Steve Quinn

JUNEAU, Alaska — The chief of staff for former Alaska Gov. Frank Murkowski has agreed to plead guilty to fraud in an ongoing corruption probe involving an oil-field-services company.

Jim Clark's plea agreement was filed late Monday afternoon in U.S. District Court in Anchorage.

Clark has admitted he conspired with former VECO Corp. executives to hide from state election regulators more than $68,000 in polls and consultants' fees for Murkowski's failed re-election bid two years ago.

Clark's attorney, Bruce E. Gagnon, declined to comment. He said Clark would issue a statement today, when Clark is scheduled to be in court.

Messages left on Clark's cellphone and with Alaska's U.S. attorney, Nelson Cohen, were not immediately returned.

Efforts to reach Murkowski, a former Republican U.S. senator and father of current U.S. Sen. Lisa Murkowski, R-Alaska, also weren't immediately successful.

Two former VECO executives, including CEO Bill Allen, have pleaded guilty to bribing Alaska lawmakers. They have not yet been sentenced and are cooperating with authorities in the probe that stretches from Juneau to Washington, D.C.

U.S. Sen. Ted Stevens, R-Alaska, is being investigated for a remodeling project at his home in Girdwood, a ski-resort community on Anchorage's southern edge. Allen has testified that he sent VECO employees to work on the house.

Beyond saying he's paid every bill presented him for the remodeling project, Stevens will not comment on the investigation.

U.S. Rep. Don Young, R-Alaska, is the subject of a federal investigation that includes his campaign-finance practices. Young's re-election campaign last year spent $854,053 on legal fees, but he won't disclose for what that money was used.

Two former state lawmakers have been convicted of accepting bribes from VECO and are serving sentences in a federal prison in Oregon. Another former lawmaker awaits trial.

Clark's plea, however, extends the reach of the investigation to the governor's office, where Murkowski served for four years.

Murkowski was soundly defeated in the 2006 Republican primary by the eventual winner, Gov. Sarah Palin, who campaigned on an ethics-reform platform

Hey, here's a few stories Bill O'Reilly didn't report on today. Vol. CXXXIV No. 402

By Kenneth R. Weiss
Conservation groups today sued Los Angeles County and the city of Malibu to force them to clean up the slurry of fecal bacteria, copper, lead, cyanide and other pollutants being washed down storm drains, creeks and rivers into coastal waters.

The two lawsuits, filed in U.S. District Court in Los Angeles, are test cases aimed at enforcing compliance with Clean Water Act rules first adopted 17 years ago.

The cases rely on annual reports filed by the county showing that it violates limits set for bacteria, heavy metals and other pollutants carried by rainfall or sprinkler runoff down the Los Angeles and San Gabriel rivers, Ballona and Malibu creek and other discharge points into Southern California waters.

"Polluted runoff is the No. 1 source of contaminants flowing into the ocean," said David Beckman, a senior attorney with the Natural Resources Defense Council. "It continues flowing into our coastal waters year after year. It's bad for people and marine life and it's against the law."

Up to this point, these so-called storm water rules required county and city officials to take steps toward cleanup, such as mounting education campaigns and stenciling storm drains with no-dumping warnings explaining that the channels flow to the ocean.

The lawsuit does not specify how the county and city should meet the standards of the Clean Water Act. Those details would be left to government officials.

NRDC and Santa Monica Baykeeper argue that solutions have been developed in other areas, such as carving catch basins to allow storm water to percolate into the ground, using porous pavement, and restoring wetlands and vegetation to filter pollutants.

Local officials have long complained that they do not have the money to mount such ambitious cleanup projects.

Howard Gest, an attorney who handles Clean Water Act issues for Los Angeles County, said he cannot comment on the lawsuit because he hasn't seen it.

Malibu City Atty. Christi Hogin said she was disappointed that the city was targeted in a lawsuit because of ongoing talks with environmental lawyers to resolve this issue.

"It's frustrating because we feel like we are the good guys," Hogin said. Malibu has been using a newly built wastewater plant to collect and treat storm water that flows into Malibu Creek, she said. And the city has been working with state officials on plans to take additional steps to clean up discharges into coastal waters from Latigo Point to Point Mugu, an area designated by the state as having special biological significance.

Under state rules, no polluted discharges are allowed in such specially designated areas known for their abundance or assemblage of marine life.













By Walter Hamilton
NEW YORK -- Insurance lawyer David Grais has been poring over equations in finance books to get up to speed on his new specialty: lawsuits stemming from the sub-prime mortgage debacle.

With his traditional insurance practice slowing down, the 55-year-old partner at a small New York firm began segueing into sub-prime in June, after a friend predicted at lunch that it would become the next legal blockbuster.

"This whole area is a new dawn" for lawyers, Grais said.

First came the sub-prime mortgage boom. Next was the bust. Now, as surely as day follows night, come the lawsuits.

All large-scale financial scandals spawn mountains of litigation, but the sub-prime fiasco stands out because of the complexity of the system that funneled more than $1 trillion from investors around the world through Wall Street and mortgage lenders to borrowers with dicey credit.

As losses mount on those loans, the scene of the blame game is shifting to the courts.

Sub-prime borrowers are suing loan brokers and lenders, accusing them of deceptive practices. Wall Street firms that bought now-delinquent sub-prime loans are trying to force lenders to buy them back.

Investment-bank shareholders are going after those firms' managers, saying they took excessive risks by loading up on bonds backed by sub-prime mortgages. And investors are suing money managers whose sub-prime-laden funds have suffered hefty losses.

"Somebody described it to me as, 'Everybody's standing in a circle shooting at each other,' " said Kevin LaCroix, a lawyer who writes a blog on sub-prime litigation.

In all, the 278 civil sub-prime-related cases filed in federal courts last year already amounted to half of the 559 actions brought during the entire savings-and-loan crisis from 1989 to 1995, according to research firm Navigant Consulting Inc.

"The pace of filings has just accelerated dramatically," said Navigant Managing Director Jeff Nielsen.

The data don't include the unknown number of suits filed in state courts -- or the probes by federal and state regulators and prosecutors, who are bearing down on many of the key players in the mortgage industry, looking for evidence of wrongdoing.

The sub-prime meltdown is likely to overtake the S&L crisis as the civil litigation record-holder this year, Nielsen said.

"We're at the stage now of throwing a lot against the wall and seeing what sticks," said Therese Pritchard, a securities law partner at Bryan Cave in Washington.

In one novel case that began in January, the city of Cleveland sued 21 major banks under Ohio's public nuisance law, accusing them of reckless lending that is burdening the city with a mass of foreclosures.

Grais, of Grais & Ellsworth, said the legal intricacies of the sub-prime disaster are what appealed to him. He has been taking classes to understand how Wall Street pieces together exotic mortgage-backed securities.

"This is the most interesting stuff I've studied in 30 years as a lawyer," he said.

Of course, as with most legal free-for-alls tied to financial blowups, most of those suing in the sub-prime mess aren't hoping to go to trial. The goal is compensation in an out-of-court agreement.

"The plan for plaintiffs is to get a settlement out of the case," said Michael Perino, a securities-law professor at St. John's University in Queens who studies class-action litigation. "That's the exit strategy."

Plaintiffs' attorneys contend that their investor clients suffered enormous losses because lenders made loans to unqualified borrowers, and investment banks, hungry for fees, packaged the toxic debt into bonds.














By Molly Hennessy-Fiske
After a series of surprise inspections in Los Angeles County, Medicare fraud investigators found persistent corruption among medical equipment suppliers who set up phony offices that billed the government $21 million over one year, prompting officials to call for stronger enforcement efforts, according a report to be released today.

Investigators checked 905 suppliers. Their offices should have been filled with wheelchairs, crutches, bedpans and other medical equipment. But the offices of about 115 suppliers -- 1 in 8 -- were closed, in vacant buildings or listed under the addresses of other businesses, such as a doctor's office and an art gallery, according to the report.

Federal investigators are expected to recommend today that the government investigate those suppliers and do more to fight fraud among Medicare equipment suppliers in L.A. County.

Medicare records show that L.A. County is home to nearly 5,000 suppliers. Investigators have uncovered $300 million in potentially fraudulent billing in the last two years. Victims include non-English-speaking Asian and Latino Medicare recipients who were duped by fake suppliers and then billed for items they did not need or receive.

Investigators from the Office of the Inspector General at the U.S. Department of Health and Human Services visited L.A. in September and October after a similar investigation in southern Florida.

Both areas have recently been hit by fraudulent billing to Medicare, the federal health insurance program for the elderly.

Investigators found Medicare managers can do more to reduce supplier fraud, including conduct more surprise federal inspections; require suppliers to pay for and pass a federal background check and maintain a sufficient inventory; charge suppliers who can't be found during surprise inspections; and declare a temporary moratorium on accepting new suppliers in high-fraud areas.

In response to the report, Medicare managers said they were addressing the problem through new requirements that are to take effect in 80 metropolitan areas this spring. Included are Los Angeles, Bakersfield, Fresno, Sacramento, San Diego, San Francisco, San Jose and Visalia.

Under the new rules, suppliers will have to apply to one of 10 accrediting organizations, paying fees of $1,500 to $10,000. During accreditation, they will have to pass background checks and more frequent inspections with short notice. If those checks raise suspicions of fraud or the potential for fraud the supplier could be expelled from Medicare.

Medicare records show that in California, 123 suppliers had their billing privileges revoked for the year preceding April 2007. Of those, 108 were in Los Angeles, Orange, Riverside and San Bernardino counties, and 83 were in Los Angeles County alone.