From Friend to Foe

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Ahmed Chalabi greets friends and members of the Iraqi National Congress at his office in Baghdad

Ahmad Chalabi likes to sleep in. He does his work at night, engaging in endless back-room meetings and talk sessions that often drag on past midnight. On most days he rises late and eats breakfast alone—but last Thursday his wake-up call came early. At 10 a.m., five armored humvees pulled up outside Chalabi's two-story house in west Baghdad. While U.S. soldiers cordoned off the street, seven Iraqi police officers broke down the front door and stormed the living room.

Chalabi stumbled downstairs to find cops rummaging through his effects and preparing to arrest one of his drivers. "What are you doing here?" he said. "Get out of my house." Upon recognizing Chalabi, a police captain put down his gun and produced arrest warrants for seven of Chalabi's lieutenants. The captain insisted that the raid wasn't at his instigation. "He had no idea whose house it was," says Haider Musawi, an aide to Chalabi. "He said they were just following American orders."

For Chalabi, who four months ago could still boast of Oval Office privileges, being targeted in his own home by his former patrons was stunning enough. But he could do nothing to stop what happened next. An hour and a half after the police finished searching Chalabi's house, a second contingent of cops burst into a compound several blocks away—an ornate mansion known as China House, which serves as the headquarters of Chalabi's Iraqi National Congress (i.n.c.). The Iraqis pointed guns at Chalabi's guards and ordered them to load the police vehicles with the office's computers, documents and files. Outside, a group of Americans dressed in civilian clothes watched with approval while smoking Cuban cigars and drinking sodas taken from Chalabi's office fridge. An i.n.c. official tells Time the Americans identified themselves as FBI and CIA but refused to show identification. "The Americans were sitting there, egging on the Iraqis," says the official. "They sat on the veranda saying things like 'Good job, keep at it.'" Then the Iraqis ransacked the place, seizing weapons, ripping down pictures of Chalabi's father, even confiscating a copy of the Koran. An Iraqi officer smashed a framed photograph of the Pentagon's favorite exile himself. "Chalabi is finished," he said.

In an occupation marked by dizzying strategy shifts and policy repudiations, the U.S.'s abandonment of Chalabi may prove to be the most head-snapping reversal of all. A little more than a year ago, a triumphant Chalabi flew into Iraq escorted by U.S. special forces, having achieved his decade-long goal of persuading the U.S. to overthrow Saddam Hussein. But U.S. officials say last week's raid was the culmination of months of irritation with Chalabi over his discredited prewar claims about Saddam's weapons programs, the suspected corruption of i.n.c. members and Chalabi's criticism of the U.S. plan to hand political control to a U.N.-appointed Iraqi government on June 30. U.S. intelligence and law-enforcement officials tell Time they are also investigating more serious offenses. After a CIA complaint, the FBI launched a full field criminal probe into whether Chalabi and senior i.n.c. aides passed high-level intelligence to Iran—information believed to be so sensitive, a senior U.S. official says, that it may have provided Iranian authorities with insights into the U.S.'s sources and methods for collecting intelligence and could even "lead to the loss of lives." U.S. intelligence officials told the FBI that they have "hard" evidence that Chalabi met with a senior officer of Iran's Ministry of Intelligence and Security in Iraq. A senior U.S. official says Chalabi and his intelligence chief, Aras Karim Habib, are suspected of giving Iran "highly classified" data that were "known to only a few within the U.S. government." The FBI investigation, sources say, will probably involve dozens of agents and a full arsenal of investigative techniques, possibly including court-authorized searches and wiretaps. The probe will examine whether U.S. officials illegally transmitted state secrets to the i.n.c. The investigation could ultimately reach high-ranking civilian officials at the Pentagon and the Defense Intelligence Agency (dia) who have dealings with Chalabi and his organization.

In an interview with Time, Chalabi dismissed the notion that he may have been working as an agent for Tehran. "Total nonsense," Chalabi says. "They don't need us to pass information to them. They have scores and scores of agents all over this country." The i.n.c. has made no secret of its friendliness with the Iranian government, which supported the campaign to topple Saddam. "My relationships with Iran are excellent," Chalabi says. For years, the i.n.c. has maintained an office in Tehran with the full knowledge of the U.S. State Department. In fact, a top deputy to Habib, one of the principal targets of last week's raid, says he left Iraq on May 14 and is now in Tehran, a common port of call for i.n.c. officials on their way out of Iraq.

With questions swirling about Chalabi's fidelity, Administration neoconservatives who once blessed Chalabi as Iraq's President-in-waiting but have watched their influence wane as Iraq has descended into chaos fell over themselves last week trying to cut loose their former friend. One of Chalabi's Pentagon boosters, Under Secretary of Defense Douglas Feith, insisted to Time that "there's all this stuff about his advising us on policy and his being highly influential, and it is wildly overstated. The stuff that's been reported about us being very close is just wrong." A top Administration source says Vice President Dick Cheney, who lobbied to continue to give financial assistance to the i.n.c. in the run-up to the U.S. invasion, saw Chalabi as merely "one of many" exiles who could aid the U.S. in Iraq. Asked by Ohio Congressman Tim Ryan whether the U.S. was "duped by a con man" into going to war, Air Force General Richard Myers, Chairman of the Joint Chiefs of Staff, responded, "I think that remains to be seen. Probably. But I just don't know."

Yet by choosing to go after Chalabi, the U.S. risks alienating some of its few remaining allies in Iraq while inviting fresh doubts about its judgment—all at a time when the U.S. is trying to line up support for the planned transfer of power on June 30 in a last-gasp bid to stave off spiraling discontent with the occupation. "This is always the way the United States does things," Chalabi tells Time. "One of the first things they do when they come into a place is turn their backs on their friends who were instrumental in bringing them there." About that much, at least, Chalabi is right. Last week's raid signaled that Washington's romance with Chalabi is over. "He has made some choices about whether he will speak out or be against us, and he has that right," says a senior Administration official. "But we have the right to make choices as well."

The rupture between the U.S. and its favorite son has been months in the making, the product of election-year politics, bureaucratic jousting and deeply personal feuds. In January Bush invited a delegation of the Iraqi Governing Council, including Chalabi, to Washington for the State of the Union address. Chalabi sat just behind First Lady Laura Bush. But that publicity coup masked anxieties. Chalabi says that during a meeting with George W. Bush in the Oval Office, he implored the President not to hand control over Iraq's political future to the U.N. Chalabi has long railed against the U.N. for propping up Saddam through its corrupt oil-for-food program. He warned Bush that the U.N.'s envoy to Iraq, Lakhdar Brahimi, was trying to give former Sunni Baathists a role in the future government. Chalabi tells Time, "The President said to me, 'If there is anything you don't have to worry about, it's that.'" He should have been worried. In early April, with coalition forces fighting a two-front insurgency and the White House desperate for an exit strategy, Bush declared that the U.S. would back any political arrangement Brahimi could come up with before June 30. When the U.N. envoy returned to Iraq last month, he announced that members of the Governing Council would not be a part of the caretaker government he plans to name. Chalabi blames Bush for trashing the pledge he made in January. "Two months down the line, the President decides for his re-election strategy to have the U.N. determine how things are going to be in Iraq," he says.

But as Chalabi fumed, he found little sympathy from the Administration. In early April, according to U.S. officials, the National Security Council agreed it was time to cut its losses and separate Washington's policy from Chalabi. In Baghdad, Chalabi's relationship with L. Paul Bremer, the head of the Coalition Provisional Authority, disintegrated into a bitter grudge match. "Bremer is a control freak," charges a Chalabi aide. "He hates anybody who can steal his thunder." The two feuded over Bremer's decision in late April to reverse his de-Baathification policy, which Chalabi had overseen. An i.n.c. official acknowledges that Chalabi has tried to block the appointment of several former Baathists the U.S. wants to rehire. As head of the Governing Council's finance committee, Chalabi hired an accounting firm to investigate the oil-for-food scandal. In March, Bremer hired a different accounting firm to direct the probe. Chalabi aides charge that Bremer snuffed out Chalabi's campaign, fearing it would discredit the U.N. and Brahimi. Chalabi says last week's raid was aimed at confiscating oil-for-food documents that could embarrass U.N. officials. Pentagon officials dismiss such claims. "More Chalabi bull____," says a Pentagon civilian.

By the beginning of May, the Administration concluded that Chalabi posed a direct threat to its hopes for an orderly transfer of power to the Brahimi-backed government. i.n.c. officials say Chalabi has stopped attending the Governing Council's meetings with Bremer and has instead formed a Shi'ite Political Council, consisting of hard-line Islamist groups, including some with ties to rebel cleric Muqtada al-Sadr. An adviser to the Governing Council who is close to Chalabi says the i.n.c. leader is aiming to line up other Shi'ite groups as leverage to force Brahimi to give him a place in the new government.

But at the same time, the U.S. was moving to sever its last remaining ties to Chalabi. The decision to cut Chalabi's U.S. funding—a $335,000 monthly retainer paid by the dia to the i.n.c. as part of the Information Collection Program (icp), an i.n.c.-run operation aimed at gathering intel on the former regime—came on May 8, according to someone familiar with the plan. It occurred at a principals' meeting attended by Defense Secretary Donald Rumsfeld, Secretary of State Colin Powell, National Security Adviser Condoleezza Rice and CIA director George Tenet. On May 13, dia officials who worked with the i.n.c. abandoned their office in Baghdad. The next day, the Iraqis who had been working there brought three trucks into the compound to take away files and computers from the office. A confidant of Chalabi's says that by the time the U.S. ordered last week's raid, the i.n.c. had already removed its most sensitive intelligence documents.

But the intensified FBI and CIA focus on the i.n.c.'s ties to Tehran have now put Chalabi himself under the microscope. "He's been suspected of being an Iranian asset for a long, long time," says Patrick Lang, a former dia official. Since the beginning of the occupation, the i.n.c. has worked closely with the dia and the U.S. military in Baghdad, feeding intelligence to the U.S. on the whereabouts of top Baathists and the movements of insurgent cells. But that relationship also gave Chalabi and his aides extraordinary access to members of the U.S. intelligence community. At least two dia agents who were attached to the icp worked in the same office as Habib, the i.n.c. intel czar who is believed to have relocated to Tehran. Chalabi and his advisers deny that they received any classified information from the U.S. But Lang says that, if i.n.c. officials were in league with Tehran, they would have been able to compromise U.S. security simply by revealing the way in which U.S. officials did business in Iraq.

It may still take months for the U.S. to sort out just how much damage its flirtation with Chalabi has wrought. Bush Administration officials argue that their willingness to cut Chalabi loose shows that the U.S. is learning from the faulty assumptions that have plagued the occupation for more than a year. That's a point that Bush plans to stress in a series of speeches he will begin to deliver this week in an effort to prepare the country for June 30. "This is in part about managing expectations," says a White House official. "The President is going to be very frank about that and talk about where things went well and where they didn't go well—but which we're correcting." Such candor is encouraging. But after so many missteps, the Administration may have a hard time convincing the world it knows how to get it right.

—Reported by Brian Bennett, Timothy J. Burger, James Carney, John F. Dickerson, Elaine Shannon and Mark Thompson/Washington; Vivienne Walt/Baghdad; Scott MacLeod/Cairo; and Hassan Fattah/Amman