I.M.F. HEAD IS ARRESTED AND ACCUSED OF SEXUAL ATTACK

May 14, 2011 By AL BAKER and STEVEN ERLANGER

The managing director of the International Monetary Fund, Dominique Strauss-Kahn, was taken off an Air France plane at Kennedy International Airport minutes before it was to take off for Paris on Saturday and arrested in connection with the sexual attack of a maid at a Midtown Manhattan hotel, the authorities said.

Mr. Strauss-Kahn, 62, who was widely expected to become the Socialist candidate for the French presidency, was apprehended by detectives of the Port Authority of New York and New Jersey in the first class section of the jetliner, and immediately turned over to detectives from the Midtown South Precinct, officials said.

The New York Police Department took Mr. Strauss-Kahn into custody, where he was “being questioned in connection with the sexual assault of a hotel chambermaid earlier this afternoon,” Deputy Commissioner Paul J. Browne, the New York Police Department’s chief spokesman, said Saturday evening. “He is being arrested for a criminal sex act, attempted rape and unlawful imprisonment.”

A spokeswoman for the Manhattan district attorney’s office said prosecutors were investigating the matter and expected to bring formal criminal charges against Mr. Strauss-Kahn by early Sunday morning.

Mr. Strauss-Kahn, a former French finance minister, had been expected to declare his candidacy soon after three and a half years as the leader of the fund, which is based in Washington. He was considered by many to have done a good job in a period of intense global economic strain, when the bank itself had become vital to the smooth running of the world and the European economy.

His apprehension came at about 4:40 p.m., when two detectives of the Port Authority suddenly boarded Air France Flight 23, as the plane idled at the departure gate, said John P. L. Kelly, a spokesman for the agency.

“It was 10 minutes before its scheduled departure,” said Mr. Kelly. “They were just about to close the doors.”

Mr. Kelly said Mr. Strauss-Kahn was traveling alone and was not handcuffed during the apprehension.

“He complied with the detectives’ directions,” Mr. Kelly said.

The Port Authority officers were acting on information from the Police Department, whose detectives had been investigating the assault of a female employee of Sofitel New York, at 45 West 44th Street, near Times Square. Working quickly, the city detectives learned he had boarded a flight at Kennedy airport to leave the country.

Mr. Strauss-Kahn’s time at the bank was tarnished in 2008 by an affair with a Hungarian economist who was a subordinate there. The fund decided to stand by him despite concluding that he had shown poor judgment in the affair. Mr. Strauss-Kahn issued an apology to employees at the bank and his wife, Anne Sinclair, an American-born French journalist.

In his statement then, Mr. Strauss-Kahn said, “I am grateful that the board has confirmed that there was no abuse of authority on my part, but I accept that this incident represents a serious error of judgment.” The economist, Piroska Nagy, left the fund as part of a buyout of nearly 600 employees instituted by Mr. Strauss-Kahn to cut costs.

In the New York case, Mr. Browne said that it was about 1 p.m. on Saturday when the maid, a 32-year-old woman, entered Mr. Strauss-Kahn’s suite — Room 2086 — to clean it. Mr. Browne said the suite, which cost $3,000 a night, had a foyer, a living room and a bedroom.

As she was in the foyer, “he came out of the bathroom, fully naked, and attempted to sexually assault her,” Mr. Browne said. . “He grabs her, according to her account and pulls her into the bedroom and onto the bed,” Mr. Browne added. He locked the door to the suite, Mr. Browne said.

“She fights him off and he then drags her down the hallway to the bathroom, where he sexually assaults her a second time,” Mr. Browne added.

At some point during the assault that followed, the woman broke free, Mr. Browne said, and “she fled, reported it to other hotel personnel, who called 911. When the police arrived, he was not there.” Mr. Browne said Mr. Strauss-Kahn appeared to have left in a hurry. Investigators found his cellphone in the room, which he had left behind, and one law enforcement official said that investigation in the hotel room uncovered forensic evidence that would contain DNA.

Mr. Browne added: “We learned that he was on an Air France plane,” and the plane was held at the gate, where Mr. Strauss-Kahn was taken into custody. Later Saturday night, Mr. Browne said Mr. Strauss-Kahn was in a police holding cell.

Mr. Browne said the city’s Emergency Medical Service took the maid to Roosevelt Hospital for what Mr. Browne described as treatment for “minor injuries.”

No matter the outcome of Saturday’s episode, it will likely throw the French political world into turmoil and the Socialist Party into an embarrassed confusion.

Mr. Strauss-Kahn, a leading member of the party, has been considered the front-runner for the next presidential election in France in May 2012. Opinion polls have shown him to be the Socialists’ most popular candidate and running well ahead of the incumbent, Nicolas Sarkozy, who leads the center-right party.

France has been waiting for Mr. Strauss-Kahn to decide whether to run for his party’s nomination in a series of primaries, which would mean giving up his post as managing director of the fund.

The view in France was that if Mr. Strauss-Kahn wanted to run, he would have to make his intentions clear early this summer, and most politicians and analysts have been predicting that he would not be able to resist the chance to run the country.

Mr. Strauss-Kahn contested for the nomination five years ago, losing to Ségolène Royal, who ultimately lost a second-round runoff to Mr. Sarkozy. Mr. Sarkozy then arranged for Mr. Strauss-Kahn to get the I.M.F. job, in part to remove a popular rival from France’s political landscape.

Mr. Strauss-Kahn was the French minister of economy under the Socialist prime minister Lionel Jospin from 1997 to 1999, and he has also been a professor of economics at the Paris Institute of Political Studies.

In 1995, he was elected mayor of Sarcelles, a poor suburb of Paris, and married Ms. Sinclair.

The couple are known to enjoy the finer things in life, and Mr. Strauss-Kahn has sometimes been attacked for being a “caviar leftist.”

Recently Mr. Strauss-Kahn and his wife were photographed entering an expensive Porsche in Paris belonging to one of their friends. The image of a Socialist with Porsche tastes was quickly picked up by the press, especially the newspapers that generally support Mr. Sarkozy.

William K. Rashbaum and Colin Moynihan contributed reporting.

FROM PRISON, MADOFF SAYS BANKS ‘HAD TO KNOW’ OF FRAUD

February 15, 2011 By DIANA B. HENRIQUES

BUTNER, N.C. — Bernard L. Madoff said he never thought the collapse of his Ponzi scheme would cause the sort of destruction that has befallen his family.

In his first interview for publication since his arrest in December 2008, Mr. Madoff — looking noticeably thinner and rumpled in khaki prison garb — maintained that family members knew nothing about his crimes.

But during a private two-hour interview in a visitor room here on Tuesday, and in earlier e-mail exchanges, he asserted that unidentified banks and hedge funds were somehow “complicit” in his elaborate fraud, an about-face from earlier claims that he was the only person involved.

Mr. Madoff, who is serving a 150-year sentence, seemed frail and a bit agitated compared with the stoic calm he maintained before his incarceration in 2009, perhaps burdened by sadness over the suicide of his son Mark in December.

Besides that loss, his family also has faced stacks of lawsuits, the potential forfeiture of most of their assets, and relentless public suspicion and enmity that cut Mr. Madoff and his wife Ruth off from their children.

In many ways, however, Mr. Madoff seemed unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds, pointing to their “willful blindness” and their failure to examine discrepancies between his regulatory filings and other information available to them.

“They had to know,” Mr. Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ”

While he acknowledged his guilt in the interview and said nothing could excuse his crimes, he focused his comments laserlike on the big investors and giant institutions he dealt with, not on the financial pain he caused thousands of his more modest investors. In an e-mail written on Jan. 13, he observed that many long-term clients made more in legitimate profits from him in the years before the fraud than they could have elsewhere. “I would have loved for them to not lose anything, but that was a risk they were well aware of by investing in the market,” he wrote.

Mr. Madoff said he was startled to learn about some of the e-mails and messages raising doubts about his results — now emerging in lawsuits — that bankers were passing around before his scheme collapsed.

“I’m reading more now about how suspicious they were than I ever realized at the time,” he said with a faint smile.

He did not assert that any specific bank or fund knew about or was an accomplice in his Ponzi scheme, which lasted at least 16 years and consumed about $20 billion in lost cash and almost $65 billion in paper wealth. Rather, he cited a failure to conduct normal scrutiny.

Both the interview and the e-mail correspondence were conducted as part of this reporter’s research for a coming book on the Madoff scandal, “The Wizard of Lies: Bernie Madoff and the Death of Trust,” for publication this spring by Times Books, a division of Henry Holt & Company.

In the interview and e-mails, he also claimed he had been helping the court-appointed trustee who is seeking to recover lost billions on behalf of his swindled clients. In e-mails, Mr. Madoff said repeatedly that he provided useful information to Irving H. Picard, the trustee trying to recover assets for the fraud victims. He met with Mr. Picard’s team over four days last summer, he said. The e-mails were written in December and January, but he only recently agreed that they could be made public.

In prison, Mr. Madoff’s access to the outside world is both limited and monitored. All visitors must be approved by prison authorities, who also screen his limited collect calls and his incoming and outgoing e-mails and letters, though interviews with lawyers are less restricted and can be conducted in private.

Asked about his cell, he described a room about 12 feet square with a big window looking out on the grounds; he said he had a roommate, the second since he arrived at the prison.

It was clear from the e-mails and interview here that Mr. Madoff closely followed news related to his case in December, the second anniversary of his arrest. He lashed out at what he called some of the “disgraceful” coverage of the suicide of his son Mark on Dec. 11.

Disputing reports that he refused to attend any funeral services for Mark, he said the prison informed him it would not approve a request for him to attend a service because of “the public safety issue” and the limited time available to make arrangements. He concluded any funeral he attended “would be a media circus” and that it “would be cruel to my family” to put them through that, he wrote on Dec. 29.

Regarding his meetings with Mr. Picard’s legal team, Mr. Madoff asserted in an e-mail written on Dec. 19 that he had given Mr. Picard’s legal team “information I knew would be instrumental in recovering assets from those people complicit in the mess I put myself into.”

In a message 10 days later, he was even more explicit about what he told the trustee's team: “I am saying that the banks and funds were complicit in one form or another.”

Mr. Madoff’s claims must be weighed against his tenuous credibility. After deceiving federal regulators and supposedly sophisticated investors for at least 16 years, he would certainly be branded as a liar by defense lawyers if he appeared as a witness against any defendant in a courtroom — a fact he acknowledged somewhat ruefully during the interview on Tuesday.

Despite his many references to the complicity of others, he acknowledged in the Dec. 19 e-mail that he had not shared his information with the federal prosecutors working on criminal cases related to his fraud — although the trustee most likely would have done so, if Mr. Madoff’s information was relevant to the investigation.

Mr. Madoff wrote in an e-mail that while he was willing “from the beginning” to give prosecutors information “to help recover assets only, I refused to help provide them with criminal evidence.” In the interview he declined to discuss any of the criminal cases under investigation.

In the months after the Picard team’s prison interviews, the trustee’s law firm, Baker & Hostetler, filed hundreds of civil lawsuits seeking approximately $90 billion in damages and fictional profits withdrawn from Mr. Madoff’s scheme over the years. The defendants in those cases included the Wilpon family, the owners of the New York Mets; JPMorgan Chase, which served for decades as Mr. Madoff’s primary banker; and Sonja Kohn, the Viennese financier at the hub of a network of hedge funds that invested heavily with Mr. Madoff.

Mr. Madoff said about Fred Wilpon and Saul Katz, Mr. Wilpon’s brother-in-law and business partner: “They knew nothing. They knew nothing.”

There was no obvious sign that any of those lawsuits were based on evidence or guidance from Mr. Madoff. All the defendants have said they had no knowledge of the fraud and have denied the trustee’s claims that, as financially sophisticated investors, they should have been suspicious from the beginning.

Mr. Picard declined to comment on whether his team had interviewed Mr. Madoff and would not say whether information from him had contributed to the vast body of litigation filed since last summer.

In some e-mails, Mr. Madoff conceded that Mr. Picard’s team conducted its own investigation into the withdrawals made by some big clients, in the years before the Ponzi scheme collapsed, to determine who might have known what and when. Such withdrawals could indicate that investors could have been aware of the fraud, which could increase their liability.

However, Mr. Madoff added, “the facts are that I alone was present at certain meetings with these clients.”

To date, none of the major banks or hedge funds that did business with Mr. Madoff have been accused by federal prosecutors of knowingly investing in his Ponzi scheme. However, Mr. Picard in civil lawsuits has asserted that executives at some banks expressed suspicions for years, yet continued to do business with Mr. Madoff and steer their clients’ money into his hands.

All the financial entities facing civil lawsuits by Madoff victims and Mr. Picard have denied they had any knowledge of the fraud.

In a related e-mail on Jan. 12, Mr. Madoff cited out-of-court settlements that some banks and funds had negotiated with private Madoff investors over the last two years and claimed some settlements were made “to keep me quiet” about the role the institutions played in “creating my situation” and about the identity of the beneficial owners of some of their private accounts.

Mr. Picard has already recovered roughly $10 billion through asset sales and settlements with several foreign banks and a few significant Madoff clients, including the estate of a private investor, Jeffry Picower, and the family of Carl Shapiro, a philanthropist in Palm Beach, Fla.

While the Picower settlement had been under negotiation since at least the fall of 2009, the settlements with the Shapiro family and a Swiss bank, Union Bancaire Privée, both came after lawyers from Mr. Picard’s firm visited the prison here in Butner. But because both settlements came before Mr. Picard had filed any public claims in court, it is unclear whether information from Mr. Madoff was a factor in those settlement talks.

Neither Mr. Shapiro nor the Swiss bank has been accused of any complicity in Mr. Madoff’s crimes, and Mr. Picard has publicly acknowledged their good-faith cooperation with his inquiries when he announced the settlement agreements, which totaled more than $1 billion.

The only people formally charged with complicity in Mr. Madoff’s crime are his former auditor and members of his own staff.

Although Mr. Madoff swore in court that he had carried out his elaborate fraud on his own, his accountant, David G. Friehling, and Mr. Madoff’s senior lieutenant, Frank DiPascali, have pleaded guilty and are cooperating with prosecutors. Five other former Madoff employees have been indicted; they have asserted their innocence and are awaiting trial.

While Mr. Madoff said he was determined to aid the trustee’s efforts to recover assets, he was also critical of the trustee’s reach, claiming that Mr. Picard was seeking far more money than was needed to resolve valid investor claims.

In addition to the customer claims for the cash losses and the paper wealth that vanished, the Madoff estate also faces claims by general creditors, like unpaid vendors and landlords, who cannot recover until all the valid customer claims are paid.

Mr. Madoff argued in several e-mails that Mr. Picard’s responsibility was to return only the $20 billion in out-of-pocket cash that investors lost in his scheme.

Given that Mr. Picard has already recovered roughly $10 billion, Mr. Madoff calculated that the lawsuits against major banks and hedge funds would produce more than enough to cover the rest of the cash losses without Mr. Picard having to pursue “clawback” litigation against some longtime investors who withdrew more from their accounts than they put.

This article has been revised to reflect the following correction:

Correction: February 17, 2011

An article on Wednesday about Bernard L. Madoff, the imprisoned creator of a multibillion-dollar Ponzi scheme, misidentified, in two passages, whom Mr. Madoff met with in what he said were efforts to help Irving H. Picard, a court-appointed trustee, recover assets for the fraud victims. As the article correctly noted elsewhere, Mr. Madoff met with members of Mr. Picard’s legal team, not with Mr. Picard personally. The article also gave an incorrect middle initial for Mr. Madoff’s accountant. He is David G. Friehling, not David H.

AFRICAN FARMERS DISPLACED AS INVESTORS MOVE IN

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December 21, 2010 By NEIL MacFARQUHAR
SOUMOUNI, Mali — The half-dozen strangers who descended on this remote West African village brought its hand-to-mouth farmers alarming news: their humble fields, tilled from one generation to the next, were now controlled by Libya’s leader, Col. Muammar el-Qaddafi, and the farmers would all have to leave.

“They told us this would be the last rainy season for us to cultivate our fields; after that, they will level all the houses and take the land,” said Mama Keita, 73, the leader of this village veiled behind dense, thorny scrubland. “We were told that Qaddafi owns this land.”

Across Africa and the developing world, a new global land rush is gobbling up large expanses of arable land. Despite their ageless traditions, stunned villagers are discovering that African governments typically own their land and have been leasing it, often at bargain prices, to private investors and foreign governments for decades to come.

Organizations like the United Nations and the World Bank say the practice, if done equitably, could help feed the growing global population by introducing large-scale commercial farming to places without it.

But others condemn the deals as neocolonial land grabs that destroy villages, uproot tens of thousands of farmers and create a volatile mass of landless poor. Making matters worse, they contend, much of the food is bound for wealthier nations.

“The food security of the country concerned must be first and foremost in everybody’s mind,” said Kofi Annan, the former United Nations secretary general, now working on the issue of African agriculture. “Otherwise it is straightforward exploitation and it won’t work. We have seen a scramble for Africa before. I don’t think we want to see a second scramble of that kind.”

A World Bank study released in September tallied farmland deals covering at least 110 million acres — the size of California and West Virginia combined — announced during the first 11 months of 2009 alone. More than 70 percent of those deals were for land in Africa, with Sudan, Mozambique and Ethiopia among those nations transferring millions of acres to investors.

Before 2008, the global average for such deals was less than 10 million acres per year, the report said. But the food crisis that spring, which set off riots in at least a dozen countries, prompted the spree. The prospect of future scarcity attracted both wealthy governments lacking the arable land needed to feed their own people and hedge funds drawn to a dwindling commodity.

“You see interest in land acquisition continuing at a very high level,” said Klaus Deininger, the World Bank economist who wrote the report, taking many figures from a Web site run by Grain, an advocacy organization, because governments would not reveal the agreements. “Clearly, this is not over.”

The report, while generally supportive of the investments, detailed mixed results. Foreign aid for agriculture has dwindled from about 20 percent of all aid in 1980 to about 5 percent now, creating a need for other investment to bolster production.

But many investments appear to be pure speculation that leaves land fallow, the report found. Farmers have been displaced without compensation, land has been leased well below value, those evicted end up encroaching on parkland and the new ventures have created far fewer jobs than promised, it said.

The breathtaking scope of some deals galvanizes opponents. In Madagascar, a deal that would have handed over almost half the country’s arable land to a South Korean conglomerate helped crystallize opposition to an already unpopular president and contributed to his overthrow in 2009.

People have been pushed off land in countries like Ethiopia, Uganda, the Democratic Republic of Congo, Liberia and Zambia. It is not even uncommon for investors to arrive on land that was supposedly empty. In Mozambique, one investment company discovered an entire village with its own post office on what had been described as vacant land, said Olivier De Schutter, the United Nations food rapporteur.

In Mali, about three million acres along the Niger River and its inland delta are controlled by a state-run trust called the Office du Niger. In nearly 80 years, only 200,000 acres of the land have been irrigated, so the government considers new investors a boon.

“Even if you gave the population there the land, they do not have the means to develop it, nor does the state,” said Abou Sow, the executive director of Office du Niger.

He listed countries whose governments or private sectors have already made investments or expressed interest: China and South Africa in sugar cane; Libya and Saudi Arabia in rice; and Canada, Belgium, France, South Korea, India, the Netherlands and multinational organizations like the West African Development Bank.

In all, Mr. Sow said about 60 deals covered at least 600,000 acres in Mali, although some organizations said more than 1.5 million acres had been committed. He argued that the bulk of the investors were Malians growing food for the domestic market. But he acknowledged that outside investors like the Libyans, who are leasing 250,000 acres here, are expected to ship their rice, beef and other agricultural products home.

“What advantage would they gain by investing in Mali if they could not even take their own production?” Mr. Sow said.

As with many of the deals, the money Mali might earn from the leases remains murky. The agreement signed with the Libyans grants them the land for at least 50 years simply in exchange for developing it.

“The Libyans want to produce rice for Libyans, not for Malians,” said Mamadou Goita, the director of a nonprofit research organization in Mali. He and other opponents contend that the government is privatizing a scarce national resource without improving the domestic food supply, and that politics, not economics, are driving events because Mali wants to improve ties with Libya and others.

The huge tracts granted to private investors are many years from production. But officials noted that Libya already spent more than $50 million building a 24-mile canal and road, constructed by a Chinese company, benefiting local villages.

Every farmer affected, Mr. Sow added, including as many as 20,000 affected by the Libyan project, will receive compensation. “If they lose a single tree, we will pay them the value of that tree,” he said.

But anger and distrust run high. In a rally last month, hundreds of farmers demanded that the government halt such deals until they get a voice. Several said that they had been beaten and jailed by soldiers, but that they were ready to die to keep their land.

“The famine will start very soon,” shouted Ibrahima Coulibaly, the head of the coordinating committee for farmer organizations in Mali. “If people do not stand up for their rights, they will lose everything!”

“Ante!” members of the crowd shouted in Bamanankan, the local language. “We refuse!”

Kassoum Denon, the regional head for the Office du Niger, accused the Malian opponents of being paid by Western groups that are ideologically opposed to large-scale farming.

“We are responsible for developing Mali,” he said. “If the civil society does not agree with the way we are doing it, they can go jump in a lake.”

The looming problem, experts noted, is that Mali remains an agrarian society. Kicking farmers off the land with no alternative livelihood risks flooding the capital, Bamako, with unemployed, rootless people who could become a political problem.

“The land is a natural resource that 70 percent of the population uses to survive,” said Kalfa Sanogo, an economist at the United Nations Development Program in Mali. “You cannot just push 70 percent of the population off the land, nor can you say they can just become agriculture workers.” In a different approach, a $224 million American project will help about 800 Malian farmers each acquire title to 12 acres of newly cleared land, protecting them against being kicked off.

Jon C. Anderson, the project director, argued that no country has developed economically with a large percentage of its population on farms. Small farmers with titles will either succeed or have to sell the land to finance another life, he said, though critics have said villagers will still be displaced.

“We want a revolutionized relationship between the farmer and the state, one where the farmer is more in charge,” Mr. Anderson said.

Soumouni sits about 20 miles from the nearest road, with wandering cattle herders in their distinctive pointed straw hats offering directions like, “Bear right at the termite mound with the hole in it.”

Sekou Traoré, 69, a village elder, was dumbfounded when government officials said last year that Libya now controlled his land and began measuring the fields. He had always considered it his own, passed down from grandfather to father to son.

“All we want before they break our houses and take our fields is for them to show us the new houses where we will live, and the new fields where we will work,” he said at the rally last month.

“We are all so afraid,” he said of the village’s 2,229 residents. “We will be the victims of this situation, we are sure of that.”

This article has been revised to reflect the following correction:

Correction: December 22, 2010

An earlier version of this article misspelled the given name of an economist at the United Nations Development Program in Mali. He is Kalfa Sanogo, not Kalfo.

CABLES OBTAINED BY WIKILEAKS SHINE LIGHT INTO SECRET DIPLOMATIC CHANNELS

New York Times November 28, 2010 By SCOTT SHANE and ANDREW W. LEHREN

WASHINGTON — A cache of a quarter-million confidential American diplomatic cables, most of them from the past three years, provides an unprecedented look at back-room bargaining by embassies around the world, brutally candid views of foreign leaders and frank assessments of nuclear and terrorist threats.

Some of the cables, made available to The New York Times and several other news organizations, were written as recently as late February, revealing the Obama administration’s exchanges over crises and conflicts. The material was originally obtained by WikiLeaks, an organization devoted to revealing secret documents. WikiLeaks posted the first installment of the archive on its Web site on Sunday.

The disclosure of the cables is sending shudders through the diplomatic establishment, and could strain relations with some countries, influencing international affairs in ways that are impossible to predict.

Secretary of State Hillary Rodham Clinton and American ambassadors around the world have been contacting foreign officials in recent days to alert them to the expected disclosures. A statement from the White House on Sunday said: “We condemn in the strongest terms the unauthorized disclosure of classified documents and sensitive national security information.

“President Obama supports responsible, accountable, and open government at home and around the world, but this reckless and dangerous action runs counter to that goal. By releasing stolen and classified documents, WikiLeaks has put at risk not only the cause of human rights but also the lives and work of these individuals.”

The cables, a huge sampling of the daily traffic between the State Department and some 270 embassies and consulates, amount to a secret chronicle of the United States’ relations with the world in an age of war and terrorism. Among their revelations, to be detailed in The Times in coming days:

¶ A dangerous standoff with Pakistan over nuclear fuel: Since 2007, the United States has mounted a highly secret effort, so far unsuccessful, to remove from a Pakistani research reactor highly enriched uranium that American officials fear could be diverted for use in an illicit nuclear device. In May 2009, Ambassador Anne W. Patterson reported that Pakistan was refusing to schedule a visit by American technical experts because, as a Pakistani official said, “if the local media got word of the fuel removal, ‘they certainly would portray it as the United States taking Pakistan’s nuclear weapons,’ he argued.”

¶ Thinking about an eventual collapse of North Korea: American and South Korean officials have discussed the prospects for a unified Korea, should the North’s economic troubles and political transition lead the state to implode. The South Koreans even considered commercial inducements to China, according to the American ambassador to Seoul. She told Washington in February that South Korean officials believe that the right business deals would “help salve” China’s “concerns about living with a reunified Korea” that is in a “benign alliance” with the United States.

¶ Bargaining to empty the Guantánamo Bay prison: When American diplomats pressed other countries to resettle detainees, they became reluctant players in a State Department version of “Let’s Make a Deal.” Slovenia was told to take a prisoner if it wanted to meet with President Obama, while the island nation of Kiribati was offered incentives worth millions of dollars to take in Chinese Muslim detainees, cables from diplomats recounted. The Americans, meanwhile, suggested that accepting more prisoners would be “a low-cost way for Belgium to attain prominence in Europe.”

¶ Suspicions of corruption in the Afghan government: When Afghanistan’s vice president visited the United Arab Emirates last year, local authorities working with the Drug Enforcement Administration discovered that he was carrying $52 million in cash. With wry understatement, a cable from the American Embassy in Kabul called the money “a significant amount” that the official, Ahmed Zia Massoud, “was ultimately allowed to keep without revealing the money’s origin or destination.” (Mr. Massoud denies taking any money out of Afghanistan.)

¶ A global computer hacking effort: China’s Politburo directed the intrusion into Google’s computer systems in that country, a Chinese contact told the American Embassy in Beijing in January, one cable reported. The Google hacking was part of a coordinated campaign of computer sabotage carried out by government operatives, private security experts and Internet outlaws recruited by the Chinese government. They have broken into American government computers and those of Western allies, the Dalai Lama and American businesses since 2002, cables said.

¶ Mixed records against terrorism: Saudi donors remain the chief financiers of Sunni militant groups like Al Qaeda, and the tiny Persian Gulf state of Qatar, a generous host to the American military for years, was the “worst in the region” in counterterrorism efforts, according to a State Department cable last December. Qatar’s security service was “hesitant to act against known terrorists out of concern for appearing to be aligned with the U.S. and provoking reprisals,” the cable said.

¶ An intriguing alliance: American diplomats in Rome reported in 2009 on what their Italian contacts described as an extraordinarily close relationship between Vladimir V. Putin, the Russian prime minister, and Silvio Berlusconi, the Italian prime minister and business magnate, including “lavish gifts,” lucrative energy contracts and a “shadowy” Russian-speaking Italian go-between. They wrote that Mr. Berlusconi “appears increasingly to be the mouthpiece of Putin” in Europe. The diplomats also noted that while Mr. Putin enjoyed supremacy over all other public figures in Russia, he was undermined by an unmanageable bureaucracy that often ignored his edicts.

¶ Arms deliveries to militants: Cables describe the United States’ failing struggle to prevent Syria from supplying arms to Hezbollah in Lebanon, which has amassed a huge stockpile since its 2006 war with Israel. One week after President Bashar al-Assad promised a top State Department official that he would not send “new” arms to Hezbollah, the United States complained that it had information that Syria was providing increasingly sophisticated weapons to the group.

¶ Clashes with Europe over human rights: American officials sharply warned Germany in 2007 not to enforce arrest warrants for Central Intelligence Agency officers involved in a bungled operation in which an innocent German citizen with the same name as a suspected militant was mistakenly kidnapped and held for months in Afghanistan. A senior American diplomat told a German official “that our intention was not to threaten Germany, but rather to urge that the German government weigh carefully at every step of the way the implications for relations with the U.S.”

The 251,287 cables, first acquired by WikiLeaks, were provided to The Times by an intermediary on the condition of anonymity. Many are unclassified, and none are marked “top secret,” the government’s most secure communications status. But some 11,000 are classified “secret,” 9,000 are labeled “noforn,” shorthand for material considered too delicate to be shared with any foreign government, and 4,000 are designated both secret and noforn.

Many more cables name diplomats’ confidential sources, from foreign legislators and military officers to human rights activists and journalists, often with a warning to Washington: “Please protect” or “Strictly protect.”

The Times has withheld from articles and removed from documents it is posting online the names of some people who spoke privately to diplomats and might be at risk if they were publicly identified. The Times is also withholding some passages or entire cables whose disclosure could compromise American intelligence efforts.

The cables show that nearly a decade after the attacks of Sept. 11, 2001, the dark shadow of terrorism still dominates the United States’ relations with the world. They depict the Obama administration struggling to sort out which Pakistanis are trustworthy partners against Al Qaeda, adding Australians who have disappeared in the Middle East to terrorist watch lists, and assessing whether a lurking rickshaw driver in Lahore, Pakistan, was awaiting fares or conducting surveillance of the road to the American Consulate.

They show American officials managing relations with a China on the rise and a Russia retreating from democracy. They document years of painstaking effort to prevent Iran from building a nuclear weapon — and of worry about a possible Israeli strike on Iran with the same goal.

Even when they recount events that are already known, the cables offer remarkable details.

For instance, it has been previously reported that the Yemeni government has sought to cover up the American role in missile strikes against the local branch of Al Qaeda. But a cable’s fly-on-the-wall account of a January meeting between the Yemeni president, Ali Abdullah Saleh, and Gen. David H. Petraeus, then the American commander in the Middle East, is nonetheless breathtaking.

“We’ll continue saying the bombs are ours, not yours,” Mr. Saleh said, according to the cable sent by the American ambassador, prompting Yemen’s deputy prime minister to “joke that he had just ‘lied’ by telling Parliament” that Yemeni forces had carried out the strikes.

Mr. Saleh, who at other times resisted American counterterrorism requests, was in a lighthearted mood. The authoritarian ruler of a conservative Muslim country, Mr. Saleh complains of smuggling from nearby Djibouti, but tells General Petraeus that his concerns are drugs and weapons, not whiskey, “provided it’s good whiskey.”

Likewise, press reports detailed the unhappiness of the Libyan leader, Col. Muammar el-Qaddafi, when he was not permitted to set up his tent in Manhattan or to visit ground zero during a United Nations session last year.

But the cables add a touch of scandal and alarm to the tale. They describe the volatile Libyan leader as rarely without the companionship of “his senior Ukrainian nurse,” described as “a voluptuous blonde.” They reveal that Colonel Qaddafi was so upset by his reception in New York that he balked at carrying out a promise to return dangerous enriched uranium to Russia. The American ambassador to Libya told Colonel Qaddafi’s son “that the Libyan government had chosen a very dangerous venue to express its pique,” a cable reported to Washington.

The cables also disclose frank comments behind closed doors. Dispatches from early this year, for instance, quote the aging monarch of Saudi Arabia, King Abdullah, as speaking scathingly about the leaders of Iraq and Pakistan.

Speaking to another Iraqi official about Nuri Kamal al-Maliki, the Iraqi prime minister, King Abdullah said, “You and Iraq are in my heart, but that man is not.” The king called President Asif Ali Zardari of Pakistan the greatest obstacle to that country’s progress. “When the head is rotten,” he said, “it affects the whole body.”

The American ambassador to Eritrea reported last year that “Eritrean officials are ignorant or lying” in denying that they were supporting the Shabab, a militant Islamist group in Somalia. The cable then mused about which seemed more likely.

As he left Zimbabwe in 2007 after three years as ambassador, Christopher W. Dell wrote a sardonic account of Robert Mugabe, that country’s aging and erratic leader. The cable called Mr. Mugabe “a brilliant tactician” but mocked “his deep ignorance on economic issues (coupled with the belief that his 18 doctorates give him the authority to suspend the laws of economics).”

The possibility that a large number of diplomatic cables might become public has been discussed in government and media circles since May. That was when, in an online chat, an Army intelligence analyst, Pfc. Bradley Manning, described having downloaded from a military computer system many classified documents, including “260,000 State Department cables from embassies and consulates all over the world.” In an online discussion with Adrian Lamo, a computer hacker, Private Manning said he had delivered the cables and other documents to WikiLeaks.

Mr. Lamo reported Private Manning’s disclosures to federal authorities, and Private Manning was arrested. He has been charged with illegally leaking classified information and faces a possible court-martial and, if convicted, a lengthy prison term.

In July and October, The Times, the British newspaper The Guardian and the German magazine Der Spiegel published articles based on documents about Afghanistan and Iraq. Those collections of dispatches were placed online by WikiLeaks, with selective redactions of the Afghan documents and much heavier redactions of the Iraq reports. The group has said it intends to post the documents in the current trove as well, after editing to remove the names of confidential sources and other details.

Fodder for Historians

Traditionally, most diplomatic cables remain secret for decades, providing fodder for historians only when the participants are long retired or dead. The State Department’s unclassified history series, titled “Foreign Relations of the United States,” has reached only 1972.

While an overwhelming majority of the quarter-million cables provided to The Times are from the post-9/11 era, several hundred date from 1966 to the 1990s. Some show diplomats struggling to make sense of major events whose future course they could not guess.

In a 1979 cable to Washington, Bruce Laingen, an American diplomat in Tehran, mused with a knowing tone about the Iranian revolution that had just occurred: “Perhaps the single dominant aspect of the Persian psyche is an overriding egoism,” Mr. Laingen wrote, offering tips on exploiting this psyche in negotiations with the new government. Less than three months later, Mr. Laingen and his colleagues would be taken hostage by radical Iranian students, hurling the Carter administration into crisis and, perhaps, demonstrating the hazards of diplomatic hubris.

In 1989, an American diplomat in Panama City mulled over the options open to Gen. Manuel Noriega, the Panamanian leader, who was facing narcotics charges in the United States and intense domestic and international political pressure to step down. The cable called General Noriega “a master of survival”; its author appeared to have no inkling that one week later, the United States would invade Panama to unseat General Noriega and arrest him.

In 1990, an American diplomat sent an excited dispatch from Cape Town: he had just learned from a lawyer for Nelson Mandela that Mr. Mandela’s 27-year imprisonment was to end. The cable conveys the momentous changes about to begin for South Africa, even as it discusses preparations for an impending visit from the Rev. Jesse L. Jackson.

The voluminous traffic of more recent years — well over half of the quarter-million cables date from 2007 or later — show American officials struggling with events whose outcomes are far from sure. To read through them is to become a global voyeur, immersed in the jawboning, inducements and penalties the United States wields in trying to have its way with a recalcitrant world.

In an era of satellites and fiber-optic links, the cable retains the archaic name of an earlier technological era. It has long been the tool for the secretary of state to send orders to the field and for ambassadors and political officers to send their analyses to Washington.

The cables have their own lexicon: “codel,” for a Congressional delegation; “visas viper,” for a report on a person considered dangerous; “démarche,” an official message to a foreign government, often a protest or warning.

Diplomatic Drama

But the drama in the cables often comes from diplomats’ narratives of meetings with foreign figures, games of diplomatic poker in which each side is sizing up the other and neither is showing all its cards.

Among the most fascinating examples recount American officials’ meetings in September 2009 and February 2010 with Ahmed Wali Karzai, the half brother of the Afghan president and a power broker in the Taliban’s home turf of Kandahar.

They describe Mr. Karzai, “dressed in a crisp white shalwar kameez,” the traditional dress of loose tunic and trousers, appearing “nervous, though eager to express his views on the international presence in Kandahar,” and trying to win over the Americans with nostalgic tales about his years running a Chicago restaurant near Wrigley Field.

But in midnarrative there is a stark alert for anyone reading the cable in Washington: “Note: While we must deal with AWK as the head of the Provincial Council, he is widely understood to be corrupt and a narcotics trafficker.” (Mr. Karzai has repeatedly denied such charges.) And the cables note statements by Mr. Karzai that the Americans, informed by a steady flow of eavesdropping and agents’ reports, believe to be false.

A cable written after the February meeting coolly took note of the deceit on both sides.

Mr. Karzai “demonstrated that he will dissemble when it suits his needs,” the cable said. “He appears not to understand the level of our knowledge of his activities. We will need to monitor his activity closely, and deliver a recurring, transparent message to him” about the limits of American tolerance.

Not All Business

Even in places far from war zones and international crises, where the stakes for the United States are not as high, curious diplomats can turn out to be accomplished reporters, sending vivid dispatches to deepen the government’s understanding of exotic places.

In a 2006 account, a wide-eyed American diplomat describes the lavish wedding of a well-connected couple in Dagestan, in Russia’s Caucasus, where one guest is the strongman who runs the war-ravaged Russian republic of Chechnya, Ramzan Kadyrov.

The diplomat tells of drunken guests throwing $100 bills at child dancers, and nighttime water-scooter jaunts on the Caspian Sea.

“The dancers probably picked upwards of USD 5000 off the cobblestones,” the diplomat wrote. The host later tells him that Ramzan Kadyrov “had brought the happy couple ‘a five-kilo lump of gold’ as his wedding present.”

“After the dancing and a quick tour of the premises, Ramzan and his army drove off back to Chechnya,” the diplomat reported to Washington. “We asked why Ramzan did not spend the night in Makhachkala, and were told, ‘Ramzan never spends the night anywhere.’ ”

Scott Shane reported from Washington, and Andrew W. Lehren from New York. Reporting was contributed by Jo Becker, C. J. Chivers and James Glanz from New York; Eric Lichtblau, Michael R. Gordon, David E. Sanger, Charlie Savage, Eric Schmitt and Ginger Thompson from Washington; and Jane Perlez from Islamabad, Pakistan.

After Growth, Fortunes Turn for Monsanto

October 4, 2010

By ANDREW POLLACK

As recently as late December, Monsanto was named “company of the year” by Forbes magazine. Last week, the company earned a different accolade from Jim Cramer, the television stock market commentator. “This may be the worst stock of 2010,” he proclaimed.

Monsanto, the giant of agricultural biotechnology, has been buffeted by setbacks this year that have prompted analysts to question whether its winning streak of creating ever more expensive genetically engineered crops is coming to an end.

The company’s stock, which rose steadily over several years to peak at around $140 a share in mid-2008, closed Monday at $47.77, having fallen about 42 percent since the beginning of the year. Its earnings for the fiscal year that ended in August, which will be announced Wednesday, are expected to be well below projections made at the beginning of the year, and the company has abandoned its profit goal for 2012 as well.

The latest blow came last week, when early returns from this year’s harvest showed that Monsanto’s newest product, SmartStax corn, which contains eight inserted genes, was providing yields no higher than the company’s less expensive corn, which contains only three foreign genes.

Monsanto has already been forced to sharply cut prices on SmartStax and on its newest soybean seeds, called Roundup Ready 2 Yield, as sales fell below projections.

But there is more. Sales of Monsanto’s Roundup, the widely used herbicide, has collapsed this year under an onslaught of low-priced generics made in China. Weeds are growing resistant to Roundup, dimming the future of the entire Roundup Ready crop franchise. And the Justice Department is investigating Monsanto for possible antitrust violations.

Until now, Monsanto’s main challenge has come from opponents of genetically modified crops, who have slowed their adoption in Europe and some other regions. Now, however, the skeptics also include farmers and investors who were once in Monsanto’s camp.

“My personal view is that they overplayed their hand,” William R. Young, managing director of ChemSpeak, a consultant to investors in the chemical industry, said of Monsanto. “They are going to have to demonstrate to the farmer the advantage of their products.”

Brett D. Begemann, Monsanto’s executive vice president for seeds and traits, said the setbacks were not reflective of systemic management problems and that the company was moving to deal with them.

“Farmers clearly gave us some feedback that we have made adjustments from,” he said in an interview Monday.

Mr. Begemann said that Monsanto used to introduce new seeds at a price that gave farmers two-thirds and Monsanto one-third of the extra profits that would come from higher yields or lower pest-control costs. But with SmartStax corn and Roundup Ready 2 soybeans, the company’s pricing aimed for a 50-50 split.

That backfired as American farmers grew only six million acres of Roundup Ready 2 soybeans this year, below the company’s goal of eight million to 10 million acres, and only three million acres of SmartStax corn, below the goal of four million.

So now Monsanto is moving back to the older arrangement. SmartStax seed for planting next year will be priced about $8 an acre more than other seeds, down from about a $24 premium for this year’s seeds, Mr. Begemann said. The company will also offer credits for free seed to farmers who planted SmartStax this year and were disappointed.

Monsanto has also moved to offer farmers more varieties with fewer inserted genes. Some farmers have said they often have to buy traits they do not need — such as protection from the corn rootworm in regions where that pest is not a problem — to get the best varieties. This issue has surfaced in the antitrust investigation.

Monsanto’s arch rival, DuPont’s Pioneer Hi-Bred, has also capitalized on the lack of options under a campaign called “right product, right acre.”

“If they don’t have a need for rootworm then we won’t have that trait in that product,” Paul E. Schickler, the president of Pioneer, said in an interview.

After years of rapidly losing market share in corn seeds to Monsanto, Pioneer says it has gained back four percentage points in the last two years, to 34 percent. Monsanto puts its market share at 36 percent in 2009 and says it has remained flat this year. In soybeans, Pioneer puts its share at 31 percent, up seven percentage points over the last two years; Monsanto puts its share at 28 percent last year and said it had dropped some this year.

Monsanto had a similar problem with lower-than-expected yields on Roundup Ready 2 soybeans last year, when the crop was first planted commercially, forcing it to slash its premium.

But this year, the yield appears to be meeting expectations, said OTR Global, a research firm that surveys farmers and seed dealers. That could bode well for SmartStax next year.

One reason is that the Roundup Ready 2 gene is now offered in more varieties, making it better suited to more growing conditions. The yield of a crop is mainly determined by the seed’s intrinsic properties, not the inserted genes. An insect protection gene will not make a poor variety a high yielder any more than spiffy shoes will turn a slow runner into Usain Bolt. In the first year of a new product, few varieties contain the new gene.

Still, Monsanto is bound at some point to face diminishing returns from its strategy of putting more and more insect-resistant and herbicide-resistant genes into the same crop, at ever increasing prices. Growth might have to eventually come from new traits, such as a drought-tolerant corn the company hopes to introduce in 2012.

“Technologically, they are still the market leader,” said Laurence Alexander, an analyst at Jefferies & Company. “The main issue going forward is do they get paid for the technology they deliver. The jury is still out on that one. It’s going to take a year or two of data to reassure people.”

IRAQI TREASURES RETURN, BUT QUESTIONS REMAIN

September 7, 2010 By STEVEN LEE MYERS
BAGHDAD — Iraq announced on Tuesday the return of hundreds of looted antiquities that had ended up in the United States, even as a senior official disclosed that 632 pieces repatriated last year and turned over to the office of Prime Minister Nuri Kamal al-Maliki were now unaccounted for.

The latest trove reflects not only a history dating from the world’s oldest civilizations but also a more recent and tortured history of war, looting and international smuggling that began under Saddam Hussein, accelerated after the American occupation and continues at archaeological sites to this day.

The returned items include a 4,400-year-old statue of King Entemena of Lagash looted from the National Museum here after the American invasion in 2003; an even older pair of gold earrings from Nimrud stolen in the 1990s and seized before an auction at Christie’s in New York last December; and 362 cuneiform clay tablets smuggled out of Iraq that were seized by the American authorities in 2001 and were being stored in the World Trade Center when it was destroyed.

There was also a more recent relic: a chrome-plated AK-47 with a pearl grip and an engraving of Mr. Hussein, taken by an American soldier as booty and displayed at Fort Lewis, Wash. Kitsch, certainly, but priceless in its own way.

While Iraqi officials celebrated the repatriation of what they called invaluable relics — “the return of Iraq’s heritage to our house,” as the state minister of tourism and antiquities, Qahtan al-Jibouri, put it — the fate of those previously returned raised questions about the country’s readiness to preserve and protect its own treasures.

Appearing at a ceremony displaying the artifacts at the Ministry of Foreign Affairs, Iraq’s ambassador to the United States, Samir Sumaidaie, pointedly said a previous shipment of antiquities had been returned to Iraq last year aboard an American military aircraft authorized by Gen. David H. Petraeus, only to end up missing.

“They went to the prime minister’s office, and that was the last time they were seen,” said Mr. Sumaidaie, who has worked fervently with American law enforcement officials in recent years to track down loot that had found its way into the United States.

It was not immediately clear what happened, and Mr. Sumaidaie said he had tried and failed to find out. He did not directly accuse Mr. Maliki’s government of malfeasance, but he expressed frustration that the efforts to repatriate works of art and antiquities had resulted in such confusion and mystery.

Ali al-Mousawi, a government spokesman, demanded that the American government account for the artifacts since an American military aircraft delivered them. “We didn’t receive anything,” he said in a telephone interview.

Mr. Jibouri, one of Mr. Maliki’s advisers, said that if the relics were not somewhere in the prime minister’s custody, then they would probably be with the Ministry of Culture, which oversees the country’s museums. Its spokesman declined to comment.

Amira Edan, the director of the National Museum, said none of the objects had been returned to her collection, which is where, she said, they all belonged.

Mr. Jibouri said a committee would be formed to investigate.

Perhaps with this uncertainty in mind, Mr. Jibouri and Foreign Minister Hoshyar Zebari publicly signed documents transferring custody of the latest batch of artifacts — which arrived in Baghdad on Monday, packed in wooden crates, aboard a specially chartered aircraft — to the museum.

“The artifacts are what’s pushing us to build the present and future, so we deserve this great heritage,” Mr. Zebari said during the ceremony.

The United States has returned 1,046 antiquities since 2003, when looters ransacked buildings across Iraq, including its museums, according to the American Embassy here. For all the international outrage the looting stirred toward the United States and its allies, many of the items were smuggled out of the country before the invasion, often with the connivance of officials in Saddam Hussein’s government, according to archaeological officials here.

They have been tracked and seized by the F.B.I., the Immigration and Customs Enforcement agency, and other law enforcement agencies, often working on tips from experts and officials with the Iraqi Embassy in Washington, which stored many of them at its building on Massachusetts Avenue for safekeeping as Iraq remained engulfed in violence.

Only a handful of the items returned on Tuesday once belonged to the National Museum. The most prominent is the statue of King Entemena, the oldest known representation of a monarch from the ancient civilizations that once thrived in Mesopotamia.

Carved from black diorite, it is 30 inches tall and headless, and inscribed with cuneiform that says it was placed in a temple in Ur, in what is now southern Iraq, to please the god Enlil. It weighs 330 pounds but disappeared from the museum during the looting, only to be seized in a 2006 sting when someone in Syria tried to sell it to an art dealer in New York.

Another Sumerian sculpture, a bronze depicting a king named Shulgi, had been shipped by Federal Express from a London dealer to a collector in Connecticut, but was seized at Newark Liberty International Airport.

Many such pieces are items that Iraq never knew it had lost.

Iraq has 12,000 known archaeological sites where Sumerian, Akkadian, Babylonian and Persian cities — and later Islamic cities — once stood. Many are unprotected, and have been badly looted for years, especially during the bloodiest years of war in 2006 and 2007. A special police force created in 2008 has yet to fill its ranks, mired at its inception by the government’s bureaucracy and a lack of support for cultural preservation.

The National Museum, which officially reopened last year though many of its galleries remain closed and in disrepair, has recovered roughly half of 15,000 pieces that were looted from its collection.

All told, Iraqi officials say they have confiscated and returned to government property more than 30,000 antiquities and artworks since 2003, from inside and outside Iraq. The museum can hold only a fraction of those.

“We can make 15 museums like the one we had,” its deputy director, Muhsin Hassan Ali, said on Tuesday.

The ultimate fate of the Saddam Hussein AK-47 also remains unclear, though it too was signed over to the custody of the National Museum. “Some material belongs to the fourth millennium B.C.,” Ms. Edan, the museum’s director, said laughing, “and the new ones belong to Saddam’s Iraq.”

The assault rifle ended up at the headquarters of the Third Stryker Brigade of the Second Infantry Division. The Immigration and Customs Enforcement agency said it had been taken “legally via official Army channels with the intent of placing it in a military museum as a war trophy.” Agents confiscated it after Mr. Sumaidaie’s aides read about it in a local newspaper report.

A factory in Iraq once produced AK-47s, including some plated in gold and chrome, which Mr. Hussein distributed as gifts. At the time the rifle was recovered, a special agent of ICE in New York, Peter J. Smith, called it “a priceless symbol of Iraqi history.”

Stephen Farrell and Zaid Thaker contributed reporting.

CHINESE OFFICIALS CALL FOR LESS FRICTION WITH U.S.

September 8, 2010 By KEITH BRADSHER
HONG KONG — Top Chinese officials are calling for quiet discussions instead of open friction with the United States, after a summer marked by bilateral disagreements over the value of China’s currency, American military exercises off the Korean Peninsula and American efforts to resolve territorial disputes in the South China Sea.

State media showed Chinese President Hu Jintao on Wednesday meeting with Lawrence H. Summers, the director of the National Economic Council, and Thomas E. Donilon, the deputy national security adviser. American and Chinese officials have been trying to lay the groundwork for a state visit to the United States this winter by the Chinese president.

Wednesday’s meeting with Mr. Hu followed earlier talks this week in Beijing by the two American officials that were aimed not at fashioning new pacts, but at maintaining a dialogue that had been strained at times in recent months.

“Strategic trust is the basis of China-U.S. cooperation,” said Dai Bingguo, a Chinese state councilor who met with them, the official Xinhua news agency reported.

Prime Minister Wen Jiabao told the two Americans that China and the United States should not view themselves as rivals, according to the Chinese state news media.

Both countries have been seeking an agreement to resume contacts between the two countries’ militaries. China suspended military exchanges last winter to protest a White House decision to proceed with arms sales to Taiwan. Beijing officials regard Taiwan as a renegade province.

On Wednesday, the South China Morning Post, citing unnamed Chinese officials, reported that the two countries had agreed to negotiations for the resumption military exchanges.

But Chinese officials were quick to dash any hopes that a thaw in Chinese-American relations would lead to appreciation of China’s currency, the renminbi. After strengthening on Monday on the hope that the talks in Beijing might produce a breakthrough, the currency’s value retreated in offshore futures trading on Tuesday after Jiang Yu, a Foreign Ministry spokeswoman in Beijing, said, “Our exchange rate reform can’t be pressed ahead under external pressure.”

After keeping the renminbi tightly pegged to the dollar for nearly three years, China announced on June 19 that it would allow greater flexibility. But the renminbi has inched up less than 1 percent since then against the dollar, as China has continued to intervene heavily in currency markets to prevent a more rapid currency appreciation that could hurt the competitiveness of Chinese goods in overseas markets.

KARZAI FAMILY POLITICAL TIES SHIELDED BANK IN AFGHANISTAN

September 7, 2010
Karzai Family Political Ties Shielded Bank in Afghanistan
By ADAM B. ELLICK and DEXTER FILKINS

KABUL, Afghanistan — In early 2009, as President Hamid Karzai scanned the landscape for potential partners to run in his re-election bid, he was approached from an unusual corner: a bank.

The president’s brother, Mahmoud, and another Afghan businessman, Haseen Fahim, were shareholders in Kabul Bank, one of the freewheeling financial institutions that had sprung up over the past decade since the Taliban’s fall.

According to Afghan officials and businessmen in Kabul, Mahmoud Karzai and Mr. Fahim recommended Mr. Fahim’s brother, Gen. Muhammad Qasim Fahim, to become the president’s running mate.

President Karzai agreed, and in a stroke co-opted his ethnic Tajik opposition and placated an old political foe with a checkered record on human rights and corruption. After the deal, Kabul Bank poured millions into Mr. Karzai’s re-election campaign, Afghan officials said. Mahmoud Karzai and Haseen Fahim, drawing on Kabul Bank’s resources, were able to enrich their families aided by tens of millions of dollars in loans.

Now, Kabul Bank sits at the center of a financial crisis that has exposed the shadowy workings of the country’s business and political elite, and how such connections shielded the bank from scrutiny. The panic surrounding Kabul Bank is threatening to pull down the Afghan banking system and has drawn in the United States. And it is driving a wedge between the Fahims and the Karzais, the two Afghan political families that benefited most. Now, the financial-familial arrangement is teetering on the edge of collapse.

“The brothers orchestrated the political deal to serve their business interests,” said a prominent Afghan businessman in Kabul who, like virtually everyone interviewed for this article, spoke only on condition of anonymity. “Fahim became vice president, and the bank financed Karzai’s re-election.

“In Kabul, politics is all about money,” he said. “It’s the same thing.”

In an interview, Mahmoud Karzai confirmed that he and Haseen Fahim tried to persuade President Karzai and General Fahim to reunite as running mates, but that there were many other Afghans who did as well.

Mahmoud Karzai said his backing of General Fahim had nothing to do with the fact that he and the future vice president’s brother were business partners.

“Yes, I recommended him,” Mr. Karzai said of General Fahim. “He is a sober man, and he is very brave.”

Haseen Fahim, reached by telephone in Germany, where General Fahim is undergoing medical treatment, declined to comment for this article. A spokesman for President Karzai did not answer requests for comment.

The troubles surrounding Kabul Bank, which Afghan and American officials have been struggling to contain, threaten to strain the Karzai-Fahim alliance. As President Karzai considers measures to support Kabul Bank, and possibly use public funds to bail it out, he must consider the possibility that doing so will open him to accusations of political favoritism.

“There is pressure on Vice President Fahim to bail out the bank because he does not want to lose his brother’s investments,” said an Afghan political leader in Kabul who opposes President Karzai. “If the president does this, it’s proof that his government is corrupt.”

Muhammad Qasim Fahim — also known as Marshal Fahim — was an unlikely candidate to become President Karzai’s running mate in 2009. He was best known as one of the senior military commanders of Ahmed Shah Massoud, the legendary anti-Taliban commander who was killed by assassins from Al Qaeda in 2001. With Mr. Massoud’s death, General Fahim stepped to the fore.

As the Taliban were being routed from Kabul in 2001, General Fahim was chosen by a gathering of Afghan leaders in Bonn, Germany, to be President Karzai’s vice president and defense minister. But the relationship was tense at best, Afghan political leaders in Kabul say, because the two men were so different. President Karzai, an educated ethnic Pashtun, had virtually no military experience. General Fahim was a Tajik warlord with little formal schooling.

The two men also had a past. In the early 1990s, during the tumultuous years of the Afghan civil war, Hamid Karzai was arrested and detained by the Afghan intelligence service — then being run by General Fahim. Mr. Karzai was released, but only after a rocket struck the jail where he was being held.

General Fahim is also suspected of involvement in serious human rights violations during the 1990s, according to several advocacy groups. In particular, he was a key commander during the Ashfar massacre in 1992 in Kabul, when an estimated 800 ethnic Hazaras were killed and raped.

In 2004, as Hamid Karzai prepared to run for president, he dropped General Fahim from his ticket, at the urging of Western allies troubled by his past. General Fahim was devastated by the move, Afghan political figures say.

Over the next several years, during President Karzai’s first term, Kabul Bank emerged as one of the country’s principal private financial institutions, with Haseen Fahim as a major shareholder. Initially, Mahmoud Karzai, the president’s brother, had no stake in the bank.

That changed at least three years ago, when the bank’s leaders, including Haseen Fahim, decided to lend Mahmoud Karzai at least $5 million in order to enable him to take an ownership stake in the bank. In the interview, Mr. Karzai said he thought there was nothing unusual about being lent such a large sum of money by a bank to buy shares in that bank. He said it had nothing to do with the fact that his brother was the president.

“This is the case for everyone who is a partner in the bank,” he said.

Mr. Karzai said that his 500 shares of bank stock — equaling about 7 percent of all the company shares — had paid no dividends to date. All of the bank’s profits have stayed in the bank, he said.

Another Afghan political figure, speaking on condition of anonymity, said the bank’s directors gave Mahmoud Karzai shares in Kabul Bank to gain the protection of the president.

“In Afghanistan, you cannot become a successful business if you are not linked to the political caste,” said the Afghan political leader, who spoke on condition of anonymity. “The only way to get contracts and protection is to have support in the political system, and that is the reason why these two guys were able to get shares in Kabul Bank. They gave Mahmoud a loan of $5 million. That was political survivalism. They knew they needed a Karzai.”

Mahmoud Karzai has profited directly from his relationship with Kabul Bank. He and Haseen Fahim were part of a group of investors who borrowed $14 million from Kabul Bank to start Afghan Cement.

In the interview, Mr. Karzai confirmed this transaction.

In 2007, Mr. Karzai took out a loan from the bank to buy a villa on the exclusive island resort of Palm Jumeria in the United Arab Emirates for $1.9 million, according to a report in The National, a leading newspaper there. Eight months later, he sold the villa for $2.7 million, for a profit of $800,000.

In an interview, Mr. Karzai said he repaid the loan in full.

For his part, Haseen Fahim has taken out $92 million in loans for various projects, Afghan banking officials say. The officials say those loans have not been repaid.

In the interview, Mr. Karzai said that neither he nor Mr. Fahim had any say in where Kabul Bank invested. Those decisions, he said, were made exclusively by the bank’s two largest shareholders, Sherkhan Farnood and Khalilullah Frozi. According to Afghan bank regulators and American officials, the bank made risky investments, including ones in the Dubai real estate market that collapsed in 2008, as well as questionable loans that skirted collateral and deposit requirements. These troubles helped precipitate the recent collapse.

“We were silent partners,” Mr. Karzai said.

Mr. Farnood declined to comment, and Mr. Frozi could not be reached for comment.

A former Afghan official, who knows both Mahmoud Karzai and Haseen Fahim, said the two men began pushing General Fahim as a vice-presidential choice in meetings with the president.

“Mahmoud brought the message from Karzai to Fahim, and a couple of meetings took place,” the former Afghan official said. “In every meeting, Karzai said, ‘It was a big mistake, and I want to make it up to you.’ And these meetings were facilitated by the brothers.”

The former Afghan official said both men regarded it as important for the bank to secure a political ally in the presidential palace.

“The issue is how to protect the business,” the former Afghan official said. “And the two brothers cannot only have protection for their businesses, but they can flourish and they did flourish afterwards.”

According to Afghan officials, Kabul Bank’s dealings went astray sometime after that. The bank recently posted losses of at least $300 million, prompting officials at the Central Bank to remove Mr. Farnood and Mr. Frozi as its top executives. The assets of the bank’s major shareholders, including Mahmoud Karzai’s, have been frozen.

“From one side, Kabul Bank looked like a success story,” the former Afghan official said. “But you see deep flaws in it that were covered because of the political allies at the top.”

Adam B. Ellick reported from Kabul, and Dexter Filkins from Istanbul.