Xe faces bribery inquiry and fines for arms shipments

By Mark Mazzetti and James Risen

WASHINGTON

The international security company formerly called Blackwater Worldwide is facing large government fines for unlicensed arms shipments to Iraq as a key congressional committee is asking for a separate investigation into whether the company bribed Iraqi officials.

In talks likely to result in millions of dollars in penalties, executives from the Moyock, N.C.-based company, now known as Xe Services, are negotiating with government regulators over years of violations of export laws. According to government officials and former company employees, many of the violations involve arms shipments to Iraq to outfit company security guards operating inside the country.

In addition, former company officials say that more penalties could

result from violations of licensing requirements for the transfer of other forms of military technology and training expertise to foreign countries.

Sen. John Kerry, D-Mass., who is chairman of the Foreign Relations Committee, wrote in a letter Wednesday that his committee was informed by a top State Department official that the company had engaged in "broad violations" of export laws and that the unlicensed shipments "went beyond weapons for personal use."

In the letter, Kerry asked the State Department's acting inspector general to begin an investigation into the "continued fitness" of Xe Services to carry out contract work for the State Department. The letter cited a report in The New York Times last week that Blackwater executives had approved of a plan to make secret payments to Iraqi officials after Blackwater employees reportedly killed 17 Iraqi civilians in downtown Baghdad in September 2007.

Mark Corallo, a spokesman for the company, said, "Only The New York Times would write a story based on a letter from a senator who based his letter on a New York Times story based on the allegations of unnamed sources."

The State Department has terminated most of Xe Services' contracts for work in Iraq, yet continues to pay the company millions of dollars to protect diplomats in Afghanistan. It contends that it has had difficulty finding another company with the experience and the equipment needed to replace Xe.

The settlement talks over the export violations could result in stiff financial penalties, not criminal charges. However, as the talks continue, federal prosecutors in North Carolina are separately intensifying their investigation into a broad array of accusations of criminal activities carried out by company executives, including weapons smuggling, money laundering and tax evasion, according to lawyers and others familiar with the inquiry.

A former Blackwater employee said in an interview that he had spoken to prosecutors in Raleigh about approximately $1 million in payments the company arranged after the deadly Baghdad shooting, in Nisoor Square. The payments were intended to silence criticism by Iraqi officials after the shootings and to help secure an operating license for the company, according to former company employees.

Last year, the company issued a news release acknowledging "numerous mistakes" in its adherence to export laws but said the bulk of the violations had been "failures of paperwork and timeliness while supporting the United States and its allies, not nefarious smuggling or aid to enemies."

The company also announced the creation of a board of outside experts who would oversee its compliance with the export regulations.

One member of the board, Asa Hutchinson, a former House member and administrator of the Drug Enforcement Agency, declined to give details about Xe's compliance status and said he was not privy to the company's negotiations with the government over past violations.

He said that the board reported regularly to the State Department about the company's compliance with export laws.

A spokesman for the Commerce Department, which is working with the State Department in the settlement negotiations, declined to comment on the talks. Philip Crowley, a State Department spokesman, said, "It is department policy not to comment on compliance actions until the matter has been resolved."

The government's investigations into the company's weapons shipments to Iraq have been under way for several years and so far have led to guilty pleas on criminal charges by two former Blackwater employees.

In January 2008, Kenneth Cashwell of Virginia Beach and Ellsworth Grumiaux of Clemmons, N.C., were sentenced to three years of probation and $1,000 fines on charges of possession of stolen firearms shipped overseas. The sentences were believed to have been lenient because the two men were cooperating with federal prosecutors on a broader investigation of Blackwater. The company said at the time that the two men had been fired in 2005 and that it was Blackwater officials who had turned them in to authorities. The company said it had asked the Bureau of Alcohol, Tobacco, Firearms and Explosives to investigate the matter.

Prosecutors in North Carolina have reportedly investigated whether some of the weapons shipped to Iraq were sold on the black market and ended up in the hands of a Kurdish rebel group, the Kurdistan Workers' Party, or PKK, which has long fought Turkey in the hope of gaining an independent Kurdistan. Turkey considers the group a terrorist organization, and Turkish officials reportedly complained to the United States about American weapons seized from the group, prompting an investigation into whether the weapons originated with Blackwater.