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What to do about the Oil-for-Food Scandal By: Nile Gardiner, James Phillips and James Dean
Heritage Foundation | Tuesday, July 06, 2004


The Oil-for-Food fraud is potentially the biggest scandal in the history of the United Nations and one of the greatest financial scandals of modern times.1 Set up in the mid-1990s as a means of providing humanitarian aid to the Iraqi people, the U.N.-run Oil-for-Food program was subverted and manipulated by Saddam Hussein's regime--allegedly with the complicity of U.N. officials--to help prop up the Iraqi dictator.

Saddam's dictatorship was able to siphon off an estimated $10 billion from the program through oil smuggling and systematic thievery, by demanding illegal payments from companies buying Iraqi oil, and through kickbacks from those selling goods to Iraq--all under the noses of U.N. bureaucrats.

Members of the U.N. staff that administered the program have been accused of gross incompetence, mismanagement, and possible complicity with the Iraqi regime. Benon Sevan, former executive director of the Oil-for-Food program, appeared on an Iraqi Oil Ministry list of 270 individuals, political entities, and companies from across the world that allegedly received oil vouchers as bribes from Saddam Hussein's regime.2

The U.S. General Accounting Office estimates that the Saddam Hussein regime generated $10.1 billion in illegal revenues by exploiting the Oil-for-Food program. This figure includes $5.7 billion from oil smuggling and $4.4 billion in "illicit surcharges on oil sales and after-sales charges on suppliers."3

Under intense pressure from Congress, the United Nations established its own "independent" commission of inquiry into the U.N.'s handling of the Oil-for-Food program, headed by former U.S. Federal Reserve Chairman Paul Volcker, South African judge Richard Goldstone, and Swiss lawyer Mark Pieth. The U.N. inquiry bears all the hallmarks of an elaborate paper tiger. The commission lacks subpoena power and cannot force the cooperation of U.N. member states. It has also been dogged by allegations of interference by U.N. officials, and serious doubts exist as to whether the inquiry will deliver substantial results.

The Role of Congress

Congress is playing a vital role in ensuring that the Oil-for-Food fraud is thoroughly investigated and that U.N. officials who are guilty of criminal behavior or illicit profiteering are brought to justice. The U.N. decision to set up a commission of inquiry is a direct result of pressure from Congress.

Secretary General Kofi Annan has made some incidental concessions in response to moves by Congress but has yet to demonstrate a full commitment to get to the bottom of the issue. Congress should therefore maintain pressure to:

  • Strengthen the position of Paul Volcker and his commission of inquiry.
  • Ensure that the Iraqi interim government and congressional investigators are able to conduct an effective and exhaustive investigation into Oil-for-Food documents in Baghdad.
  • Push the Bush Administration to ensure that the Oil-for-Food scandal is thoroughly investigated.
  • Keep the international spotlight on Oil for Food, encouraging foreign governments to launch their own investigations into misdeeds that may involve their nationals.
  • Increase the likelihood of serious reform at the U.N., including significant safeguards to prevent repetition of its failures.
  • Limit the role of the United Nations in shaping the future of Iraq.

Withhold U.S. Funds from the U.N.

The Oil-for-Food fraud has become an issue of well-founded, serious concern on Capitol Hill. Three congressional committees--the Senate Foreign Relations Committee, the House International Relations Committee, and the House Subcommittee on National Security--have already held hearings into the Oil-for-Food scandal.

The most effective way to ensure that the United Nations fully cooperates with its own commission of inquiry, and with investigators in Washington and Baghdad, is to threaten to reduce U.S. funding for the U.N., specifically the United States' assessed contribution. In particular, the U.S. should target funds going to the U.N. Secretariat, the political arm of the U.N. system, that had responsibility for overseeing the Oil-for-Food program.

Congress should threaten to withhold a portion of U.S. funds for the U.N. unless it is completely satisfied that the U.N. is fully cooperating with the various Oil-for-Food inquiries and is undertaking effective measures to reform itself. Senator John Ensign (R-NV) and Representative Jeff Flake (R-AZ) have introduced bills (S. 2389 and H.R. 4284, respectively) that would move in the right direction and enjoy bipartisan support.4

Adoption of Senate Amendment 3440 (sponsored by Senator Ensign) to the National Defense Authorization Act for FY 2005 (S. 2400) was another important step. Specifically, Amendment 3440:

  • Requires key departments within the Administration to take steps to ensure that all documents needed to conduct investigations are collected and safely secured;
  • Requires the Department of Defense to secure documents in the hands of the (now-dissolved) Coalition Provisional Authority (CPA);
  • Requires heads of U.S. executive agencies to provide prompt access to documents and information to congressional committees with relevant jurisdiction;
  • Directs the Secretary of State to use American power at the U.N. to provide the U.S. with audits and vital documents related to the Oil-for-Food program; and
  • Requires the Comptroller General to review U.S. oversight of the Oil-for-Food program and underscores that the Comptroller General should have full and complete access to U.N. documents and financial data.

Senate Amendment 3440 was adopted unanimously following bipartisan consultations and modifications. It is critical that the conference committee, which will reconcile the House and Senate versions of the National Defense Authorization Act, include it in the conference report that will come back to the House and Senate for final approval.

Senator Ensign, Representative Flake, and the other Members of Congress who have contributed to the effort to get to the bottom of the U.N. Oil-for-Food scandal should be commended for their efforts to date and encouraged to continue to apply pressure on both the U.N. and the Administration.

In light of the congressional hearings that have already been held concerning Oil for Food, the Senate Foreign Relations Committee and the House International Relations Committee should report the bills for debate and action by the full Senate and House. In addition, similar language should be included in the Senate and House annual appropriations legislation that provides funding for the United Nations.

Oil for Food and the U.N. Role in Iraq

The U.N.'s dismal and allegedly corrupt handling of the Oil-for-Food program should lay to rest any notion that the organization can be entrusted with shaping the future of the Iraqi people. Many Iraqis regard the U.N. with suspicion and as lacking both legitimacy and credibility. Iraqis have bitter memories of Secretary General Annan's February 1998 statement to reporters: "Can I trust Saddam Hussein? I think I can do business with him."

The Bush Administration's decision to give the U.N. a key role in picking the Iraqi interim government should not be a precedent for the post-June 28 era. While agreeing to a technical role for the U.N. in assisting the electoral process in Iraq, the United States should oppose a major administrative or military role for the U.N. in the country. The U.N. should not be given any say over U.S. military operations in Iraq, nor should it be allowed to turn Iraq into a glorified U.N. protectorate on the model of Kosovo.

Further Areas for Congressional Investigation

There are several key areas that Congress should investigate:

  • The lack of power given to the Volcker Commission of Inquiry,
  • Leaked U.N. documents and Kofi Annan's role,
  • The Benon Sevan letters,
  • The role of the Coalition Provisional Authority,
  • Security Council debates over the removal of Saddam Hussein,
  • Oil for Food and terrorism, and
  • United Nations reform.

The U.N. Commission of Inquiry
The U.N. commission of inquiry is already underway, although it is not required to report by a set deadline. There are serious doubts emerging as to whether the commission can do its job effectively. It is operating amid a cloud of secrecy and confusion.

Congress should be seriously concerned about the commission's lack of subpoena power. In addition, it is unclear whether the U.N. is setting aside sufficient funds for the investigation and who will be staffing it. The commission's independence is also in doubt because of questions about whether it will be open to interference from the U.N. Secretariat and Secretary General Annan. Finally, the lack of transparency in the commission's operation is disturbing.

Leaked U.N. Documents and Kofi Annan's Role
Evidence was recently leaked that the U.N. Office of Internal Oversight Services conducted a detailed audit of the U.N.'s administration of the Oil-for-Food program in 2003, before the liberation of Iraq.
5 The report was damning in its conclusions and highly critical of the U.N.'s dealings with the Swiss company Cotecna Inspection SA, which had won a $4.8 million contract to oversee the operations of the Oil-for-Food program. Kofi Annan's son Kojo worked for the company in the mid-1990s and was a consultant to the company until shortly before it won the Oil-for-Food contract. Bizarrely, Cotecna was awarded another contract, worth $9.8 million, almost immediately after the report's publication.

The leaked report is reportedly just one of 55 internal U.N. audits of the Oil-for-Food program. Its existence suggests that Secretary General Annan would have known about the rampant structural problems within the program's administration. At the very least, the leaked report indirectly suggests gross negligence on the part of the U.N.'s top official.

Congress should demand the immediate release of all 55 internal reports and should investigate the extent to which Secretary General Annan deliberately ignored their findings. Congress should also investigate whether Annan's decision to hire Cotecna was influenced by his son's affiliation with the company.

The Benon Sevan Letters
There is also some evidence that Benon Sevan, the former director of the Oil-for-Food program, interfered with congressional investigations. Specifically, Sevan wrote letters on official U.N. stationery warning some of the companies implicated in the scandal that they must first seek U.N. approval before releasing documents to investigators.
6

Congress should both demand a full accounting from the U.N. Secretariat of the Sevan letters and express its concern that Sevan may be seeking to block efforts by Congress to establish the truth.

The Former Coalition Provisional Authority
The recently dissolved Iraqi Governing Council (IGC) appointed its own investigation into the U.N.'s handling of the Oil-for-Food program, headed by Claude Hankes-Drielsma, a highly respected British businessman and political adviser, and the leading international accounting firm KPMG. However, the CPA refused to fund the IGC investigation and launched its own inquiry, using the Ernst & Young accounting firm. As a result, the Oil-for-Food investigations in Baghdad are in a state of confusion, wasting precious time and resources, and there are growing concerns that vital documents may be lost or destroyed.
7

On his return to Washington, Congress should ask former Ambassador Paul Bremer to clarify his actions in impeding Oil-for-Food investigations in Baghdad. Specifically, Congress should ask why the CPA refused to fund the IGC investigation and then launched its own investigation. The resulting confusion may seriously harm efforts in Iraq to establish the truth regarding Saddam Hussein's abuse of the Oil-for-Food program.

Congressional investigators should also examine whether the United Nations or Lakhdar Brahimi, the U.N. envoy to Iraq, have unduly influenced the Oil-for-Food investigations in Baghdad.

Security Council Debates over the Removal of Saddam Hussein
The heated U.N. Security Council debates before the U.S.-led war to liberate Iraq cannot remain separated from the Oil-for-Food program and the fact that influential politicians, major companies, and political parties from key Security Council member countries may have benefited financially from the program.

The Al Mada list of 270 individuals, political entities, and businesses across the world that allegedly received oil vouchers from Saddam Hussein's regime included no fewer than 46 Russian and 11 French names. The Russian government alone allegedly received an astonishing $1.36 billion in oil vouchers.

The list of Russian entities accused of accepting bribes from Saddam goes to the heart of the Russian financial and political establishment and includes the Russian Foreign Ministry, the Russian Communist Party, Lukoil, Yukos, Gasprom, the Russian Orthodox Church, and the chief of the President's Bureau. The list of French names includes former Interior Minister Charles Pasqua.

The close ties between Russian and French politicians and the Iraqi regime may have been an important factor in influencing their governments' decision to oppose Hussein's removal from power. They also highlight the close triangular working relationships among Paris, Moscow, and Baghdad and the huge French and Russian financial interests in pre-liberation Iraq. Prior to the regime change in April 2003, French and Russian oil companies possessed oil contracts with the Saddam Hussein regime that covered roughly 40 percent of the country's oil wealth.8

Without a shred of evidence, European and domestic critics have frequently derided the Bush Administration's decision to go to war in Iraq as an "oil grab" driven by U.S. corporations such as Halliburton. They ignore the reality that the leading opponents of war at the U.N. Security Council--Russia and France--had vast oil interests in Iraq, protected by the Saddam Hussein regime. The Oil-for-Food program and its elaborate system of kickbacks and bribery was also a major source of revenue for many European politicians and business concerns, especially in Moscow.

Congressional hearings on the financial, political, and military links among Moscow, Paris, and Baghdad will help to shed light on the tempestuous Security Council debates that preceded the war with Iraq and on the motives of key Security Council members in opposing regime change in Baghdad. The full disclosure of the Russian and French roles in trying to prevent Saddam Hussein's removal from power will have major implications for the future of U.S.-Russian and U.S.-French relations and should result in a more informed assessment of the long-term viability of political, intelligence, and military cooperation with the two countries.

Hearings would also shed light on the extent of strategic cooperation between Paris and Moscow in the Security Council and the long-term threat that the emergence of a Franco-Russian-German axis at the United Nations could pose to U.S. interests.

Oil for Food and Terrorism
In addition to propping up Saddam's regime and buying influence abroad, some Oil-for-Food revenues may have been diverted to funding terrorism. At least two shadowy entities--Asat Trust and al-Taqwa, which have been linked to al-Qaeda, Hamas, and other Islamic extremist organizations--profited from the Oil-for-Food program.
9 Asat Trust, a firm that the U.S. and the U.N. later designated as a financial collaborator of al-Qaeda, was the legal representative of the Galp International Trading Establishment, a Liechtenstein-based subsidiary of Portugal's major oil company and one of Iraq's trading partners under the Oil-for-Food program after 1997.

Al-Taqwa (awe of God) was a group of financial institutions set up in the 1980s by prominent members of the Muslim Brotherhood, an anti-Western Islamic organization founded in Egypt in 1928. According to a White House press release, al-Taqwa and its affiliates "raise, manage, invest, and distribute funds for al-Qaeda; provide terrorist supporters with internet service and secure telephone communications; and arrange for the shipment of weapons."10 A former FBI counterterrorism specialist also charges that al-Taqwa was used by the Palestinian terrorist group Hamas and several North African terrorist groups affiliated with al-Qaeda.11 According to a senior government official, "Al-Taqwa was the recipient of illicit funds from Iraq's Oil for Food program," and the money flowed "through al-Taqwa to al-Qaeda."12

Another reported recipient of Oil-for-Food largesse was Delta Services, a now-defunct subsidiary of Delta Oil, a Saudi oil company that had close relations with the Taliban regime in Afghanistan. Delta Oil was one of the prime movers pushing for the building of a pipeline from oil-rich Central Asia across Afghanistan to Pakistan. This scheme collapsed after al-Qaeda bombed two U.S. embassies in East Africa in August 1998, provoking an American cruise missile strike on al-Qaeda training camps in Afghanistan.

Another target of retaliation for the embassy bombings was the Al Shifa pharmaceutical plant in Khartoum, Sudan. Osama Bin Laden was suspected of owning at least part of the plant, although this has never been proven. However, according to Clinton Administration officials, the plant manager lived in a villa owned by bin Laden, and U.S. intelligence intercepted phone calls from the plant to the Iraqi official who ran Saddam Hussein's chemical weapons program. Before being destroyed, the Al Shifa plant also received a contract for $199,000 under the Oil-for-Food program.13

Although much remains unknown about the precise flow of money from the Oil-for-Food program, there is a disturbing pattern emerging that connects the U.N.-administered program to a number of entities that are known to support or are suspected of supporting terrorism.

United Nations Reform
A congressional investigation into the Oil-for-Food scandal should seek fundamental and lasting reform of the United Nations. No other issue has as much power to shape the future of the United Nations in such a positive way. The Oil-for-Food investigations should not be interpreted as a campaign to damage the reputation of the U.N., but as a concerted effort to ensure that the U.N. is made more accountable, transparent, and effective.

The Oil-for-Food scandal reinforces the need for the Security Council to impose a code of conduct on U.N. employees. The pervasive "anything goes" approach at the U.N. is unacceptable and should not be tolerated. A thorough external audit of the U.N. is needed. The U.N. must provide accountability, transparency, and value for money to the U.S. taxpayer.14

What the U.S. Should Do

To respond effectively to this growing scandal, the U.S. can and should pursue several courses of action. Specifically:

  • Conference Committee Action. The conference committee for the National Defense Authorization Act should ensure that the Ensign Amendment is included in the committee's conference report.
  • Volcker Commission of Inquiry. The Bush Administration and Congress should press the U.N. Security Council to give real teeth to its own commission of inquiry. As it currently stands, the Volcker commission lacks real power and credibility. The Bush Administration should press for a Security Council-appointed investigation, with subpoena power and a team of special investigators drawn from the FBI, the U.S. Department of Justice, and international bodies such as Interpol. The investigation should be completely independent of the United Nations and staffed with non-U.N. employees. Congress should continue to pressure the United Nations to cooperate fully with investigators in New York, Washington, and Baghdad and should call for Paul Volcker to give a firm date for the release of his report into Oil for Food.
  • Further Congressional Hearings. Further hearings are necessary to address growing allegations of U.N. interference with Oil-for-Food investigations and charges that the CPA impeded investigations in Baghdad. Hearings should also examine Kofi Annan's role in the scandal and how the Oil-for-Food program may have influenced Security Council debates over U.S. plans to liberate Iraq. Congress should also reassess the future U.N. role in Iraq in light of the U.N.'s administrative failure in the Oil-for-Food program.
  • U.S. Funding of the U.N. Future U.S. funding of the United Nations or U.N. specialized agencies should depend on substantial, not cosmetic, reform of the world body. Failure to prosecute U.N. officials implicated in wrongdoing should also result in reduced U.S. funding, particularly for the Secretariat, which had responsibility for overseeing the Oil-for-Food program. Withheld funds should be placed in an escrow account with the provision that they will be released only after firm evidence of major U.N. reform has emerged.
  • Securing Documents in Baghdad. The U.S. government should make every effort to ensure that key documents relating to Oil for Food in Baghdad and New York and around the world are preserved. In cooperation with the interim Iraqi government, copies of key documents should be sent to congressional investigators in Washington.
  • European and Arab Governments. The Bush Administration should urge European and Arab governments to launch their own probes of any citizens who are accused of accepting bribes from Saddam Hussein. British Prime Minister Tony Blair should be strongly encouraged to investigate the allegedly close relationship between former Labour MP George Galloway and Saddam Hussein. Similarly, the French government should be urged to investigate the allegations against politicians such as Charles Pasqua.
  • Kofi Annan. Overall responsibility for the U.N.'s management of Oil for Food lies with Secretary General Annan. If it is established that he ignored the damning findings of internal U.N. audits of the Oil-for-Food program, he should resign.
  • Prosecution of U.N. Officials in Iraqi Courts. Iraqi courts would be the appropriate venue for trying and sentencing individuals implicated in criminal wrongdoing by a Security Council-appointed investigation. The United States should press the Security Council to recommend waiving diplomatic immunity for U.N. employees implicated in crimes relating to the Oil-for-Food program. The U.S. should also encourage individual governments to extradite to Iraq anyone indicted for allegedly committing crimes relating to the Oil-for-Food program, to the same extent they would extradite citizens for any other serious crime.
  • U.N. Role in Iraq. The United Nations' failure to support removing Saddam Hussein from power, combined with its shameful record on Oil for Food, should exclude it from any leading role in crafting a democratic, free Iraq.

Conclusion

The abuse of the Oil-for-Food program was the result of a staggering management failure by the U.N. and raises troubling questions regarding the U.N.'s credibility and competence. Congress has played a crucial role in bringing the Oil-for-Food scandal to international attention by casting a bright spotlight on an issue the U.N. would prefer to forget. Congress needs to maintain relentless pressure on the U.N. to hold its own officials accountable for both their actions and their inactions.

The Bush Administration should play a bigger role in pressing for an effective, truly independent Security Council investigation. President George W. Bush should take the lead in condemning the abuse of the Oil-for-Food program and calling for U.N. officials and member states to cooperate fully with Security Council, congressional, and Iraqi investigations. The White House should make it clear that it fully supports congressional efforts to investigate the Oil-for-Food scandal and that effective reform of the United Nations is a priority issue for the United States.

ENDNOTES:

1. For further background, see Nile Gardiner, Ph.D., and James Phillips, "Investigate the United Nations Oil-for-Food Fraud," Heritage Foundation Backgrounder No. 1748, April 21, 2004, at new.heritage.org/Research/InternationalOrganizations/bg1748.cfm.

2. The list of names was originally published in January in the Arabic Iraqi newspaper Al Mada. For a translation, see Nimrod Raphaeli, "The Saddam Oil Vouchers Affair," Middle East Media Research Institute, February 20, 2004, at memri.org/bin/articles.cgi?Page=archives&Area=ia&ID=IA16404 (June 21, 2004).

3. Joseph A. Christoff and Davi M. D'Agostino, "Recovering Iraq's Assets: Preliminary Observations on U.S. Efforts and Challenges," testimony before the Subcommittee on Oversight and Investigations, Committee on Financial Services, U.S. House of Representatives, GAO-04-579T, March 18, 2004, at financialservices.house.gov/media/pdf/031804gao.pdf (June 21, 2004).

4. The bills call for a 10 percent reduction in the U.S. contribution to the United Nations unless the President certifies that the U.N. is fully cooperating with all investigations.

5. The report was leaked to Mineweb, an international publication focusing on mining finance and corporate news. See United Nations, Internal Audit Division, Office of Internal Oversight Services, "Management of the Contract for Provision of Independent Inspection Agents in Iraq," OIOS Audit No. AF2002/32/1, April 8, 2003, posted by Mineweb, at www.mineweb.net/download_files/sections/AuditOIOS_AF2002_23_1.pdf (June 21, 2004). For analysis of the U.N. report, see Tim Wood, "Leaked UN Audit Proves Oil for Food Shambles," Mineweb.net, May 19, 2004, at www.mineweb.net/sections/energy/oilshambles.htm (June 21, 2004), and Fox News, "UN Audit Found Early `Oil-for-Food' Problems," May 20, 2004, at www.foxnews.com/story/0,2933,120391,00.html (June 23, 2004).

6. For analysis of the Sevan letters, see Claudia Rosett, "`We Have Other Priorities': Why Won't the UN Answer Questions About Its Iraq Scandal?" The Wall Street Journal, May 5, 2004, and Editorial, "The Volcker Excuse," The Wall Street Journal, May 5, 2004.

7. See Claude Hankes-Drielsma, testimony before the Subcommittee on National Security, Emerging Threats, and International Relations, Committee on Government Reform, U.S. House of Representatives, April 21, 2004, at reform.house.gov/UploadedFiles/Oil-for-Food%20Hankes%20Drielsma%20Testimony.pdf (June 21, 2004). For further background on the CPA's role in slowing the Oil-for-Food investigations in Baghdad, see Robin Gedye, "Bremer Office `Hampering Oil for Food Corruption Inquiry,'" The Daily Telegraph, May 17, 2004, at www.telegraph.co.uk/news/main.jhtml?xml=/news/2004/05/17/woil17.xml&sSheet=/news/2004/05/17/ixnewstop.html (June 21, 2004); Claudia Rosett, "Cover-Up Culture: When Will the Real Oil for Food Investigations Begin?" National Review Online, May 27, 2004, at www.nationalreview.com/rosett/rosett200405262134.asp (June 21, 2004); and Editorial, "Bigfooted in Baghdad," The Wall Street Journal, May 19, 2004.

8. See Carrie Satterlee, "Facts on Who Benefits from Keeping Saddam Hussein in Power," Heritage Foundation WebMemo No. 217, February 28, 2003, at www.heritage.org/Research/MiddleEast/wm217.cfm.

9. See Marc Perelman, "Oil for Food Sales Seen as Iraq Tie to Al Qaeda," Forward, June 20, 2003, at www.forward.com/issues/2003/03.06.20/news2.html (June 21, 2004). See also Claudia Rosett, "Oil for Terror?" National Review Online, April 18, 2003, at www.nationalreview.com/comment/rosett200404182336.asp (June 21, 2004).

10. The White House, "Terrorist Financial Network Fact Sheet: Shutting Down the Terrorist Financial Network," November 7, 2001, at www.whitehouse.gov/news/releases/2001/11/20011107-6.html (June 21, 2004).

11. Matthew Levitt, "Combating Terrorist Financing: Where the War on Terrorism Intersects the Roadmap," Jerusalem Issue Brief, Vol. 3, No. 4 (August 2003), p. 3.

12. Scott Wheeler, "The Link Between Iraq and Al-Qaeda," Insight, October 14, 2003, at www.insightmag.com/global_user_elements/printpage.cfm?storyid=477622 (June 21, 2004).

13. Stephen Hayes, "The Clinton View of Iraqi-Al Qaeda Ties," The Weekly Standard, December 29, 2003.

14. For further discussion of United Nations reform, see Nile Gardiner, Ph.D., and Baker Spring, "Reform the United Nations," Heritage Foundation Backgrounder No. 1700, October 27, 2003, at new.heritage.org/Research/InternationalOrganizations/BG-1700.cfm.


Nile Gardiner, Ph.D., is Fellow in Anglo-American Security Policy and James Phillips is Research Fellow in Middle Eastern Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies, and James Dean is Deputy Director of Government Relations, at The Heritage Foundation.


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