Did an American contractor get Kyrgyzstan’s president kicked out of office?

Another reason why oil is a curse: It can force Pentagon officials to be complicit in apparent tax-dodging schemes by contractors providing crucial fuel supplies for the U.S. military.

Or at least that’s the gist of a 75-page report issued today by the U.S. House of Representatives Subcommittee on National Security and Foreign Affairs, entitled “Mystery at Manas.” It is the result of an investigation into Mina and Red Star Corps., shadowy companies that provide hundreds of millions of dollars a year in jet fuel to the American military’s Manas Air Base in Kyrgyzstan and Bagram Air Base in Afghanistan. It is owned by a Stockton, Calif., man named Doug Edelman, who resides in London and registers his companies in the tax shelter of Gibraltar, but under the name of his French wife and Kyrgyz business partner. In the past, this blog has dubbed Edelman the “burger flipper,” since his only known previous business venture was a burger joint in Bishkek.

One scoop out of the report concerns the April ouster of Kyrgyz President Kurmanbek Bakiyev. As you recall, Kyrgyz poured into the streets when gasoline prices suddenly went through the roof after Russia clamped on a substantial new customs tariff. Observers surmised that Moscow was punishing Bakiyev for reneging on a supposed agreement to expel Manas in exchange for $2 billion in aid for the country.

Not so, according to the House report — it was because Mina and Red Star lied to Russia as to its ultimate customer. The companies said — and Kyrgyz officials backed up the story — that they were buying Russian jet fuel for civilian use. This was to get around a Russian policy prohibiting the export of strategic assets — in this case jet fuel — for purposes of war.

In a statement today, Mina and Red Star say that Gazprom Neft, the direct seller of the fuel, knew about the military fuel contract all along. That may be the case, but the report goes on to say that the Russian public apparently didn’t know, and ultimately the Russian Duma and the FSB (the domestic intelligence service) decided to investigate — and when they did, subsequently determining that the fuel was for U.S. jets, a cutoff in the gasoline supply followed. The tariff came after that, along with a 30 percent increase in gas prices on the street.

Speaking to House investigators, Mina official Chuck Squires was pretty proud of himself:

We got one over on ‘em. I am an old Cold Warrior. I’m proud of it, we beat the Russians, and we did it for four or five years. Obviously it was not without their knowledge. If they looked at the volumes, they had to know where this was all going. But they were making money and they were all happy.

Come again? How was this fuel connivance putting one over on the Russians, who have absolutely no upside in the United States being overrun by the Taliban? In fact, Squires pulled one over on not just the Russian taxpayers but also the American ones — and the Kyrgyz people suffered as a consequence. That the Pentagon went along with such self-seeking naivete demonstrates its own amateurishness. “Mina and Red Star told [Pentagon officials] about the deception; but, despite extensive memoranda and e-mails documenting the arrangements, senior [Pentagon procurement] officials claimed that they were not aware of the scheme and asserted that there might not have been a Russian ban,” the report states.

If we are to believe the statements of those interviewed, we get a picture that looks a lot like The  Gang that Couldn’t Shoot Straight, the 1971 mafia comedy whose actors, interrogated by New York police about a crime, replied one after the other, “What can I tell ‘ya?”

In this case, the Russians — the sellers of the fuel — allegedly didn’t know the fuel-buying was going on; neither did the Pentagon, the buyers of the fuel; nor, the report goes on, did the American Embassy in Bishkek, where the fuel contract was the stuff of daily reporting and griping:

Despite allegations of corruption roiling U.S.-Kyrgyz relations, senior officials at the U.S. Embassy in Bishkek stated that they knew little to nothing about the Manas fuel contracts. In their view, the fuel contracts were the sole responsibility of the Department of Defense even when there were significant diplomatic and geopolitical collateral consequences.

We ourselves withhold comment, but William A. Burck, a lawyer for Mina and Red Star in Washington, said in a statement today, “There was no deception at all; the Russians, the Kyrgyz authorities, and the Department of Defense all knew exactly where the fuel was coming from and where it was going.”

The long-term fallout includes Kyrgyzstan’s current fragility, as the report notes:

The collateral consequences of the United States’ lack of strategic oversight of its fuel contracting in Central Asia have been significant. Allegations of corruption in the Manas contracts have been linked to two revolutions in Kyrgyzstan and resulted in widespread public perceptions – shared by interim President Rosa Otunbayeva and much of the political elite – that the United States has deliberately and illicitly used the fuel contracts to bribe Kyrgyzstan’s two past presidents. U.S.-Kyrgyz relations are seriously strained by the allegations and President Otunbayeva has raised the issue personally with both President Barack Obama and Secretary of State Hillary Clinton.

Kyrgyz public suspicions of corruption in the fuel contracts are by no means unreasonable. In the first several years of fuel supply to Manas, [Pentagon procurement officials] directed Mina and Red Star to subcontract exclusively with two companies at Manas, one owned by the son of President Askar Akayev and the other by his son-in-law. President Akayev was ousted in 2005 in a popular revolution under a cloud of corruption and repression. President Akayev’s successor, President Kurmanbek Bakiyev had his son, Maksim Bakiyev, take over much of the Manas airport operations, including the two Akayev-owned fuel subcontractors. President Bakiyev was then ousted in 2010 under a cloud of corruption and repression. In the minds of external observers, it had all the ingredients of a corrupt scheme to pay off the Kyrgyz first families in exchange for their political support to keep the base open.

Mina and Red Star are covered by a diplomatic agreement between the United States and Kyrgyzstan that sets its tax rate (apparently zero), and prevents the Kyrgyz from interfering with its operations. All these years, the Pentagon apparently didn’t bother asking about the companies’ ownership. When the Pentagon finally did ask, Mina and Red Star said it was a Kyrgyz partner and Edelman’s wife, Delphine Le Dain, whose entire public profile involves shopping for a private French school in London’s St John’s Wood for one of their children, and island property off of the coast of France. (Pentagon officials apparently bought this story. The House committee did not.)

Mina and Red Star deny any wrong-doing. In a statement today, the companies said:

Mina Corp. and Red Star operate in exceedingly dangerous parts of the world, including, most notably, the Afghan war zone.  Because of the continual danger to Mina and Red Star’s management and personnel, the companies have tried to conduct their operations with a low public profile in order to avoid becoming a target for interests hostile to international military operations in Afghanistan.  This is less a policy of ‘secrecy’ by Mina and Red Star than an imperative for running a highly vulnerable supply operation in areas where physical security is constantly imperiled.  Mina and Red Star strongly defend their decision to operate in a way that protects both their personnel and their supply chain.

The companies meanwhile are up in arms that the Kyrgyz, along with help from the U.S., appear to be shouldering the Mina and Red Star aside — their days in Kyrgyzstan appear to be numbered. And if they are numbered in Kyrgyzstan, and the Russians are fed up as well, then Mina and Red Star’s deal in Afghanistan also may be in trouble. I asked Mina-Red Star spokesman John Lough about the challenge to the companies’ Kyrgyz operations. He responded in an email:

We understand that the U.S. government is ready to negotiate a contract with the Kyrgyz state company to supply 20-50 percent of the fuel to Manas.  Since April, the Kyrgyz authorities have been engaged in an escalating legal and disinformation campaign against the company.  Mina fears that this is a politically and financially motivated campaign aimed at taking over Mina’s business and vital fuel supply for the war effort in Afghanistan.  Mina’s legal team consisting of U.S., international and Kyrgyz counsel is on the ground in Bishkek to vigorously defend the company’s rights and ensure that it can continue to supply fuel to Manas without interruption.

It’s true that hands are automatically out when so much money is involved in the region. But if Mina and Red Star are so clean, then why did they initially tell the committee the following when asked to cooperate with the investigation? According to the report, Mina and Red Star executives

1) initially stated that they would rather walk away from their multi-billion dollar fuel contracting empire than publicly reveal their beneficial ownership; (2) agreed to meet in Dubai and then canceled the meeting after congressional staff had arrived there; (3) stated that they would invoke their Fifth Amendment privilege against self-incrimination if compelled to testify; (4) sought a congressional grant of use-immunity for their testimony; and (5) flatly refused to cooperate. Only after congressional subpoenas were issued for corporate documents and individual testimony did they begin to substantially cooperate.