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In June 2004, journalist Seymour Hersh reported in the New Yorker that Israelis operating in northern Iraq under the guise of businessmen were in fact cultivating Kurdish proxies to gather intelligence in preparation for possible future action against Iran. About the same time, I too was hearing about Israelis operating in Kurdish northern Iraq. First, from a former senior American diplomat who was invited by an Israeli American businessman to advise the Kurds on how to get billions of dollars they believed they were owed from the Saddam Hussein-era United Nations Oil-for-Food program. The diplomat gave me the Israeli’s name—Shlomi Michaels—and phone numbers for Michaels in Beverly Hills, Turkey, and Israel. The diplomat had walked away from the project, put off by Michaels’ temper, and also, he said, by doubts about what Michaels was really up to, and who he might really be working for.

So I was intrigued when, last summer, I read in the Israeli newspaper Haaretz that Shlomi Michaels had become the subject of an Israeli government investigation for allegedly operating in Iraq without the required authorization from the Israeli authorities. Not only had I known about Michaels for two years, I had spent about as long trying to understand if the Bush administration would embrace the regime-change policy of its Iran hawks, who believe that the solution to Iran’s nuclear ambitions is to promote mass uprisings of ethnic minority and dissident groups such as the Kurds.

For much of the past year, I have been digging into the story of Shlomi Michaels’ operations in Kurdistan, and his connections in Israel, the United States, and around the world. My investigation took me to Israel early last fall, shortly after the Israeli war with Hezbollah, to talk with Israeli officials investigating Michaels, as well as one of Michaels’ long-time American associates, and Michaels’ business partner, the former Mossad chief Danny Yatom.

What I found was not the story I had expected. Instead of Michaels being part of a covert operation to set up anti-Iranian proxies in Kurdish Iraq, I discovered that Michaels and his associates were part of an effort by the Kurds and their allies to lobby the West for greater power in Iraq, and greater clout in Washington, and at the same time, by a group of Israeli ex security officials to rekindle good relations with their historical allies the Kurds through joint infrastructure, economic development, and security projects. It was, in other words, a story about influence-building, buying, and profit, albeit with subplots that were equal parts John le Carre and Keystone Kops, and a cast of characters ranging from ex-Mossad head Yatom to a former German superspy, with Israeli counterterrorism commandos, Kurdish political dynasties, powerful American lobbyists, Turkish business tycoons thrown in—not to mention millions of dollars stashed in Swiss bank accounts.

Yatom met me in the lobby of the Tel Aviv Sheraton at 7:30am on a Sunday, the beginning of Israel’s work week. The ex-Mossad chief turned Labor Party member of parliament was on his way to his office at the Knesset after a stop at the gym, dressed casually in a white button down shirt and black jeans. He spoke openly about his business relationship with Shlomi Michaels and the Kurdish venture they’d developed together, noting that he was no longer involved in its operations; after being elected to the Knesset in 2003, he’d put his business interests in a blind trust, as required by Israeli law.

Yatom said he and Michaels were introduced to key Iraqi Kurdish players by a European intelligence official whom he wouldn’t name; interviews with his associates revealed that it was Bernd Schmidbauer, West Germany’s intelligence chief in the 1990s. Dubbed “008” for his intelligence adventures during the waning days of the Cold War, Schmidbauer—now a member of the German parliament—did not respond to numerous messages left with his offices in Berlin and in Heidelberg.

Shlomi Michaels was similarly elusive, despite messages left at several of his far-flung residences. Fifty-two years old, six feet tall, and built, according to an acquaintance, “like a brick shithouse,” with the commando’s trademark shaved head and a black belt in karate, Michaels splits his time between Israel and the United States, with detours to Switzerland, Turkey, and Kurdistan. The elite counterterror officer turned entrepreneur and multimillionaire is well networked in Tel Aviv, Washington, and New York, where he taught a counterterrorism course at Columbia University in 2003. For a time, according to one source, he even ran a security consulting business in Los Angeles.

When the United States was preparing to invade Iraq, Michaels evidently saw an opportunity: According to his business associates, as well as public records and Israeli media reports, he reached out to contacts in Washington, seeking high powered lobbying help to get the Kurds a greater share of United Nations Oil-for-Food Program money, a fund set up by the UN in 1995 to use Iraq’s oil revenues to provide Iraqis humanitarian supplies during international economic sanctions against Iraq. During Saddam Hussein’s rein, the Oil-for-Food “revenue was spent in Arab parts of Iraq but not in Kurdistan,” according to the Los Angeles Times.

“Kurdistan’s share of the fund was set at 13%. At least $4 billion accrued in Kurdistan’s name, Kurdish officials say, and some contend that the amount could be as much as $5.5 billion.” The paper reported that in late June 2004, just five days before he turned Iraq back over to domestic rule and flew out of Iraq, then-top US official in Iraq Paul Bremer ordered the transfer by three U.S. military helicopters of $1.4 billion in 100 dollar bills to Kurdistan—his calculation of the Kurds’ share of Oil-for-Food funds; but the Kurds and their advocates believe they are owed a few billion more. It was so much cash—15 tons’ worth—the paper further reported, that no bank could be found in which to deposit it.

Even as he helped connect the Kurds to those who lobbied for them to receive more money, Michaels positioned himself to be in line for some of the cash. A year before the invasion of Iraq, Yatom and Michaels had formed an investment and security consulting company called the Interop Group (short for international operations group) that has since done millions of dollars of business in Kurdish Iraq. Michaels’ main business in Iraq is a joint venture called the Kurdish Development Organization, or KUDO. One American source describes Kudo as a joint venture between Michaels’ company and the Barzani part of a Kurdish governmental entity. According to a second American source (who has at times offered differing accounts), KUDO is a venture between Michaels, Schmidbauer, Yatom, and members of the powerful Barzani Iraqi Kurdish political family. According to this source, KUDO serves as a general service contractual liaison between the Kurdish Regional Government and the contractors for the massive $300 million project to build a new international airport in the Kurdish city of Irbil. The main contractor on the airport project is a Turkish company called Mak-yol. A third Michaels’ company, Coloseum Consulting, is registered in Switzerland as an affiliated company of Interop, according to Swiss federal corporate registration papers.

More covertly, the Israeli newspapers Yedioth Ahronoth and Haaretz have reported, Michaels has also brought in former Israeli military officers to provide counterterrorism training to Kurdish security forces at a secret “camp Z” in Iraq. Sources say the contract was mere “bupkas”—a few million dollars—and Michaels undertook the work out of friendship with then-Kurdish Minister of Interior and security chief Karim Sinjari, and also because the Kurds faced a threat from al Qaeda.

Whatever the reasoning, the execution of the “Camp Z” project was problematic. In 2004, according to Israeli media reports, Michaels’ team brought in dozens of Israeli combat veterans through the Turkish-Iraqi Kurdish border, traveling on Israeli passports whose details were duly noted by Ankara. Soon the Turkish government grew alarmed that Israeli military types were moving into northern Iraq, claiming to be agriculture advisers and the like. The story made it to Israel, whose nationals are prohibited from doing business in Iraq without explicit government permission. “There is a legal state of war between Israel and Iraq,” Israeli Foreign Ministry spokesman Mark Regev told me. “It is therefore illegal for Israeli nationals to visit Iraq. Hopefully that will change one day.” But since it has not yet, the news about Michaels’ operation caused a stir; making matters worse were Michaels’ alleged feuds with his business partners over money. One disgruntled former Israeli employee went to the Israeli press in the fall of 2005, revealing with documents and photographs the extent of Michaels’ involvement in Kurdistan.

The story kicked up controversy—Israeli operations are a source of paranoid fascination in the region—and led to two separate Israeli government investigations. Exposure has also led to the necessary departure of almost all of the Israelis working for Michaels from northern Iraq. (Speculation was further fanned by Seymour Hersh’s 2004 New Yorker report that Israel is forging a “plan B” for Iraq that includes training Kurdish commandos and use them to infiltrate Iran and Syria.) One of those probes—by the Israeli ministry of defense, which wanted to know why it had never been approached for export licenses for the Israeli defense and secure communications equipment sold in northern Iraq—has since been referred to the Israeli police and “will continue as long as necessary,” police spokesman Micky Rosenfeld told me in an email last fall.

Skeptics dismiss the probe as a PR gesture aimed at the Turks, whose goodwill is critical to Israel and who resent any moves to arm the Kurds on their border In fact, notes one former senior U.S. diplomat, “Michaels said to me… he had the explicit approval of the Israeli government” for his private business activities in Kurdish Iraq. “What they were trying to do is develop influence in the Kurdish area.”

None of this activity has geopolitical implications, insists the Kurdish government’s polished young representative in Washington, Qubad Talabani, who happens to be the son of Iraq’s president, and whose family has been the historic rival of Michaels’ partners in the Barzani clan. In an interview in his offices on I Street, Talabani told me any Israeli business development activities in Kurdistan were “purely private sector activities,” and that “Kurdistan is open for business.”

As Talabani walked me out after my interview, we passed a poster advertising a new bi-weekly direct Austrian Airlines route from Vienna to Irbil, site of Michaels’ airport project—a town of 990,000 people until recently served only by regional air carriers and charter flights. “We will become the gateway to Iraq,” Talabani told me.

Plenty of non-Kurds would like to help—and make a little profit along the way. According to lobbying records, the high powered, White House-connected lobbying firm, Barbour Griffith & Rogers, LLC has earned $800,000 promoting the Kurdistan Regional Government’s interests since 2004; before hiring the firm, two U.S. sources say, Michaels had approached Jack Abramoff about representing the Kurds, but the discussions never went beyond the initial stages.

Russell Wilson, a former senior professional staffer for the House international relations committee who helped advise the Kurds on Washington representation and who was formerly listed as a non equity officer in Interop, notes that Kurdistan has many of the things the rest of Iraq lacks: “It’s safe, secure, it’s geographically rich”—features include plenty of unexplored potential oil and natural gas reserves—”and the people are extremely nice.” Wilson says it was he who recommended in the spring of 2004 that the Kurds hire Ed Rogers, a former political director in the Bush I White House, of Barbour Griffith & Rogers as their Washington lobbyist.

In the end, Yatom and Michaels’ business activities may well be evidence, as much as any covert U.S. interests, of the Kurds’ superb gamesmanship, pragmatism, and sense of opportunity—instincts honed to a fine art by a people that, lacking durable proximate allies, has learned how to cultivate the enemies of its enemies. The Mossad’s former Irbil station chief, Eliezer Geizi Tsafrir, told me that like the Israelis, the Kurds regard themselves as an historically stateless people surrounded by hostile nations. Back when Tsafrir served in Irbil, he even helped set up a Kurdish intelligence service, in cooperation with the Barzani patriarch, Mustafa Barzani. “They [the Kurds] approached us, saying they had nobody to help them in the world, and our people had suffered too,” he said. “We supplied them with cannons, guns, anti-air equipment, all sorts of equipment, and even lobbying. The contacts between us, and the sympathy, will last for generations to come.”