D.E.F. and Dumb: The Scandal of Soviet WMD

The collapse of the Soviet Union has left the world with a critical problem: finding, accounting for, and securing the nuclear, biological, and chemical weapons that its vast array of open and secret programs had produced. Many of those sites and programs were simply abandoned. WMD facilities protected only by padlocks, and top-tier weapons scientists kept in Russia only by starvation wages, have been common stories for those paying attention.

The U.S. solution to this problem was a bipartisan bill called Nunn-Lugar, passed during the Clinton years to fund the necessary measures. We've begun to hear more about this from the Democrats as a key national security issue, which it certainly is. Unfortunately, there have been major failures – vast sums of money has been wasted, with very little to show. Worse, the government appears to have knowingly reported inflated success figures, and refuses to amend them even after it has been caught. In short, U.S. government agencies appear to be lying in the true sense of the term. Which makes ALL reported Nunn-Lugar results suspect, and demolishes the idea that more money thrown at these problems would improve the situation. A situation that is critical to U.S. (and even global) national security.

We first covered this problem in our March 7, 2003 Winds of War, and followed up on it in "Controlling Nuclear Materials: We Have a Problem." Sen. Nunn's own NTI.org has a short synopsis as well. So far, however, neither the Democrats nor the Republicans have really addressed these issue in a serious way.

That has to change. This scandal has persisted through 2 successive Administrations now, and the stakes are way too high.

Recently, I had an email exchange with the key whistleblower, as acknowledged in NTI.org's own documents. Until his criticisms are dealt with, keeping Russia's WMD capabilities out of hostile hands will remain a huge problem – no matter how much money and time is spent. At the very least, his charges deserve serious investigation and follow-up – from journalists, from Congress, and from concerned citizens unwilling to settle for anything less than the truth.

Here's How Bush "Cares" About WMDs…
by Matthew Maly

Defense Enterprise Fund (DEF) is a US-financed program to convert former Russian producers of weapons of mass destruction to other uses. DEF was financed with $67M of Nunn-Lugar funds. It is a venture capital fund that was supposed to bring profit to the US Treasury. Yet, DEF has lost all its money, and its conversion mission has not been accomplished. Worse, as I detailed in this article, the US Government knowingly and blatantly misrepresents DEF's operational results.

According to the Department of Defense Audit of DEF, DEF spent half of its grant on itself, which, the auditors note, is 25x the industry average. That included more than $2M of "unallowable" expenses, i.e. outright fraud and overcharging. Here is DEF's conversion "recipe": pay $100,000 per year to play golf in the Moscow Country Club, fly Concorde, and, most of all, take huge kickbacks from "partners" connected to Russian mafia. According to the Department of Defense Audit of DEF dated December 31, 2001, DEF had an investment portfolio of $30M and $20M disappeared from it under very suspicious circumstances. The Defense Criminal Investigative Service has been investigating DEF for the last four years, a pace that seems quite leisurely.

Diplomatically, DEF has been a "resounding success" as well. In one instance, DEF paid a $500K bribe to the Russian Deputy Prime Minister, but the project failed anyway. The project created such a scandal that Secretary Albright had to get involved.

Defense Threat Reduction Agency ("DTRA") is a DEF's program supervisor and it maintains a DEF-related webpage. This page used to state that the number of former Soviet WMD scientists converted by DEF to peaceful pursuits was 3370. I questioned this figure in my letters to DTRA, and DTRA reduced this figure to 1250, which is a 66% reduction. But the real figure is no more than 200 Russian scientists, an extremely poor result, considering that $67M of US public funds were spent. DTRA knows that it is reporting blatantly false DEF results, but it still would not change its website to reflect DEF's real operational results. DTRA does not dispute that its figures are wrong, that they contradict the Audit that is almost two years ago, and yet, they would not change the site!

After I wrote a letter of concern to the US Department of State alleging that $20M of US funds were grossly mismanaged and outright stolen by DEF's top American managers (an allegation since proven by the Department of Defense Audit of DEF), I have been blacklisted for the US assistance positions and had my career and my livelihood destroyed.

A more complete description is here: http://nunn-lugar.com/def/articles/1.shtml

Respectfully,

Matthew Maly
US citizen residing in Kiev, Ukraine.

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Dear Joe,

Thanks for your note. My situation was indeed amazing: I was stuck in Kiev, Ukraine with a Ukrainian wife and two very small children, and I did not know there was a "reason" I could not get a US-financed job (I am one hell of a specialist of Russia's transformation to democracy with three published books on the subject). Then the IRS disallowed my Tax Return ("because 68 is greater than 72") and froze all my accounts. PWC that did the return would not defend me because there was "obviously" nothing wrong with the return. So we pawned all my stuff and starved a little. Starving, I hasten to add, does not make your figure look more sporty: you just worry a lot and eat cheap food. The account was restored, after seven months (!) without any explanation, fine, or apology after I got some publicity -- the return was just fine. I am now employed by a British-owned company here, earn a survival wage, saving up money for a ticket to move back to the States.

I am fine, I am not the issue. Writing a truthful and confidential letter of concern (my contract said there would be up to five years imprisonment and up to $250,000 in fines for FAILURE to report) should not be a way to commit suicide, professionally, if not physically, and IRS should not be used as an instrument of revenge and pressure, but even that is not the issue.

There are two genuine issues here:

[1] Defense Enterprise Fund ("DEF") was supposed to peacefully employ former Russian producers of weapons of mass destruction, and the entire $67M grant was wasted and stolen so that DEF will close shop by the end of the year, its important mission accomplished not at all. There are hundreds and hundreds unemployed and disappointed Russian WMD scientists, who can watch their children starve or, perhaps, go try to find Al Queda. Also, it is bad when Americans are seen by the Russians as marauders.

[2] When I informed Defense Threat Reduction Agency ("DTRA") that their DEF-related web page contains blatant lies and directly contradicts Department of Defense own Audit of DEF, the response, in effect, was "We lie, so what?". A correspondent from the Nation Magazine called -- they reduced DEF's operational results by 66%, overnight, but the figures are still wildly inflated. What the hell is that? How can we believe DTRA at all?

DTRA is supposed to be cutting up Russian nuclear missiles, destroying bacteriological agents, and the like. They report having destroyed 6000 Russian warheads. You call them on the phone: maybe it will be just 2000, overnight? And when you count them up, physically, will you only find 73 or 28? Never mind the billions DTRA is costing us all: where are the reliable operational results having to do with the stuff that can destroy the planet?

Or read the letter that DTRA's Deputy Director, General Robert Bonjiovi, attached to DEF's audit: Since the grant does not define what expenses are "unallowable" having "unallowable" expenses (like overcharging the government $150K on housing expenses, $100K golf fees, Concorde flights), does not contradict the terms of the grant! Do you want this amateur moral philosopher at the helm of DTRA? I do not.

Thanks, Joe. If you could post my letters and maybe initiate the discussion of these issues, that would be great. I just hope your readers won't start coming up with letters like "Oh, yeah, I heard a similar story" - it is just too scary to contemplate. I am a US citizen and I sort of thought we had a functioning democracy...