Terror Watch: Tip of the Iceberg?

The Iraqi exile group headed by Ahmad Chalabi--formerly a key ally of the Bush administration--is suspected of leaking confidential information about U.S. war plans for Iraq to the government of Iran before last year's invasion to oust Saddam Hussein, government sources told NEWSWEEK.

The allegation that Chalabi may have supplied the Iranians information about U.S. military plans comes on the heels of recent disclosures that Chalabi or others in his organization may have compromised more recent U.S. intelligence operations by leaking what officials initially described as "extremely sensitive" and "highly classified" information to Iranian officials--information which could "get people killed" if abused by the Iranians.

NEWSWEEK has learned that the National Security Agency first uncovered evidence indicating Chalabi's possible compromises of U.S. intelligence and sent a criminal referral to the FBI requesting an investigation into the alleged leak to Iran. A similar referral was sent to the FBI by the Defense Intelligence Agency, which until recently was responsible for managing Pentagon payments to Chalabi's group and for supervising its intelligence-collection efforts.

Last week, U.S. intelligence officials requested that NEWSWEEK and several other media organizations refrain from publishing some details about what kind of intelligence information Chalabi and the INC were alleged to have given to the Iranians. After some details surfaced in print and TV reports earlier this week, however, officials withdrew their requests, leading to a spate of media reports alleging that Chalabi or one of his associates told the Iranians that U.S. intelligence had cracked a secret code system used by the Iranian intelligence service. U.S. political activists close to Chalabi have told reporters in recent days that Chalabi learned about the codebreaking in Baghdad from a drunken U.S. official.

The evidence that Chalabi had compromised U.S. codebreaking was disclosed to President Bush and Vice President Cheney several weeks ago and was a factor in the decision to raid the INC's headquarters in Baghdad last month. It also influenced high-level Bush administration efforts to distance the administration in recent days from Chalabi, who had once been viewed by Pentagon civilians as a favored candidate to replace Saddam Hussein as Iraq's government leader.

"This is an enormous loss to the U.S. intelligence community," one former U.S. intelligence official said today about the reported leak of the secret code system. "Obviously, the Iranians are not going to use that code anymore. We're going from having a complete window into what their intelligence service was doing to having no window at all."

Until last month, Chalabi's INC was being paid $340,000 per month out of secret Defense Department intelligence funds for "information collection."

Officials of the NSA and DIA declined to comment. But law-enforcement sources confirmed that the FBI has opened an investigation into the codebreaking leak. The investigation will look into whether Chalabi or his group supplied information about U.S. codebreaking efforts to the Iranians. But, given that Chalabi is not a U.S. citizen and does not have a U.S. security clearance, the more critical issue for investigators will be to find out who in the U.S. government might have leaked such highly sensitive information to Chalabi and the INC, some officials say. Law-enforcement sources indicated that the American investigation will likely focus on whether sensitive information might have been leaked to Chalabi by officials in either the Pentagon or the U.S. Coalition Provisional Authority in Baghdad.

Chalabi and some of his supporters in Washington have insisted that not only did he not compromise U.S. intelligence information by leaking it to Iran but that neither he nor his routine U.S. contacts had access to such tightly guarded American secrets. Chalabi's supporters claim that the Iranian leak investigation is simply being used by Chalabi's enemies in the U.S. bureaucracy--particularly at the State Department and CIA--as an excuse to have him sidelined from the Iraqi political process. They see the related FBI investigation as an excuse for a "witch hunt" against Chalabi supporters inside the administration and in the Pentagon in particular.

Administration officials are treating the allegations with deadly seriousness, however. In remarks to reporters today, White House national-security adviser Condoleezza Rice acknowledged: "Now, it's no secret that the relationship with Ahmad Chalabi has been somewhat strained of late." President Bush also distanced himself from Chalabi, saying he had only met the Iraqi very briefly a few times.

U.S. officials say the investigations into Chalabi's activities may have a long way to go. In addition to the inquiry into the leak of classified information to Iran, Chalabi and the INC are under investigation for corruption by Iraqi authorities, who last month staged a raid on his home and office in Baghdad, and last weekend drove INC personnel out of a satellite office in the Iraqi provinces.

One Bush administration official said that in addition to harboring suspicions that Chalabi had been leaking sensitive U.S. information to Iran both before and after the U.S. invasion of Iraq, some U.S. officials also believe that Chalabi had collected and maintained files of potentially damaging information on U.S. officials with whom he had or was going to interact for the purpose of influencing them. Some officials said that when Iraqi authorities raided Chalabi's offices, one of the things American officials hoped they would look for was Chalabi's cache of information he had gathered on Americans.