Thursday, May 01, 2003

Donald Rumfelds' Fingers in North Korean Pie

Richard Behar of Fortune Magazine reports Defence Secretary Donald Rumsfeld had business deals on nuclear reactors for North Korea

Defense Secretary Donald Rumsfeld sat on the board of a company that won a $200 million contract to provide the design and key components for the reactors in North Korea.

The company is Zurich-based engineering giant ABB, which signed the contract in early 2000, well before Rumsfeld gave up his board seat and joined the Bush administration. Rumsfeld was the only American director on the ABB board from 1990 to early 2001. He has never acknowledged that he knew the company was competing for the nuclear contract. Rumsfeld declined requests by FORTUNE to elaborate on his role.

But ABB spokesman Bjoern Edlund has told FORTUNE that "board members were informed about this project." And other ABB officials say there is no way such a large and high-stakes project, involving complex questions of liability, would not have come to the attention of the board. "A written summary would probably have gone to the board before the deal was signed," says Robert Newman, a former president of ABB's U.S. nuclear division who spearheaded the project. "I'm sure they were aware."

FORTUNE contacted 15 ABB board members who served at the time the company was bidding for the Pyongyang contract, and all but one declined to comment. That director, who asked not to be identified, says he's convinced that ABB's chairman at the time, Percy Barnevik, told the board about the reactor project in the mid-1990s. "This was a major thing for ABB," the former director says, "and extensive political lobbying was done."

The director recalls being told that Rumsfeld was asked "to lobby in Washington" on ABB's behalf in the mid-1990s because a rival American company had complained about a foreign-owned firm getting the work.

Although he couldn't provide details, Goran Lundberg, who ran ABB's power-generation business until 1995, says he's "pretty sure that at some point Don was involved," since it was not unusual to seek help from board members "when we needed contacts with the U.S. government." Other former top executives don't recall Rumsfeld's involvement.

Today Rumsfeld, riding high after the Iraq war, is reportedly discussing a plan for "regime change" in North Korea.

But his silence about the nuclear reactors raises questions about what he did--or didn't do--as an ABB director. There is no evidence that Rumsfeld, who took a keen interest in the company's nuclear business and attended most board meetings, made his views about the project known to other ABB officials. He certainly never made them public, even though the deal was criticized by many people close to Rumsfeld, who said weapons-grade nuclear material could be extracted from light-water reactors.

ABB, which was already building eight nuclear reactors in South Korea, had an inside track on the $4 billion U.S.-sponsored North Korea project. Even so, ABB tried to keep its involvement hush-hush. In a 1995 letter from ABB to the Department of Energy obtained by FORTUNE, the firm requested authorization to release technology to the North Koreans, then asked that the seemingly innocuous one-page letter be withheld from public disclosure.

"Everything was held close to the vest for some reason," says Ronald Kurtz, ABB's U.S. spokesman. "It wasn't as public as contracts of this magnitude typically are."

However discreet ABB tried to be about the project, Kurtz and other company insiders say the board had to have known about it. Newman, the former ABB executive, says a written summary of the risk review would probably have gone to Barnevik. Newman's Zurich-based boss, Howard Pierce, says Rumsfeld "was on the board--so I can only assume he was aware of it."

By all accounts Rumsfeld was a hands-on director.

Dick Slember, who once ran ABB's global nuclear business, says Rumsfeld often called to talk about issues involving nuclear proliferation, and that it was difficult to "get him pointed in the right direction."

Howard Pierce recalls Rumsfeld visiting China to help ABB get nuclear contracts. Shelby Brewer, a former head of ABB's nuclear business in the U.S., recalls meetings with Rumsfeld at the division's headquarters in Connecticut.

Given the Republican outcry over the reactor deal, Rumsfeld's public silence is nearly deafening. "Almost any Republican was complaining about it," says Winston Lord, President Clinton's assistant secretary of state for East Asian/Pacific Affairs. Lord can't remember Rumsfeld speaking out. Nor can Frank Gaffney Jr., whose fervently anti-KEDO Center for Security Policy had ties to Rumsfeld. Gaffney speculates that Rumsfeld might have recused himself from the controversy because of his ABB position.

By 1998 a debate was raging in Washington about the initiative, and the delays were infuriating Pyongyang. Inspectors could no longer verify North Korea's nuclear material inventory. Still, at some point in 1998, ABB received its formal "invitation to bid," says Murray.

Where was Rumsfeld?

That year he chaired a blue-ribbon panel commissioned by Congress, The Rumsfeld Commission , to examine classified data on ballistic missile threats. The commission concluded that North Korea could strike the U.S. within five years. (Weeks after the report was released, it fired a three-stage rocket over Japan.) The Rumsfeld Commission also concluded that North Korea was maintaining a nuclear weapons program--a subtle swipe at the reactor deal, which was supposed to prevent such a program.

Rumsfeld's resume in the Commision's report did NOT mention that he was an ABB director.

President Bush was skeptical of Pyongyang's intentions and called for a policy review in March 2001. But, two months later, the DOE, after consulting with Rumsfeld's Pentagon, renewed the authorization to send nuclear technology to North Korea. Groundbreaking ceremonies attended by Westinghouse and North Korean officials were held Sept. 14, 2001--three days after the worst terror attack on U.S. soil.

The Bush administration still hasn't abandoned the project. The Bush administration has suspended further transfers of nuclear technology, but in January it authorized $3.5 million to keep the project going.

Sooner or later, the outspoken Secretary of Defense will have to explain his silence.

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