How Did Officials Miss Pakistani Company's Links To Middle East Terrorism?

Midwest Fertilizer PresidentMirza Feisal Beig

Gov. Mike Pence faced an extremely embarrassing problem this week of national security importance he inherited from his predecessor. The Indiana Finance Authority last month completed a state-backed bond issue supporting the construction of a new fertilizer plant in Posey County, Indiana along the Ohio River for the benefit of a Pakistani fertilizer company that American military officials in Afghanistan complained had been the source of material used to detonate bombs used to harm American soldiers based there. After the Washington Times broke a story about the firm's links to the terrorism threat faced by our soldiers earlier this week and the outrage expressed by a key U.S. Congressman over the state of Indiana providing financial assistance to the firm, Pence quickly pulled the plug on the deal. The question then became how the fertilizer plant got so near to fruition before someone recognized the obvious.

On November 23, 2011, the Washington Post ran a lengthy story discussing the source of crudely- made, inexpensive bombs that had been used in Afghanistan to attack American troops, injuring 3,200 by that point in 2011 alone. Lt. Gen. Michael Barbero identified the problem as a $40-fertilizer-bomb problem, a plastic jug filled with ammonium nitrate fertilizer, the key ingredient for which could easily be acquired by terrorist fighters at two fertilizer plants just across the border in Pakistan.

Almost all of the ammonium nitrate used in the Taliban’s bombs comes from two big fertilizer plants across the border in Pakistan. Barbero concluded that the best way to slow the Taliban killing was to make it harder for the insurgents to obtain the fertilizer, which is banned in Afghanistan because it can be made into explosives.

In August, the general called Fawad Mukhtar, the chairman of the Fatima Group, which owns the fertilizer plants, and asked to meet with him in Pakistan.

Mukhtar replied that Barbero did not need to travel. He was planning to visit the United States to drop off his son at college and promised to stop by Barbero’s office in Arlington. The two met for about 30 minutes.

Barbero told the Pakistani businessman that the fertilizer from his plants was responsible for most of the U.S. deaths in Afghanistan. Mukhtar countered that less than 1 percent of his product fell into insurgents’ hands and was fashioned into bombs. The vast majority of the fertilizer was used for farming; people depended on his product to eat and live.

“He is not a radical,” Barbero said of Mukhtar. “I think he wants to be part of the solution.”

Mukhtar declined an interview request for this article. A spokesman for the Fatima Group praised Barbero’s efforts in an e-mail. “I am sure that a person of his experience and caliber can be very effective in dealing with the issue of IED related incidents,” he said, using the abbreviation for improvised explosive device.

The brief office visit was the beginning of Barbero’s months-long immersion in the global fertilizer industry. He and his staff have studied how the ammonium nitrate fertilizer is made, how it can be processed into a bomb and how it might be modified to make it less dangerous or more detectable by U.S. and Afghan troops at border crossings.

A week after his meeting with Mukhtar, Barbero flew to Denver to address a global conference of ammonium nitrate plant managers. His speech included a plea for help and warnings of onerous regulation if industry executives did not find ways to make ammonium nitrate fertilizer less useful as a weapon.

The plant managers reacted coolly. “They told me how hard it was to make it non-detonable,” Barbero said. “I said I got it. But you need to start working on it.” 

In November, 2011, Barbero and members of his Joint IED Defeat organization met with fertilizer officials in Arlington, Virginia to discuss the problem according to the Post where industry representatives expressed doubts that there was little they could do to help with the problem. The Fatima Group sent a representative from one of its plants in the Punjab province. Earlier in the summer of 2011, a member of Barbero's staff and an expert on fertilizers, Bob Best, had traveled to Pakistan to tour the Fatima Group's fertilizer plant in Multan where he said he received a warm reception. A few days after his trip, the Post said a news report in Pakistan accused Best of being a CIA operative who was using a diplomatic facade to “secure niches for their spies and hit men in and around Multan,” a charge denied by Best.

At the Arlington conference, Best described how the terrorists converted the fertilizer into explosives by first removing a substance added to it in the 1970s to make it less explosive, calcium carbonate, by pouring the fertilizer granules into boiling hot water, causing the substance to separate and sink to the bottom of the container. The ammonium nitrate is then dried, packed into yellow plastic jugs with blasting caps fashioned out of ballpoint pens or glass tubes full of acid. Because the bombs contain no metal, they are difficult to detect. The most promising solution the group that met at Arlington came up with for dealing with the problem was coating the granules with urea , which would make it more difficult to dry the fertilizer into an explosive powder.

According to the Post, military officials recommended that only the Fatima Group's plants should be required to add the urea coating to its fertilizer since its plants were the only source of the explosives in Afghanistan. The Fatima Group bristled at the suggestion it was the only source of the explosives. “There is a lot of trade taking place with India. There is Iran and Indonesia,” Fatima Group representative Farrukh Qureshi said. “And I am not even discussing about the former Russian states. . . . The extremists will find ways to get calcium ammonium nitrate. These are very smart people.”

Flash forward to January 11, 2013. The Indiana Finance Authority announces that it has issued $1.3 billion in bonds for the purpose of loaning money to Midwest Fertilizer Corp. to construct a fertilizer plant in Posey County, Indiana. According to Secretary of State records, the company was originally incorporated in Delaware on September 24, 2012 and registered to do business in Indiana only since December 7, 2012. Mirza Feisal Beig is listed as the president of the corporation with an address in  Lahore Cantt, a city in eastern Pakistan where the Pakistani Army maintains two divisions. According to his bio on the Fatima Group's website, Beig has worked for major fertilizer companies locally and internationally, including Exxon/ Engro Chemicals, Fauji Fertilizer Company Limited and International Fertilizer Development Center. He has also work as an international consultant through IFDC for projects of USAID, World Bank, European Union for the development of fertilizer markets and agriculture in Asian and African countries. Indiana Finance Authority's general counsel, Jim McGoff, explained to the Evansville Courier & Press the nature of the bond transaction:

Jim McGoff, who serves as the Indiana Finance Authority's general counsel, said the Midwest Fertilizer Corp. deal was made possible because of a federal disaster relief program.

Because of flooding in 2008, Posey County was among a number of counties in Indiana and other Midwestern states to be declared a Midwestern Disaster Area under the Heartland Disaster Tax Relief Act of 2008. And because of this designation, McGoff said, Indiana was awarded $3.1 billion in Midwestern Disaster Area Bonds. Of that $3.1 billion, Indiana was able to use about $2.2 billion, including the bond issue for the Posey County project.

The purpose of the bond program is to spur economic development to make up for disaster-related job losses. Dec. 31 was the program's expiration date.

In this program the Indiana Finance Authority was what's known as a conduit issuer, McGoff said. This means that the state issues bonds for the benefit of a private third party, but the bonds are not considered part of the state's overall debt load. That also means that the state has no liability in the deal.

"Because it's a federal program, there is no detriment to the state. The program was set to expire Dec. 31, so we're glad a company could take advantage of it before its expiration," McGoff said.

In this deal, McGoff said, the bonds issued last month are backed by U.S. Treasury securities that mature in six months. When those bonds mature July 1, he said, they will likely be reissued for a much longer term, and those bonds will be backed by the credit of the borrower — Midwest Fertilizer Corp.

Under the terms spelled out in the bond paperwork, the company will not have access to the bond proceeds until July 1 at the earliest. In its bond application, the company said it expects that the fertilizer plant's operations will provide the cash flows needed to repay the bonds.

McGoff said the deal was structured this way because the deal was not complete by the Dec. 31 deadline for taking advantage of the disaster bonds program.
This way, McGoff said, the bonds are secured while Midwest Fertilizer Corp. works to finalize its plans.

"They still have additional work to do," he said.

In its bond application, Midwest Fertilizer Corp. said it anticipated that it will receive incentives from both Posey County and the Indiana Economic Development Corp. 

If you're starting to get the impression this was a very rushed deal, you would be correct. When the Courier & Press contacted Posey County Commission Carl Schmit about the deal, he said he didn't know much about the project. The Courier & Press also attempted to get a comment from the Indiana Economic Development Corporation and a representative of Midwest Fertilizer on the proposed fertilizer plant but was unsuccessful. The Washington Times began asking more probing questions overlooked by Indiana officials.

Last Sunday, the Times' Rowan Scarborough broke the story in the nation's capital that the Pakistani company that had ignored Pentagon pleas to control the flow of explosives to bomb-makers was set to build a $1.27 billion fertilizer plant in Posey County with the help of U.S. taxpayers.

The Indiana Finance Authority has approved $1.27 billion in tax-exempt bonds for Midwest Fertilizer Corp. to build a nitrogenous fertilizer manufacturing plant in Posey County. Midwest is a new startup company of the Fatima Group, a conglomerate headquartered in Lahore, Pakistan.

Fatima’s fertilizer components are used by terrorists in Pakistan and Afghanistan to build homemade bombs — the No. 1 killer of American service members in Afghanistan.

Fatima’s corporate leaders know this is happening, based on communications with Obama administration officials and military leaders, but they have refused pleas to control the flow, according to an Army general.

Lt. Gen. Michael Barbero, who heads the Pentagon's Joint Improvised Explosive Device Defeat Organization (JIEDDO), bluntly criticized Fatima in testimony last month before a Senate panel.

He called Fatima “less than cooperative” in even instituting minimal controls on calcium ammonium nitrate, or CAN, a fertilizing compound that has been used in 70 percent of the homemade explosives deployed against U.S. troops.

Fatima is the only Pakistani producer of CAN, which is illegal to import into in Afghanistan.

Gen. Barbero said that nearly 1,900 Americans in Afghanistan had been killed or wounded by homemade bombs in 2012 at the time of his Dec. 13 testimony. He said the only sources for CAN are two Fatima Group plants in Pakistan. 

Gen. Barbero explained in his testimony to the Senate Foreign Relations Committee that all contacts with the Fatima Group had been cut off since its meeting with its representative at the Arlington conference in November, 2011. Gen. Barbero said that the company had even rejected simply adding a die to its fertilizer that would make it more detectable by U.S. security forces.

On Monday following the Times' initial report, U.S. Rep. Duncan Hunter (R-CA) told the Times that it was "crazy" to allow a Pakistani fertilizer maker to build a new plant in the U.S. at taxpayer's expense, which he described as a “pseudo-terrorist organization that won’t comply with any of our requests.” We’re not asking them to curtail production,” said Mr. Hunter, who has been a leading voice in Congress in urging the Pentagon to come up with ways to defeat homemade bombs. “At the very least, dye it. And their answer is ‘no.’ And not only ‘no,’ but now we’re going to take advantage of a tax exempt scenario and move into the American market but still creating the calcium ammonium nitrate that’s going to kill Americans in Afghanistan. That is absolutely nuts.” Rep. Hunter also told the Times that the Fatima Group is "influenced by bad actors" in Pakistan who want to create chaos in Afghanistan. Hunter wouldn't elaborate, but sources told the Times that Fatima is heavily influenced by Pakistan’s Inter-Services Intelligence (ISI) agency.

Under pressure from a deal not of his making, Gov. Mike Pence announced yesterday that he was pulling the plug on Fatima's fertilizer plant in Posey County. Pence was sworn into office on January 14 just three days after the Daniels administration rushed the $1.3 billion bond deal for Fatima to market. Pence tells the Evansville Courier & Press that he was immediately briefed on the deal and apprised of national security concerns. Why Pence chose to wait to act until after the damning report by the Washington Times is unclear. U.S. Rep. Larry Buschon, who represents the district, says he has been asked to be briefed on the matter by Defense and State Department officials. Both Sen. Dan Coats and Joe Donnelly say they support Pence's decision to stop the deal.

Who exactly was the local impetus behind the siting of the proposed fertilizer plant in Posey County that promised to create 300 jobs is unclear. The Indiana Ports Commission and local economic development folks in Posey County I'm told were highly supportive of the deal. The Ports Commission owns a considerable amount of land in the area that it is trying to see developed, along with existing ethanol plants and shipping from GE plastics. It's also unclear what happens to the $1.3 billion raised from the bond sale. It looks like another economic development project pursued by the Daniels administration with reckless abandon.

UPDATE: A search of the IFA's meeting archives shows that the following resolution concerning the bonds for Midwest Fertilizer first appeared on the Authority's agenda at its November 16, 2012 meeting: "ECONOMIC DEVELOPMENT REVENUE BOND – Resolution 12-F-32 - Midwest Fertilizer Corporation." The IFA's website is piss poor when it comes to public disclosure. You have no idea what the hell the agency is doing simply by looking at its website. No documents conerning any bond agreements are posted on their websites. There is scant information about several RFPs that were issued for the Ohio River bridge projects but nothing else concerning this Midwest Fertilizer bond issue. The IFA won't win any awards for transparency. A source says Ice Miller was involved in the bond issue, but that's about all I've been able to learn.