By R. Jeffrey Smith
Washington Post Staff Writer
Wednesday, February 14, 2007; A01
The CIA's former executive director and a defense contractor were indicted yesterday by a San Diego grand jury for allegedly corrupting the intelligence agency's contracts, marking one of the first criminal cases to reach into the CIA's clandestine operations in Europe and the Middle East.
Kyle "Dusty" Foggo, a longtime logistics officer who was the CIA's top administrator from November 2004 until last May, was accused of using his seniority and influence at a prior CIA job in Europe to steer business deals to his longtime friend Brent R. Wilkes, a California businessman and top Republican fundraiser.
The 11-count indictment states that Wilkes subsidized meals and lavish vacations for Foggo and his family in Washington, Hawaii and Scotland and promised to employ Foggo after his retirement from the CIA. It also accuses Foggo -- a former ethics official in two divisions at the CIA -- of improperly providing classified information to Wilkes about the CIA, his contracting competitors and "other matters."
The indictment is the latest development in a lengthy federal criminal probe into the dark side of a budget process known as "earmarking," in which lawmakers have directed federal contracts to favored designees who were either friends or campaign contributors. Last year the probe led to a prison sentence for one lawmaker, Rep. Randy "Duke" Cunningham -- who, the government said yesterday, used two prostitutes financed by Wilkes.
While the probe has threatened to sweep in other members of Congress, some uncertainty surrounds it. A key U.S. attorney involved in it -- Carol C. Lam in San Diego -- has been fired by the administration for unspecified "performance-related" deficiencies along with a handful of other federal prosecutors. Lam oversaw the Foggo investigation and is to leave Thursday. The head of the local FBI field office praised Lam's performance and said her firing appeared to be "political," an accusation that the Justice Department has denied.
The case involving Foggo is unusual because all of the contracts at issue are classified. But the indictment makes it clear that the agency was allegedly bilked when it wound up paying 60 percent more than it should have for water supplied by a company affiliated with Wilkes to CIA outposts in Afghanistan and northern Iraq.
The evidence against Foggo included e-mails in which he promised to introduce a Wilkes subordinate to his CIA colleagues and helped arrange advance payments on a $1.69 million contract. Even after arriving at CIA headquarters as a top appointee of then-Director Porter J. Goss, he continued to press for more rapid payments to a Wilkes-affiliated firm identified in the indictment as "Shell Company No. 1," earning Wilkes's thanks, the document states.
It formally charges the two men -- who witnesses have said periodically played poker with lawmakers and others in a rented suite at the Watergate Hotel -- with conspiracy to commit honest services fraud and money laundering.
Foggo's attorney, Mark MacDougall, said through an aide yesterday that he had no comment on the indictment. A lawyer previously retained by Foggo, William G. Hundley, had argued that Foggo had no idea the contracts were benefiting Wilkes, but the indictment says that Foggo deliberately "concealed material facts" from his colleagues at the CIA and used "shell companies and straw men" to hide their role in the contracts.
Wilkes's attorney, Mark J. Geragos, called the indictment "unfortunate" and said "we welcome the chance to refute these accusations." He declined to elaborate.
CIA Director Michael V. Hayden, who replaced Goss last May, told employees in a memo yesterday that they should not talk about the matter "out of respect for the legal proceedings that are underway, and to ensure the protection of classified information and agency equities." Hayden noted that the allegations against Foggo first surfaced inside the CIA, which he said cooperated closely with the Justice Department on the probe.
Additional legal troubles yesterday enveloped Wilkes, a Republican Party "Pioneer" who raised more than $100,000 for President Bush's reelection in 2004 and donated -- in concert with his business colleagues -- $656,396 to 64 other Republican lawmakers and the national Republican Party committees in Washington from 1995 through the third quarter of 2005.
A second 25-count indictment disclosed yesterday in San Diego alleges that Wilkes separately obtained a stream of Defense Department contracts from 1996 to 2004 by providing then-Rep. Cunningham with cash and other bribes valued at more than $700,000.
Cunningham pleaded guilty in 2005 to taking bribes worth more than $1 million from Mitchell Wade, a business associate of Wilkes, and drew an eight-year prison sentence. But the second Wilkes indictment contains new details of how Wade and Wilkes allegedly worked together to profit from contracts and how Cunningham -- sitting on the Appropriations defense subcommittee -- browbeat defense officials on their behalf.
It said that Wilkes paid a company called Shirlington Limousine to chauffeur Cunningham around Washington. He also allegedly financed lavish meals and vacations for Cunningham, flew him around on the company jet, bought him tickets to the Super Bowl, and paid for two prostitutes for the lawmaker on Aug. 15 and 16, 2003, at the Hapuna Beach Prince Hotel in Hawaii.
"Pursuant to Cunningham's request," the indictment states, "Wilkes arranged for the Congressman to get a different prostitute for the second evening."
Staff writer Dan Eggen and staff researchers Madonna Lebling and Rena Kirsch contributed to this report.