Special Report: Their nation in pieces, Iraqis ponder what comes next

GNN - The machine gun poking out from between a framed portrait of a Shi'ite imam and a stuffed toy Minnie Mouse was trained on anyone who approached the checkpoint.

Like dozens of other communities in Iraq, this small Sunni settlement in northern Salahuddin province’s Tuz Khurmatu district has been reduced to rubble. In October, Shi'ite militiamen and Kurdish peshmerga captured the village from the Sunni militant group Islamic State. The victors then laid it to waste, looting anything of value and setting fire to much of the rest. Residents have still not been allowed to return.

"Our people are burning them," said one of the Shi'ite militiamen when asked about the smoke drifting up from still smoldering houses. Asked why, he shrugged as if the answer was self evident.

The Shi'ite and Kurdish paramilitary groups now patrol the scorched landscape, eager to claim the most strategic areas or the few houses that are still intact. For now, the two forces are convenient but uncomfortable allies against the nihilist Islamic State.

This is how the new Iraq is being forged: block by block, house by house, village by village, mostly out of sight and control of officials in Baghdad.

What is emerging is a different country to the one that existed before June. That month, Iraq's military and national police, rotten with corruption and sectarian politics, collapsed after Islamic State forces attacked Mosul. The militant group's victory in the largest city in the north was one step on its remarkable dash across Iraq.

Islamic State's campaign slowed towards the end of the summer. But it has left the group in charge of roughly one-third of Iraq, including huge swathes of its western desert and parts of its war ravaged central belt. It also shattered the illusion of a unified and functioning state, triggering multiple sectarian fractures and pushing rival groups to protect their turf or be destroyed.

The far north is now effectively an independent Kurdish region that has expanded into oil-rich Kirkuk, long disputed between the Kurds and Iraqi Arabs. Other areas in the north have fallen to Shi'ite militias and Kurdish peshmerga fighters, who claim land where they can.

In Baghdad's rural outskirts and in the Diyala province to the east and north towards Samarra, militias, sometimes backed by Iraqi military, are seizing land and destroying houses in Sunni areas.

Last there is Baghdad and Iraq's southern provinces, which are ostensibly still ruled by the country's Shi'ite-led government. But the state is a shell of what it once was. As respect for the army and police has faded, Iraqis in the south have turned to the Shi'ite militia groups who responded to the rallying cry of Iraq's most senior clergy to take on Islamic State.

Prime Minister Haider al-Abadi, a Shi'ite moderate who became Iraq's new leader in September, four months after national elections, hopes that the country can be stitched back together. Abadi has tried to engage the three main communities, taking a more conciliatory tone than that of his predecessor Nuri al-Maliki, who was often confrontational and divisive. Abadi, the Kurds and even some Sunni politicians now all speak of the need for federal regions, so the country's communities can govern themselves and remain part of a unified state.

Iraq, though, has been splintered  into more than just three parts, and the longer those fragments exist on their own the harder it will be to rebuild the country even as a loose federation. Such an arrangement would require the defeat of Islamic State, a massive rebuilding program in the Sunni regions, unity among Iraq's fractious political and tribal leaders, and an accommodation between the Kurds and Baghdad on the Kurds' territorial gains.

Even the optimists recognize all that will be difficult. Finance Minister Hoshiyar Zebari, a Kurd who wants Iraq to stay united, says he can picture Iraq eventually regaining its "strength and balance." But, he concedes, "the country is severely fractured right now."

Ali Allawi, a former minister of trade, defense and finance, and author of two books on Iraqi history, agrees. "There is so much up in the air," he said. "There are the trappings of a functioning state, but it is like a functioning state lying on a sea of Jello...The ground is so unstable and shifting."

KURDISTAN
Iraq's Kurds often see opportunity in times of trouble. This year they moved quickly to take lands long disputed with Arab Iraqis, including Kirkuk. For a while, talk of secession increased, but then quieted after Islamic State mounted a successful attack into Kurdistan in August. Since then, buoyed by U.S. air strikes designed to hurt Islamic State, the Kurds have recaptured areas they lost and forged an agreement to export oil from Kirkuk and its own fields for Baghdad.

Kurdish business tycoon Sirwan Barzani, a nephew of Iraqi Kurdish President Masoud Barzani, sees this as a moment to advance his people's nationalist dream.  He was in Paris chairing a board meeting of the telecom company he founded in 2000 when he received news that Islamic State militants had overrun Mosul. A former peshmerga fighter in the 1980s, he canceled his holiday plans in Marbella and rushed back to Kurdistan to help prepare for war, taking command of peshmerga forces along a 130 km (81 mile) stretch of the Kurds' front line with Islamic State.

Washington sees the Kurds as its most dependable ally in Iraq. For Barzani and other Kurds, though, the fight against Islamic State is simply the continuation of a long struggle for an independent nation.

Before leading an offensive last month to drive Islamic State militants back across the river Zab towards Mosul, Barzani said he met with an American general to talk strategy and coordinate airstrikes.

"They asked about my plan," Barzani told Reuters in a military base on the frontline near Gwer, 48 kilometers (30 miles) south of the Iraqi Kurdish capital Arbil. "I said, 'My plan is to change the Sykes-Picot agreement'" – a reference to the 1916 agreement between France and Britain that marked out what would become the borders of today's Middle East.

"Iraq is not real," Barzani said. "It exists only on the map. The country is killing itself. The Shi'ites and Sunnis cannot live together. How can they expect us to live with them? Our culture is different. The mentality of Kurds is different. We want a divorce."

THE SUNNIS
Where Kurds saw opportunity in 2014, Iraq's Sunnis saw endless turmoil and new oppression. Residents in the western and northern cities of Mosul, Tikrit and Falluja – all now controlled by Islamic State – complain about fuel and water shortages, and Islamic State directives that women cover themselves and smokers be fined. They tell stories about the destruction wrought by shelling by the Iraqi government and U.S. forces.

In places where Sunnis themselves are battling Islamic State, the brutality can be unrelenting. Many wonder what will be left when the war finishes and whether it will be possible for Sunnis to reconcile even among themselves.

Sheikh Ali Abed al-Fraih has spent months fighting Islamic State. A tribal soldier in Anbar province, he has sunken, tired eyes and a frown. His clothes are one size too big for him. He sees the conflict as an internal battle among the Anbar tribes. Some have chosen to join Islamic State, others to fight the group. Some of his enemies, he says, are from his own clan. The fight will not end even if areas around his town of Haditha and other Anbar cities are cleared, he says. All sides will want revenge. "Blood demands blood. Anbar will never stop."

Fraih flew to Baghdad in late December to beg the government to send help to Haditha, which is pinned to the west and east by Islamic State and defended by a five km-long (3 mile) berm. Fraih could only reach Baghdad by military plane. The government had promised for two months to send food and medicine, but no help had come. The week before Christmas the government told him help would come in a week. Fraih tried be polite about the promise, but it's hard. "It's all words," he said.

Every day, tribal fighters and Iraqi soldiers in Haditha stop Islamic State assaults and defend the city's massive dam. If Islamic State take the dam they could flood Anbar and choke off water supplies to the Shi'ite south. The army, in particular, is struggling, he said. "In every fight the army loses 50 soldiers. Their vehicles get destroyed, they are short on fuel, and no new vehicles are coming. They are hurting more than my own men."

The city's one lifeline to the outside world is a huge government airbase called Ain al-Assad, some 36 km (22 miles) south. Fraih recently met U.S. Special Forces there. They assured him that if Islamic State breaks through the barriers to Haditha, the U.S. will carry out air strikes. The logic confuses Fraih. "They know the people have no food, no weapons, no ammunition, nothing. We are sinking. If you are not going to help us, at least take us to the south and north. We are dying now."

His faith in getting help from anyone has almost vanished.

"What is left of Iraq if it keeps moving this way?" he asked.

THE SHI'ITES
In a house on the outskirts of Baghdad, a Shi'ite tribal leader sat and imagined his world as "a dark tunnel with no light" at its end.

"Iraq is not a country now," he said. "It was before Mosul."

The sheikh, who spoke on condition of anonymity, would like to see his country reunited but suspects Abadi is too weak to counter the many forces working against him. Now the Shi'ite militias and Iran, whom the sheikh fought in the 1980s, are his protectors. It is a situation he accepts with a grim inevitability.

"We are like a sinking ship. Whoever gives you a hand lifting you from the sea whether enemy or friend, you take it without seeing his face because he is there."

Iranian-advised paramilitaries now visit his house regularly. He has come to enjoy the Iranian commander of a branch of the Khorasani Brigades, a group named for a region in northeastern Iran. The commander likes to joke, speaks good Arabic and has an easy way, while other fighters speak only Persian, the sheikh said.  He expresses appreciation for their defense of his relatives in the Shi'ite town of Balad, which is under assault from the Islamic State.

The sheikh's changing perceptions are shared by other Iraqi Shi'ites. They once viewed Iran as the enemy but now see their neighbor as Iraq's one real friend. The streets of Baghdad and southern Iraq are decorated with images of Iran's supreme leader Ayatollah Ali Khamenei.

The sheikh, though, does not believe he can rely on Iran altogether. He is sure some Iranian-backed militiamen would happily kill him. He has heard of one case in Diyala where a militia leader shot dead the son of a popular Shi'ite tribal leader. He has also watched as militia fighters aligned with police and army officers kidnapped a cousin and a friend for ransom. "I feel threatened by their bad elements," he said of the militias.

If the state doesn't rebuild its military quickly and replace the multiple groups now patrolling the lands, the sheikh fears Shi'ite parts of Iraq will descend further into lawlessness. "It will be chaos like the old times, where strong tribes take land from the weak tribe. Militias fight militias," he said. "It will be the rule of the jungle, where the strong animal eats the weak."

(GNN, Reuters)(Edited by Simon Robinson)

Accusations fly in Bulgaria’s murky bank run

(GNN) - One worker at Bulgaria’s Corporate Commercial Bank knew panic was setting in when she spotted colleagues among the anxious depositors lined up to withdraw cash from the troubled bank.

The alarm came in part because the week before, on June 13, with television news crews filming, Bulgarian state prosecutors had raided a building in Sofia that housed Corpbank offices.

Though both the prosecutors and the bank said the raid did not target Corpbank – the building housed other companies as well – customers soon began to withdraw their savings. Within days, the Central Bank had seized control of the bank, the fourth-biggest lender in Bulgaria, and suspended its operations for three months.

The dramatic raid and bank run were reminders that despite progress from the worst days of the euro crisis, parts of Europe’s financial system are still far from secure. The run quickly spread to another bank and saw Sofia announce a protective $2.3 billion credit line. It also stoked uncomfortable memories of a 1996-97 crisis in Bulgaria, when 14 banks collapsed, and followed much more recent bank meltdowns in Ireland, Greece, and Cyprus.

Corpbank had been adjudged safe and secure. At the end of the 2013 financial year, its books were audited by KMPG, who found less than one percent of its loans were non-performing, against an average of 17 percent for Bulgarian banks. KPMG declined to comment.

And just days before the run on Corpbank, the International Monetary Fund had praised the country's financial sector as "stable and liquid". A senior IMF official has since said the problems at the two Bulgarian banks did not reflect any underlying problems in the system, which remains well capitalized and liquid.

The country’s central bank initially blamed the bank run on media reports about Corpbank’s main owner and leaked news that a central bank deputy governor was under investigation. Central Bank Governor Ivan Iskrov called the leak a deliberate “attack” on the bank.

Others suggested alternative reasons. Behind closed doors some government officials blamed the run on a clash between Corpbank’s main owner Tsvetan Vassilev and his political rivals, without saying who they were. Prime Minister Plamen Oresharski publicly blamed a “corporate clash” for the run on Corpbank, without going into specifics.

When the run spread to First Investment Bank, a bigger lender, the government pointed the finger at unnamed people for launching what they called a criminal attack on the country’s financial system. Perpetrators were using phone text messages and the internet to spread malicious rumors about Bulgarian banks, the central bank, finance ministry and interior ministry all said.

Much is still unclear. Who was behind the internet rumors and text messages? Why did the government not investigate sooner? How exactly was the feud connected to the run on Corpbank?

“The security authorities, the Interior Ministry, are investigating. They have some suspicions and there are some people who have been accused (of the attack on the banks),” finance minister Petar Chobanov told Reuters. “What is true is that there is an investigation into malpractice at Corpbank. But what is the real situation? We are waiting to see what the external auditors will say.”

RUMORS

In the days before the Corpbank run, newspaper stories alleged misconduct by Vassilev, and his businesses. Some papers alleged Corpbank had made improper loans to certain companies linked to Vassilev, though he told Reuters those claims were lies.

"The run on the bank was obviously a perfectly organized plot against me and Corpbank," he wrote in an email to Reuters.

As rumors swirled, depositors started withdrawing what they could. "For five days we managed to withstand the withdrawals that were like an avalanche,” said the worker at Corpbank who had seen her colleagues withdrawing money.

On June 17, the central bank issued a statement saying all Bulgarian banks, including Corpbank, had high liquidity, were adequately capitalized and were functioning normally.

The next day, an anonymous letter was leaked to the media by someone purporting to be a central bank employee. The letter alleged that Tsvetan Gounev, a central bank deputy governor in charge of banking supervision, was under investigation by state prosecutors for abuse of office. The letter, parts of which were published on news websites and broadcast on national radio, alleged that the probe into Gounev was linked to dealings with an un-named bank that had been the subject of media attention. Local media speculated the bank in question was Corpbank.

Both the central bank and Gounev’s lawyer told Reuters that Gounev would not comment on the investigation into him.

Within hours of the anonymous letter, the central bank confirmed that prosecutors were investigating Gounev, but did not go into specifics. They said Gounev had taken a voluntary leave of absence. The chief prosecutor told reporters on June 18 that there was a pre-trial investigation into Gounev for not fulfilling his duties as a banking supervisor. Central Bank Governor Iskrov said the leaked letter was unlikely to have come from a central bank employee.

State prosecutors said the raid had been prompted by a tip-off by Protest Network, a Bulgarian anti-corruption activist group, and connected the raid with their investigation into the deputy governor.

BODY POLITIC

Moustachioed mogul Vassilev, Corpbank’s main owner, is one of the country's most prominent businessmen. Last year his donations to a monastery prompted the institution to add his portrait to a mural of religious figures. Shared on Facebook, the pictures drew scorn from some Bulgarians, who complained that a wealthy businessman should not be paid such reverence. The painting was later removed.

Vassilev owns just over 50 percent of Corpbank. The other main shareholders are Oman’s sovereign wealth fund, which has around 30 percent, and Russian bank VTB, with just under 10 percent. The bank sponsors a Bulgarian soccer club, basketball team and several sports federations. Vassilev also owns more than 40 percent in Vivacom, Bulgaria’s biggest telecoms operator by revenue.

Corpbank has had close ties to the state. In 2010 as much as 48 percent of the deposits of major state-owned companies were held at the bank, finance ministry data show. A change to the regulations by a caretaker government which ran the country just before the Socialists took power in May 2013, had pushed this down sharply, Deputy Prime Minister Daniela Bobeva said.

Bulgaria’s banks have had more than a decade of strong growth. Banking assets increased more than six-fold between 2001 and 2014, to 43.8 billion euros. But ratings agency Standard & Poors says the country’s banking sector is one of the weakest in Europe, and blames a rapid increase in borrowing for its fragile position.

In the weeks before the bank run, Vassilev had been feuding publicly with a rival mogul, 33-year-old Delyan Peevski, a member of MRF, an ethnic Turkish political party. MRF has been part of most Bulgarian governments since 1989, most recently forming a coalition government with the Socialist party. Peevski himself was appointed to a top government security job in June last year, an appointment that sparked months of street protests. He stepped down but the protests continued.

Peevski and Vassilev were once allies. In a February 2011 newspaper interview, Vassilev called Peevski his “son”. Vassilev told Reuters the two later fell out. Vassilev and Peevski have both alleged that each has plotted to have the other killed. Both have denied those allegations.

Questions to Peevski via a party spokesman were not answered.

HOLLYWOOD SCRIPT

Vassilev, who has stayed abroad since the bank run because he says his life is under threat, says he has no doubt what happened to his bank.

"I would give you details about what seems like a story-board of a Hollywood movie: How to ruin a bank! How to commit calumny! Subtitle: Threaten people by telling them your money is not safe and the majority shareholder is a 'murderer,'" Vassilev wrote in an email to Reuters. He did not name anyone behind the alleged plot.

“While there is a rift between Peevski and me, I believe that some media have over-concentrated their attention on it to deviate attention from what is truly happening in Bulgaria,” Vassilev said.

Peevski, he said, was “a tool in a larger scenario” to destroy Corpbank and undermine Bulgaria’s financial stability. “Arguably, this is in the interest of people with large debts who want to melt them away and the political circles that support them.”

The precise nature of the feud is unclear, and both have given different reasons for it. Vassilev in an interview with a TV channel, parts of which were published on Corpbank’s website one day before the central bank took control, said the “first sparks” began last year. Vassilev said he had refused to become part of such “malicious practices” as paying bribes to win public contracts.

Peevski has repeatedly denied allegations of wrongdoing. “The convenient excuse - Peevski - is used to disguise and crush problems and questions to which Mr. Vassilev himself needs to respond,” Peevski said in an interview to Bulgarian news website pik.bg on June 18.

“For 13 years I have not heard any real charge against me backed by facts, evidence ... So I am being slandered, 13 years without facts and evidence by people with their own business and political interests.”

RISKY TIMING

As the problems at Corpbank gathered pace, regional branch managers phoned Sofia headquarters worried about large withdrawals, according to the bank employee. Depositors, some of them in tears, were desperate to take out their savings, as were some state companies.

By June 20, more than a fifth of the bank's assets had been withdrawn. That’s when the central bank acted, temporarily nationalizing Corpbank.

In the days after the rescue, Bulgarian officials went on a scheduled visit to London as part of a European road show to drum up investment in a 1.5 billion euro bond. One or two investors at the meeting in the heart of London’s financial district, asked about the run on Corpbank.

Officials characterized the run as a political event outside their control, according to a source who was present.

In January, Standard & Poor’s had flagged potential supervisory problems in Bulgaria, warning that “the regulator has a limited record of successfully dealing with past crises.” In its last report on Bulgaria, the IMF said Bulgaria needed “to reduce corruption and cronyism,” and act “to reinforce the rule of law.”(GNN)(Reuters)(AIP)

(With additional reporting by Angel Krasimirov in Sofia, and Laura Noonan and Sujata Rao in London; Edited by Simon Robinson) (BY MATTHIAS WILLIAMS AND TSVETELIA TSOLOVA)