After U.S. and allied warplanes destroyed a key bridge carrying 15 oil and gas pipelines in northern Iraq during the 2003 conflict there, officials in Washington and Baghdad made its postwar reconstruction a top priority. But instead of spending two months to rebuild the span over the Tigris River at an estimated cost of $5 million, they decided for security reasons to bury the pipelines beneath it, at an estimated cost more than five times greater.

What ultimately happened there tells the story — in a microcosm — of a substantial chunk of the massive nine-year U.S. effort to reconstruct Iraq, the second-largest such endeavor in history (only the U.S. investment in Afghanistan has been larger).

Studies conducted before the digging of the new pipelines started showed that the soil was too sandy, but neither the Army Corps of Engineers overseeing the effort nor the main contractor at the site, Kellogg Brown and Root (KBR), heeded the warning. As a result, “tens of millions of dollars (were) wasted on churning sand” without making any headway, as Special Inspector General for Iraq Reconstruction Stuart W. Bowen Jr., described it in his recently published final report on the U.S. occupation.

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By the time the digging effort was halted, and the old bridge and piping repaired — more than three years later — the bill had reached more than $100 million. “Because of the nature of the original contract, the government was unable to recover any of the money wasted on this project,” Bowen said. More than $1.5 billion in oil revenues may have been lost as a result of the delays. KBR did not respond to a request for comment.

The episode is emblematic of the contracting abuses and mismanagement that wasted at least $8 billion of the $60 billion spent by Washington on Iraq’s postwar recovery, under the guidance of what Bowen describes in his report as “adhocracy” largely controlled by the U.S. military — a structure that never “coalesced into a coherent whole” and often failed to achieve its aims.

With the U.S. military now gone from Iraq, and with the 10th anniversary of the invasion, Bowen’s retrospective summary of his audits offers useful insights into how well the U.S. government managed its occupation and the legacy it left behind. The mostly downbeat tone is set early, when the report summarizes final interviews Bowen conducted with 44 top U.S. and Iraq officials, who addressed the simple question of whether the decade-long project left Iraq in better shape.

Most of the Americans he spoke to -- including appointees of Presidents George W. Bush and Barack Obama -- were rueful, noting multiple miscalculations, poor planning, disorganization in Washington, and inadequate consultation with Iraqis. James Jeffrey, the U.S. ambassador in Iraq from 2010 to 2012, told Bowen that “the U.S. reconstruction money used to build up Iraq was not effective. ... We didn’t get much in return.”

Related: Iraq, 10 years on: Did invasion bring 'hope and progress' to millions as Bush vowed?

Only retired Army Gen. David Petraeus, who commanded U.S. forces in Iraq before shifting to Afghanistan and then briefly directing the CIA, was ebullient, claiming the effort had brought “colossal benefits to Iraq.”

Virtually every senior Iraqi, in sharp contrast, said the decade-long U.S. occupation was beset by huge misspending and waste, and had accomplished little. The biggest footprint Americans left behind, most of these Iraqi officials said, was more corruption and widespread money laundering. Such a huge investment “could have brought great change in Iraq,” Prime Minister Nuri al-Maliki said, but the gains were often “lost.”

Billions here, billions there
The bill for Iraq is hard to divide into neat categories, but in rough terms: Washington spent more than $15 billion to try and improve Iraq’s power and water supply, revive its schools and repair its roads and housing; it spent another $9 billion on health care, law enforcement, and humanitarian assistance; it spent $20 billion training and re-equipping Iraqi security forces; it spent roughly $8 billion to enhance the rule of law and battle narcotics; and it spent $5 billion helping to prop up the economy.

Bowen’s interviews with influential Iraqis reveal, however, that they don’t seem to have noticed all this investment or don’t seem grateful. One reason might be that households — as recently as 2011 — still got an average of only 7.6 hours of electricity a day, and a sixth of Iraq’s citizens lacked access to potable drinking water for more than two hours a day.

Both U.S. and Iraqi officials complained to Bowen that not enough was done during the occupation to stem corruption. An Iraqi government watchdog agency, the Board of Supreme Audit, noted last year that $800 million in profits from illicit activities was being transferred out of Iraq each week, effectively stripping $40 billion annually from the economy, according to Bowen’s report.

There are exceptions to the tales of fraud and waste. A State Department-funded childhood vaccination program helped cut the national infant mortality rate by nearly three-quarters. The Baghdad rail station was repaired on time and under budget. And telecommunications repairs have enabled mobile phone use to climb from 80,000 to 23 million subscribers.

But U.S. dreams of fostering a thriving, Western-style economy in the Middle East have not been realized. Almost all of Iraq’s gains have come from oil production, which is now roughly a third greater than it was in 2003. The oil industry is not a big employer, however, and “Iraq is still far from having a vibrant, market-based private sector,” Bowen reports.

Moreover, its military still “lacks critical capabilities in logistics, intelligence,” and repair, Bowen’s report states. It cannot defend its airspace or its coastline, and is weak in counterterrorism.

Parceling blame
Bowen’s report indirectly assigns blame for mismanaging the endeavor to the Bush White House, which had the authority to force U.S. government agencies to coordinate their work but failed to exercise it. Instead, he points out, no single office was assigned to lead the effort, making "stovepiping" — a myriad of narrowly focused efforts — “the apt descriptor,” the report said.

But the largest responsibility for the failures lies generally at the Pentagon and particularly in the Army, according to the report. The Defense Department “held decisive sway over $45 billion (87 percent) of the roughly $52 billion allocated to the major rebuilding funds that supported Iraq’s reconstruction.”

The agencies formally charged with dispensing foreign aid — the State Department and the Agency for International Development — played only a minor role in these accounting shortfalls, because they spent less than a fifth of the reconstruction funds. “State’s role in managing the reconstruction … ebbed and flowed in cycles driven by the personalities involved, with State frequently on the losing end of arguments,” Bowen reports.

It was the Pentagon that failed to plan “for a lengthy occupation or a large relief and reconstruction program,” Bowen noted, under the tutelage of a defense secretary — Donald Rumsfeld — who famously said, “If you think we’re going to spend a billion dollars of our money over there, you are sadly mistaken.”

Rumsfeld, the secretary of defense from 2001 to 2006, defended the war itself in a 2011 memoir, saying that its central element -- Saddam Hussein's removal -- made the Middle East a safer region. But he blamed other officials for many of the problems, saying that military officials did not request more troops and that civilian managers of the occupation stoked Iraqi nationalism by not giving local citizens enough power.

The Joint Chiefs of Staff, in a report last June on "lessons learned" in Iraq, acknowledged that "operations during the first half of the decade were often marked by numerous missteps and challenges as the U.S. government and military applied a strategy and force suited for a different threat and environment." But it said the military adapted its work and had more success in the second half of the decade. 

Other defense officials have acknowledged that a substantial chunk of the Pentagon’s spending in Iraq went to repair the looting and other damage done by Iraqis in the immediate period after the war ended, when U.S. troops were not tasked with keeping order. They also have confirmed that billions of dollars were diverted from civil reconstruction to security efforts after the military abuses at Abu Ghraib prison helped stoke widespread hostility to the U.S. occupation.

It was the Pentagon that opened a contracting office in Baghdad that Bowen said was chronically understaffed — despite the Defense Department's peak presence in Iraq of more than 170,000 personnel. The office nonetheless shoveled money out the door at such a high rate and with so little accountability that by 2005, the U.S. embassy there was incapable of matching “projects with the contracts that funded them,” according to Bowen’s report.

Average U.S. expenditures for Iraqi reconstruction in 2005, for example, were more than $25 million a day. When Bowen’s auditors went looking for documents supporting billions of dollars of fund transfers to the Iraqi government in that period, they discovered the paperwork was “largely missing.”

Pentagon-funded fuel purchases were particularly problematic: When Bowen’s office asked to see a log book documenting $1.3 billion in fuel purchases by the Coalition Provisional Authority, “the log book could not be found.” Defense officials also could not produce documents supporting their expenditure of over $100 million in cash found in a vault at the Republican Palace, the gilded Hussein mansion that became a headquarters of the occupation.

In the crisis atmosphere pervading the reconstruction effort for most of the decade, Pentagon contracts were often open-ended, with vague demands and no precise deadlines. Although the contracts had provisions allowing their conversion to fixed-price awards after some of the work was completed, “the government failed to exercise these options,” Bowen’s report said.

A special system of urgent payments by military commanders — created to tamp down the Iraqi insurgency and known as the Commander’s Emergency Response Program — dispensed $4 billion without any formal oversight. Military officials say it worked well, at least at the outset, but no Defense Department office assembled a comprehensive picture of how the money was spent. As a result, Bowen calls the claims of success “suspect.”

Overcharging
Weak oversight predictably led to rampant overcharging. A firm based in Dubai managed to keep around $4 billion in Pentagon construction contracts, for example, despite routinely marking up the price of switches and plumbing parts between 3,000 and 12,000 percent, according to an audit Bowen conducted in 2011. Kellogg Brown and Root was among a handful of large contractors that kept winning U.S. funds, despite repeated claims by the Pentagon and others of overcharging by the firm and its subcontractors. The firm has said it conducted its work with “integrity, transparency, accountability, and discipline.”

Some military officers and civilian defense officials participated in the looting. A probe by Bowen’s office of the American official overseeing early reconstruction in Hilla, for example, yielded evidence of widespread bribes, bid-rigging, money laundering, kickbacks and illegal gifts in a scheme that included four colonels, who all got prison terms. An Army major who was the main contracting official at a base in Kuwait oversaw fraud in the purchase of bottled water and warehouse construction that involved 21 others.

Perhaps Bowen’s most depressing conclusion is that the U.S. government is no better prepared for reconstruction work in other countries than it was in 2002. No single government office has responsibility for such operations, he notes, and no tracking system has been established to help oversee related contracting.

Bowen recommends that the Obama administration create a new U.S. office for “contingency operations,” and even includes draft legislation on it in his report. But in an austere fiscal climate, and with Obama’s team set against future military occupations, hopes for reform appear scant.

Clearly a number of lawmakers "have signed on to this solution," said Bowen's deputy Glenn D. Furbish, a top auditor in SIGIR for the past eight years. "Hopefully, we will not get into these things again ... [and] I hope people pay attention to what he has to say ... But it is questionable whether these [reforms] are going to go forward. Given the current political environment, I am not particularly optimistic."

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The arrest of Suleiman Abu Ghaith, Osama bin Laden’s son-in-law, has led to a fresh examination of a little-known chapter in George W. Bush’s “War on Terror’ -- secret talks between U.S. and Iranian officials in 2002 and 2003 aimed at working out an exchange of al Qaeda leaders detained in Iran for Iranian dissidents under U.S. control in Iraq.

The proposed deal fell apart when Washington balked at sending the Iranian dissidents -- members of the People's Mujahedin of Iran, best known by the acronym MEK -- to what they believed would be certain death at the hands of Iranian authorities, current and former U.S. and Iranian officials told NBC News.

Ghaith, who is being held in a New York jail cell after spending a decade in Iran among the al Qaeda group, pleaded not guilty last week to charges of conspiring to kill Americans.

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Ghaith has provided an account of his travels to U.S. law enforcement officials, included in a 22-page statement that has yet to be released. He was arrested in Turkey after leaving Iran, transferred to U.S. custody in Jordan and then flown to New York, according to U.S. officials, who spoke with NBC News on condition of anonymity.

 

 

The U.S. has never had a clear idea of the conditions under which members of al Qaeda’s “management council” were held in Iran, but one former U.S. official, also speaking on condition of anonymity, said last week that they were hidden "in the blackest of the black boxes" inside Iran's intelligence apparatus. Iranian officials have told NBC News the al Qaeda officials were "in jail" in the Islamic Republic.

While U.S. officials believe the al Qaeda leaders were initially allowed to contact other members of the terrorist organization as they continued to plot attacks against the U.S. and its allies, Alireza Miryousefi, spokesman at the Iranian mission to the United Nations, said that was never the case.

“Our position about al Qaeda is clear," he said Thursday. "Iran has never permitted al Qaeda to have any activity or operation from or inside Iran.” 

The al Qaeda leaders detained after fleeing Afghanistan as the Taliban regime collapsed at the end of 2001 also had family members and bodyguards with them, bringing the total number in the group into the hundreds.

Among the terror group’s leaders taken into custody were Ghaith, Saif al Adel, al Qaeda’s military leader, Saad bin Laden, the deceased son of the late al Qaeda leader, and liaisons with other Sunni terrorist groups, including Chechen rebels in Russia.

U.S. and Iranian officials say that the group -- armed "with a ton of cash," as one U.S. official put it -- bribed their way across the Iran-Afghanistan border and hoped that Iran would treat them as "the enemy of my enemy," as another former U.S. official said.  But they were rounded up not long after their arrival.

The former U.S. officials say the CIA did not learn of the group's presence in Iran until the middle of 2002, at which point the U.S. used back-channel communications to arrange secret talks with representatives of Iran. This was months after President George W. Bush, in his State of the Union address, described Iran as part of an "axis of evil" – along with Saddam Hussein's Iraq and Kim Jong Il's North Korea – presenting a "grave and growing danger" to the U.S.

The talks have been reported before, though previous accounts received little media attention.

In a passage in his memoir, "At the Center of the Storm," then-CIA Director George Tenet, wrote, "In mid-2002 we learned that portions of al Qaeda’s leadership structure had relocated to Iran. This became much more problematic, leading to overtures to Iran and eventually face-to-face discussions with Iranian officials in December 2002 and early 2003. Ultimately, the al Qaeda leaders in Iran were placed under some form of house arrest, although the Iranians refused to deport them to their countries of origin, as we had requested." 

Tenet didn't detail what went on during the discussions, but in another passage said that at the same time the U.S. was meeting with Iranian officials, the CIA learned that the al Qaeda group was not only communicating with Saudi-based leaders of the terrorist group on operational matters, but also trying to obtain nuclear weapons. 

Related: Abu Ghaith trial may illuminate Iran's treatment of al Qaeda leaders it detained

A senior Iranian official, U.N. Ambassador Javad Zarif, also told NBC News and others in 2007 about the discussions with U.S. officials.

In the 2006 book, "Losing Iraq: Inside the Post-War Reconstruction Fiasco," Columbia University Professor David L. Phillips quoted Zarif as saying Iran was reluctant to turn over the al Qaeda officials to the U.S. or other governments, as the US requested, until and unless the U.S. repatriated high-ranking officials of the MEK -- an acronym derived from the group’s Farsi name, Mojahedin-e-Khalq.

The MEK opposed the Iranian regime and was housed, trained and armed by Saddam Hussein during the Iran-Iraq War. After the U.S. defeated Iraq in April 2003, the MEK came under U.S. control.

While confirming that the U.S. and Iran discussed trading the MEK leaders for the al Qaeda group, two former U.S. officials told NBC News that the proposal came from the Iranian side and was essentially a non-starter.  

"The Iranians told us, 'We will only talk if you do something about MEK,' the most preferred option was giving them up," said one senior intelligence official at the time. "But someone would have to be a really bad person for us to turn him over to Iran. We could have done something to rein them in, yeah, but as bad as the agency thought these guys (the MEK) were, and we did, it would have been a Draconian step ... and we weren't prepared to do that."

That wasn't the only reason for the Bush administration's reluctance, said the former official.

"There were interests in the Pentagon, (neo-conservative members of the Bush administration) who thought the MEK could be the vehicle that would overthrow the government of Iran," the former official said, adding sarcastically, "the same way they had such great success with Ahmad Chalabi in Iraq." 

Over CIA objections, Pentagon officials had fostered a relationship with Chalabi in hopes that he could establish himself as a leader of Iraqi dissidents in post-Saddam Iraq . Chalabi, however, was unable to deliver on his promises to unite the many dissident factions.

At the same time, Iran had its own reasons for holding onto the al Qaeda members, according to one U.S. counterterrorism official. Many in U.S. intelligence believe that Iran wanted to keep them as bargaining chips -- and not just with the U.S. They were in effect hostages. If al Qaeda or allied Sunni terrorist groups carried out attacks in Iran, as had occurred in the 1990s, the group could face harm. 

Whatever chance the talks had of succeeding ended in May 2003. Just days after Zarif met with Zalmay Khalilzad, then the Bush administration's special envoy to Afghanistan, al Qaeda attacked a residential compound in Riyadh, Saudi Arabia, killing 31 people, including nine Americans, according to the former U.S. officials. It was the largest number of U.S citizens killed by al Qaeda since the 9-11 attacks.

After the Riyadh attack, U.S. Secretary of Defense Donald Rumsfeld said the U.S. had intercepted phone conversations implicating al Qaeda members in Iran in the bombings. The CIA was uncertain how much the Iranian government knew about the planning for the attack, but as one former U.S. official said, "It was hard for us to believe that a government as controlling as Iran didn't know" what was happening "in their country when we knew what was going on in their country. It was an article of faith."

At that point, the former official said, the Bush administration shut down communications with Iran and encouraged the Saudis to tell the Iranian government that it would not tolerate any further attacks, noting that U.S. officials also suspected Iran played a role in the 1996 bombing of the Khobar Towers, an American military residence outside Dhahran, Saudi Arabia. That attack killed 19 U.S. servicemen.

"The Saudis were encouraged to confront Iran," said the official. "We also pointed out that al Qaeda's long-term goal was to decapitate the Saudi regime. We reminded them of that."

A national security official within the Bush administration said the U.S. believed that following the protest, Iran did put additional restrictions on the al Qaeda officials. The former U.S. official said that during the latter half of the 2000s, no operational communications were detected between the al Qaeda leaders in Iran and what is known in the intelligence community as "al Qaeda Central" – bin Laden and his then-deputy and current al Qaeda leader Ayman al-Zawahri.

"Every once in a while, we would intercept non-operational communications from them to relatives back home. That was it," said one former high-ranking U.S. official.

Why has Abu Ghaith been released, or as one current U.S. official reported, "expelled" from Iran? Little is known publicly, but one of the former U.S. officials speculates that with bin Laden dead and al Qaeda Central operations near moribund, he and the other members of the “management council” have little value as leverage or as hostages. 

Abu Ghaith is unlikely to have any operational information because he has been in Iran for so long.  Now, the current and former U.S. officials say, his intelligence value may be more about his captivity in Iran and whether he was released or escaped.

Abu Ghaith will be back in court early next month for a preliminary hearing, at which point a trial date will be set. At that point, either the prosecution or defense is likely to reveal a bit more about what is one of the last remaining mysteries of the 9-11 aftermath.

Where are they now?
The U.S. is uncertain as to the whereabouts of many of the other al Qaeda leaders who were held by Iran.

At least one other high ranking official of al Qaeda found his way out of Iran in recent years. Mahfouz Ould al-Walid, known by his nom de guerre “Abu Hafs the Mauritanian,” was released from jail in July 2012 by Mauritanian authorities after reportedly being extradited by Iran.  Officials in the West African nation said they freed the former senior adviser to bin Laden after he renounced al Qaeda.

There have been reports over the last several years that Al-Adel, the former al Qaeda military leader, also has left Iran, but U.S. officials say none has been verified.

Saad bin Laden was inadvertently killed in July 2009 in a Predator drone strike in Pakistan directed at another suspected terrorist, U.S. officials say.

Al Qaeda’s chief financial officer, Sheik Saeed, whose real name was Mustafa Abu al-Yazid, also was killed in a drone strike in Pakistan on May 21, 2010, according to NBC News terrorism consultant Evan Kohlmann, also a senior partner with the Flashpoint Partners consulting company. There is no indication of when or under what circumstances Saeed left Iran. 

Other former Iranian captives whose whereabouts are unknown include  Thirwat Shihata, former head of the Egyptian Islamic Jihad; Abdullah Ahmed Abdullah, deputy chair of the management council; and Abu Dahak, a Yemeni who reportedly acted as a facilitator with Chechen rebels

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Thursday’s announcement by North Korea that it could launch a pre-emptive nuclear attack against the United States in the face of new U.N. sanctions is a predictable escalation of the isolated nation’s increasingly aggressive stance toward Washington over the past year. But experts note that Pyongyang’s recent advances in its nuclear weapons and missile programs mean that such bellicose rhetoric cannot be taken lightly.

The escalation of the North’s oratory began not long after the country’s 28-year-old leader, Kim Jong Un,  took over from his late father, Kim Jong Il, on Dec. 28, 2011. It has been accompanied by two space launches – one successful – and a third nuclear weapons test.

 It is not unusual for the North to make threats against the U.S., Japan or South Korea. And on occasion -- as in the case of the 2010 artillery barrage of Yeonpyeong Island and an earlier attack on a South Korean gunboat -- it has carried out these threats.  It has never taken any military action after threatening the United States, however.

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Some analysts have suggested that the latest round of threats is intended to show that the young Kim will continue his father’s legacy of hostility toward the U.S.

To what end?

North Korea has long wanted the U.S. to sit down with its negotiators to hammer out an agreement to end the Korean War, which ended in 1953 not in a peace treaty but in a truce.

The North would like to gain concessions from the U.S. in such a negotiation, but its escalating threats and rhetoric have the opposite effect:  The Obama administration, like preceding administrations, has steadfastly refused to negotiate with Pyongyang.

The problem is that North Korea, which has long taken a backseat in U.S. councils to the Middle East, does have military capabilities that could at the very least threaten U.S. interests in North Asia.

According to a recent analysis, North Korea has a weapon stockpile that could threaten both Japan and South Korea and, in longer term, the United States. Some of the weapons have already been deployed, say U.S. officials, who spoke to NBC News on condition of anonymity. Moreover, the North has begun research into more advanced and dangerous weapons, possibly even thermonuclear weapons, they say. 

At the high end of the stockpile range, U.S. officials and other researchers said North Korea may already have up to "a few dozen" nuclear weapons that could be fitted atop its vast fleet of ballistic missiles. Those missiles are limited to an intermediate range, capable of hitting targets in Japan, South Korea or elsewhere in the northern Pacific, including U.S. military bases as far south as Guam, the officials believe.

Related story: UN passes sanctions despite North Korea threat of 'pre-emptive nuclear attack'

The U.S. believes the space launch tests are part of a development plan for an intercontinental ballistic missile (ICBM) capable of reaching the continental United States with a payload of several hundred kilotons — 10 to 20 times the size of the bombs that destroyed the Hiroshima and Nagasaki.

U.S. officials publicly express confidence that the national missile defense system based in Alaska would be able to shoot down any incoming North Korean ICBM.

“I can tell you that the United States is fully capable of defending against any North Korean ballistic missile attack,” White House spokesman Jay Carney said Thursday in response to a question about the North Korean threat.

 He also said the U.N. sanctions will make it harder for Pyongyang to continue to make progress on its weapons and missiles. 

“North Korea … will now face new barriers to developing its banned nuclear and ballistic missile programs,” he said. “Resolution 2094 increases North Korea's isolation and demonstrates to North Korea's leaders the increasing costs they pay for defying the international community.” 

For the past several years, the U.S. also has been monitoring North Korean research into thermonuclear weapons — hydrogen bombs and bombs known as boosted-fission weapons, in which plutonium and uranium are combined for a higher energy yield. (The problem is that if the North conducted a test and claimed that it was thermonuclear, the U.S. would have difficulty determining if the North was telling the truth. The test site at Kilchu is far enough inland that the U.S. would not have access to the particulate matter needed to make an accurate determination, experts say. )

David Albright, president of the Institute for Science and International Security, or ISIS, a nonpartisan nuclear arms research group, said last year that any tests in the future may also be about ensuring the reliability of North Korea's current weapons design.

"Once you get beyond a dozen, it makes sense to test type and reliability of your weapons," he said. Albright said then that his group's estimate of North Korea's weapons stockpile is a bit less than those provided by the U.S. officials, but that ISIS, too, believes Pyongyang has "missile-deliverable weapons."

The design of the weapons is believed to be based on Chinese models (as were the first generation Pakistani nuclear weapons). The design is basic, and was developed in the 1960s with help from the Soviet Union, which used it to produce a whole line of nuclear warheads.

While some analysts suggested that the North planned its December rocket launch to gain attention ahead of the presidential election in South Korea , some in the U.S. non-proliferation community think otherwise. They expect that once the North feels comfortable with its ICBM technology, it will deploy the missiles.  They point to the Musudan intermediate range missile which was tested in middle of the last decade, then deployed — presumably with nuclear warheads — and aimed at Japan.

Once the North has confidence in the long-range missile based on the space rocket, U.S. officials believe they will deploy it as well, making North Korea the third nation to have nuclear weapons targeted at the United States, after Russia and China.

Many in the Obama administration see that as a more frightening prospect than Iran gaining nuclear weapons, believing that Tehran is a rational actor that will serve its own national interest and preserve the regime, compared to successive generations of North Korean leaders who have shown that they are unpredictable and erratic.

But would it force the U.S. to conduct face-to-face talks with the North? State Department spokeswoman Victoria Nuland said in December that the North has a better option.

Referring to Kim Jong Un, Nuland said: "He can plot a way forward that ends the isolation, that brings relief and a different way of life and progress to his people, or he can further isolate them with steps like this. He can spend his time and his money shooting off missiles, or he can feed his people, but he can't have both."

NBC News' Shawna Thomas contributed to this report; this piece is an updated version of a post originally published on Dec. 13, 2012.

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The Obama administration has "no intention" of carrying out drone strikes against suspected terrorists in the United States, but could use them in response to “an extraordinary circumstance” such as the 9/11 terror attacks, according to a letter from Attorney General Eric Holder obtained by NBC News.

Sen. Rand Paul, R-Ky., who received the March 4 letter from Holder, called the attorney general’s refusal to rule out drone strikes in the U.S. “more than frightening.” 

The letter from Holder surfaced just as the Senate Intelligence Committee was voting 12-3 to approve White House counterterrorism adviser John Brennan to be CIA director. The vote came after the White House agreed to share additional classified memos on targeted drone strikes against U.S. citizens overseas.

Paul had threatened to hold up Brennan's confirmation on the floor of the Senate if the administration did not clarify whether targeted drone strikes could be used inside the U.S.

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In his letter, Holder called the question of drone strikes inside the U.S. "entirely hypothetical, unlikely to occur and we hope no president will ever have to confront. … As a policy matter, moreover, we reject the use of military force where well-established law enforcement authorities in this country provide the best means for incapacitating a terrorist threat."

But Holder then appeared to leave the door open to such strikes in extreme circumstances.

Read the full letter

"It is possible, I suppose, to imagine an extraordinary circumstance in which it would be necessary and appropriate under the Constitution and applicable laws of the United States for the president to authorize the military to use lethal force within the territory of the United States. For example, the president could  conceivably have no choice but to authorize the military to use such force if necessary to protect the homeland in the circumstances of a catastrophic attack like the ones suffered on Dec. 7, 1941 and Sept. 11, 2001." 

In a statement, Paul said, “The U.S. attorney general’s refusal to rule out the possibility of drone strikes on American citizens and on American soil is more than frightening – it is an affront the Constitutional due process rights of all Americans.” 

Paul told NBC News that the response by Holder could lead to a situation where “an Arab-American in Dearborn (Mich.) is walking down the street emailing with a friend in the Mideast and all of a sudden we drop a drone” on him. He said it was “really shocking” that President Barack Obama, a former constitutional law professor, would leave the door open to such a possibility.

Paul said he will filibuster Brennan’s confirmation over the issue but acknowledged “we probably can’t stop him.” He did say, however, he intends to co-sponsor a bill with Republican Sen. Ted Cruz of Texas, to be introduced in the next few days, that would bar the president from using drone strikes in the U.S.

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The United States is locked in a tight race with China and Russia to build destructive cyberweapons capable of seriously damaging other nations’ critical infrastructure, according to a leading expert on hostilities waged via the Internet.

Scott Borg, CEO of the U.S. Cyber Consequences Unit, a nonprofit institute that advises the U.S. government and businesses on cybersecurity, said all three nations have built arsenals of sophisticated computer viruses, worms, Trojan horses and other tools that place them atop the rest of the world in the ability to inflict serious damage on one another, or lesser powers.

Ranked just below the Big Three, he said, are four U.S. allies: Great Britain, Germany, Israel and perhaps Taiwan.

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But in testament to the uncertain risk/reward ratio in cyberwarfare, Iran has used attacks on its nuclear program to bolster its offensive capabilities and is now developing its own "cyberarmy," Borg said.

Borg offered his assessment of the current state of cyberwar capabilities Tuesday in the wake of a report by the American computer security company Mandiant linking hacking attacks and cyber espionage against the U.S. to a sophisticated Chinese group known as “Peoples Liberation Army Unit 61398.

In today’s brave new interconnected world, hackers who can defeat security defenses are capable of disrupting an array of critical services, including delivery of water, electricity and heat, or bringing transportation to a grinding halt. U.S. senators last year received a closed-door briefing at which experts demonstrated how a power company employee could take down the New York City electrical grid by clicking on a single email attachment, the New York Times reported.

U.S. officials rarely discuss offensive capability when discussing cyberwar, though several privately told NBC News recently that the U.S. could "shut down" the electrical grid of a smaller nation -- Iran, for example – if it chose to do so.

Borg echoed that assessment, saying the U.S. cyberwarriors, who work within the National Security Agency, are “very good across the board. … There is a formidable capability.”

“Stuxnet and Flame (malware used to disrupt and gather intelligence on Iran's nuclear program) are demonstrations of that,” he said. “… (The U.S.) could shut down most critical infrastructure in potential adversaries relatively quickly.”

China, Russia have different priorities
Borg said China and Russia have similar capacity to cause mayhem, but have different priorities and skill sets.

“Russia is best at military espionage and operations,” he said. “That's what they have focused on for a long time. China is looking for crucial business information and technology. China's main focus is stealing technology. These things quite separate. You use different tools on critical infrastructure than you use for military espionage and different tools again on stealing technology."

Borg said that each has its strong suit. "The Russians are technically advanced. The Chinese just have more people dedicated to the effort, by a wide margin,” he said. “They are not as innovative or creative as the U.S. and Russia. China has the greatest quantity, if not quality."

Borg said the group featured in Mandiant’s report, the People’s Liberation Army Unit 61398, may be one of the most important groups working in China, but not necessarily the most important.

"There are at least two dozen groups carrying out aggressive operations against the U.S.,” he said. “They get in each other’s way and trip over one another, but they are all operating with the tacit approval of the Chinese government.

"They're not cooperating with each other because they don’t share capabilities," he added. "One group has good programming, but is bad at access or targeting." 

The Chinese hacking efforts are so broad, Borg said, that the highest-ranking Chinese officials “almost certainly do not know what all the groups are doing,” or the consequences. As a result, he added, they have been embarrassed by reports like the one in Tuesday’s New York Times, which first reported on the Mandiant assessment.

China is the most likely of the superpowers to leave a calling card, making their work the easiest to track. "China is very arrogant in its authorship of cyberweapons,” Borg said. “It does little to conceal its identity."

That’s in sharp contrast to the Russians, who he noted are not above writing code in Chinese to throw off investigators.

While the U.S. could respond to ongoing cyberattacks from China and Russia by shutting down the power grid of "any of its adversaries” and causing severe physical damage, Borg said it is encumbered by several factors.

One is its vulnerability to cyberwarfare as the world’s most networked nation, he said.

And from a geopolitical standpoint, Borg said, the U.S. would not want to badly damage the economy of either China or Russia. In fact, he said, the U.S. would almost certainly have to incorporate protections for critical systems like the power grid in any cyberattack.

Also, detecting the source of hostilities is not always easy, Borg said, as cybertracks are not as easy to follow as missile tracks. That means “mutually assured destruction,” the main strategic tenet of the Cold War, is problematic at best when talking about cyberwar, he said.

"It might be difficult to determine proportionate response,” he said. “It might not be simple to attack the attacker.”

For example, policymakers may think an attack has been carried out by the Chinese, when it was actually the work of the Russians or a rising power in the cyber world, like Iran. That is why intelligence -- getting insight into these operations -- is more important in a crisis than cyberforensics, which can take longer and not be as certain.

"There is no MAD in the Cold War sense," he said, "You can’t be 'assured' of attribution. The attack can be anonymous. It can be spoofed," or disguised as coming from another source. 

Iran developing 'serious capability'
The U.S. first began to develop its own offensive capabilities 20 years ago when several strategic thinkers, particularly at the Naval Post-Graduate School, began to see the possibilities. It was not so much a strategic priority, but more "people familiar with electronics and hackers exercising their imagination." (Borg says one of those thinkers, Winn Schwartau, used fiction to discuss the threat and the possibilities, in a 1991 book, "Terminal Compromise.")

While the U.S. has the means to respond and to defend itself, Borg notes that some countries have no recourse. He cited the Russian invasion of the Republic of Georgia in August 2008, when the Georgian government and media infrastructure was quickly compromised.

What was particularly interesting, Borg said, was that the Russian military and intelligence services weren’t directly involved.

"The first wave was carried by organized crime," he noted. "The second wave was carried out by a (hacker) group organized though social media.” He said Russian hackers could download the attack software from a variety of popular sites, including dating and gun-collecting websites.

In both cases, Borg concluded, the organizers apparently were tipped off early about the timing of Russian military operations, he said.

The attack on Georgia also illustrated another aspect of cyberwarfare, Borg said, noting that Georgia, Estonia and Lithuania afterward formed a cyberalliance, leaving them in a better position to deal with future assaults.

That also appears to be the case with Iran, which recently announced that it decided to establish cyber army and claimed to have 4,000 to 5,000 military personnel involved in defensive and offensive operations. That isn’t all bluster, Borg said, noting that when the U.S. leveled new sanctions on Iranian banks last year, U.S. banks suddenly came under attack.

"Iran is developing a serious capability," said Borg. “It's exaggerating the present capabilities, but it’s working toward the future."

That’s especially troubling because the risk of smaller nations waging cyberwar against one other may be higher than with the online superpowers, he said.

He cited reports indicating that Iran may have been behind what he called one of the more serious cyberattacks to date -- an assault last August on the Saudi Aramco computer network that disabled more than 30,000 computers used to control the flow of Saudi oil. The Saudi Interior Ministry blamed "foreign countries" for the attack.

Borg said he believes the attack was an "Iranian fundamentalist attack ... at some point loosely the under auspices of Iran, and blessed by Iran. The fundamentalist group made a claim of responsibility. ... “Based on technical analysis, the claim has credibility."

For that reason, Borg says he is less worried about the possibility of China or Russia launching a catastrophic attack against the U.S. than he is about the emerging cyberpowers.

“What I’m really concerned about isn’t Russia or China, but attacks from Iran or terrorist groups working with state actors,” he said.

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HAVANA, Cuba — It seems straight out of a Cold War spy movie. A group of Cuban undercover agents sneak into the U.S. and set up a secret pro-Castro network in south Florida — receiving instructions in code through late night radio transmissions from handlers in Havana. But the FBI gets wind, tails the agents, intercepts their messages and busts them, sending the agents off to federal prison, their ringleader for life.

Today, the story of those spies — called La Red Avispa, or the Wasp Network — rolled up by the feds 14 years ago is barely known in the United States. But its members, now  known as the Cuban Five, are national heroes in Cuba — the subjects of mass demonstrations, their pictures on billboards and  posters – and their petitions for freedom are championed around the world by Nobel Prize winners, celebrities like Danny Glover, even former President Jimmy Carter.

And they may now prove key to the tense impasse between Havana and Washington over the fate of jailed American contractor Alan Gross, arrested three years ago Monday for distributing sophisticated satellite equipment to Cuba’s tiny Jewish community and later sentenced to 15 years in prison for "acts against the independence and/or territorial integrity of the state." (Gross says he was only bringing Internet access to Cuba.)

---

While the U.S. is demanding that Cuba release Gross, who visitors say is angry and frail, having lost 110 pounds in prison, Cuban officials say they are willing to do so only if President Barack Obama will  release the Cuban agents.

"I understand what Mr. Gross is going through," Gerardo Hernandez, 47, the Cuban Five ringleader, said in an exclusive interview with NBC News in October at his current home --a federal prison outside Victorville, Calif. "I understand his sufferings and that of his family. … If an agreement can be reached, to stop the sufferings of six families, then I welcome it."

The idea of a swap — the release of Gross for Hernandez and his confederates among the Cuban Five — faces legal and political hurdles.

An Obama administration official told NBC News that the "imprisonment of Alan Gross, an international development worker, is not comparable in any way to that of the five Cuban agents," noting that the Cubans were afforded their "due process rights" and convicted of serious crimes.

Members of Congress have denounced Cuba for holding Gross "hostage" to the release of the Cuban Five. "The Castro regime has no regard for human rights or international law," said Democratic Sen. Robert Menendez of New Jersey, a senior member of the Senate Foreign Relations Committee and frequent critic of the Castro regime. "The Cuba Five should serve their sentences for spying."

And Hernandez, who sports a trim goatee and displays a hearty laugh despite 14 years in prison,  might not make the ideal candidate for a pardon or commutation from Obama — a precondition for a swap to take place. Asked if he regretted any of his actions, he smiled and said,  "I regret that I got caught." In a follow up phone interview, Hernandez readily acknowledged that "we violated some U.S. laws" — mainly failing to register as foreign agents with the U.S. Justice Department. "We came here with fake passports. Fake identities."  But, he added, "We act out of necessity."

As Hernandez and Cuban officials tell it, the Cuban Five was not sent to spy on the U.S. government. In fact, the members weren’t accused of stealing any U.S. secrets (although they were convicted of conducting surveillance of U.S. military bases.) Instead, the mission of the Wasp Network, they say, was to infiltrate  anti-Castro exile groups in South Florida who Havana suspected of plotting terrorist attacks inside Cuba. Among those attacks: the notorious bombing of Cubana Flight 455 over the Caribbean in 1976, killing 73 passengers (including teenage members of a Cuban  national fencing team)  as  well as a string of hotel bombings in Havana in  1997 that killed an Italian businessman and were believed to have been aimed at disrupting Cuba’s nascent tourist industry.   

"Cuba doesn’t have drones to neutralize the terrorists abroad," said Hernandez. "They need to send people to gather information and protect the Cuban people from these terrorist actions. … I think it’s the same feeling that Americans have that defend their country and love their country when they go to infiltrate al-Qaida and send information here to avoid the terrorist acts. And the U.S. has to understand that Cuba has been involved in the war against terrorism for 50 years.”

While admitting his role in spying on anti-Castro exiles — "I would do it again," he said — Hernandez adamantly denies the most serious charge against him: conspiracy to commit murder. His conviction on that count, which has earned him a life sentence, was based on his alleged complicity in the February 1996 shoot-down by a Cuban fighter jet of two Cessna planes flown by members of the Cuban exile group Brothers to the Rescue, killing four men.

The anti-Castro group had provoked Cuba by dropping anti-government leaflets over Havana. At the trial of the Cuban Five, prosecutors introduced messages between Hernandez and his controllers in Havana suggesting he had prior knowledge of the shoot-down. But Hernandez insists that prosecutors misinterpreted the messages and he knew nothing that wasn’t already public.

"No, sir, absolutely not," Hernandez replied when asked if he knew in advance about the incident. "All I knew was what everybody knew: that Brothers to the Rescue through the years has violated many times Cuban air space, that there have been 16 diplomatic notes from Cuba complaining over that situation."

Ricardo Alarcon, president of Cuba’s National Assembly (the Parliament) and a longtime Castro confidante, said this week in Havana that "the Cuban government publicly, front page in our papers, months before that incident had warned that we are not going to allow any more intrusions into our air space. … The order, the decision (to shoot down the planes) came from the highest level. Fidel Castro himself had said that publicly, that he was responsible for that decision."

U.S. Appeals Court Judge Phyllis Kravitch of Atlanta concluded in 2008 that prosecutors never proved their case tying Hernandez to a plot to shoot down the planes, but she was outvoted two to one and his conviction on the murder conspiracy charge was upheld. Now Hernandez and his lawyers are appealing on another ground: that hundreds of thousands of dollars in secret  U.S. government payments to anti-Castro journalists in Miami — newly discovered through Freedom of Information Act requests — inflamed the Miami community against the Cuban Five and made it impossible for them for them to get a fair trial. The payments were mostly made for appearances on Radio Marti, a TV and radio operation funded by the Broadcasting Board of Governors, an independent agency that oversees international broadcasting sponsored by the U.S. government.

Slideshow: Castro through the years

In court papers, lawyers for the Cuban Five have cited articles by some of the journalists, including one that denounced the "genocidal character" of Castro’s regime and another that speculated that the real purpose of the Wasp Network was to introduce "chemical or bacteriological weapons" into south Florida. “"his information was spread throughout the Miami area and helped inflame the community against these guys," said Martin Garbus, Hernandez’ lawyer. "It was total madness. … When the case was brought, the anti-Castro feeling in the Miami area was at a fevered pitch."

U.S. prosecutors dismiss as “implausible” and "unfounded" the idea that the Radio Marti payments were part of a U.S. government effort to influence the jury in the Cuban Five case.

 "The jury (in the case) was carefully selected, following a searching voir dire (jury selection process) that the appellate court deemed a high model for a high-profile case, and that the trial comported with the highest standards for fairness and professionalism,” wrote Caroline Heck Miller, an assistant U.S. attorney in Miami, in a court filing in July asking a judge to reject Hernandez’ motion for a hearing into the payments to the journalists. She also noted, as federal prosecutors have repeatedly done when the issue has come up, that “no Cuban-Americans – the audience (Hernandez) hypothesizes as the target of the government campaign he imagines — served on the jury."

Unless Hernandez can somehow persuade a court to reopen his case  – or barring a prisoner swap with Gross — he would seem to have few options.

American imprisoned in Cuba may have cancer, doctor says

Rene Gonzalez, another member of the Cuban Five who was not convicted of the conspiracy-to-commit-murder charge, was released from federal prison on probation late last year, but has not yet been allowed to return home to Cuba to live.

The Cubans are doing their best to ratchet up the pressure. Just as Judy Gross has launched a public relations campaign in the United States to free her husband, appearing at a National Press Club press conference on Friday, this week the Cubans made Hernandez wife, Adriana, available for an interview with NBC News. A chemist in the food industry in Havana, she wept as she described the pain of separation from her husband — and how it has left her unable to bear children. "Every detail, every single moment reminds me of him," she said. "I believe there are many people in the U.S. and the American people as a whole, who could convey to President Obama that there is a woman here suffering."

Hernandez, too, says missing his wife is the hardest part of his life in prison. And he has few illusions about his prospects of being freed. "The only thing I know for sure with me is that I have two life sentences and live with that every day," he said. "And to keep your sanity and your mind, you have to be realistic. But I would be dishonest to say that I don’t have hope."

Michael Isikoff is NBC News' national investigative correspondent; NBC News Producer Mary Murray also contributed to this report.

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Editor’s note: This story contains a graphic image that some readers may find disturbing.

Perched high above midtown Manhattan, behind security-locked doors in an unmarked office, a half-dozen 20-somethings sit at computers, looking for ways to inflict hardship on the Iranian government and the people it rules. The “war room,” as its occupants call it, is a mere 20 blocks from Iran’s Mission to the United Nations and even closer to the hotel where Iranian President Mahmoud Ahmadinejad stays during his visits to New York.

But this is not a U.S. government intelligence facility brimming with incoming feeds of classified data. The offices belong to the private nonprofit group United Against Nuclear Iran, and the computers contain a wealth of (mostly) open source economic data culled from Iranian and other sources. 

UANI, as it calls itself, has one mission: to wage “economic warfare against the Islamic Republic of Iran ...The regime must be forced to choose between having a nuclear weapon or a functioning economy."

---

That’s not to say the group doesn’t have roots in government. It is headed by Mark Wallace, a former U.S. ambassador to the United Nations, and former heads of the CIA, the counterterrorism office of the National Security Council and the Mossad, Israel’s national intelligence agency, sit on its advisory board.

Part of what UANI does is psychological warfare, though it’s the smallest part. The group pays for a billboard high above Times Square that takes shots at Ahmadinejad and placed a blow-up Ahmadinejad punching-bag doll outside the Hotel Warwick when he stayed there recently while in town to address the United Nations. It also lobbies effectively, working with friendly congressmen to get sanctions strengthened.

Using 'name and shame' tactics
Mostly, it uses “reputational risk” to achieve its aims, trying to shame U.S. and international companies to end business dealings with the Islamic Republic or Iranian businesses, particularly those with Revolutionary Guard ties, even if those dealings aren't clearly in violation of economic sanctions against Iran. If those efforts don’t succeed, Wallace isn’t averse to using a bigger hammer: If you work with Iran, he is fond of saying, you shouldn’t get contracts from the U.S. government.

While the group’s impact is difficult to quantify vs. the overall impact of economic sanctions against Iran by the U.S., European Union and the United Nations, Wallace’s private network has contributed to some significant successes. Those include persuading an international money exchange to ban Iran and forcing Ahmadinejad out of his preferred New York hotels in September when he visited to deliver his final speech at the U.N. General Assembly as Iran’s president. 

U.S. officials welcome the private group’s efforts, telling NBC News that UANI’s “name and shame” campaigns complement the government’s efforts to enforce the sanctions, which are limited to pursuing civil or criminal cases when companies are found to be in violation.

The public shaming is a familiar strategy -- with a twist. Activists demonstrated and demanded U.S. pension funds and university endowments divest stock in South African companies during the dying days of apartheid in the 1980s and ‘90s. The AFL-CIO and Harry Wu, a Chinese labor activist, exposed U.S. companies that used Chinese prison labor in the 1990s. And Chinese companies doing business in Sudan were accused in the early 2000s of aiding genocide in Darfur.

But UANI’s mission is more comprehensive and it’s led by a high-profile political figure, not a celebrity or anonymous activist. In addition to serving as U.S. ambassador, Wallace worked in the presidential campaign of Republican Sen. John McCain in 2008, working as vice presidential nominee Sarah Palin’s debate coach.  

It’s also riskier and could backfire. Iran is not without the capability of striking back.

But Wallace feels comfortable that he’s on the side of right and believes he has a unique opportunity to affect history by forcing Iran to abandon its nuclear ambitions, which Tehran insists are intended to meet its energy needs, not build nuclear weapons. In his view, that begins with “crashing the currency.”

“You have all the elements that are there with the currency,” he said. “We measure everything we do. I challenge you to find a better mechanism of judging the impact of economic hardship that we're placing on the elites.”

UANI has a modest budget -- less than $700,000 in 2010, according to federal records – that it says it raises only from U.S. donors.  It declines to identify them, citing security concerns.

But it claims some big results.

'Stealth sanctions' have big impact
The biggest was its lobbying of SWIFT, a Belgian-based international financial clearinghouse, to expel Iran, then pressuring the U.S. Congress to demand that SWIFT ban Iranian financial transactions from its worldwide network. Without SWIFT codes, international financial transactions become difficult, if not impossible, to complete.  Since SWIFT expelled Iran on March 15, the value of the Iranian currency, the rial, has dropped precipitously. 

Dan Yergin, the energy historian and author of  “The Quest: Energy, Security, and the Remaking of the Modern World,” calls the SWIFT expulsion the “stealth sanctions.”

“Much of the international focus on sanctions has been on the oil side,” Yergin told NBC News. “But the SWIFT and other related banking restrictions have been the ‘stealth sanctions’ that are impacting on Iran’s ability to do business in the international economy.

“Less attention may have originally been paid to them, but they rank with the oil sanctions in terms of their effects on Iran. Overall, the … sanctions are imposing a much bigger cost on the Iranian economy than Tehran would have anticipated last winter and thus are creating a much bigger problem for the leadership.” 

Now, UANI and Wallace want to strike harder. Iran’s currency, the rial, is near collapse, by some estimates having lost 80 percent of its value in the last year and 15 percent in the last week as measured against the dollar and euro. One dollar now equals 36,000 rials at the unofficial rate.

Iran, which for months resisted the suggestion that the sanctions were effective, now acknowledges that inflation, much of it caused by sanctions and the SWIFT ban, is hurting the economy. 

In recent weeks, Wallace’s group publicly pressed European companies that it believed were supplying Iran with the special paper, inks and presses used to print Iranian currency to stop doing business with Tehran.  In a letter early this month to the German company Koenig & Bauer AG, which had provided the Central Bank of Iran with presses in the past, Wallace demanded to know if the company was still supplying Iran, then raised the possibility that continuing work with Iran could threaten its business with the U.S. government. 

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“UANI finds KBA’s apparent business in Iran particularly galling in light of its extensive contracts with the U.S. Department of Treasury and its role in U.S. banknote production,” Wallace wrote. “KBA has been the recipient of over $131 million in contracts from the U.S. Treasury’s Bureau of Engraving and Printing, in addition to $2.39 million awarded to KBA subsidiary KBA North America by the U.S. Department of Defense.

“UANI strongly believes that the only responsible action for KBA in light of the fact that the CBI is a sanction-designated entity under U.S. and EU law is for KBA to immediately and publicly reject CBI solicitations for KBA services.”

On Wednesday, KBA told NBC News that it had stopped supplying printing presses to Iran nine years ago.

But in a written response to Wallace dated Oct. 10, KBA acknowledged it had provided “spares and auxiliary equipment” to its “Iranian client” since then. KBA also said that early this year, it submitted a “conditional offer” to the Central Bank of Iran when it sought bids on a contract to for new banknote machines.

Ultimately, KBA decided to discontinue sales to Iran, not long before it received Wallace’s letter, it said.

The lack of such equipment could have the added benefit of making Iranian currency more susceptible to counterfeiting, perhaps by an enemy of Iran, Wallace said. That uncertainty about the rial would make it even less valuable on whatever open markets on which it was still exchanged.

KBA’s rapid response to Wallace is indicative of UANI’s growing clout in the international business community.

As a result of actions like these, “regime change” in Iran is now being discussed seriously in Washington policy circles. Wallace won’t say whether that is his specific goal, but acknowledges that virtually any alternative would be preferable to the current “theocratic regime.”

Beyond SWIFT, Wallace said UANI’s efforts have led to dozens of agreements from U.S.-based and other international companies agreeing to stop doing business with Iran. 

In some cases, trading partners have credited UANI in announcing their decisions to stop doing business with Iran. In others, they have not.

Targeting Iran's auto industry
Iran has the world’s 13^th largest auto manufacturing industry and the largest in the Middle East and Central Asia. The industry is a major employer and a prestige piece for the Iranians. Not every country’s president can boast that his limousine is built in a local factory. Ahmadinejad can.

Numerous European and Asian auto companies had supplied parts and “build kits” to Iran. But UANI lobbied the companies early this year and again “called them out,” as Wallace put it. He again cited the EU and U.N. sanctions and suggested that a publicity campaign would hurt U.S. sales of their cars.

Of the companies targeted in the campaign -- Hyundai, Fiat, Peugeot, Porsche and Renault – Wallace says only the latter continues to supply Iran.

A Renault spokeswoman, Raluca Barb, told NBC News on Thursday that the company's Iranian venture, Renault Pars, in which it owns a 51 percent interest, does not violate the sanctions.

“Renault respects the regulations,” she said. “The automotive business is not included in sanctions against Iran.”

The Hyundai Motor Co. said it decided to discontinue operations in Iran after being contacted by UANI. The other auto companies that are no longer doing business with Iran didn’t cite UANI’s campaign, but numerous Iranian press accounts have connected the pullout to the threatened publicity blitz.

The auto company withdrawals contributed to a 42 percent nosedive in Iranian auto production over the past six months, Agence France Press reported last week, citing industry ministry figures.

UANI also says it forced Caterpillar, the huge U.S.-based construction company, to stop supplying equipment to Iran. After a letter-writing campaign failed, UANI bought a billboard opposite the company’s headquarters in Peoria, Ill., showing a piece of earth-moving equipment alongside a photo of Ahmadinejad and the words, “Today’s work, tomorrow’s nuclear Iran.” As soon as the company halted the sales in February 2010, the billboard came down.

At the time, Caterpillar said it did not have extensive business dealings with Iran, and that it couldn’t control sales in the secondary market. But it did bar non-U.S. subsidiaries from accepting orders that it knew were destined from Iran.

The company did respond to requests from NBC News this week for comment.

The most vivid of UANI’s efforts was its “cranes campaign.” After grisly images emerged showing of Iranians being hung by construction cranes, UANI tracked down all the crane manufacturers who had done business with Iran and asked them to divest.  For the most part, they did.

There are other less obvious successes,  like pressuring all 13 of the world’s major shipping registries, including those in Russia, South Korea, and Japan, to deny Iran access to their services. That, in turn, has prevented the regime and from insuring their tankers. UANI also quietly obtained pledges from Moldova, Mongolia and other nations to stop reflagging Iranian vessels.

Not all of its initiatives have worked, however. 

Its biggest campaign has been against MTN, the South African cell phone company that owns 49 per cent of Irancell, which controls the mobile market in Iran and has been accused of tracking Iranian dissidents. But MTN has refused to get out. 

Last week, Wallace excoriated MTN’s leadership in typical, no-holds-barred language. “It is widely known that MTN has carried out orders from the Iranian regime to shut off text messaging and Skype during times of political protest in Iran, and reportedly has a floor in its Tehran headquarters where Iranian military officials compile and access data to track, apprehend, torture, and murder regime opponents,” he wrote in a letter to the company that also went out as a press release.

“MTN has blood on its hands … We call for a global boycott of MTN's products and services and divestment from its stock, until it ends its reckless partnership,” he concluded.

'A liberating force for Iranians'
MTN did not immediately respond to Wallace’s most-recent broadside, but in a press release in February in reply to an earlier letter, it said its investment in Iran was “in compliance with applicable sanctions regulations and law” and that it viewed its non-controlling stake in Irancell as being in keeping with its core mission: “to speed up the progress of the emerging world by enriching the lives of the people within it.”

“Our success in widening access to mobile technology has been, and continues to be, a liberating force for Iranians, whatever their political allegiances,” it said. “Mobile technology has brought communities together, empowered individuals and helped raise living standards for millions in the developing world.  MTN is proud of this legacy.”

Swatch, the Swiss watch manufacturer, has also resisted UANI’s appeals, saying in a letter to Wallace that it “sells to consumers, not regimes.” Why would UANI, which is concerned with nuclear proliferation, care about watches?  Because, Wallace said, the high-end watches Swatch sells and other luxury items go to the “elites,” particularly officials of the Revolutionary Guards, and he wants them to feel the pain of sanctions, even if only on their wrists.

UANI’s allies in Congress give it high praise. 

“What I like,” said Rep. Ileana Ros-Lehtinen, the Florida Republican who chairs the House Foreign Affairs Committee, “is they are in the weeds. You name a sector in the Iranian economy and they have been inside it, putting a lot of pressure on them. We’ve worked with them, especially on embargo and sanctions legislation. So many of the bills had their genesis with them.”

The campaign also finds favor on the other side of the aisle.  

“Part of their approach involves putting pressure on corporations to end existing business relationships with Iran,” said Rep. Steve Israel, D-N.Y. “Along with their success on that front, UANI has used that experience to communicate effectively with members of Congress on how best to strengthen existing sanctions and ensure companies are complying with our laws.”

One major concern about the success of the sanctions is that the Iranians might lash out, having tired of seeing their nuclear scientists assassinated, their nuclear research sabotaged, their currency ravaged.

That may already be happening. U.S. officials ascribe continuing attacks on U.S. banks’ computer networks that began last month to Iran, perhaps in response to U.S. and EU sanctions on its banks. Israel claims Iran was behind the drone mission Hezbollah carried out over northern Israel this week, and Hezbollah acknowledged that the unmanned aircraft that was shot down was manufactured in Iran. And Tehran still has many other options for retaliation, experts say.  

“The main concern for the market is that the Iranian regime acts out in desperation, as the financial noose tightens,” said John Kilduff of Again Capital and a CNBC oil analyst. “If Iran attempts to make good on its threats to close the Strait of Hormuz or attempts some other attack, prices will spike higher, at least temporarily. If, however, there is regime change in Iran, resulting in a Western-friendly government, we could see the mother of all price breaks at the gasoline pump.”

'Punishing the innocent'

There are those who also characterize what Wallace and UANI are doing as harming the Iranian people rather than the government.

“It is profoundly immoral. It is punishing the innocent,” said Haroon Moghul, a fellow at both the New American Foundation and the Fordham Law School Center for Security, speaking of UANI’s campaign. 

“I'm no fan of Iranian government,” he continued. “I wish it would go away. But what do the people have to do with the government?  It is weakening the people of Iran. We are making harder for them to change their government. Sanctions empower criminal elements, make it harder to civil society to operate, make it harder for Iran to become a real democracy.”

Reacting to that kind of criticism, Wallace acknowledges that his and his colleagues are involved in “a proxy war,” but adds, “I'm comfortable fighting that war.”

The Iranian Foreign Ministry said it is aware of the efforts of UANI and Wallace, but says the group’s campaign is misguided.

“I think that the nature of this organization is known to all of us,” said the spokesman, Alireza Miryusefi. “They take actions based on the false presumption that my country is pursuing a nuclear weapon program. As we have emphasized on several occasions, Iran's program is fully peaceful and their presumption is totally wrong.”

Wallace, however, has no doubts that Iran is bent on becoming a nuclear military power, and remains convinced that the pressure that UANI is bringing to bear will ultimately succeed.  

“Our message is clear: You have to choose between doing business with our checkbook or their checkbook -- with the reality being we're the biggest checkbook in the world,” he said. “Notwithstanding the purported demise of the United States, we're still the biggest checkbook in the world.”

Richard Engel is chief foreign correspondent of NBC News; Robert Windrem is a senior investigative producer.

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If Bashar Assad is dislodged from power in Syria, as seems increasingly likely, Russia stands to be the biggest loser in both international prestige and lost arms sales, U.S. analysts tell NBC News.

 “They are scrambling to hold on to the few allies they have,” Charles  Kupchan, a senior fellow with the Council on Foreign Relations and the author of “No Man’s World,” a book about a world order unanchored by superpowers, said of the Russians. “They’re in an extremely awkward position  --  supporting a regime that is considered beyond the pale by most of the world  -- and as a consequence are selling arms and vetoing  resolutions that are needed steps to stop the killing.”

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On Thursday, Russia and China vetoed a U.N. Security Council resolution threatening  sanctions against the Assad regime. U.S. Ambassador to the U.N. Susan Rice called the actions, “dangerous and deplorable,” and argued  on the “Andrea Mitchell Report” on MSNBC that it runs against their “long-term interests.”

Indeed,  those who have meet with members of the Syrian rebel army say no nation, not even Iran, Assad’s closest ally in the region, is as reviled as Russia, which has supplied the regime with many of the armaments used to attack the rebels and shell villages.

Kupchan says that Russia doesn’t seem to care because it’s dealing with what it considers larger issues of geopolitics.  “What’s driving  Russia’s position is Moscow’s deep discomfort at what happened in Libya and (its determination) that it not again sanction civilian protection as pretext for regime change,” he said.

Former Russian President Dmitry Medvedev, who according to diplomatic officials felt personally betrayed by U.S. President Barack Obama after agreeing to U.N. resolutions permitting the use of force to protect Libyan civilians, only to see it used to overthrow their long-time ally, Moammar Gadhafi.

“Their second motivation, more explicit , is  to salvage influence. To put it mildly, their influence has waned in the Middle East and Central Asia ," added Kupchan. “So, they’re scrambling to hold on to the few allies they have.”

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William Hartung, an arms analyst for the Center for International Policy, says there may be another, more commercial reason for Russia’s support: Syria is one of Moscow’s biggest arms customers in the Middle East, and while purchases by other regional buyers  have declined , Damascus’ appetite for first Soviet and then Russian weaponry has never wavered.

“Syria is among a handful of big buyers left for Russia,” said Hartung, who notes that former customers like Saddam Hussein and Gadhafi have left the world stage. The U.S. and Europe also are making inroads with Russia’s biggest client, India, while China is manufacturing more of its own armaments. “How do you replace China, India, Iraq, Libya and now Syria?” Hartung asks.

In fact, Syrian arms purchases  from Russia have dramatically increased over the past several years, according to documentation  from the Stockholm International Peace Research Institute  (SIPRI) and interviews with arms experts.

“Most of Russian exports to Syria over the 2001-2011 period were in the past three years,” said Hartung. “The data shows $187 million (in sales) in 2009;  $294 million in 2010; and $246 million in 2011.”  Over the past decade, Russia transferred weapons worth $857 million to Syria, about 70 percent of the total weapons Syria received in that period.  Other suppliers were Belarus ($196 million), Iran ($109 million), and North Korea ($40 million).

Major weapons sent by Russia to Assad’s government, according to SIPRI, included 2,000 anti-tank missiles, including 200 Igla-SA-18 "Grouse" models, which have been fired from vehicles, helicopters and  ships against rebel fighters; 868  surface-to-air missiles; 24 MiG fighter planes with 300 air-to-air missiles; 36 trainer/combat aircraft; as well as helicopters and artillery. Those numbers do not count the small arms the Syrian military and security forces receive from Russia.

Politically, it’s a symbiotic relationship, Hartung said of the Syrian purchases. “Some of this is about cementing  relationships,  hoping the Russians will bail them out in a pinch.”

There have been conflicting reports on Russia’s willingness to continue sales.  In early July, the deputy director of a body that supervises the country's arms trade was quoted as saying, Russia  would suspend arms sales to Syria.

“While the situation in Syria is unstable, there will be no new deliveries of arms there," Vyacheslav Dzirkaln told journalists at the Farnborough Airshow in Britain, Russia's Interfax news agency reported. But no one else in the Russian government would confirm the deputy minister’s comments, leaving open the possibility that Russia will continue to resupply Assad’s military and security forces.

'Strengthening Putin's hand'
Kupchan said continuing the arms sales might benefit Russian President Vladimir Putin.

 “I do think that in the big scheme of things, the sale of arms is a drop in the bucket financially,” he said. “It matters more in domestic politics, within the decision-making process. Arms merchants and generals are weighing in. It’s not a decisive role but it helps Putin to have them in his camp.

“It’s all about strengthening Putin's hand by standing up to the West.”

But Hartung said that no matter what the end game in Syria, Russia will come out a loser. Either the client state will be in the hands of the anti-Russian rebels or remain in chaos for months, or even years.

 Still, Kupchan said, Russia may still play a positive role in ushering in the post-Assad era.

“It’s conceivable the Russians play a role in the end game,” he said. “They cannot be exceedingly pleased the way this is gone.  I can see the Russians facilitating Assad’s departure.  I just don’t see him winding up in a dacha or gated community outside Moscow.  Probably, more like somewhere in the Arab world or Africa.”

Wherever he goes, Russia’s influence in Syria is likely to go with him.

Robert Windrem is a senior investigative producer for NBC News.