December 3, 2006
Blowing the Whistle on Big Oil

By EDMUND L. ANDREWS
Honolulu

DURING a 22-year career, Bobby L. Maxwell routinely won accolades and awards as one of the Interior Department’s best auditors in the nation’s oil patch, snaring promotions that eventually had him supervising a staff of 120 people.

He and his team scrutinized the books of major oil producers that collectively pumped billions of dollars worth of oil and gas every year from land and coastal waters owned by the public. Along the way, the auditors recovered hundreds of millions of dollars from companies that shortchanged the government on royalties.

“Mr. Maxwell’s career has been characterized by exceptional performance and significant contributions,” wrote Gale A. Norton, then the secretary of the interior, in a 2003 citation. Ms. Norton praised Mr. Maxwell’s “perseverance and leadership” while cataloguing his “many outstanding achievements.”

Less than two years later, the Interior Department eliminated his job in what it called a “reorganization.” That came exactly one week after a federal judge in Denver unsealed a lawsuit in which Mr. Maxwell contended that a major oil company had spent years cheating on royalty payments.

“When I got this citation, they told me this would be very good for my career,” said Mr. Maxwell, smiling during an interview here. “Next thing I knew, they fired me.” Today, at 53, Mr. Maxwell lives on a $44,000 annual pension in a two-bedroom bungalow in the hills outside the Hawaiian capital.

But Mr. Maxwell has hardly disappeared. Instead, he is at the center of an escalating battle with both the oil industry and the Bush administration over how the federal government oversees about $60 billion worth of oil and gas produced every year on federal property. In the process, he has become one of the most nettlesome whistle-blowers Big Oil has ever encountered, a face-off that offers an inside look at how the industry and the government do business together.

Invoking a law that rewards private citizens who expose fraud against the government, Mr. Maxwell has filed a suit in federal court in Denver against the Kerr-McGee Corporation. The suit accuses the company, which was recently acquired by Anadarko Petroleum, of bilking the government out of royalty payments. It also contends that the Interior Department ignored audits indicating that Kerr-McGee was cheating. Three other federal auditors, who once worked for Mr. Maxwell and still work at the Interior Department, have since filed similar suits of their own against other energy companies.

Several of the nation’s biggest oil producers, including Exxon Mobil, Chevron, Shell and ConocoPhillips, failed in an effort to block Mr. Maxwell’s suit, arguing before an appellate judge that his case would “open the floodgates” to suits by other federal auditors. But the court rejected their pleas, and a trial is set to start on Jan. 16.

Mr. Maxwell’s self-interest is as much in play in the suit as is the public interest. If he wins, Kerr-McGee could be forced to pay more than $50 million in unpaid royalties and penalties, Mr. Maxwell said. Mr. Maxwell and his lawyers could be entitled to keep as much as 30 percent of any funds the government recovers — enough to make him a wealthy man.

Anadarko says that the government’s rules were followed and that it owes no money because the Interior Department never asked it to pay more. But it is now trying to negotiate a settlement before the trial begins.

“We believe the case is without merit,” said John Christiansen, an Anadarko spokesman. “However, as is a fairly common practice, both sides have agreed to meet with a mediator prior to trial.”

THE actions of Mr. Maxwell and the other auditors have coincided with broader investigations by Congress and the Interior Department’s own inspector general into whether the agency properly collects the money for oil and gas pumped from public land. Investigators say they have found evidence of myriad problems at the department: cronyism and cover-ups of management blunders; capitulation to oil companies in disputes about payments; plunging morale among auditors; and unreliable data-gathering that often makes it impossible to determine how much money companies actually owe.

In February, the Interior Department admitted that energy companies might escape more than $7 billion in royalty payments over the next five years because of errors in leases signed in the 1990s that officials are now scrambling to renegotiate. The errors were discovered in 2000, but were ignored for the next six years and have yet to be fixed.

Congressional investigators are worried about other problems, as well. The Interior Department’s inspector general told a House subcommittee in September that senior officials at the agency had repeatedly glossed over ethical lapses and bungling. “Short of crime, anything goes at the highest levels of the Department of the Interior,” declared Earl E. Devaney, the inspector general.

The Interior Department, which has described Mr. Maxwell as a renegade former employee motivated by the riches his lawsuit might bring, said its auditing efforts received a clean bill of health from an outside accounting firm in 2005. “The results are clear and irrefutable,” the agency said in a statement, adding that it was “accomplishing its job on behalf of the American public.”

But Republican leaders on the House Government Reform Committee, which has been reviewing the flawed leases, recently accused Interior officials of perpetuating a “culture of irresponsibility and lack of accountability” at the agency.

The committee ordered the Government Accountability Office, the investigative arm of Congress, to begin a broad examination of issues ranging from the agency’s rules and enforcement practices to the accuracy of its most rudimentary data.

The Interior Department “clearly doesn’t view their responsibility as maximizing revenue to the American people for resources that belong to the American people,” said Representative Darrell E. Issa, a California Republican who oversaw hearings on the flawed leases. “We don’t have a system that accurately tells us how much oil is being taken out of the ground.”

No one, says Mr. Maxwell, knows that better than he does.

BORN “Bobby,” not “Robert,” Mr. Maxwell is bald, burly and speaks with a back-country drawl that is occasionally punctuated by a cackling laugh. He said he thrived in the world of wells, pipelines and offshore rigs and meshed comfortably with the oil cultures of Texas and Oklahoma. Genial and unflappable, he describes his politics as “very conservative” and cringes at being labeled a rebel.

“I like the oil and gas industry,” he said, as he reminisced about his years as a federal auditor. “We are neither for nor against the profits they make. Our job is to make sure the American public gets a fair return on its assets.”

Mr. Maxwell grew up in a poor family in rural Tennessee. After serving in the Army in Hawaii, he earned a bachelor’s degree in business at Chaminade University here. He later became a certified public accountant and earned a master’s degree in business from Texas A&M. In 1983, after stints as an auditor with the Air Force and the Department of Energy, he joined the Minerals Management Service of the Interior Department.

The M.M.S. is responsible for collecting and overseeing the royalties for all the oil, gas, timber and coal that is produced on federal property. Last year, companies paid nearly $10 billion in royalties on oil and gas alone.

“I loved going to the oil companies,” Mr. Maxwell recalled, saying he spent about half of his time on the road — some of it at offshore drilling rigs. “Sometimes, there would be nothing more than a room and a helicopter pad to land on. But it was an education, and it was highly practical.”

Despite Mr. Maxwell’s placid demeanor, friends and former colleagues say he was a dogged auditor who sometimes rankled his own bosses. In 1988, he visited a coal mine on federal land in Montana even though, he says, his supervisors scoffed at the trip because they thought that the mine was too small to scrutinize. When Mr. Maxwell arrived, he found that the mine only looked small because it had been underpaying royalties for years. Within months, the company agreed to pay $43 million in back royalties, and it eventually paid more than $100 million.

In 1993, during the Clinton administration, officials in Washington told him to drop a complex dispute with ARCO because they thought his reasoning was dubious. But just as he was about to back down, ARCO executives volunteered to pay $20 million.

The Interior Department gave Mr. Maxwell an award that year, noting that he had “vehemently pressed his position” even though “support seemed lacking.” It attributed his success to both his “measured combatant style” and his personal rapport with ARCO executives.

“If he thought there was a case, he had a reason,” said Barbara Rothway, a retired Interior Department auditor. But, she added, “I could see how he might sometimes bother the people he worked for.”

Patient and stubborn, Mr. Maxwell spent years poring over the accounts of the Jicarilla Apache Tribe in New Mexico, which had long complained that companies were underpaying them for natural gas extracted on their tribal lands. Tribal officials said Interior Department officials had paid little heed until Mr. Maxwell came along. He collected and organized data going back 30 years and found pervasive errors by both oil companies and the government. The tribe eventually recovered more than $20 million in back royalties.

“Anyone knowledgeable about the way Interior processes payments knows there are all sorts of ways for companies to underpay,” said Alan R. Taradash, a lawyer in Albuquerque who has represented the tribe for years. “Bobby was one of the few who stood up with us and demanded that the auditing be done properly.”

MR. MAXWELL says his first serious doubts about the Interior Department originated in 1998, when the agency reluctantly began to investigate accusations of systematic cheating on royalties for oil.

Several of the nation’s biggest oil companies eventually settled that investigation by paying nearly $440 million. The investigation occurred only after outside whistle-blowers argued for years that the government was losing billions.

The cases had been sparked in part by a former oil trader at ARCO named J. Benjamin Johnson Jr., known as Benji, who contended that oil companies had used elaborate swapping schemes to cheat on royalties owed to private and state landowners, as well as the federal government.

Mr. Johnson and another former ARCO trader quit their jobs and became expert witnesses for landowners and state governments who wanted to sue oil companies for back payments. The two traders soon realized that the biggest case by far belonged to the federal government. But no federal officials were interested.

“It was unbelievably difficult,” Mr. Johnson recalled in a recent interview. “They brought me to Denver, to the M.M.S. office, in a room with about 30 auditors and managers from the solicitor’s office. Their reaction was that I was crazy, that it was impossible, that there was no way they could have actually missed this.”

But Mr. Johnson found a way to recover the federal royalties on his own. In 1995, he filed suit under the False Claims Act, a longstanding law intended to encourage whistle-blowers. Under the act, best known for its use against overbilling by military contractors, a private citizen can sue a company, contending that it defrauded the federal government. Companies found guilty have to pay as much as three times the amount of their fraudulent gains, and any person who files a suit is entitled to keep up to 30 percent of the money recovered.

The Justice Department initially refused to join Mr. Johnson’s suit, but it eventually did so, in 1998 after concluding that he and other whistle-blowers — including a nonprofit group called the Project on Government Oversight — were on to something. That was when Mr. Maxwell became involved. Working for the Interior Department, he collected data on a number of oil companies, pooling his material with that of Mr. Johnson.

“Bobby was with us,” Mr. Johnson recalled. “He was a straight-shooter, and he saw it.” Mobil was the first to settle and paid more than $40 million in 1998. Chevron paid $95 million. Shell paid $110 million. By 2002, 15 oil companies had paid a total of almost $440 million.

The Johnson lawsuit taught Mr. Maxwell three lessons. One was that Mr. Johnson became a wealthy man. (The oil trader and his lawyers received more than $30 million, while two other groups of whistle-blowers received more than $40 million.) The second was that top Interior officials had been obstinately blind to the oil industry’s practices. The third was about the power of the False Claims Act. Until Mr. Johnson came along, no one had used it to go after royalty underpayments.

Created in 1849 to manage the nation’s publicly owned natural resources, from national forests to parks and waterways, the Interior Department oversees timber, grazing, mining and oil drilling operations over many tens of millions of acres. And while the agency has often tried to increase drilling and mining under Democrats and Republicans alike, current and former officials say the Bush administration elevated that goal above almost all of the department’s other mandates.

Mr. Maxwell says his frustrations with the Interior Department escalated after the Bush administration took office in 2001. The Interior Department’s top priorities became increasing domestic oil and gas production, offering more incentives to drillers in the Gulf of Mexico and pushing to open the Arctic National Wildlife Refuge and other wilderness areas to drilling. The department trimmed spending on enforcement and cut back on auditors, and sped up approvals for drilling applications.

The agency’s senior ranks also became more heavily populated with officials friendly to the energy industry. For example, its new deputy secretary, J. Steven Griles, worked as an oil industry lobbyist before joining the department, and Chevron and Shell had paid him as an expert witness on their behalf in the Benji Johnson case. Mr. Griles declined to comment.Auditors, according to Mr. Maxwell and many others, were told to devote less energy to time-consuming audits and rely more on a computerized monitoring system called “compliance review.” Auditors complained that the new system was superficial and riddled with technical problems. Even when the new system flagged potential underpayments, Mr. Maxwell said, it often failed to supply conclusive information.

“We were getting shut down on all kinds of cases,” he said. “We started to wish that someone would come along and file a False Claims suit, so we could jump onboard.”

Auditing and compliance review had generated an average of about $176 million annually in the 1990s, with an extraordinary peak of $331 million in 2000, according to data from the Congressional Budget Office and the Interior Department. But from 2001 through 2005, a period when energy prices soared to new highs, enforcement revenue averaged about $46 million a year.

In 2004, the Interior Department’s inspector general issued a blistering report about the auditing system, saying that many auditors were unqualified, that essential documents were being lost and that the internal review process was “ineffective.”

BY 2002, Mr. Maxwell was fed up. He and a team of auditors had worked for months to dissect a complicated marketing deal by Kerr-McGee that they believed was cheating the government. He concluded that Kerr-McGee was selling all its oil at below-market prices to another company that compensated Kerr-McGee by assuming many of its marketing and administrative costs.

Simply put, Kerr-McGee seemed to be getting paid in both cash and services, but it was calculating its royalties only on the cash it received. Mr. Maxwell calculated that the company had underpaid the government by as much as $12 million between 1997 and 2002. State auditors in Louisiana had been investigating exactly the same issue in 2001, and ordered Kerr-McGee to pay an extra $2 million in royalties on oil from state lands.

According to Mr. Maxwell and Interior Department officials, when Mr. Maxwell presented his findings to his superiors, agency lawyers told him to drop the case. When he continued to argue, he recounts in his lawsuit, the agency’s chief of enforcement warned him that the director of the M.M.S., Johnnie M. Burton, would be “very upset” if he persisted.

“The word came down from the top, not to issue this order,” Mr. Maxwell said in an interview, speaking about the Interior Department. “There have always been people who don’t want to pursue things. But now it’s grown into a major illness. It’s dysfunctional.”

In a written response to questions from The New York Times, the Minerals Management Service said it was “rare” to overrule an auditor but that Mr. Maxwell’s contentions involved a “questionable application of M.M.S. regulations.”

The matter might have ended there, except that Mr. Maxwell decided to retire in June 2003. As soon as he left the agency, he began researching the possibility of emulating Benji Johnson and filing his own suit under the False Claims Act. As it happened, Mr. Maxwell’s “retirement” was brief. In October, the Interior Department rehired him to fill a management gap in its Denver office, and it put him in charge of a 120-person auditing team monitoring the Gulf of Mexico.

Despite rejoining the government, Mr. Maxwell filed his suit against Kerr-McGee in June 2004. The case was unsealed on Jan. 20, 2005; a week later, Mr. Maxwell lost his job.

Arriving at his office shortly before 8 a.m. on Jan. 27, Mr. Maxwell said he was summoned to a meeting with a senior M.M.S. official, who had flown in from Washington. The official handed him a memo, explaining that his job responsibilities were being moved to Houston and that his position would be eliminated.

To this day, Interior officials say they never fired Mr. Maxwell. They say, according to court papers, that he was merely a “re-employed annuitant” who was no longer needed. “The position disappeared,” said Ms. Burton, the M.M.S. director, in a meeting with energy reporters in September.

Mr. Maxwell protested. He said he would have relocated or taken a different job. He added that he was a certified public accountant and had a master’s degree in business administration; his successor lacked those degrees. But the fight did not last long. When Interior officials offered Mr. Maxwell a confidential financial settlement to leave without a fight, he took the deal and moved to Hawaii.

And he continued to press his case against Kerr-McGee. The company tried and failed to have the suit dismissed, arguing that a federal auditor should not be allowed to take information from work and file a lawsuit under the False Claims Act. In October, eight major oil companies including Chevron and Exxon Mobil weighed in on Kerr-McGee’s side.

“Government employees who uncover suspected fraud in the course of carrying out their jobs will receive a tacit invitation” to sue as private citizens, the companies argued in their brief. After the appellate court rejected the industry’s plea, Mr. Maxwell’s trial was rescheduled for January. Settlement talks are scheduled to begin in Denver this week.

Interior officials contend that Mr. Maxwell and other auditors have a conflict of interest when they stand to gain personally from their enforcement work. “These people could be entitled to collect 30 percent of the money that is owed to the government, for work they were already being paid to do,” Ms. Burton told reporters in September.

If Mr. Maxwell had not acted, of course, the government would have had no chance of recovering any money at all. James W. Moorman, president of Taxpayers Against Fraud, a nonprofit organization that specializes in the False Claims Act, acknowledged that it was less than ideal for federal investigators to have a financial stake in rebelling against their bosses. But he said the alternatives might be worse.

“You’re talking about a situation where there seems to be complete breakdown in the system,” Mr. Moorman said. “If they’ve got evidence of fraud, why shouldn’t a court hear it?”

STANDING in his garage recently, Mr. Maxwell pointed to six big cartons stacked along the wall. They contained 60,000 pages of documents that Kerr-McGee and the Interior Department had provided as part of the discovery process in his lawsuit. Mr. Maxwell, true to form, has gone through every page, and distilled his case into seven modestly sized binders he keeps in his living room. He says he is ready for trial, and even for the possibility of losing.

If he does lose, his lawyers will not charge for their work but he will have to pay about $125,000 to expert witnesses he has hired. “I can manage it,” he said. He has saved money all his life, he said, and can live on his savings and his pension.

“He’s thought about all the options, and none of them seem life-threatening to him,” said his daughter, Angela Maxwell Horn. “What can they do him? They’ve already fired him.”

Email this Story

Bush Aide: 'We Have Not Failed in Iraq'
Dec 3, 6:26 PM (ET)
By BEN FELLER

(AP) In this photo provided by CBS, National Security Adviser Stephen Hadley appears on CBS's "Face the...
Full Image

Google sponsored links
Why Mommy is a Democrat - The book George Bush doesn't want your kids to read!
littledemocrats.net

Draft Obama - Encourage Barack Obama to Run! Sign the Grassroots Petition
DraftObama.org


WASHINGTON (AP) - While President Bush acknowledges the need for major changes in Iraq, he will not use this week's Iraq Study Group report as political cover for bringing troops home, his national security adviser said Sunday.
"We have not failed in Iraq," Stephen Hadley said as he made the talk show rounds. "We will fail in Iraq if we pull out our troops before we're in a position to help the Iraqis succeed."
But he added: "The president understands that we need to have a way forward in Iraq that is more successful."
The White House readied for an important week in the debate over Iraq: Bush planned a meeting Monday with Abdul-Aziz al-Hakim, the Shiite leader of the largest bloc in Iraq's parliament, and awaited the recommendations Wednesday from the bipartisan commission.

(AP) In this photo provided by CBS, National Security Adviser Stephen Hadley, left, talks with Sen....
Full Image
Yet his administration, hoping to find a new way ahead in Iraq, found itself on the defensive from the second recent leak of an insider's memo on Iraq in a week.
The latest, first reported in Sunday's New York Times, showed that Donald H. Rumsfeld called for a "major adjustment" in U.S. tactics on Nov. 6 - the day before an election that cost Republicans the Congress and Rumsfeld his job as defense secretary.
Hadley played down the memo as simply a laundry list of ideas rather than a call for a new course of action.
He said that Bush - just before a pivotal election - was not portraying a different sense of the war to the public than his own defense secretary was giving him in private.
The president "has said publicly what Rumsfeld said, that things are not proceeding well enough or fast enough in Iraq," Hadley said.

(AP) In this photo provided by CBS, National Security Adviser Stephen Hadley, left, talks with Sen....
Full Image
Democrats did not buy that.
"The Rumsfeld memo makes it quite clear that one of the greatest concerns is the political fallout from changing course here in the United States," said Sen. Joseph Biden, D-Del., the incoming chairman of the Senate Foreign Relations Committee. "The bottom line is there is no one, including the former secretary, who thought the policy the president continues to pursue makes any sense."
Bush has nominated Robert Gates to replace Rumsfeld. His confirmation hearing before the Senate Armed Services Committee is on Tuesday.
As pressure builds for a new strategy, the report from the Iraq Study Group increasingly is viewed as perhaps clearing the way for a U.S. exit strategy in Iraq. Hadley, though, said the review will be just one factor the White House considers, along with views of congressional leaders, U.S. military commanders and the Iraqi government.
Once the president is comfortable on how to proceed, he will spell out his plan publicly in the coming weeks, Hadley said.

(AP) In this photo provided by CBS, National Security Adviser Stephen Hadley, right, shakes hands with...
Full Image
Bush repeatedly has rejected a wholesale pullout or what he calls artificial deadlines, saying Thursday, "This business about a graceful exit just simply has no realism to it at all."
Hadley said Bush was trying to address those who contend the commission "was just going to be cover for an American withdrawal, almost regardless of what was happening on the ground. And the president needed, and felt he needed to stop that right there. That isn't graceful withdrawal, that's cut and run. And, of course, as the president's said, cut and run is not his cup of tea."
Hadley said the goal remains to shift responsibility to Iraqi forces, an increasing point of emphasis as the unpopular war rolls on.
Bush, after a meeting last week in Jordan, expressed confidence that Iraqi Prime Minister Nouri al-Maliki and his government can lead the country toward peace with support from the United States.
Yet Hadley was left Sunday to defend his own memo that called that very point into question.
Written on Nov. 8 but disclosed just before Bush's meeting with the Iraqi leader, the memo described al-Maliki as "either ignorant of what is going on, misrepresenting his intentions or that his capabilities are not yet sufficient to turn his good intentions into action."
Hadley said Sunday about the memo: "I made an assessment, raised a number of questions, hard questions that should have been raised. But if you look at that memo and if you look at what the president said in the press conference after the meeting with Prime Minister Maliki, it is clear that this government shares our objective for Iraq and has the will and desire to take responsibility."
The White House maintains that, taken as a whole, the memo was an expression of support for al-Maliki. Hadley rejected the suggestion that Bush administration hadn't shown much displeasure about the leak - or even that it had been authorized to pressure al-Maliki.
"It's unconscionable," he said. "It's an effort to embarrass those two leaders. It could have cast a pall over this meeting."
In Congress, Democrats and Republican continue to wrestle with how and when to withdraw troops without leaving a mess in Iraq, the kind of instability that could jeopardize the region and the United States.
The outgoing Senate Armed Services Committee Chairman John Warner, R-Va., said Bush is "listening, learning, and he's open to take a change in course."
Bush says the U.S. will stay in Iraq as long as it takes to get the job done. That is the wrong message to Iraqis, said Sen. Carl Levin, D-Mich., the incoming chairman of the Senate Armed Services Committee.
"It tells them that it's not their responsibility, it's ours," said Levin, pushing for the start of a phased troop withdrawal.
"Nothing has changed," said Sen. Dianne Feinstein, D-Calif., about the president. "He said he'll continue to be flexible. But he hasn't been flexible. He doesn't listen. And that's just a fact."
Hadley appeared on ABC's "This Week," NBC's "Meet the Press," and 'Face the Nation" on CBS. Warner and Levin were on NBC, Biden was on "Fox News Sunday" while Feinstein appeared on "Late Edition" on CNN.

Comment
If Scotland wants partition, the British cannot deny it

Many nations have prospered after gaining independence from their neighbours. Why should the Scots be different?

Simon Jenkins
Wednesday November 29, 2006
The Guardian

I think the word is panic. Last week the prime minister, chancellor of the exchequer, home secretary, defence secretary, trade secretary and Scots ministerial expatriates galore travelled in a posse north to a Labour conference in Oban, like a bunch of Spanish hidalgos racing back from the fleshpots of Madrid to quell a revolt in their home province.
Their objective was to suppress one man, Alex Salmond, leader of the Scottish National party. An opinion poll had shown support for Salmond's crusade, an independent Scotland, rising to 52% of the electorate. Those regarding themselves as Scottish had risen from half to three-quarters in 25 years, while those saying "British" had halved to just 20%.

Article continues

This is raw politics. Labour desperately needs its 40 or so Scottish seats at Westminster. Gordon Brown, probably the next prime minister, wears his distaste for England on his sleeve, and English voters sense it. Already devolution has subverted the legitimacy of Scots MPs in voting on English bills. Just when the 300th anniversary of the 1707 Act of Union is about to be celebrated, it seems to be falling apart, and Labour's electoral fortunes with it. Battle will be joined next May in the Scottish parliamentary elections.
The Scottish debate shows British politics at its most conservative. Any sign of a desire for local autonomy, in any part of the United Kingdom, is seen at Westminster as uppity insubordination by people ignorant of their best interests. Unionism may have disappeared from Britain's industry, but it is the ruling ethos of its politics. Big is beautiful if British. The prevailing wisdom holds that anyone, be they Scots, Welsh, Northern Irish or, for that matter, Iraqi or Afghan, must be better off under the benign custodianship of London. Imperialism is still Westminster's default mode. Surely nobody could be richer, safer or freer than with a British soldier on every corner and a British subsidy under every belt.

Scotland's pooling of sovereignty with England was, as Christopher Whatley points out in his new history of the union, always pragmatic rather than popular. The English wanted protection from Catholic incursion. The Scots Presbyterians wanted the same, plus a share in England's colonial expansion. It was moot how long the union would survive imperial retreat and the opening up of continental and global trade.

Margaret Thatcher's opposition to devolution was that of a Tory paternalist, and is reflected still in David Cameron's metro-centralism. But the paternalist tradition is now fiercer on the left than the right. (In the current Prospect magazine, the Tory Michael Fry even declares his switch to the SNP.) Speaker after speaker in Oban declared the union in the best interests of Scotland and crucial to the Scots economy. What would the place do without the £25bn subsidy from London, enabling public spending per head to run at 30% above England? To the predominantly Scottish Labour cabinet, this socialist statelet to the north must be saved from reverting to its dark, tribal past - and their Westminster seats must be saved too.

I would not lose any sleep if the Scots voted to repeal the 1707 act. Independence need not end the United Kingdom: Scotland and England shared a monarch before 1707, as Britain and Canada do today. Separation need be no more radical than the partial autonomy of a dozen European countries from their neighbours. Borders were not sealed or passports cancelled under the Government of Ireland Act 1920. If eastern Europe can handle partition, so can Britain.

The phased withdrawal of the subvention would be traumatic, but it would do Scotland nothing but good to learn that public money does not grow on English trees. If economic history teaches anything, it is that huge inflows of aid rot an economy, while "unearned" wealth, as from oil, is usually wasted. The phased end of the subsidy would be thoroughly good for Scotland, not bad.

Partition is the new politics, despite being the hobgoblin of centralism. It is through partition that Ireland is booming, Slovakia reviving and the Baltic states prospering. The British government is in favour of it for everyone else, even forcing it on the former Yugoslavia and Iraq/Kurdistan. This year it welcomed Montenegro to Europe's community. By what hypocrisy do Westminster grandees ridicule Scotland's ambition?

Big federal states were fine when governments were small and unobtrusive. Today's governments are elephantine and unresponsive to local sentiment. That is why Spain, France and Italy have all opted for constitutional devolution in the past two decades, fending off separatist pressure. Anti-federalism is why European public opinion revolted against Brussels last year, and why there is no more talk of a Scandinavian union. As for size being crucial to viability, this is corporatist rubbish. If Denmark is viable, why not Scotland?

All such considerations must anyway bow before self-determination. If the Scots want to repeal the 1707 act (as some Britons want to repeal the European Union's treaties), the British cannot deny it. The story of the past quarter-century is that states enjoy no legitimacy without the consent of their territorial minorities. Britain went to war for this principle in Kosovo.

The British union is now afflicted by the same self-doubt as most of Europe's states. Scottish devolution was precipitated by the crassness of Tory rule in the 1980s, but it was bound to come in time, as did Irish home rule half a century earlier. Under the 1998 act Brown ensured that fiscal policy was never devolved and the golden handcuff of the subvention remained in place. Yet no visitor to Edinburgh today can doubt that Scotland is a far more coherent country and culture than it was before. For all the sneers hurled at the new parliament, its return after 300 years of absence is surely permanent.

The concept of national independence within a global political economy is everywhere debated. In Scotland the concept has passed from the realm of the unthinkable to that of common discourse among politicians, lawyers, academics and the press. It reflects the same aspirations as those of Basques, Bavarians and Bosnians. One day it may reflect those of independent Latvians, Slovenians and Irish. Whether or not because of the insensitivity of modern central government, the world is going that way. In the multi-tiered sovereignties of Europe only one thing is for sure, that the tiers will argue. In that argument power will always be centripetal and democracy always centrifugal. I prefer democracy.

simon.jenkins@guardian.co.uk

De facto partition takes hold in Iraq
By HAMZA HENDAWI, Associated Press WriterSun Dec 3, 3:44 PM ET
For months, the Waheed brothers steadfastly endured the killings raging around them in their mainly Sunni district, staying put as fellow Shiites packed up and left.

Finally, a death threat persuaded Majed and Mondhir Hatem Waheed to leave the neighborhood of Dora where they grew up and, together with their wives and children, join 24 relatives in an uncle's house in Baghdad's Shiite Sadr city district.

"At least, we are safe," 25-year-old Mondhir Hatem Waheed said.

In the 43 months since Saddam Hussein's ouster, entire Iraqi provinces have become virtually off-limits to one or another sect, mixed Sunni-Shiite neighborhoods are slowly disappearing, and a Kurdish region in the north appears to have all but seceded.

In many ways, Iraq is breaking up, though not in a way in which a well-defined boundary could be established to ensure peace. It is happening amid a debate on whether partitioning this ethnically and religiously diverse nation could provide a way out of the growing sectarian violence tearing it apart.

The debate on partitioning Iraq has touched on such sensitive issues as the distribution of the country's oil wealth and how far plans for a federal system of government should go. Also at the forefront is the likely influence of neighboring powers like Iran, Saudi Arabia and Syria should the country be carved into Kurdish, Sunni Arab and Shiite Arab mini-states.

Embittered by the loss of their dominance under Saddam and worried they may be left isolated and bereft of resources in Iraq's mostly arid central and western parts, Sunni Arabs have warned that federalism will lead to the breakup of the country.

"I believe some Kurds and some (Shiite) Arabs in the south have been promoting federalism to pave the way for the larger goal of dividing Iraq," said Hamid al-Mutlaq, a senior member of the National Dialogue Front, a Sunni Arab political party.

"This catastrophic sectarian tension is only a step to justify partition," he added.

Abdul-Aziz al-Hakim, a senior Shiite politician who is federalism's chief advocate in Iraq, sought to allay these fears on a visit last week to neighboring Jordan, which is mostly Sunni.

"We reject any notion of partitioning Iraq," he said Saturday. "The federalism that Iraqis have accepted ... will not be built on sectarian basis."

But sectarian bloodshed has skyrocketed since the Feb. 22 bombing of a key Shiite shrine north of Baghdad that sparked retaliatory attacks. The numbers are staggering.

The U.N. says violence now claims up to 100 Iraqi lives daily. A total of 1.6 million people have been displaced inside Iraq and a similar number have fled the country since the U.S.-led invasion. Estimates of the number of Iraqi civilians killed since 2003 range from 50,000 to 600,000.

After talks in Jordan on Thursday, President Bush and Iraqi Prime Minister Nouri al-Maliki said they rejected a partition, a course of action some candidates in last month's U.S. congressional elections floated in their campaigns as one way to stabilize Iraq and allow a drawdown on U.S. troops deployed here to begin.

"The prime minister made clear that splitting his country into parts, as some have suggested, is not what the Iraqi people want, and that any partition of Iraq would only lead to an increase in sectarian violence," Bush said Thursday.

Partitioning Iraq as a solution to its deep predicament has never found much public support in Iraq. It is not expected to be among recommendations made in a U.S. bipartisan commission report on policy options in Iraq, which is due out Wednesday.

But there seems to be very little at the moment that Bush, al-Maliki or the 140,000 American troops and their Iraqi allies can do to stop Iraq's gradual slide into de facto partition, with Iraqis like the Waheed brothers fleeing their neighborhoods and bodies of apparent victims of sectarian death squads turning up by the dozens every day.

As Baghdad's mixed districts slowly disappear, the Tigris River is emerging as an unofficial barrier in the capital, flowing between a mostly Shiite eastern bank and a mainly Sunni western side.

It is not uncommon now for residents, especially men and boys of fighting age, to refuse to take jobs in areas dominated by members of one of the two sects. People who do travel through different areas often carry fake IDs to hide any hint of their sect, which is often reflected in names.

Outside the capital, Shiites and Kurds rarely venture into the Sunni-dominted Anbar province west of the capital, a bastion of Iraq's insurgency. In the volatile and largely Sunni provinces of Salahuddin and Diyala, north and northeast of Baghdad, some areas are deemed too dangerous for members of the other sect to go.

Sunni Arabs stay away from the mainly Shiite south of Iraq, where militias linked to Shiite political parties are active or virtually in control of some areas.

To the north, the 15-year-old autonomous Kurdish region has begun to show signs of independence. Authorities there enforce rigid security regulations for non-Kurdish Iraqi visitors that are more suited for foreigners than citizens of the same country.

These include a security interview on arrival and registering with police when taking up residence or finding employment. Visitors traveling by road are stopped at three checkpoints before entering Kurdistan.

Amr Hamzawi, a Middle East expert at Carnegie Endowments, a Washington think tank, says partitioning could be a solution to Iraq's problems, noting the country was cobbled together from three separate Ottoman provinces barely a century ago.

"If the violence continues at this level, it could take between two and four years for Iraq to break up," he said.

Sheik Ahmed al-Lami, representative of anti-American Shiite leader Muqtada al-Sadr in a town south of Baghdad, agreed.

"It will happen, without a doubt," he said from Mahmoudiyah, where a Shiite militia loyal to al-Sadr has been battling Sunni militants. "God will not punish us for partitioning Iraq, but will certainly punish us for allowing so many Iraqis to die."

Iraqi Forces Taking Lead in Fight Against Terror
American Forces Press Service
WASHINGTON, Dec. 3, 2006 – Iraqi forces are getting more results as they move into the lead in many areas of the country.

Many Iraqi units have embedded coalition trainers with them, and those units are killing or capturing more insurgents, more arms caches and shutting down more terror cells.

In Baqubah, the 2nd Brigade, 5th Iraqi Army Division worked with U.S. soldiers from the 3rd Brigade Combat Team of the 1st Cavalry Division on coordinated offensive operations against anti-Iraqi forces today.

The Iraqi soldiers began operations targeting terror cells responsible for improvised explosive devices, sniper operations, kidnapping and murder.

"This is a great indicator of the commitment of Iraqi army officers and soldiers to protect and secure the people of the province," said Army Col. David W. Sutherland, 3rd Brigade Combat Team commander. "These operations are intelligence-driven and target specific terrorist cells that are attempting to destabilize the government and economic growth in the province. Some individual targets are also responsible for instigating the sectarian violence in the province."

The operation seeks to eliminate the terror cells, which will allow Iraqi police to enforce the rule of law.

"This military operation is designed to separate the terrorists from the honorable people of Baqubah, and better enable the Iraqi security forces to maintain a secure and stable environment," Sutherland said.

In the eastern portion of Baghdad, Iraqi and coalition soldiers captured 12 terror suspects and uncovered an arms cache Dec. 1.

Iraqi soldiers, supported by the 3rd Battalion, 61st Cavalry Regiment, 2nd Infantry Brigade Combat Team, captured a weapons cache and detained 12 terrorist suspects Dec. 1 in Narwahan.

The U.S. soldiers are part of the 2nd Brigade Combat Team based at Forward Operating Base Loyalty. In the cache they discovered 10 AK-47 assault rifles, two machine guns, two mortar tubes with 70 60 mm rounds, one illumination round, five cases of 12.7 mm ammunition and 61 explosive primers.

FOB Loyalty soldiers also helped Iraqi police conduct a Dec. 2 cordon-and-clear operation in Rusafa.

The joint operation, coined "Operation Armadillo," began in the early morning hours, searching for a cell of car-bombers.

The operation -- still going on -- has uncovered one car bomb and a small weapons cache containing assorted weapons.

Iraqi Special Forces soldiers, with coalition advisors, captured a member of a terrorist cell Dec. 2 in the Jihad district of Baghdad. Officials believe the man is responsible for improvised explosive device and car-bomb attacks against Iraqi security forces within Baghdad. The terrorist cell is also allegedly involved in weapons trafficking in the Baghdad area.

Iraqi forces detained five additional suspects during the raid and confiscated several assault rifles.

Soldiers from 7th Iraqi Army Division, with coalition advisors, captured a member of an insurgent cell Dec. 2 in Tameem, south of Ramadi, who is believed to be responsible for coordinating and conducting multiple small-arms and rocket attacks against Iraqi security forces.

The terrorist cell also allegedly is responsible for producing and placing improvised explosive devices that injure and kill Iraqi civilians. The cell is linked to al Qaeda in Iraq, officials said. Iraqi forces detained three additional suspects during the raid.

Units of the 5th Iraqi Army Division, with coalition advisors, captured a suspected insurgent leader during a raid Dec. 1 near Baqubah, targeting insurgents linked to al Qaeda in Iraq in Diyala province.

The detainee is suspected of leading and financing insurgents operating and conducting attacks against Iraqi civilians, Iraqi security forces and coalition forces in Baqubah and throughout Diyala province. While searching for more insurgents at the objective, Iraqi forces found an insurgent armed with an assault rifle.

(Compiled from Multinational Corps Iraq news releases.)

Related Sites:
Multinational Corps Iraq

------------------------------------------------------------------------
Visit the Defense Department's Web site "America Supports You" at http://www.americasupportsyou.mil, that spotlights what Americans are doing in support of U.S. military men and women serving at home and abroad.

------------------------------------------------------------------------