Saddam's Serb supplier: how our last enemy has been arming our next one.

LAST OCTOBER, SEVERAL DOZEN American troops assembled outside an anonymous new low-rise factory building a half-empty industrial park on the out-skirts of Bijeljina, a small town in north-eastern Bosnia. The owner of the factory, a firm called Orao, was well known among arms dealers and weapons manufacturers. During the 1980s, when a sull-intact Yugoslavia maintained the fourth largest military in Europe, Orao was the Yugoslav Air Force's contractor of choice for jet engine maintenance. After the partition of Bosnia in 1995 and in defiance of U.N. sanctions, they went into business with a new client: Saddam Hussein. Orao became Iraq's prime contractor for servicing its Mig-21 jet engines.

When NATO soldiers finally raided the plant, seizing everything on site, they found, among other things, a long letter on the stationary of Yugoimport, the Yugoslav government's arms trading company. The letter explained to the firm's Baghdad buyer what to do if U.N. weapons inspectors arrived. First, it instructed, the Iraqis were to remove all evidence of the Orao connection and disassemble the engines. Once the inspectors left, the letter continued, Orao would reassemble the upgraded MiG-21 jet engine--free of charge, as part of the contract agreement.

Few Americans know about the connection between Saddam Hussein's Iraq and the former Yugoslav National Army, the front end of a military-industrial complex riddled with mafia connections and ties to Serbian nationalist groups. But the story is a cautionary tale about how, at the dawn of the 21st century, the lawlessness and chaos of one rogue regime or failed state can--if left untended--spill over into the affairs of others, with potentially dreadful consequences.

Three American administrations have now had to grapple with the wreckage of the former Yugoslavia, with little Success. The administration of George H.W. Bush did its best to avoid involvement in the Balkans; as then-Secretary of State James Baker famously said, "We've got no dog in this fight." When the Clinton administration finally intervened in force, first in Bosnia and later in Kosovo, the effect was more to stop warfare than to project real peace and civility: by rooting out endemic corruption, arresting war criminals, and establishing the rule of law. There was neither a serious nor a sustained effort to reshape the region's basic institutions or place the various countries of the former Yugoslavia on a path toward achieving political stability, civic rights, and economic growth, as America did successfully in Germany and Japan after World War II. The result was to end bloodshed but leave the region in a state of endemic lawlessness, free from war but rife with organized violence and corruption. In other words, the Clinton policy freed the region from war but abandoned it to rule by often-government-connected mafias.

But even this low level of involvement was more than the current White House seems willing to bear. Instead of working to root out Bosnia's endemic corruption, arrest war criminals, and establish the rule of law, the Bush administration has been angling for two years to extricate us from the region--and America and Europe are starting to pay the price. The Balkans today are fertile territory for those seeking to smuggle guns, drugs, and persons into Western Europe. And as the Orao raid revealed, chaos in the Balkans, mostly ignored by the Bush administration, could actually threaten American troops during an invasion of Iraq--a task which has been the chief focus of American foreign policy for more than a year.

Rocket in my Pocket

Yugoslavia's role supplying weapons expertise to Iraq has actually been a well-known fact for several years. Indeed, once Slobodan Milosevic was deposed in 2000, the Bush administration set about trying to get Yugoslavia's new government to crack down on transfers of military equipment and knowledge to Iraq. Little progress was made, however, and last September, as President Bush announced his intention to force Saddam Hussein to give up his weapons of mass destruction, State Department officials summoned Goran Svilanovic, Yugoslavia's foreign minister, to Washington for an explanation. Svilanovic was in the United States to attend the U.N. General Assembly session at which President Bush announced his global campaign against Iraq's weapons of mass destruction. There was, recalls Svilanovic, a new note of urgency. End the Belgrade-Baghdad connection and punish the people who run it, he was told, or risk losing America's goodwill--and billions of dollars in aid. The Orao plant had been especially embarrassing for the United States since it lay in a part of Bosnia nominally under the supervision of American peacekeeping forces.

Soon after the Orao raid, more evidence of a Serb-Saddam connection surfaced. Acting on American intelligence, Croatian police in the port of Rijeka raided the cargo carrier Boka Star, which was supposed to be loaded with "activated charcoal" Instead, it was loaded with 208 metric tons of chemical ingredients for exactly the kind of solid rocket fuel used in Iraqi Scud missiles. This connection was critical, American government sources suggest, because the Boka Star was part of a well-watched fleet that regularly sailed between Tivat, a Yugoslav naval base, and Syria, where many cargoes were trucked to Iraq. Evidence discovered on board indicated that the Boka Star and its bogus cargo had been inaccurately papered several times over by Yugoslav naval and customs officials.

That wasn't the only Tivat connection. Earlier in the year, American officials had learned that a team of Yugoslav military officers from the base had spent two weeks in Iraq consulting, it was believed, on air defense. Around the same time, professors from the University of Belgrade were both teaching and consulting with Iraqis about air defense--and, perhaps even more disturbing, offense. As American officials pieced the evidence together they envisioned a nightmare scenario: Yugoslav experts were contributing to an iraqi program to retrofit jet trainers for remote piloting, so they could be turned into "poor man's cruise missiles," capable of delivering a 1,000-pound bomb up to 900 miles.

The possibility was more than simply theoretical. As investigators learned at the Orao plant, the same folks who had been repairing and upgrading engines for Iraqi MiG-21s thought they knew how to build a much smaller engine--one that would extend the lift capacity and range of the jet trainers. Officials in Baghdad and Bosnia had apparently discussed the matter. Dr. James Lyon, head of the Belgrade office of the conflict analysis organization International Crisis Group, says his sources believe a prototype for the engine was actually built. (Others think the plans haven't progressed quite that far. Dejan Anastasijevic, a respected Yugoslavian investigative reporter, says that while some sort of poor man's cruise missile was promised to Iraq, as far as he knows, "It never came past the modeling stage")

Confronted with all the evidence, Bosnian Serb officials eventually indicted three plant managers at Orao, and may soon charge the retired Air Force commander who heads the firm. The Yugoslav government has sacked two top executives of Yugoimport, both former military officers, as well as a mid-level official in the defense ministry. But U.N. and NATO officials are not impressed.

The Sopranos of Belgrade

The dangerous problems spawned by a failing state reach beyond the illicit Yugoslav-Iraqi relationship. Lawlessness pervades the Yugoslav capitol of Belgrade today. Downtown streets are regularly the scene of mafia assassinations or, in bungled cases, gunfights. And the halls of government are hardly a crime-free zone. "Let me be honest with you," says an adviser to one of the government officials implicated in the Yugoimport scandal. "When we threw out Milosevic, we had to make deals with many of the mafias, to accept this without civil war. Some of the deals kept some people alive. Some of the deals kept people in power. Yugoimport has always been run by the government and the military? Between Yugoslavia's various ethnic militias, criminal syndicates, and paramilitary groups--each of them linked to fictions in the government--there's no one left to play the policeman. "Who will move against them?" asks the official.

Lawlessness is also paralyzing development in Bosnia. The Dayton Agreement ended up handing Bosnia back to the three nationalist political parties which had destroyed it, spawning ethnic mafias which have corrupted everyday business and social life in Bosnia. These mafias, along with the remnant armed forces of both the Serb- and Muslim-Croa-controlled territories, are formidable enough that the international officials in Bosnia have been reluctant to challenge them.

There have been exceptions, such as last year's crackdown on suspected al Qaeda militants who had come to Bosnia after September 11 under the protection of the local Muslim nationalist party. But more typical, and more relevant to the lives of most Bosnians, has been the experience of Gen. Jacques-Paul Klein, the greatly admired, recently retired coordinator of U.N. programs in Bosnia. One of Klein's major achievements was shutting down what had been a major migration route for illegal immigrants from Iran, who came through Sarajevo and moved on to parts of Western Europe. Some of these migrants, it is claimed, were either Islamist radicals or terrorists or both. Gen. Klein's first mandate, however, was to create professional police forces for the communities of Bosnia. He was successful, up to a point. All over Bosnia, honest, well-trained local cops can and do investigate criminals. But arrests and prosecutions must be handled fit the entity level--that is, by the respective governments of the Bosniak-Croat enclave, known as the Muslim-Croat Federation, and the Serbian territory, called Republika Srpska. Those governments, of course, are themselves rife with criminal connections. "Building a police force is like clapping with one hand, if the other hand is rule of law. There's never been agreement here on what rule of law should be. So what you tend to have is ethnic justice. Without rule of law," Gen. Klein laments, "you have no foreign investment, you have no confidence"

Indeed, foreign investment in Bosnia is conspicuously absent. For the same reason--institutionalized corruption--smaller-scale domestic investment has also been stunted. "You never want to be too successful," says one Sarajevo businesswoman I spoke to. "More to the point, you never want to be seen as too successful. You suddenly have `partners' you don't want" She describes a friend whose garage grew in business until the proprietor incautiously bought himself a new Audi. "That was the signal," she says. "One day, a guy drops by and tells my friend to change his brand of gasoline. A little later, he comes back for a share of the receipts. A little later, my friend decides he doesn't like this arrangement. There is a fire. My friend is stubborn. There is a beating. My friend is in another business now."

While the dominance of nationalist parties has kept Bosnian schools ethnically segregated--with children learning the mutually exclusive Serb, Croat, and Muslim version of Bosnian history depending on which group they belong to--the corruption of Bosnia's ruling class has taught the student generation a disrespect for law. I saw this disrespect manifested in Sarajevo on New Year's Eve 2001, when kids tossing firecrackers harassed older folks from the corso hours of early evening throughout the night. It was not enough to discomfort survivors of the three-year siege of Sarajevo, for whom simulating the noise of firearms is anything but celebratory; the teenagers delighted in terrorizing older people by hurling the tiny explosives at their feet.

"This absolutely expresses what is happening to that generation," says a good friend of mine, a journalist from Sarajevo. "First, they hated their parents because they could not protect them from the snipers or the bombs of the siege. Now, they hate us because of this shoddy, lawless state we have settled for"

Duly Elected Gangsters

None of this can be fixed overnight. But downsizing the United States' diplomatic or military commitment to the Balkans is certainly not a solution, according to a leading international administrator in Bosnia. "Orao shows, and Yugoimport shows, that in Bosnia and Serbia, there is work yet to be done," says Paddy Ashdown, a British official who heads the European Community's operations in Bosnia. Ashdown points out that without international peacekeepers in Bosnia--the American component of which some Bush administration officials wish to see withdrawn as swiftly as possible--"we wouldn't have discovered [Orao]" If Orao had been left in operation, he argues, Yugoslavian-provided weapons might already be in use shooting down American planes patrolling Iraq, or threatening U.S. troops massing in the Persian Gulf.

More broadly, Bosnia illustrates the dangers of leaving war-torn nations half rebuilt: The thugs and criminals who destroyed the Balkans are now exporting crime and chaos beyond their borders. "You've got a real problem, I think, in the whole of the Balkans," says London military analyst Paul Beaver. According to European law enforcement officials, the failed or failing states of the former Yugoslavia--Serbia, Montenegro, Bosnia, Kosovo, and Macedonia--have become the leading suppliers of light arms to the criminal gangs and terrorist groups of Western Europe. "We've got handguns appearing in Britain, more discovered the past few months in Britain than in the decade before, and a lot of those are designs that originate in the former Yugoslavia. They come through Europe into places like Rotterdam and Antwerp and across the Channel, so they now become a problem for Britain as well as for Europe as a whole."

There's a danger, too, in battling lawlessness piecemeal. Even as mafias associated with the former Kosovo Liberation Army have been disarmed in Kosovo, an analogous "liberation movement" has popped up in neighboring Macedonia. As in Kosovo, legitimate Albanian aspirations for civil and political equality have become dissolved into a guerrilla war between criminal gangs and the government. And once again, an anti-Albanian government responded viciously against the civilian population, until an outside force of international peacekeepers got involved. The effect of intervention has been something like peace--but only barely. Criminal gangs who once comfortably used routes through Kosovo, Serbia, and Montenegro now use Macedonia to transport contraband cigarettes, drugs, women, and weapons from failing post-Soviet bloc states like Bulgaria, Romania, and Moldova to Italy, and from there to the markets of Western Europe.

See No Evil

The situation the United States and its European allies now confront is one that started off ugly and complex and only became more so after being allowed to fester for more than a decade In all the failing states of the former Yugoslavia, allied efforts to advance civility and the rule of law have focused principally on limiting commitment and risk, or on providing protection to international personnel. All have stopped well short of restoring rule of law to local societies. In all these states, lawlessness has empowered the most violent and corrupt elements of pre-war society to dominate local politics and to export the products of their criminal enterprises to Europe, to Iraq, and in the cases of Yugoimport to Libya, Liberia, and Burma--among the most delinquent governments on earth. And while there is plenty of blame to go around for letting it get this bad, the current administration might learn from the mistakes of the previous administration which held back from demanding the sort of robust rules of engagement,which might have prevented the slide into crime, thuggery, and lawlessness which the Serb-Iraq connection epitomizes. As the United States cleans up in post-Taliban Afghanistan and prepares to do the same in a post-Saddam Iraq, the dearly learned lesson is or should be: No more Bosnias.

Instead, the Bush administration has turned out to be even more wary of foreign commitments than their predecessors in the Clinton administration. They have pressed to quicken the pace of the draw-down of American forces from Bosnia and Kosovo, while in Afghanistan, American-led international intervention has followed the Balkans pattern of little ventured, little gained for rule of law. The so-called International Security Force provides security for a little less than the capital city Kabul, and hardly anywhere else in Afghanistan. The Bush administration is so eager to avoid responsibility for order in Afghanistan that they've outsourced to mercenaries the work of protecting Afghan President Hamid Karzai. When it comes to controlling the continuing exportation of Islamist radicalism, weapons, and opium, U.S.-administered Afghanistan seems likely to prove the old dictum: You get what you pay for.

Somewhere beyond war-torn Iraq looms postwar Iraq, a cauldron full of political passion, long-standing corruption, and loads of dangerous weapons--including, one assumes, those of mass destruction. Should they reach the world's outlaws as widely and easily as have the dangerous detritus of post-war Yugoslavia, the world will be an unhappier and more dangerous place than it is today.

DAVE MARASH has received an Emmy Award for his coverage of the Balkans for "Nightline."