House Republican says IRS awarded 'inappropriate' contracts

By Patrick Temple-West

WASHINGTON (Reuters) - A Virginia company inappropriately secured contracts worth hundreds of millions of dollars from the Internal Revenue Service based on false statements and personal ties to an IRS official, the top Republican investigator in the U.S. House of Representatives said on Tuesday.

A report issued by Oversight and Government Reform Committee Chairman Darrell Issa of California said the IRS, which is embroiled in a series of unrelated controversies, awarded the contracts to computer networking and security company Strong Castle Inc.

The report said Strong Castle's president, Braulio Castillo, relied on a friendship with an IRS contracting official, Gregory Roseman, to win business. It said the company made false statements to beat rivals for the work.

The cost of Strong Castle's 2012 contracts to the IRS, including for work in future years, could reach nearly $500 million, the report said.

The IRS's watchdog is investigating the alleged contracting abuse, the agency said in a statement on Tuesday.

"We learned of new information today from the committee that we are currently looking into," the IRS said.

The company denied the allegations. "Throughout our work with the IRS, we have never received any improper preferential treatment, and have competed fairly for every contract that we have received," it said in a statement.

"We are confident that the record will ultimately show that our company has committed no wrongdoing."

Strong Castle changed its name from Signet Computers in October 2012.

The tax-collecting agency has come under fire after a number of different groups, including some allied with the conservative Tea Party movement and some left-leaning groups, were targeted for extra scrutiny when applying for tax-exempt status. It has also been accused of lavish spending on conferences.

Roseman and Castillo are expected to testify at an oversight committee hearing on Wednesday.Roseman might not attend the hearing and is likely to invoke his constitutional right not to answer questions, according to a letter from Issa to Roseman's lawyer sent on Tuesday.

Senior IRS and other government officials are also scheduled to testify.

"The IRS and Strong Castle have made a mockery of fair and open competition for government contracts," Issa said in a statement.

Oversight committee Democrats, in their own report, said Roseman and Castillo did not disclose their friendship and that evidence obtained in the investigation "indicates at least an appearance of impropriety" between the two men.

Issa started the probe in February, and said then that a whistleblower in 2012 contacted the IRS's inspector general with evidence that showed contracts were steered to the company inappropriately.

Castillo was already facing criticism for Strong Castle's contracting business before Issa's report. In May, the federal Small Business Administration revoked certain contracting benefits for the company based on some inaccurate records.

Federal contractors are required to disclose any conflicts of interest they might have with bidding companies.

Issa's investigation reviewed more than 350 text messages between Castillo and Roseman that it said included "grossly inappropriate" remarks and "underscore a problematically close relationship," the report said.

(Reporting By Patrick Temple-West; Editing by Kim Dixon, David Storey and Mohammad Zargham)

Putin: 'Nyet' to US request to turn over Snowden

FILE - In this June 21, 2013 file photo, a banner supporting Edward Snowden, a former CIA employee who leaked top-secret documents about sweeping U.S. surveillance programs, is displayed at Central, Hong Kong's business district. The Hong Kong government says Snowden wanted by the U.S. for revealing two highly classified surveillance programs has left for a "third country." The South China Morning Post reported Sunday, June 23, 2013 that Snowden was on a plane for Moscow, but that Russia was not his final destination. Snowden has talked of seeking asylum in Iceland. (AP Photo/Kin Cheung, File)

Russia's Foreign Minister Sergey Lavrov speaks at a news conference in Moscow on Tuesday, June 25, 2013. Lavrov on Tuesday bluntly rejected U.S. demands to extradite National Security Agency leaker Edward Snowden, saying that Snowden hasn’t crossed the Russian border as he seeks to evade prosecution. Sergey Lavrov insisted that Russia has nothing to do with Snowden or his travel plans. Lavrov wouldn’t say where Snowden is, but he angrily lashed out at the U.S. for demanding his extradition and warnings of negative consequences if Moscow fails to comply. (AP Photo/Ivan Sekretarev)

MOSCOW (AP) — Yes, he's at a Moscow airport, and no, you can't have him.

Russian President Vladimir Putin gave the first official acknowledgment of the whereabouts of National Security Agency leaker Edward Snowden on Tuesday and promptly rejected U.S.pleas to turn him over.

Snowden, who is charged with violating American espionage laws, fled Hong Kong over the weekend, touching off a global guessing game over where he went and frustrating U.S. efforts to bring him to justice.

Putin said Snowden is in the transit zone of Sheremetyevo Airport and has not passed through Russian immigration, meaning he technically is not in Russia and thus is free to travel wherever he wants.

After arriving Sunday on a flight from Hong Kong, Snowden registered for a Havana-bound flight Monday en route to Venezuela and then possible asylum in Ecuador, but he didn't board the plane.

Speculation has been rife that Russian security services have been talking to Snowden and might want to keep him in Russia for a more thorough debriefing, but Putin denied that.

"Our special services never worked with Mr. Snowden and aren't working with him today," Putin said at a news conference during a visit to Finland.

Because Moscow has no extradition agreement with Washington, it cannot meet the U.S. request, he said.

"Mr. Snowden is a free man, and the sooner he chooses his final destination the better it is for us and for him," Putin said. "I hope it will not affect the businesslike character of our relations with the U.S. and I hope that our partners will understand that."

U.S. Secretary of State John Kerry said Tuesday that the U.S. wants Russia to show respect for the rule of law and comply with common practices when it comes to fugitives from justice.

Putin's staunch refusal to consider deportation shows his readiness to further challenge Washington at a time when U.S.-Russian relations are already strained over Syria and other issues, including a Russian ban on adoptions by Americans.

"Just showing America that we don't care about our relations, we are down to basically a Cold War pattern: The enemy of your government is our friend," said Masha Lipman of the Carnegie Moscow Center.

"The Russian administration has not come that far, but we don't know what it's up to," she said.

Despite Putin's denial, security experts believe Russia's special services wouldn't miss the chance to question a man who is believed to hold reams of classified U.S. documents and could shed light on how the U.S. intelligence agencies collect information.

Igor Korotchenko, director of the Center for Global Arms Trade and editor of National Defense Magazine, said Snowden would be of particular interest because little is known about digital espionage.

"The security services would be happy to enter into contact with Mr. Snowden," Korotchenko said.

Russia also has relished using Snowden's revelations to turn the tables on the U.S. over its criticism of Russia's rights record.

Putin compared Snowden to WikiLeaks founder Julian Assange, who has been given asylum in the Ecuadorean Embassy in London, saying that both men were labeled criminals but consider themselves rights activists and champions of freedom of information.

"Ask yourself a question: Should people like that be extradited so that they put them in prison?" he said. "In any case, I would prefer not to deal with such issues. It's like shearing a piglet: a lot of squealing and little wool."

In an apparent reference to claims that Russia could have played a role in Snowden's exit from Hong Kong, Putin said his arrival in Moscow was a "complete surprise" and dismissed such accusations as "ravings and sheer nonsense."

"He doesn't need a visa or any other documents, and as a transit passenger he has the right to buy a ticket and fly wherever he wants," Putin said.

Snowden, 30, is a former CIA employee who later was hired as a contractor for the NSA. In that job, he gained access to documents that he gave to newspapers the Guardian and The Washington Post to expose what he contends are privacy violations by an authoritarian government.

Snowden also told the South China Morning Post newspaper in Hong Kong that "the NSA does all kinds of things like hack Chinese cellphone companies to steal all of your SMS data." He is believed to have more than 200 additional sensitive documents in laptops he is carrying.

Russian news media had reported that Snowden remained in a transit zone at the airport, which is separate from regular departure areas. He has not been seen by any of the journalists who have been roaming Sheremetyevo in search of him, furthering speculation that he had been secreted away.

The Interfax news agency, citing an unidentified airport official, said Snowden could be staying in a room in the transit zone normally reserved for flight crews and other personnel.

Legally, an arriving air passenger only crosses the border after clearing Russian immigration checks.

Earlier Tuesday, Foreign Minister Sergey Lavrov rejected the U.S. push to turn over Snowden, but he wouldn't specify his whereabouts, saying only that he hadn't crossed the Russian border.

Kerry called for "calm and reasonableness."

"We would hope that Russia would not side with someone who is a fugitive from justice," Kerry said at a news conference in Saudi Arabia.

The U.S. has revoked Snowden's passport.

A representative of WikiLeaks has been traveling with Snowden, and the secret-spilling organization is believed to be assisting him in arranging asylum. Assange, the group's founder, said Monday that Snowden was only passing through Russia and had applied for asylum in Ecuador, Iceland and possibly other countries.

A high-ranking Ecuadorean official told The Associated Press that Russia and Ecuador were discussing where Snowden could go, saying the process could take days. He also said Ecuador's ambassador to Moscow had not seen or spoken to Snowden. The official spoke on condition of anonymity because he was not authorized to discuss the case publicly.

The Kremlin has previously said Russia would be ready to consider Snowden's request for asylum.

Some observers said Snowden's revelations have provided the Kremlin with propaganda arguments to counter the U.S. criticism of Russia's crackdown on opposition and civil activists under Putin.

"They would use Snowden to demonstrate that the U.S. government doesn't sympathize with the ideals of freedom of information, conceals key information from the public and stands ready to open criminal proceedings against those who oppose it," Konstantin Remchukov, the editor of independent daily Nezavisimaya Gazeta, said on Ekho Moskvy radio.

Putin has accused the U.S. State Department of instigating protests in Moscow against his re-election for a third term in March and has taken an anti-American posture that plays well with his core support base of industrial workers and state employees.

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Huuhtanen reported from Naantali, Finland. Associated Press writers Lynn Berry in Moscow and Michael Weissenstein and Gonzalo Solano in Quito, Ecuador, contributed to this story.

Flowers, vegetables could affect Snowden's fate

QUITO, Ecuador (AP) — With Edward Snowden stuck in Moscow and Washington pushing hard for his return, many Ecuadoreans began realizing Tuesday that this small country's deep economic ties with the U.S. could make it the one with the most to lose in the high-stakes international showdown over the National Security Agency leaker.

While President Rafael Correa's leftist government was virtually silent on Snowden's request for asylum, Ecuadorean analysts said his fate, or at least his safe harbor in Ecuador, could depend as much on frozen vegetables and flowers as on questions over freedom of expression and international counterterrorism.

Unlike with China, Russia or Cuba, countries where the U.S. has relatively few tools to force Snowden's handover, the Obama administration could swiftly hit Ecuador in the pocketbook by denying reduced tariffs on cut flowers, artichokes and broccoli. Those represent hundreds of millions of dollars in annual exports for this country where nearly half of foreign trade depends on the U.S.

A denial wouldn't mean financial devastation for Ecuador, which has been growing healthily in recent years thanks in large part to its oil resources. Growing ties with China also could give the Ecuadorean government a sense of diminished vulnerability. But analysts and political figures said the prospect of any economic damage could nonetheless alter the political calculus for Correa, a pragmatic leftist who's long delighted in tweaking the United States but hasn't yet suffered any major consequences.

"Much of our foreign trade is at stake," said flower grower Benito Jaramillo, president of the country's largest association of flower farmers, who shipped more than $300 million in flowers, mostly roses, to the U.S. last year. "They've been inserting themselves in a problem that isn't Ecuador's, so we're in a dilemma that we shouldn't be in."

For years, Ecuador's oil, vegetables and roses have kept flowing northward even as Correa has expelled U.S. diplomats and an American military base, publicly hectored the U.S. ambassador and harbored WikiLeaks founder Julian Assange at Ecuador's embassy in London.

Correa's strongest backers have delighted in his attacks on Washington. And even his detractors have tolerated his foreign policy as the indulgence of a man who has maintained general economic and political stability, funneling billions of U.S. dollars, which are also Ecuador's currency, to social spending and infrastructure projects.

The president's office and other government agencies declined comment on Snowden, referring questions to Foreign Minister Ricardo Patino, who said only that he doesn't know where Snowden is or what travel documents he might be using.

Analysts and politicians said any potential loss to Ecuador could make hosting Snowden a tougher decision than previous ones for Correa, a member of Latin America's leftist bloc who's maintained cordial relations with countries like Cuba and Venezuela without marching in lockstep with them.

"The president's ideology toward the United States is one thing. It's another thing to be president of a country whose dependence on the U.S. is unavoidable, irreplaceable and extremely valuable, because we sell the U.S. a lot more than we could ever could to any other country," said former vice president Blasco Penaherrera, member of the center-left Liberal Party.

Many Ecuadoreans see the NSA surveillance revealed by Snowden's leaks as part of a longstanding and broad pattern of excessive U.S. interference abroad, including in Latin America. So, some people said, asylum for Snowden would be humane and wise despite any economic consequences.

"On a commercial basis, the U.S. and Ecuador are guided by pragmatism, independent of economic agendas. Businessmen set priorities based on cost-benefit and because of that I don't think there are going to be major consequences, because the commercial line is separate from the geopolitical one," said Pablo Davalos, an economics professor and analyst at the Catholic University in Quito.

But on the streets of the capital, people appeared to be increasingly feeling that their country should keep out of the affair.

"We shouldn't give him asylum," said Fredy Prado, a retired shoe company manager. "Every country needs to take care of itself, its own security."

The U.S. administration is supposed to decide by Monday whether to grant Ecuador export privileges under the Generalized System of Preferences, a system meant to spur development and growth in poorer countries. The deadline was deadline set long before the Snowden affair but conveniently timed for the U.S.

More broadly, a larger trade pact allowing reduced tariffs on more than $5 billion in annual exports to the U.S. is up for congressional renewal before July 21. While approval of the Andean Trade Preference Act has long been seen as doubtful in Washington, Ecuador has been lobbying strongly for its renewal in recent months.

"I hope the government doesn't decide to give Snowden asylum, because obviously this isn't in Ecuador's interests," said Roberto Aspiazu, chairman of a coalition of Ecuador's largest industries. "Hopefully the issue will be looked at from the perspective of Ecuador's interests, and I don't think it's in our country's interest to unnecessarily confront the U.S."

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China businessman assures Nicaragua canal success

Chinese businessman, despite obscurity, upbeat about success of proposed Nicaragua canal

Associated Press -

BEIJING (AP) -- The Chinese businessman hired to plan and perhaps build a Nicaraguan rival to thePanama Canal said the ambitious project is backed by experienced consultants and is not a joke, turning away skepticism that he can deliver the $40 billion shipping channel.

"We don't want it to become an international joke, and we don't want it to turn into an example of Chinese investment failures," Wang Jing, chairman and owner of Hong Kong-based HKND Group, told a news conference Tuesday in Beijing.

Wang, 40, whose business history prior to 2010 is virtually unknown, received approval fromNicaragua's government earlier this month for HKND to study, and possibly build and run a shipping channel across the Central American country. Some Nicaraguan lawmakers and residents have expressed reservations about the company's competence, given that this appears to be its first attempt to engineer any significant infrastructure project.

Wang said early assessments of the project have been favorable, taking into account future economic growth of the U.S. and China as well as the enormous Chinese appetite for mineral resources from Latin America.

"The world trade has been so developed today that it needs a new canal," Wang said. "The Panama Canal is not enough for the trade conducted currently between East and West."

He said return from the project "is sure to make every investor smile broadly."

Wang said his consultants on the project have rich experience and include U.S.-based McKinsey & Co. and China's biggest construction firm, the state-owned China Railway Construction Corp.

He said his team is proposing ways to minimize risk, for example by routing the canal through the middle of Nicaragua to avoid any potential border dispute with neighboring Costa Rica. Wang said he hopes to deliver the feasibility report a year from now, and that the project would break ground by the end of 2014 and be completed in less than six years.

Wang offered little new information about himself, saying that he comes from an ordinary Chinese family in Beijing and that he studied traditional Chinese medicine before becoming a businessman.

He has invested in several industries, including telecommunications and mining. In 2010, Wang invested in the medium-sized Chinese telecommunications company Xinwei Telecom Enterprise Group. Since then he has been credited with turning it around financially, partly by expanding into overseas markets, including Nicaragua, where Xinwei was granted an operating license last November.

The company builds telecom networks and develops wireless communication technology — though its patent technology McWiLL is considered obscure. In Cambodia, Xinwei has become the latest player in the country's telecommunication market by offering phone and data services that are now available in Phnom Penh, the capital, with plans to expand nationwide.

In Nicaragua, a Xinwei contract to invest as much as $700 million to improve the country's telecom system has so far shown little sign of any spending, leading to skepticism about Wang's competence to build a canal. "It's all a lie," opposition Nicaraguan congressman Eliseo Nunez said earlier this month.

Ji Yongqing, a Chinese information technology commentator, said Xinwei apparently has fit into the strategic push by China's government to help developing countries in Africa, Asia and Latin America with projects sourced with Chinese products.

"Personally, I think Xinwei's success has a lot to do with China's strategy to go out and use Chinese products in its aid projects," Ji said.

Xinwei's website has pictures of Chinese leaders, including President Xi Jinping and Premier Li Keqiang, visiting the company, indicating its likely solid government connections — a boon for any business in a country where the government controls key resources and much of the economy.

Wang said the canal project is purely a business venture with no connection to the Chinese government. China has no diplomatic relations with Nicaragua.

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Alaska volcano erupts with new intensity, disrupts local flights

Reuters/Reuters - The Pavlof Volcano in Alaska is pictured in this May 18, 2013 NASA handout photo taken by astronauts aboard the International Space Station. Situated in the Aleutian Arc about 625 miles (1,000 km) southwest of Anchorage, Pavlof began erupting on May 13, 2013. NASA/Handout via Reuters

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) - An Alaska volcano spewing ash and lava for the past six weeks erupted with new intensity early on Tuesday, belching a plume of cinders 5 miles into sky and onto a nearby town and disrupting local flights, officials said.

The eruptions from Pavlof Volcano, on the Alaska Peninsula 590 miles southwest of Anchorage, were its most powerful since its current eruptive phase began with low-level rumblings in mid-May, according to scientists at the federal-state Alaska Volcano Observatory.

The latest series of more powerful ash-producing blasts from the crater of the 8,261-foot (2,518-meter) volcano started late on Monday and continued overnight into Tuesday, scientists said.

"For some reason we can't explain, it picked up in intensity and vigor," said Tina Neal, an observatory geologist.

While the ash plume has so far remained too low in the sky to affect jetliner traffic, topping out at an altitude of 28,000 feet, smaller planes had to fly around it, officials said. Anchorage-based PenAir canceled one flight and re-routed others, said Missy Roberts, a company vice president.

Ash has dusted King Cove, a town of about 900 people located 30 miles southwest of Pavlof, the Alaska Volcano Observatory reported.

The National Weather Service issued an ash advisory for the region, warning of breathing problems for people with respiratory ailments and potential damage to exposed electronic equipment.

A second Alaska Peninsula volcano continued a low-intensity eruption, the observatory said. Ash from Veniaminof Volcano, 485 miles southwest of Anchorage, has been limited to the area around its 8,225-foot (2,507-meter) summit, the observatory said.

The eruptions at Pavlof and Veniaminof are unrelated, scientists say.

A third, more remote, Alaska volcano remained restless but was not currently spouting lava or ash, the observatory said. Cleveland Volcano, 940 miles southwest of Anchorage, began an on-and-off eruptive phase in mid-2011 but has not produced an explosive eruption since May 6, according to the observatory.

(Editing by Steve Gorman and David Brunnstrom)