Sirleaf, a Nobel Peace Prize winner, has said the billions of dollars in foreign investment she has drawn since becoming Africa’s first freely-elected female president in 2006 should help ordinary Liberians to climb out of poverty.

In a continent often blighted by corruption and mismanagement, the Liberian government has promised greater openness in its dealings with foreign investors. The country’s transparency watchdog LEITI – which is co-chaired by the Finance Ministry – itself commissioned the audit of deals involving oil, mining, agriculture and forestry in the West African country.

But the audit, initially praised as a bold attempt at improving standards of government in Africa, could prove a bitter pill for Liberia. The accounting firm hired to conduct the audit, Moore Stephens, disclosed widespread irregularities with the deals in its draft report, which Reuters has seen.

Liberian law sets rules for foreign investment projects including on competitive tendering, tax rates and equity stakes to be held by the government.

While some failures to comply with the law are relatively minor, the Moore Stephens draft shows the government granted vast swathes of land to firms including Golden Agri’s Golden Veroleum and Sime Darby without competitive bidding, and otherwise skipped contract steps meant to ensure a fair deal for Liberians.

Other companies with contracts found to be flawed include U.S. oil firm Chevron Petroleum and mining giant BHP, according to the report, which also accused Liberian authorities of having tried to stonewall the audit process since late last year by failing to hand over information promptly.

The presidency declined comment on the report until its final version is completed, while the Finance Ministry denied any deliberate attempt to derail the audit.

RISING STAR

Liberia bills itself as a rising African star as it recovers from 14 years of on-and-off civil war funded by “blood diamonds” that ended in 2003, leaving its economy and infrastructure in ruins. But the report highlights the difficulty of bringing deals into the open on a continent that investors say is now ready to follow the economic success of India and China.

“Overall, we encountered a significant lack of cooperation from Government Agencies involved in the award process and faced major delays in obtaining documents,” said the draft report from Moore Stephens, which showed that just two out of the 68 contracts audited adhered to Liberian law.

Sirleaf’s political opponents allege graft, nepotism and mismanagement in the resources sectors, and the report puts the government in the uncomfortable position of deciding how to fix the problems.

“The government is scared to death of the consequences of this contract audit,” said Alfred Brownell, head of governance watchdog Publish What You Pay in Liberia. “The big question is: will the contracts have to be revised or canceled?”

A spokeswoman for Sirleaf noted the audit report was in draft form and could be amended before the final version is ready in a few weeks. It would then be considered by the Multi-stakeholder Steering Group (MSG), which brings together government agencies and non-governmental organizations, and made available to the public.

“We cannot preempt what will be contained in the final report, nor can we foresee the MSG decisions,” she said, noting the progress Liberia has made in recent years in improving its record on transparency and accountability.

A copy of the April 22 draft report is scheduled to be circulated to the leadership of LEITI – the Liberian agency created under the global Extractive Industries Transparency Initiative – this week for feedback before publication, a source with knowledge of the process said.

Liberian government officials denied trying to obstruct the audit and have declined comment on how its findings will be addressed. “The Government of Liberia, through the Ministry of Finance, is committed to bringing transparency,” said Sidi Trawally, a spokesman for the ministry.

COMPANIES FAVOURED?

The International Monetary Fund expects Liberia’s economy to grow 7.5 percent this year as iron ore exports boom, making it one of Africa’s top 10 performers.

In 2009, Liberia was praised for becoming the first African country to join EITI, a program that tries to help governments avoid the corruption often bred by weak governance.

Under this program, Liberia created its LEITI agency with a mandate to audit contracts to ensure they were awarded fairly, going beyond the normal revenue reporting demands of EITI membership and marking the genesis of the current report.

LEITI hired Moore Stephens to start its work reviewing the contracts in November 2012 and had initially expected to complete the audit by January before the problems with government agency cooperation forced several delays.

Among the draft report’s major conclusions, Golden Veroleum’s $1.6 billion palm oil project – Liberia’s biggest agricultural investment to date – and a smaller project granted to Cavalla Rubber were found to have been awarded without “any competitive bidding”.

“The issues … lead us to conclude that these two companies could have been favored,” the report said. It added that Malaysian giant Sime Darby nearly doubled its palm oil acreage in 2009 without competitive bidding.

A Liberian-based official at Golden Veroleum, which is indirectly owned by Singapore-listed Golden Agri, said his company broadly supported the audit process, but did not respond to the draft report’s findings. Golden Agri, Sime Darby and Cavalla Rubber did not respond to requests for comment.

The report added that offshore oil Block 14, now held by Chevron and Nigeria’s Oranto, was also awarded without competitive bidding, and that other such blocks involved terms that favored the firms with lower taxes and a smaller government equity stake than stipulated by Liberian law.

“Chevron values its relationship with Liberia. We do not comment on the commercial terms of our contracts as per our long-standing policy,” a Chevron official said.

Liberia’s major mining contracts signed since 2009 – including a $1.5 billion deal held by Anglo-Australian BHP – were also only “partially compliant” with Liberian law, the report said. A BHP official declined comment.

None of the country’s tangle of commercial and private forestry contracts – dozens of smaller-value projects covering a huge area of forest – complied entirely with Liberian law, the draft report said. This was due to an array of problems including irregular land deeds and overlapping timber concession sites on privately-owned land.

Diarmid O’Sullivan, a member of the international EITI board between 2009 and 2012, said improving transparency can prove to be a long haul. “Maybe Liberia got too much credit for EITI compliance in the past, when really it was a first step in a very long process,” he said.

(editing by David Stamp)

Sirleaf, a Nobel Peace Prize winner, has said the billions
of dollars in foreign investment she has drawn since becoming
Africa’s first freely-elected female president in 2006 should
help ordinary Liberians to climb out of poverty.

In a continent often blighted by corruption and
mismanagement, the Liberian government has promised greater
openness in its dealings with foreign investors. The country’s
transparency watchdog LEITI – which is co-chaired by the Finance
Ministry – itself commissioned the audit of deals involving oil,
mining, agriculture and forestry in the West African country.

But the audit, initially praised as a bold attempt at
improving standards of government in Africa, could prove a
bitter pill for Liberia. The accounting firm hired to conduct
the audit, Moore Stephens, disclosed widespread irregularities
with the deals in its draft report, which Reuters has seen.

Liberian law sets rules for foreign investment projects
including on competitive tendering, tax rates and equity stakes
to be held by the government.

While some failures to comply with the law are relatively
minor, the Moore Stephens draft shows the government granted
vast swathes of land to firms including Golden Agri’s
Golden Veroleum and Sime Darby without competitive
bidding, and otherwise skipped contract steps meant to ensure a
fair deal for Liberians.

Other companies with contracts found to be flawed include
U.S. oil firm Chevron Petroleum and mining giant BHP
, according to the report, which also accused
Liberian authorities of having tried to stonewall the audit
process since late last year by failing to hand over information
promptly.

The presidency declined comment on the report until its
final version is completed, while the Finance Ministry denied
any deliberate attempt to derail the audit.

RISING STAR

Liberia bills itself as a rising African star as it recovers
from 14 years of on-and-off civil war funded by “blood diamonds”
that ended in 2003, leaving its economy and infrastructure in
ruins. But the report highlights the difficulty of bringing
deals into the open on a continent that investors say is now
ready to follow the economic success of India and China.

“Overall, we encountered a significant lack of cooperation
from Government Agencies involved in the award process and faced
major delays in obtaining documents,” said the draft report from
Moore Stephens, which showed that just two out of the 68
contracts audited adhered to Liberian law.

Sirleaf’s political opponents allege graft, nepotism and
mismanagement in the resources sectors, and the report puts the
government in the uncomfortable position of deciding how to fix
the problems.

“The government is scared to death of the consequences of
this contract audit,” said Alfred Brownell, head of governance
watchdog Publish What You Pay in Liberia. “The big question is:
will the contracts have to be revised or canceled?”

A spokeswoman for Sirleaf noted the audit report was in
draft form and could be amended before the final version is
ready in a few weeks. It would then be considered by the
Multi-stakeholder Steering Group (MSG), which brings together
government agencies and non-governmental organisations, and made
available to the public.

“We cannot preempt what will be contained in the final
report, nor can we foresee the MSG decisions,” she said, noting
the progress Liberia has made in recent years in improving its
record on transparency and accountability.

A copy of the April 22 draft report is scheduled to be
circulated to the leadership of LEITI – the Liberian agency
created under the global Extractive Industries Transparency
Initiative – this week for feedback before publication, a source
with knowledge of the process said.

Liberian government officials denied trying to obstruct the
audit and have declined comment on how its findings will be
addressed. “The Government of Liberia, through the Ministry of
Finance, is committed to bringing transparency,” said Sidi
Trawally, a spokesman for the ministry.

COMPANIES FAVOURED?

The International Monetary Fund expects Liberia’s economy to
grow 7.5 percent this year as iron ore exports boom, making it
one of Africa’s top 10 performers.

In 2009, Liberia was praised for becoming the first African
country to join EITI, a programme that tries to help governments
avoid the corruption often bred by weak governance.

Under this programme, Liberia created its LEITI agency with
a mandate to audit contracts to ensure they were awarded fairly,
going beyond the normal revenue reporting demands of EITI
membership and marking the genesis of the current report.

LEITI hired Moore Stephens to start its work reviewing the
contracts in November 2012 and had initially expected to
complete the audit by January before the problems with
government agency cooperation forced several delays.

Among the draft report’s major conclusions, Golden
Veroleum’s $1.6 billion palm oil project – Liberia’s biggest
agricultural investment to date – and a smaller project granted
to Cavalla Rubber were found to have been awarded without “any
competitive bidding”.

“The issues … lead us to conclude that these two companies
could have been favoured,” the report said. It added that
Malaysian giant Sime Darby nearly doubled its palm oil acreage
in 2009 without competitive bidding.

A Liberian-based official at Golden Veroleum, which is
indirectly owned by Singapore-listed Golden Agri, said his
company broadly supported the audit process, but did not respond
to the draft report’s findings. Golden Agri, Sime Darby and
Cavalla Rubber did not respond to requests for comment.

The report added that offshore oil Block 14, now held by
Chevron and Nigeria’s Oranto, was also awarded without
competitive bidding, and that other such blocks involved terms
that favoured the firms with lower taxes and a smaller
government equity stake than stipulated by Liberian law.

“Chevron values its relationship with Liberia. We do not
comment on the commercial terms of our contracts as per our
long-standing policy,” a Chevron official said.

Liberia’s major mining contracts signed since 2009 –
including a $1.5 billion deal held by Anglo-Australian BHP -
were also only “partially compliant” with Liberian law, the
report said. A BHP official declined comment.

None of the country’s tangle of commercial and private
forestry contracts – dozens of smaller-value projects covering a
huge area of forest – complied entirely with Liberian law, the
draft report said. This was due to an array of problems
including irregular land deeds and overlapping timber concession
sites on privately-owned land.

Diarmid O’Sullivan, a member of the international EITI board
between 2009 and 2012, said improving transparency can prove to
be a long haul. “Maybe Liberia got too much credit for EITI
compliance in the past, when really it was a first step in a
very long process,” he said.

(editing by David Stamp)

The U.S. Department of Justice on Thursday accused Armed Forces Chief General Antonio Indjai of plotting to traffic cocaine to the United States and sell weapons to Colombia’s FARC rebels, after a months-long undercover operation that has also ensnared a former navy chief.

But Indjai – widely seen as the country’s most powerful man – remains in Bissau after evading the sting and the big question is how he will react to becoming a target for American law enforcement agents.

Guinea-Bissau’s caretaker government is due next month to publish a road map to elections that African and Western diplomats hope will close the book on decades of political turmoil since independence from Portugal in 1974.

“The arrests could make some of the military and political leaders very nervous and less willing to carry on with a transition that might result in their demise,” said Vincent Foucher, a researcher at International Crisis Group.

“Or it could do the exact reverse and increase the leverage of those in the international community that act as the good cops,” Foucher said, referring to some diplomats who have shown an interest in engaging with the existing leadership.

Repeated coups, political assassinations and a civil war in the nation nestled below Senegal on Africa’s Atlantic coast, have weakened its law enforcement and paved the way for Colombian cartels to use it as a transhipment hub for tons of narcotics destined for Europe and the United States.

The country entered its latest crisis last April, when the military arrested then Prime Minister Carlos Gomes Junior and acting President Raimundo Pereira in the midst of an election that Gomes Junior was poised to win.

Indjai, who accused Gomes Junior of plotting to replace Bissau’s army leadership, seized control in the wake of the putsch. He ceded power a month later to a transitional government led by a civilian president, Manuel Serifo Nhamadjo, in a deal brokered by West African regional bloc ECOWAS.

Both Gomes Junior and Pereira were forced to leave the country as part of the deal.

DRUGS TRADE

The European Union and the CPLP grouping of Portuguese-speaking nations have since refused to recognize Nhamadjo’s administration, saying it remains under the control of military officials involved in the drugs trade.

Nhamadjo’s government has denied any drugs links and has said the lack of support for his administration from traditional partners has hindered progress at setting elections.

Nhamadjo is in Germany seeking medical treatment for complications from diabetes. A spokesman said he could return to Guinea-Bissau within days.

Diplomatic sources said the U.S. anti-drugs operation in Bissau has already had a chilling effect on smugglers, who have for years taken advantage of weak law enforcement and a maze of offshore islands to move cocaine.

“Many people in Bissau and around the region are not sleeping very well right now. They know the Americans are watching,” Jose Ramos-Horta, the United Nations’ special envoy to Bissau, told Reuters.

But he said the country’s leaders needed to make progress toward setting elections, preferably by the end of this year, in order to begin the process of recovery.

“The test for Bissau is now. Either it moves forward and puts its past behind it or it slips back into negativity at the expense of the people,” he said.

African and Western powers are pressuring Nhamadjo to set an election date this year and to reform the existing caretaker government to be more inclusive – preconditions to any financial or technical support for the polls.

EU SUPPORT

An EU spokesman in Bissau, Piero Valabrega, confirmed the European Union would be prepared to support the elections – with an estimated price tag of $10 million – if those conditions were met, even if Nhamadjo remained president of the transition.

He said the U.S. anti-drugs operation could turn out to be positive if it weakened criminal vested interests.

“Politicians and the military will have less access to revenues from drugs smuggling and may be more likely to move the political process forward,” he said.

The U.S. charges against Indjai said he planned to store FARC-owned cocaine in Guinea-Bissau and sell weapons, including surface-to-air missiles, to the organization to protect itself against U.S. military forces. Washington labels FARC (Fuerzas Armadas Revolucionarias de Colombia) a terrorist organization.

U.S. undercover agents snared Guinea-Bissau’s former navy chief, Rear Admiral Jose Americo Bubo Na Tchuto, in the high-seas drugs sting on April 2 – the most high-profile score in the U.S. war on drugs in Africa.

Sources familiar with the operation say Indjai was also targeted but he dodged the planned arrest by refusing to meet the undercover agents in international waters.

Indjai cancelled a news conference scheduled in the capital on Friday and his spokesman has declined comment. He has previously denied links with drugs smuggling. Na Tchuto is in detention awaiting trial in New York, and he too has previously denied any connection to trafficking.

(Editing by Alison Williams)

The accusation against General Antonio Indjai – widely seen as the coup-prone West African nation’s most powerful man – is the first official signal that criminality may go straight to the top in what has for years been labeled a ‘narco-state’.

Guinea Bissau authorities repeatedly have denied any involvement in drug trafficking and Indjai is believed to be in the country.

The indictment filed in New York’s Southern District Court and seen by a Reuters reporter, charges Indjai on four counts: “narco-terrorism conspiracy”, conspiracy to provide material support to a foreign terrorist organization, cocaine importation conspiracy and conspiracy to acquire and transfer anti-aircraft missiles.

Washington has labeled Colombia’s FARC rebel group (Fuerzas Armadas Revolucionarias de Colombia) a terrorist organization.

Guinea-Bissau’s military has long been accused of involvement in trafficking tons of Latin American cocaine, using its mangrove-lined offshore islands as cover against the region’s notoriously weak law enforcement.

U.S. undercover agents snared Guinea-Bissau’s former Navy chief rear admiral in a high-seas drugs sting on April 2 – the most high-profile score in the U.S. war on drugs in Africa.

Sources familiar with the operation say Indjai was also targeted, but he dodged the planned arrest by refusing to meet the undercover agents in international waters.

Indjai seized control of Guinea Bissau in a coup last April before he ceded power to a transitional government led by a civilian president, Manuel Serifo Nhamadjo, in a deal brokered by West African regional bloc ECOWAS.

The European Union and the CPLP grouping of Portuguese speaking nations have since refused to recognize Nhamadjo’s administration, claiming it remains under the control of military officials involved in the drugs trade.

Na Tchuto and air force chief Ibraima Papa Camara were placed on the U.S. ‘drugs kingpins’ list in 2010 following a 2009 cocaine deal but Indjai was never placed on the list.

Undercover informants for the U.S. Drugs Enforcement Agency had met with Indjai, Na Tchuto and several other suspected traffickers several times since the middle of 2012 to set up the April 2 sting operation.

According to the court documents, Indjai was meant to provide the land for a front company to store the drugs in Guinea-Bissau and he told undercover agents at a military base in Guinea-Bissau last year that he would be an intermediary for the weapons sale.

“The General also stated that he would discuss the plan with the president of Guinea-Bissau,” the court documents said.

Nhamadjo’s government has vehemently denied any drugs links and said it would seek to defend Na Tchuto, a 63-year-old veteran of Guinea Bissau’s independence war.

An estimated 50 tons of cocaine move through West Africa every year, according to the United Nations Office on Drugs and Crime, most of it heading north to European cities, where the drugs are worth almost $2 billion on the streets.

(Additional reporting by Bernard Vaughn in New York; Editing by David Lewis and Michael Roddy)

The accusation against General Antonio Indjai – widely seen as the coup-prone West African nation’s most powerful man – is the first official signal that criminality may go straight to the top in what has for years been labeled a ‘narco-state’.

Guinea Bissau authorities repeatedly have denied any involvement in drug trafficking.

The indictment filed in New York’s Southern District Court and seen by a Reuters reporter, charges Indjai on four counts: “narco-terrorism conspiracy”, conspiracy to provide material support to a foreign terrorist organization, cocaine importation conspiracy and conspiracy to acquire and transfer anti-aircraft missiles.

Colombia’s FARC rebel group (Fuerzas Armadas Revolucionarias de Colombia) has been labeled a terrorist organization by Washington.

Guinea-Bissau’s military has long been accused of involvement in trafficking Latin American cocaine, using its mangrove-lined offshore islands as cover against the region’s notoriously weak law enforcement.

U.S. undercover agents snared Guinea-Bissau’s former Navy chief Rear Admiral in a high-seas drugs sting on April 2 – the most high-profile score in the U.S. war on drugs in Africa – that sources familiar with the operation say also targeted Indjai, but missed.

(Additional reporting by Bernard Vaughn in New York; Editing by David Lewis and Michael Roddy)

Guinea-Bissau General Antonio Indjai – widely seen as the coup-prone nation’s most powerful man – declined to meet undercover agents in international waters where he had been told he could seal a lucrative deal to smuggle cocaine and supply weapons to Colombian rebels, sources said.

“He did not take the bait,” said one of the sources with direct knowledge of the April 2 sting, in which former Navy chief Admiral Jose Americo Bubo Na Tchuto – labelled a drugs kingpin by the U.S. Treasury Department – was arrested.

Guinea Bissau’s military has long been accused of involvement in narcotics trafficking, using a jigsaw puzzle of mangrove-lined islands as cover against the region’s notoriously weak law enforcement.

The capture of Na Tchuto – who prosecutors say was successfully lured offshore on the promise of a $1 million (656 thousand pounds) payoff for transhipping 1,000 kg of cocaine – marked one of the U.S. Drug Enforcement Administration’s biggest successes in Africa, a region it says is increasingly used by smugglers moving Latin American drugs to users in the United States and Europe.

An estimated 50 tons of cocaine move through West Africa every year, according to the United Nations Office on Drugs and Crime, most of it heading north to European cities, where they are worth almost $2 billion on the streets.

A spokesman for the U.S. Drugs Enforcement Administration declined to comment on the sting operation. A spokesman for Bissau’s interim government, reached by telephone for comment about Indjai, said he would not answer any questions. The government has previously denied any links to trafficking.

Na Tchuto, who is in detention in New York awaiting trial on a charge he conspired to smuggle cocaine to the United States, has previously denied involvement in the drugs trade.

Indjai seized control of Guinea Bissau in a coup last April before handing power the following month to a transitional government led by civilian president Manuel Serifo Nhamadjo, in a deal brokered by West African regional bloc ECOWAS.

The European Union and the CPLP (Comunidade dos Paises de Lingua Portuguesa) grouping of Portuguese speaking nations have since refused to recognize Nhamadjo’s administration, saying it remains under the control of military officials involved in the drugs trade.

‘HIGH VALUE TARGET’

Undercover informants for the U.S. Drugs Enforcement Administration had met with Indjai, Na Tchuto, and several other suspected traffickers several times since the middle of 2012 to set up the sting operation, according to the source.

Na Tchuto initially balked at the undercover informants’ request he meet them offshore beyond the Bijagos Islands on the morning of April 2, first sending one of his aides before going out himself later in the day.

Indjai was meant to take a boat offshore separately a few hours later to handle the weapons side of the deal but became suspicious, according to one of the sources, who had direct knowledge of the sting as it was happening.

Another source, who was briefed by officials involved in the American operation, confirmed that Indjai had been targeted.

Na Tchuto’s arrest sent shockwaves through the former Portuguese colony as it tries to organise elections to replace its fragile caretaker government.

Guinea-Bissau army sources told Reuters on Wednesday that several military officials seen as allies of Na Tchuto had been put under house arrest as tensions soared between rival military factions blaming each other for the sting.

Fissures in the military have triggered repeated gunfights in the ramshackle capital Bissau. The army has seized power from civilian rulers more than a dozen times since 1974 independence.

Na Tchuto and Guinea Bissau Air force chief Ibraima Papa Camara were placed on the U.S. ‘drugs kingpins’ list in 2010 after enforcement officials caught wind of a huge 2009 cocaine deal.

Indjai, who is running the country’s armed forces from the capital Bissau, has denied involvement in drugs smuggling and was never placed on the list. Camara too remains in Bissau, is still in charge of the airforce and has publicly denied involvement in smuggling

“Indjai is a high value target. And he knows he is,” said a Bissau-based diplomat, who asked not to be named.

“WE DON’T HAVE A STATE”

Indictments filed in a New York court last Friday by U.S. prosecutors against Na Tchuto and six other suspects say that conspirators in the arms and drugs deal told undercover agents on at least two occasions between July and September 2012 that Nhamadjo was being briefed in the plot.

Nhamadjo’s government has vehemently denied any drugs links and said it would seek to defend Na Tchuto, a 63-year-old veteran of Guinea Bissau’s independence war.

“We will do our duty to a citizen who took part in the liberation of Guinea Bissau and the Cape Verde islands,” Prime Minister Rui Duarte de Barros said last Thursday.

Officials involved in efforts to combat organised crime in West Africa say the involvement of the DEA in the Na Tchuto arrest highlighted the weakness of regional governments to solve their own problems.

“There had to be a U.S. police operation to fight the drug traffickers,” said Pedro Pires, ex-president of Cape Verde who is now a member of the West Africa Commission on Drugs set up by former U.N. Secretary-General Kofi Annan this year.

“This shows how weak this state is. If we cannot fight drug trafficking this shows we don’t have a state or that the security and justice services just do not work.”

(Writing by Richard Valdmanis; Editing by Daniel Flynn and Ralph Boulton)

Guinea-Bissau General Antonio Indjai – widely seen as the coup-prone nation’s most powerful man – declined to meet undercover agents in international waters where he had been told he could seal a lucrative deal to smuggle cocaine and supply weapons to Colombian rebels, sources said.

“He did not take the bait,” said one of the sources with direct knowledge of the April 2 sting, in which former Navy chief Admiral Jose Americo Bubo Na Tchuto – labeled a drugs kingpin by the U.S. Treasury Department – was arrested.

Guinea Bissau’s military has long been accused of involvement in narcotics trafficking, using a jigsaw puzzle of mangrove-lined islands as cover against the region’s notoriously weak law enforcement.

The capture of Na Tchuto – who prosecutors say was successfully lured offshore on the promise of a $1 million payoff for transshipping 1,000 kg of cocaine – marked one of the U.S. Drug Enforcement Administration’s biggest successes in Africa, a region it says is increasingly used by smugglers moving Latin American drugs to users in the United States and Europe.

An estimated 50 tons of cocaine move through West Africa every year, according to the United Nations Office on Drugs and Crime, most of it heading north to European cities, where they are worth almost $2 billion on the streets.

A spokesman for the U.S. Drugs Enforcement Administration declined to comment on the sting operation. A spokesman for Bissau’s interim government, reached by telephone for comment about Indjai, said he would not answer any questions. The government has previously denied any links to trafficking.

Na Tchuto, who is in detention in New York awaiting trial on a charge he conspired to smuggle cocaine to the United States, has previously denied involvement in the drugs trade.

Indjai seized control of Guinea Bissau in a coup last April before handing power the following month to a transitional government led by civilian president Manuel Serifo Nhamadjo, in a deal brokered by West African regional bloc ECOWAS.

The European Union and the CPLP (Comunidade dos Paises de Lingua Portuguesa) grouping of Portuguese speaking nations have since refused to recognize Nhamadjo’s administration, saying it remains under the control of military officials involved in the drugs trade.

‘HIGH VALUE TARGET’

Undercover informants for the U.S. Drugs Enforcement Administration had met with Indjai, Na Tchuto, and several other suspected traffickers several times since the middle of 2012 to set up the sting operation, according to the source.

Na Tchuto initially balked at the undercover informants’ request he meet them offshore beyond the Bijagos Islands on the morning of April 2, first sending one of his aides before going out himself later in the day.

Indjai was meant to take a boat offshore separately a few hours later to handle the weapons side of the deal but became suspicious, according to one of the sources, who had direct knowledge of the sting as it was happening.

Another source, who was briefed by officials involved in the American operation, confirmed that Indjai had been targeted.

Na Tchuto’s arrest sent shockwaves through the former Portuguese colony as it tries to organize elections to replace its fragile caretaker government.

Guinea-Bissau army sources told Reuters on Wednesday that several military officials seen as allies of Na Tchuto had been put under house arrest as tensions soared between rival military factions blaming each other for the sting.

Fissures in the military have triggered repeated gunfights in the ramshackle capital Bissau. The army has seized power from civilian rulers more than a dozen times since 1974 independence.

Na Tchuto and Guinea Bissau Air force chief Ibraima Papa Camara were placed on the U.S. ‘drugs kingpins’ list in 2010 after enforcement officials caught wind of a huge 2009 cocaine deal.

Indjai, who is running the country’s armed forces from the capital Bissau, has denied involvement in drugs smuggling and was never placed on the list. Camara too remains in Bissau, is still in charge of the airforce and has publicly denied involvement in smuggling

“Indjai is a high value target. And he knows he is,” said a Bissau-based diplomat, who asked not to be named.

“WE DON’T HAVE A STATE”

Indictments filed in a New York court last Friday by U.S. prosecutors against Na Tchuto and six other suspects say that conspirators in the arms and drugs deal told undercover agents on at least two occasions between July and September 2012 that Nhamadjo was being briefed in the plot.

Nhamadjo’s government has vehemently denied any drugs links and said it would seek to defend Na Tchuto, a 63-year-old veteran of Guinea Bissau’s independence war.

“We will do our duty to a citizen who took part in the liberation of Guinea Bissau and the Cape Verde islands,” Prime Minister Rui Duarte de Barros said last Thursday.

Officials involved in efforts to combat organized crime in West Africa say the involvement of the DEA in the Na Tchuto arrest highlighted the weakness of regional governments to solve their own problems.

“There had to be a U.S. police operation to fight the drug traffickers,” said Pedro Pires, ex-president of Cape Verde who is now a member of the West Africa Commission on Drugs set up by former U.N. Secretary-General Kofi Annan this year.

“This shows how weak this state is. If we cannot fight drug trafficking this shows we don’t have a state or that the security and justice services just do not work.”

(Writing by Richard Valdmanis; Editing by Daniel Flynn and Ralph Boulton)

The documents cast a shadow on international efforts to restore order in the tiny West African state, which has suffered a string of coups since 1974 independence and which has since become a transhipment hub for narcotics bound for Europe.

U.S. prosecutors filed indictments against Guinea-Bissau’s former navy chief, Jose Americo Bubo Na Tchuto, and six other men late last week after trapping some of them in a daring sting operation off its Atlantic coast.

According to the indictments, the men planned to bring 4,000 kg of Colombian cocaine to Guinea Bissau inside a shipment of military uniforms and then smuggle weapons, including surface-to-air missiles, back to Colombia’s FARC rebels for use against American anti-drugs forces.

The filings state that one of the chief conspirators in the plan, described only as a “high-level official in the Guinea Bissau Military”, told undercover agents in July he would discuss the plot with President Manuel Serifo Nhamadjo.

“The day after tomorrow, I’ll talk to the President of the Republic,” he is quoted as saying in the indictment, filed in New York’s Southern District Court on Friday and since made public.

Two other suspects told undercover agents at a meeting in Bissau in September they would speak with the “President and the Prime Minister” about the deal, according to the documents.

“Guinea Bissau government officials would, as a fee, expect 13 percent of the cocaine,” a separate unnamed suspect told the undercover agents, according to the documents.

A spokesman for Nhamadjo denied Nhamadjo had any knowledge of the plot, adding: “None of this is true. It makes no sense.”

He said Nhamadjo was in Germany for medical treatment but was due to return later this week.

Nhamadjo was named transitional president in Guinea Bissau in May in a deal struck between West African regional leaders and the military commanders who seized power in a coup a month earlier, derailing elections.

The European Union and the CPLP grouping of Portuguese-speaking nations have refused to recognize his administration, claiming he remains under the influence of military leaders with links to the drugs trade.

Nhamadjo has denied the claims and has urged international support and funding for elections.

Na Tchuto’s arrest by U.S. drugs agents has raised fears of an outburst of violence between Guinea-Bissau’s rival military factions, who have repeatedly clashed in what observers suspect is a struggle for control of the drugs trade.

Na Tchuto has been involved in several failed coups in the former Portuguese colony and was one of two Bissau-Guineans designated as drug kingpins by the U.S. government in 2010.

Other people indicted include Colombian nationals Rafael Antonio Garavito-Garcia and Gustavo Perez-Garcia – both suspected narco-traffickers arrested in Colombia on Interpol warrants.

Guinea-Bissau is rich in natural resources – including minerals, cashews and some of the world’s best fisheries – but political instability has hindered investment and kept most of its 1.6 million people mired in poverty.

(Additional reporting by Edith Honan in New York and David Lewis in Dakar; Editing by Michael Roddy)

Rear Admiral Jose Americo Bubo Na Tchuto was detained by anti-narcotics officers along with four other Guinea-Bissau citizens on a boat in international waters on Tuesday, the sources told Reuters.

It was the most high-profile arrest to date in the fight against drugs trafficking in Guinea-Bissau, where South American cartels have used the mangrove-lined islands as a base for smuggling cocaine into Europe for more than a decade.

Na Tchuto, who has been involved in several failed coups in the former Portuguese colony, was transported to Cape Verde and would be sent to the United States for prosecution, the sources said.

Fernando Vaz, a spokesman for Guinea-Bissau’s government, confirmed the arrest of the five men. He said they were captured by Cape Verdean agents, who then transferred them to U.S. authorities.

“Rear Admiral Jose Americo Bubo Na Tchuto was arrested off the coast of Cape Verde in a boat flying the Panama flag,” he said.

Cape Verdean officials in the capital, Praia, were not immediately available for comment.

Na Tchuto was one of two Bissau-Guineans designated as drug kingpins, or “significant foreign narcotics traffickers” by the U.S. government in 2010, and hit with a U.S. travel ban and asset freeze.

Both Bubo Na Tchuto and Air Force Chief of Staff Ibraima Papa Camara were linked to an aircraft suspected of flying several hundred kilograms of cocaine from Venezuela to Guinea-Bissau in July 2008, the U.S. Treasury Department said.

Guinea-Bissau’s military has repeatedly intervened in politics since independence from Portugal in 1974.

U.N. counter-narcotics officials say there is also evidence senior officers have helped Latin American cocaine cartels ferry tons of drugs from Colombia to Europe, using Guinea-Bissau’s maze of coastal creeks and offshore islands to store and transfer them.

Guinea-Bissau is rich in natural resources – including minerals, cashews and some of the world’s best fisheries – but political instability has hindered investment and kept most of its 1.6 million people mired in poverty.

The country has been in turmoil since soldiers last seized power in April 2012. A post-coup transition government released Na Tchuto from prison in June, after he was jailed following a failed December 2011 attempt to take over the country.

The current caretaker government of President Manuel Sherifo Nhamadjo was supposed to organize elections in May, but a summit of West African heads of state last month extended the transition period until the end of this year.

Army chief General Antonio Indjai has been accused of leading the April coup and the European Union says he still holds sway.

On Thursday, Indjai accused the British honorary consul in Bissau of spreading false rumors about the situation in the country and said the military would not tolerate anyone who tried to tarnish the nation’s image abroad.

(Writing by Daniel Flynn; Editing by Andrew Heavens and Peter Cooney)

Rear Admiral Jose Americo Bubo Na Tchuto was detained by anti-narcotics officers along with four other people on a boat in international waters on Tuesday, the sources told Reuters.

It was the most high-profile arrest to date in the fight against drugs trafficking in Guinea Bissau, where ruthless South American cartels have used the mangrove-lined islands as a base for smuggling cocaine into Europe for more than a decade.

Na Tchuto, who has been involved in several failed coups in the former Portuguese colony, was transported to Cape Verde, and would be sent on to the United States for prosecution, the sources said.

Na Tchuto was one of two Bissau Guineans designated as drug kingpins, or “significant foreign narcotics traffickers” by the U.S. government in 2010, and hit with a U.S. travel ban and asset freeze.

Both Bubo Na Tchuto and Air Force Chief of Staff Ibraima Papa Camara were linked to an aircraft suspected of flying several hundred kilograms of cocaine from Venezuela to Guinea Bissau in July 2008, the U.S. Treasury Department said.

Guinea-Bissau’s military has repeatedly intervened in politics since independence from Portugal in 1974.

United Nations counter-narcotics officials say there is also evidence senior officers have helped Latin American cocaine cartels ferry tons of drugs from Colombia to Europe, using Guinea-Bissau’s maze of coastal creeks and offshore islands to store and transfer them.

Guinea-Bissau is rich in natural resources – including minerals, cashews, and some of the world’s best fisheries – but political instability has hindered investment and kept most of its 1.6 million people mired in poverty.

The country has been in turmoil since soldiers last seized power in April 2012. A post-coup transition government released Na Tchuto from prison in June, after he was jailed following a failed December 2011 attempt to take over the country.

The current caretaker government of President Manuel Sherifo Nhamadjo was supposed to organize elections in May but a summit of West African heads of state last month extended the transition period until the end of this year.

Army chief General Antonio Indjai has been accused of leading the April coup and the European Union says he still holds sway.

On Thursday, Indjai accused the British honorary consul in Bissau of spreading false rumors about the situation in the country and said the military would not tolerate anyone who tried to tarnish the nation’s image abroad.

(Writing by Daniel Flynn; Editing by Andrew Heavens)