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Stuck Between America and Iran

18 Sep 2009 01:403 Comments
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By JIM KRANE

The 5,000 Iranians had waited for hours. They'd finished the last crumbs of their picnics and hung their homemade banners. They killed time by practicing their chants: "Down, down USA!" and "Nuclear energy is our right!" And they sat through a speech by a Shiite imam who promised: "You're in for an unforgettable night!"

The hardships melted away when their man finally strode onstage; the bearded leader with his infectiously humble charisma and trademark workingman's jacket. They rose cheering to greet him. They frantically waved their tiny green, white and red flags. The camera flashes and klieg lights danced on him, as he raised both arms and waved, graciously reflecting back their adulation.

President Mahmoud Ahmadinejad was the first Iranian president since the 1979 revolution to visit the UAE, and this would be his first public speech. For the Emiratis present in the soccer stadium at Dubai's Iranian Club, it was a rare spectacle: a political rally in a country where politics are illegal.

Ahmadinejad's speech was a masterstroke of timing. The high-octane Iranian blew into the UAE just hours after the departure of U.S. Vice President Dick Cheney. The contrast between the two visits could not have been deeper. The dour Cheney, with his characteristic disdain for the public eye, hunkered out of view in the Emirates Palace hotel in Abu Dhabi. His entreaties to his hosts to back the aggressive U.S. line on Iran got no play in the media.

Ahmadinejad was another matter. The UAE pulled out all the stops for the Iranian president, giving him a red-carpet welcome at the Abu Dhabi airport from the president, Sheikh Khalifa, and Dubai leader Sheikh Mohammed. It seemed as if the UAE let him issue its response to Cheney. Ahmadinejad made three public speeches during his visit, taking questions from the press, touting his country's controversial nuclear development and glad-handing the crowds.

By the time he arrived at the Dubai soccer stadium, the place had been gussied up with huge posters of his grinning face. Ahmadinejad spoke to the crowd in the style of an American evangelical preacher, dividing the world into beauty and ugliness. He linked beauty with God and his believers, and the ugly things with the unbelievers.

"A man who believes in God respects everyone. Look at history," he said, when the crowd had finally settled. "The wars, the suffering, the racism, it's the product of selfish people who don't believe in God, people with Satanic beliefs."

A few energetic men at the back waved a black banner demanding nuclear rights. In an ominous parallel to suspicions about Iran's ambitions, their banner carried the yellow nuclear fallout symbol, rather than the usual three orbiting atoms of atomic energy.

"Look at Iraq. These people destroyed Iraq," Ahmadinejad continued. "They sent millions fleeing their homes. They said they came to save Iraq. That's a big lie. They came to control the region, to control the oil!"

He soon honed in on the U.S. embargo that stifles his nation. "They have industrial and medical improvements, but they keep them for themselves," Ahmadinejad railed. "They want to control other nations, to keep others dependent on them. They're not against nuclear weapons, they're against Iran's growth. The nation of Iran, a young nation with faith in God, will have this energy!"

At this point the restless crowd erupts and Ahmadinejad stands back to listen. "Nuclear energy is our right!" they shout. He stoops to receive an admirer's gift of a bouquet of roses.

When he steps back to the microphone, Ahmadinejad speaks of the mighty bond between Iran and the Arab countries across the Gulf. He says the unbelievers aim to force these natural allies apart. The aim? To start a war that allows them to control the wealth. He turns and addresses the unbelievers directly.

"We're telling you to leave the region!" Ahmadinejad yells, pointing into the air. The crowd stirs into applause. "The nations of this region can no longer take your forcing yourself on them. We know better how to bring peace and security to our region. What is it that you've done in this world, that every time your names are mentioned, hatred swells up? This is Iran's advice to you: Leave the region!"

* * *

A few months later, President Bush's motorcade roared into Dubai. It was a rare grey drizzly afternoon. To locals who cherish the rain, it was a good omen. But to most folks, it looked like the black cloud shrouding the Bush administration had followed the U.S. president to Dubai.

To be safe, Sheikh Mohammed gave Dubaians a mandatory holiday. Businesses were shuttered and the main roads blocked. The titanic Sheikh Zayed Road sat unused all day, except for a single American motorcade traveling in tight formation. Sheikh Mohammed's precautions probably stemmed from the thought of the bad press that would befall Dubai if something happened to the U.S. president, and the real chance that something could happen on Dubai's anarchic roads. Clearing them solved the matter. It also minimized distractions so that Bush got a full view of Dubai's architectural marvels. The motorcade took the president through the forests of skyscrapers in the Dubai Marina, past the imitation Chrysler Buildings of Dubai Internet City, near the Burj al-Arab and the nearly finished Burj Dubai, and through the shimmering skyscraper corridor approaching the city center. By the time Bush reached Sheikh Mohammed's ancestral home on the creek, the American president's perceptions of the Middle East were soundly shaken.

"He was in awe of what Dubai had accomplished," says Tarik Yousef, the 41-year-old dean of the Dubai School of Government, who was waiting in the home to greet the arriving president. "He didn't expect it to be this developed. You could see that he was blown away."

It was clear that Dubai's creations couldn't have been managed without stability and good governance. It was as if Bush's focus on Iraq and terrorism had blinded him to the progress transforming other parts of the region, and that these changes had come with little or no effort from Washington. "Dubai is a model," Bush gushed to his hosts. "The sheikh is an inspiration. There is hope for the Middle East."

Bush took a seat in the old coral house and fielded questions from School of Government students. The questions had been prepared in advance and were easy softballs, eliciting feel-good responses. Sheikh Mohammed was annoyed. He wanted to put this controversial leader on the hot seat. He leaned over to Yousef and gave him an order: "Inta es'aal!" - You ask a question! Yousef whispered back that he hadn't prepared anything. "Come up with something," the Dubai leader demanded.

The Libyan-American cleared his throat and piped up. "What's your legacy going to be Mr. President? It seems like you've spread yourself too thin. You're not really going to accomplish anything. It's all controversial and bloody in this region."

"I don't care about legacy," Bush shot back. "I've often believed that a man's best deeds will be talked about in the future, long after he's gone."

That's exactly my point, Yousef thought to himself.

Dubai and Iran

Dubai's ties with Iran are warmer than those of any of the Arab sheikhdoms. Dubai has capitalized on those ties, and Iran's missteps, since at least 1900, when Sheikh Maktoum bin Hasher coaxed away the merchants of Bandar Lengeh.

The last Iranian shah, Reza Pahlavi, was a Dubai admirer, haranguing his engineers to build ports like Sheikh Rashid's. In those days, people on the Arab side of the Gulf crossed to Iran for boozing and carousing. After the Islamic revolution that ousted the shah in 1979, the flow reversed. Iranians fled the stifling atmosphere in Tehran to let their hair down in Dubai.

"For Iranians, Dubai is the symbol of a well-balanced Islamic society," says Saeed Leylaz, the editor of Tehran's Sarmayeh financial newspaper, and a leading analyst. "It's an Islamic country, but nobody is forced to be Islamic."

Dubai didn't join Saudi Arabia, Iraq and others who agitated against the ayatollahs. Sheikh Rashid and his sons still saw Iran as a lucrative trade partner. That won them Tehran's respect and its money. The little city-state across the Gulf came out a winner in the Iranian revolution. Nowadays, with around 400,000 Iranian residents, Dubai is Iran's lifeline to the world. American politicians like to bray about Iran's ties to Syria, Iraq and Lebanon's Hezbollah, but it is Dubai that keeps the ostracized nation functioning.

"Dubai is the most important city on earth to the Islamic Republic of Iran, with the exception of Tehran," says Leylaz.

Iran also keeps Dubai afloat. Iran is Dubai airport's top destination, with more than 300 flights per week. The UAE is Iran's largest trading partner, responsible for about one-seventh of Iran's $100 billion international trade.2 Dubai is also the main destination for capital flight from Iran, much of which has been plowed into real estate.

"You cannot imagine the number of ads for apartments in Dubai on the Persian satellite channels," Leylaz says. "There is a constant stream of money flying from Tehran to Dubai."

The price of Dubai's friendship is high. Billions of dollars a year flow out of Iran and into Dubai. This is not a relationship that Dubai wants to halt, even at Washington's request.

Dubai and America

At the same time, Dubai is a key U.S. ally, a crucial Mideast base where American companies are extending their reach into the Arab world, central Asia and Africa. Dubai has become so useful that in 2006, U.S. oil services giant Halliburton moved its CEO, Dave Lesar, to Dubai.

Ironically, Washington sees the UAE as the anti-Iran, says Afshin Molavi, a fellow at the New America Foundation in Washington. America and the UAE have signed agreements allowing U.S. companies to provide nuclear energy technology. The idea is to help the UAE get generating plants running quickly, demonstrating to Tehran that there is a right way to pursue nukes -- and a wrong way.

Dubai is also an example of religious tolerance, clean government, capitalist success and progressive attitudes toward women that the U.S. likes to tout to the Arab world. American diplomats say bluntly that Dubai is their model for a new Baghdad.

But the UAE also needs America, even more than it needs Iran. The country's defense ties with America are nothing short of existential. Without a protector, the UAE, with its oil riches and tiny native population, might be a tasty morsel to a larger neighbor. Cooperation with Washington comes readily. The UAE was the first Mideast country to adopt U.S. port security measures. UAE special forces work alongside NATO in Afghanistan. And Jebel Ali is only Gulf port that can berth a carrier, and the only Mideast stop where U.S. sailors can take shore leave.

Dubai Intelligence City

Dubai is also a U.S. spy center. America hasn't had an embassy in Tehran since 1979. Dubai, with several hundred thousand Iranians, is the next best thing.

Picking up details on Iran is easy. Day after day, Iranians line up to spill their secrets to the U.S. government. How is this possible? Dubai and Abu Dhabi are the closest places that Iranians can apply for U.S. visas. The visa windows at the U.S. consulate and embassy are lucrative intelligence collection points. So lucrative, in fact, that the Central Intelligence Agency stepped in to save the Dubai consulate from closure. The State Department tried more than once to shutter the consulate, mainly for budget reasons. But with hundreds of Iranians coming every day to be monitored, interrogated and, sometimes, recruited into spying on their own government, the CIA argued that cuts needed to come elsewhere.

Iranians seeking U.S. visas are interviewed by Iran specialists, some of whom speak fluent Farsi. Those with interesting backgrounds find themselves in a long process. U.S. interviewers ask them to return time and again, pressing them to collect more and deeper details, and all the while holding out the possibility of a U.S. visa. Through much of the 1980s, one of the more colorful spies working the rich fishing grounds in Dubai was none other than Gary Schroen, the veteran operations officer later tapped to lead the first U.S. team inside Afghanistan after the Sept. 11 attacks.

The once tiny U.S. consulate -- with just six American staffers -- expanded, taking over multiple floors in the Dubai World Trade Center. Intelligence collection became a priority.5 Washington sought to monitor Iranian banking, business and trade. Besides the CIA, U.S. Customs monitored trade, the U.S. Treasury sent people to watch for money laundering and suspicious cash flows. The U.S. military sent liaison officers as well, including Navy investigators whose job it is to collar drunken sailors in whorehouses and get them back on their ships.

In 2006 the State Department opened a new office in the consulate dealing solely with Iran: the Iran Regional Presence Office. It became the first U.S. diplomatic mission aimed at Iran since 1979, when revolutionaries seized control of the U.S. embassy in Tehran. The half-dozen U.S. diplomats at the low-profile office appear to focus on the softer side of relations, attending cultural events in the Iranian community and leaving the nuclear confrontation to Washington.

Washington isn't the only government that spies in the rich grounds of Dubai. Iran also runs covert agents, many of whom operate Dubai branches of state-owned companies, including those owned by the hardline Revolutionary Guards corps and the Iranian ministries of defense and intelligence. The Iranians aren't in Dubai to collect information on the United States. There aren't enough Americans to make that worthwhile. They're there because even state-run companies find business easier in Dubai than in sanctions-hobbled Iran. Some state firms have used their Dubai offices to transfer to Iran nuclear technology banned under the UN and U.S. embargoes.

Working for the Clampdown

The Iranian presence in Dubai has brought heavy U.S. government pressure on the UAE. Even American Jewish groups have harangued the sheikhs to trim relations with Iran.

When the Clinton administration enacted U.S. sanctions in 1995 -- under pressure from the Israel lobby -- the UAE initially ignored them. It was, in effect, like Spain asking Texas to cut ties with Mexico. U.S. laws don't apply in the UAE, of course, and Dubai's merchant families -- who still speak Farsi and stay in touch with relatives in Iran -- weren't about to shrink their businesses on a foreign government's say so. Trade with Iran is one of the key underpinnings of Dubai's prosperity. Cutting it off is shooting yourself in the leg.

But over the years, the UAE's resolve buckled somewhat. The U.N. began levying sanctions in 2006 after Ahmadinejad revived Iran's nuclear enrichment program. The UAE observed the UN's mild sanctions, as it must under its treaty obligations. By this time, U.S. pressure had grown so intense that the UAE quietly began cutting its thousand-year ties with Iran.

UAE imposed export restrictions in 2007 and customs authorities stepped up inspections of Iran-bound cargo. Shipments that used to get turned around within hours now sit for days or weeks. Suspicious cargoes are impounded, even seized, as was a 530-pound shipment of zirconium -- a metal used in nuclear reactors -- found in 2007 on an Iran-bound ship at Jebel Ali. That shipment violated UN sanctions, but UAE officials went beyond the UN mandate by shuttering 40 Iranian companies.

The government effectively froze the growth of Dubai's Iranian community at U.S. behest. Iranians now find it more difficult to travel to Dubai. Newly arriving Iranian businessmen find themselves unable to open UAE branches of their firms. Dubai-based companies can no longer get visas to bring in new employees from Iran. Dubai branches of international banks like HSBC, StandardChartered and Citibank have asked Iranian customers to withdraw their deposits because their accounts were being closed. These actions appear driven by U.S. sanctions, not the UN's. Dubai's vaunted neutrality is slipping.

The clampdown is blatant discrimination, says Nasser Hashempour, the deputy director of the Dubai-based Iranian Business Council. Expatriate Iranians with no ties to Iran's nuclear program found themselves in the U.S. crosshairs, and now Dubai's. Business is suffering. Hashempour, like many Iranians, once held the United States in great esteem. In the 1980s, he and two friends made a glorious two-week road trip from Los Angeles to New York. That esteem evaporated as Washington began to thwart his livelihood. And now Dubai, a city practically built by Iranians, is doing the work of America and Israel.

"Why should they make life hard for Iranians? We helped this place develop from the very beginning," he says. "If they pressure Iranians, a lot of Iranians will take their assets to a country where we're welcome. A lot of non-Iranians will lose confidence in Dubai."

The tip of the American spear is a guy named Stuart Levey, the U.S. undersecretary for terrorism and financial intelligence. Levey is a fixture at international business conferences where he tells people to stop dealing with Iran. His logic is effective: If the United States finds you've traded, even unknowingly, with an Iranian government entity -- even if disguised as a shell company -- you'll be hit by the full force of U.S. law. The upshot is that companies must choose between doing business in Iran or America. Given the size of the U.S. market, most heed Levey's advice. His talks have cast a chill of paranoia over Dubai's banks and exporters.

"The world's top financial institutions and corporations are reevaluating their business with Iran because they are worried about the risk and their reputations," Levey told 200 bankers gathering in Dubai. "You should worry too. Be especially cautious when it comes to doing business with Iran."

Hashempour finds it galling. Iran and Dubai have hundreds of years of ties, through marriage, shared cuisine, traditions and religion. The Arabic spoken in Dubai has a Persian inflection. Neighborhoods and families are named after towns in Iran. And a minor functionary from halfway around the world tells people to break those ties -- at great personal cost -- and they do what he says.

Not all the U.S. inroads in Dubai have harmed Iran. American firms, says Hashempour, have quietly courted the Iranian Business Council. With Obama in the White House, Iranians feel that a warming is due. Iran's 70 million consumers make an alluring market. In October, there was a good sign: Citibank sponsored the business council's monthly luncheon. "They are thinking of the future and of Iranian assets," Hashempour says with a chuckle.

* * *

Cyrus Kheirabadi runs a company that imports spare parts for Chinese-made Komatsu bulldozers and cranes and re-exports them to Iran. It used to be possible to run such a business from Iran. The equipment could be purchased in China with a letter of credit in dollars from, say, Bank Saderat Iran, and imported directly. When the Bush administration blocked Iranian banks from using dollars, Iranian firms switched to letters of credit denominated in euros. But then corresponding banks -- even those in China -- stopped dealing with Iranian banks. So Kheirabadi, like thousands of other Iranian businessmen, opened an office in Dubai. In Dubai he can usually get a letter of credit from an international bank and import goods to Dubai. Then he re-exports them to Iran. Is it a hassle?

"Yes. It makes things costly for us. Credit lines are closed. Some banks don't deal with us. We have to work with cash," says Kheirabadi, the director of Prime Apex General Trading. "The end user winds up paying more. The sanctions don't do anything to the Iranian government. The ones who get hurt are the poor people."

When America tightened its embargo against Iran around 2003, there were fewer than 3,000 Iranian-run businesses in Dubai. In 2008 there were nearly 10,000.

* * *

Charley Kestenbaum moved to Dubai in 1984, just three years after Iranian radicals finally released the 52 U.S. hostages they'd held in the U.S. embassy in Tehran for 444 days. The U.S. quarrel with Iran had a clear rationale and Kestenbaum, as the American commercial attache, was Washington's man to monitor trade with the Islamic Republic. For the next 15 years, he was a familiar sight in Dubai's trading souks and wharves. He oversaw the local implementation of Bill Clinton's sanctions.

U.S. policy, as he describes it, is the economic strangulation of Iran. Washington means to put pressure on the Iranian regime in every possible way short of dropping bombs. That means blocking capital, technology and investment, and sabotaging commerce.

"Part of sanctions enforcement against Iran was simply to make things more expensive for Iran and to bleed their economy over long periods of time," Kestenbaum says. "Every dollar spent above normal market price was a dollar unavailable for other procurement."

Dubai, as Iran's main window, has long been targeted as the main hole in the embargo. Congress viewed Dubai as working at cross-purposes to its wishes. That attitude was reinforced when, not long after the U.S. sanctions were announced, a Dubai's GE distributor told the press that he had no intention of complying, since U.S. law doesn't hold sway in Dubai. Compliance meant giving up as much as 60 percent of his business.

"GE had to backpedal and shut that guy up quick," says Kestenbaum. "To this day Kodak and GE and everyone else are shipping goods like mad, loading them onto dhows and freighters in Dubai and Sharjah, and they're going to Iran. There's very limited control. Someone can say, 'OK, we're not shipping to Iran. We're shipping to Tanzania.' The boat goes out and instead of turning south it runs east toward Iran. Who knows?"

These days subsidized Iranian gasoline -- which sells in Iran for 40 cents a gallon -- gets exchanged in the UAE for all manner of goods blocked by the U.S. embargo or thwarted by Iran's import restrictions, from cases of Jack Daniel's and cartons of Marlboros, to microchips, software, computers and cell phones.

The blatant embargo-busting makes Dubai a more sensitive destination for all sorts of U.S. goods, on the premise that sending them to Dubai is as good as sending them to Iran. One day Kestenbaum got a call from Washington asking him to track a shipment of bacterial culture, a precursor used in the manufacture of yogurt that might also be useful in biological warfare.

"We checked it out," says Kestenbaum. "It was going to a yogurt factory in Dubai."

* * *

Things in Iran would be a lot worse if it weren't for Dubai. Dubai's willingness to protect most of its trade in the face of Washington's pressure is a great insulator, allowing Tehran a freer foreign policy hand while decreasing American harm to the country's stability.

"Dubai is a very wide window that allows us to bypass the sanctions and our tough relations with the world," says Saeed Leylaz.

Dubai's leaders are justified in resisting pressure from Washington, says David Stockwell, the U.S. consul in Dubai in the mid-'80s. American and Emirati interests are not identical. The United States risks overplaying its hand. The UAE is a reliable oil producer, a huge purchaser of Boeing jets and U.S. military hardware, and a major ally.

"They have no reason to have to comply with U.S. wishes on this," says Stockwell, who now heads the Dubai office of Rudy Giuliani's law firm. "With all due respect to the U.S., the reality is that the UAE has to live in this neighborhood. If the U.S. pushes too hard, they defeat themselves. They don't want to turn friends into enemies."

Torn Between Two Lovers

The simultaneous presidencies of Bush and Ahmadinejad were a nightmare for Dubai. The specter of yet another Gulf war looked frighteningly close. Worse, this war might've dragged in the UAE, since it hosts U.S. bases that would be likely Iranian targets.

In the neutral atmosphere of Dubai, Bush and Ahmadinejad looked like angry men who shared philosophies and methods. Both hail from the extreme right wing of their nation's political sphere, both leaned on support from religious fundamentalists and rural bases; both used simple language with anti-intellectual overtones; both required external enemies - in this case, each other - to legitimize their grip on power. Neither had much use for diplomacy.

"Both of them are being jerks," says 21-year-old Hamda bin Demaithan. "They should just leave us out of it."

How did Dubai manage to navigate the treacherous shoals between sworn enemies? By being pragmatic and staying out of politics. This is the central plank of Dubai's diplomacy.

"It's like the song: 'Torn between two lovers, feeling like a fool.' We have to satisfy them both. And it's no easy task," political analyst Abdulkhaleq Abdulla says with a smile. "When these two start going at each other you really need to be careful."

Sheikh Mohammed was a confidant of both presidents. He enjoyed a good rapport with President Bush at Camp David in June 2008. And he's also spent time in Iran with President Ahmadinejad. Dubai presents itself as the essential neutral point, where all sides interact. "It's a complex and dangerous situation but they've finessed it brilliantly all along," Kestenbaum says.

No War, Please, We're Working

America is central to the UAE's survival. The two countries signed a defense cooperation agreement in the mid-'90s that was triggered by the shock of Saddam's 1990 invasion of Kuwait. The agreement's contents are secret, but the gist is that the U.S. military will respond to an attack on the UAE in exchange for use of air and sea bases.

With Saddam out of the picture, the UAE sees Iran as its chief military threat, especially given Iran's nuclear program and its arsenal of ballistic missiles. The UAE's defense strategy means sustaining a first strike and praying for allies -- the U.S., France and Britain -- to arrive.

In one sense, the United States is both the cure and the sickness. The most plausible reason Iran would assault the UAE would be in retaliation for a U.S. or Israeli strike on its territory. This possibility led UAE president Sheikh Khalifa to publicly forbid the United States from using UAE territory to attack Iran. He also banned the U.S. military from using its Abu Dhabi-based spy planes to conduct intelligence missions over Iran.

The UAE has spent vast amounts on American military hardware, including $6.4 billion for 80 F-16 fighter jets in 2004. Americans train Emirati F-16 pilots at Al-Dhafra Air Base near Abu Dhabi.

The UAE bought Raytheon's Hawk missile defense system in the 1980s and since integrated it with the U.S. military, so the two countries can respond jointly in the event of an attack. The Hawk batteries can be seen scattered in the desert and along the coast. In 2007, the UAE notified Congress that it also wanted $9 billion worth of Raytheon's longer-range Patriot defense missiles.

And, perhaps to show the Americans that their aggressive posture toward Iran isn't appreciated, in 2007 the UAE invited France to open an air base. The UAE wants to further diversify its defense relationships away from America, which is seen as too favorable to Israel, a potential enemy. UAE fliers also pilot French Mirage jets, and its ground forces operate French tanks and Russian armored personnel carriers. But everyone knows that only the United States can protect them if there is real trouble. "When the sheikhs dial 911, it doesn't ring in Paris," Kestenbaum says.

This is an excerpt from the recently published book, "City of Gold: Dubai and the Dream of Capitalism." Printed with permission of the author.

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3 Comments

Excellent article, Mr. Krane. Thank you!

Mani / September 18, 2009 12:26 AM

the US might finds itself in a protacted war against Iran and this I think could easily happen, Then Dubain will have to make its own mind u who it supports


US and maybe Isreal or Iran

John Christopher Sunol / September 18, 2009 2:13 AM

So...from the picture the "Devil's" still grinning I see. But soon he won't be so happy...when he's returned to "Hell"!

PS. I may have left your pages for a while...but my spirit & hope for a free Iran...is as strong as ever. And that button was pushed even more this morning by reports of Ahmadinejad's disgraceful speech misrepresenting most of the people of "Iran". & I fail to see why the West is lackadaisical especially the US in dealing with the man...& I don't mean in a talkative sense. Guys like these maniac's don't do truthful talking...in fact don't do anything truthful...seeing as to how they stole their election. So I say again, "World Wake Up"!

Jaker / September 18, 2009 9:32 AM