"HOUSTON - Halliburton Co. said yesterday that it has agreed to pay $6 million to settle 20 shareholder lawsuits that accused it of using deceptive accounting practices while Vice President Richard Cheney led the company.
"The lawsuits challenged the way that the oilfield-services company counted revenue from cost overruns and change orders on long-term fixed-price construction projects...."
At Halliburton, they call it "RIO." That sounds sexier than “ORIO,” the full acronym for the U.S. Army Corps of Engineers’ “Operation Restore Iraqi Oil.” The Corps coined the code word, but for the execs at Halliburton, the juicy LOGCAP contract covering all that “RIO” work must beckon like “The Girl From Ipanema.”
All those task orders. All those subcontracts. All that profit.
This site has obtained e-mails from Lt. Col. Eugene A. Pawlik of U.S. ACE headquarters that frankly describe how current contracts and regulations enable Halliburton – the parent company of Kellogg Brown & Root, which won the competitively-bid LOGCAPIII contract – to double-dip in RIO profits. The e-mails are business correspondence, exchanged over the last few weeks between Lt. Col. Pawlik and two business executives.
In one e-mail, the lieutenant colonel confirms that it’s “not a requirement” for sole-source contractors to bid subcontracts (a fact brought to light on this site on Wednesday, and by Congressman Henry Waxman Thursday in a letter to Les Brownlee, Acting Secretary of the Army).
But Halliburton spokesperson Wendy Hall told me this week via e-mail: “…because KBR’s procurement system has been reviewed and approved by the Federal Government, it requires that we compete all subcontract opportunities over $2500.”
According to Ms. Hall, “KBR’s procurement system was inititally reviewed and approved by the Defense Contract Management Agency in 1994. We have been subject to several audits since then, the most recent of which occurred within the last month.”
So KBR is audited. At least “several” times in the last decade. We can all agree that’s a good thing.
And they insist that they “compete all subcontract opportunities over $2500” (although Ms. Hall’s use of “compete” as a transitive verb doesn’t reveal anything about the actual process). The LOGCAP contract itself doesn’t require that competition.
Those are very skimpy safeguards against overcharging, and they promote economy about as much as thong bikinis encourage celibacy. In fact, one of the Lt. Col. Pawlik's e-mails makes the cost-control process seem particularly ineffectual in light of oil business practices: “USACE contract specialists review all the claims for payment against the contract and require supporting documentation for those claims. They then ensure those claims fall within the government/industry standards and within the scope of the contract.”
The colonel spells out the enormous vulnerability: USACE has no role whatsoever in selecting the subcontractors. “The prime contractor engages the subs, and the Corps monitors the contract process to ensure operations are conducted/managed within the scope of the prime’s contract.”
So in RIO, KBR is all on its own to hire whomever it desires. Such temptation!
Since USACE exerts no oversight in KBR’s bidding process for subcontractors, the chief spending restraint is delayed until after the work is done and the bills are submitted. All bills are paid if they’re “within the scope of the contract.”
And as I explained in “Halliburton’s ‘Sole-Source’ Shuffle,” it’s easy for firms in the oil business to submit “supporting documentation”– in the form of the inflated rack rate in their price book – to support very profitable claims.
Double-dipping for profits is apparently “within the scope of the contract,” so why resist? Two subsidiaries of Halliburton – Halliburton Energy Services and Landmark Graphics – are working as subcontractors now under Kellogg Brown & Root, itself a subsidiary of Halliburton. KBR takes its 3-5% profit, and the other subsidiaries take some more. The parent company fattens from both.
So Halliburton is living it up in RIO.
In one of the e-mails this site obtained, Lt. Col. Pawlik wrote -- just last week -- that the Corps has “not yet finalized the Acquisition Strategy for future contracting related to the Iraqi oil infrastructure.”
Meanwhile, KBR won't disclose how much it's paying its subcontractors, like its sister company, Halliburton Energy Services.
Let’s hope that a new “Acquisition Strategy” – and Henry Waxman’s tenacity -- can open up this very expensive RIO to the American public.
* * *
Lt. Col. Pawlik did not reply to e-mailed questions for this report.
By Jackie Spinner
Washington Post Staff Writer
Friday, May 30, 2003; Page E03
"Rep. Henry A. Waxman (D-Calif.) continued to push for details about Iraq-related contract work given to Halliburton Co., charging yesterday that the Houston-based firm has been able to profit "from virtually every phase of the conflict."
In a letter to assistant Army secretary Les Brownlee, which was posted on his congressional website, Waxman said Defense Department data indicates that Halliburton has been paid $496.3 million for Iraq-related work under a general logistics contract the firm won through a competitive bid in December 2001.
"It is simply remarkable that a single company could earn so much money from the war in Iraq," Waxman said in the letter.
"A spokesman for Halliburton called the allegation "an affront to all hard-working, honorable Halliburton employees, who are dedicated to serving our customers and doing what is right."
"U.S. government contracts are awarded not by politicians, but by government civil servants," Halliburton spokeswoman Wendy Hall said in an e-mail statement. "Government civil servants are well aware of and consistently abide by the requirements of the process."..."
* * *
For more about Halliburton's willingness to "consistently abide by the requirements of the process" -- and how that process enables the company to reap profits as both contractor AND subcontractor for the same work -- scroll down to read this site's exclusive report, "SHELL GAME: HALLIBURTON'S 'SOLE-SOURCE' SHUFFLE."
"WASHINGTON May 29 —
The Army has given a Halliburton Co. subsidiary more than $425 million in troop support work, much of it related to the Iraq war, over the past 14 months under a contract that Vice President Dick Cheney's former company won in 2001.
"The new work is in addition to the $71.3 million that Halliburton's subsidiary, Kellogg Brown & Root, has received from the Army Corps of Engineers in contracts to repair and operate oil wells in Iraq.
"Rather than put the Iraq work up for bidding, the government has used the 2001 Halliburton contract to place the various work orders in Iraq, prompting criticism from some Democrats that Cheney's former company is receiving favored treatment.
Rep. Henry Waxman, D-Calif., who disclosed the troop support work orders Thursday, said the structure of that contract means that "the amount that Halliburton could receive in the future is virtually limitless."
"It appears that many, if not all, the task orders under the contract were awarded without any competition," Waxman said in a letter to Acting Army Secretary Les Brownlee. "This type of arrangement poses inherent risks to taxpayers. ... It is unclear what safeguards, if any, the Army is using to prevent excessive charges to the government."..."
"ARLINGTON, Va.--(BUSINESS WIRE)--May 29, 2003--United Defense (NYSE:UDI) released today the final tabulation of stockholder votes from its Annual Meeting of Stockholders held yesterday.
"Owners of more than 95 percent of United Defense's outstanding common stock were represented in person or by proxy at United Defense's annual meeting. Voting results on the items of business follow:
"Election of directors
"Each of the following nine nominees to the board of directors was elected, with at least 81 percent of the vote, to serve until their respective successors are elected and qualified:
"Frank Carlucci, age 71, became a director in December 1997. He is currently Chairman Emeritus of The Carlyle Group. Prior to joining Carlyle in 1989, Mr. Carlucci served as Secretary of Defense from November 1987 to January 1989. He currently also serves as Chairman of the Board for Neurogen Corporation....
John M. Shalikashvili, age 65, became a director in June 1998. Gen. Shalikashvili is an independent consultant and Visiting Professor at Stanford University. Prior to joining the board, he was the Chairman of the Joint Chiefs of Staff for two terms from 1993 to 1997...." [Emphasis mine.]
Click the headline to read about the other directors -- reelected today with a resounding mandate from "stockholders"!
And only four of the nine directors claim to have been on the Carlyle payroll. Less than half!
* * *
Yesterday, I emphasized that Halliburton spokesperson Wendy Hall had declined to answer my question about subcontractors that were owned -- in part -- by Halliburton.
This is a complex area of legal and accounting strategy for businesses that feed on government contracts, as the above election illustrates. The selection of the company's directors is somehow legitimized by Carlyle's ownership of only 49.5% of UDI's stock.
Just remember that question that Ms. Hall refused -- twice -- to answer:
Under [KBR's Iraq contract], what companies have been hired as subcontractors in which Halliburton has partial ownership, through debt, stock or warrants for stock?
THE SHELL GAME:
HALLIBURTON'S 'SOLE-SOURCE' SHUFFLE
Everyone likes to get a good deal, so that little card they post on the inside of certain hotel room doors – the one featuring the wildly inflated “rack rate” for the room – can be fun to read. You’re saving so much money!
It’s an easy hook for travel agents, too: Book now and save 50%! Figure the discount from the “peak rate” and the savings look even bigger.
A bargain? Travelers quickly learn that these rates are intentionally inflated: They are the hotel’s premium prices; competition usually keeps the tab a good deal lower. Still, travel agents love to tout those eye-popping discounts, because they’re a great lure for bargain-hunters.
The oil field service industries aren’t all that different in some key respects, according to two experts in the business who consulted freely with me via e-mail.
One of them -- who’s understandably concerned about retaliation for whistleblowing -- spelled it all out for me in a brief. He called it, “How The System Works,” and the business practices it exposes make it look as if Halliburton may have systematically squeezed American taxpayers for extra profit in Iraq. (Though the expert’s anonymity will be maintained here, his description of industry-wide practice was generally confirmed by Mike Miller of Safety Boss Inc. Mr. Miller emphasized that he has no knowledge of inside practices at Halliburton.)
According to this oil business insider, companies keep a “price book” which lists their rack rates, so to speak -- the maximum price that they charge. But that full retail price is only rarely billed. Fees are almost always negotiated down from what’s listed in the price book. Competition keeps fees lower. Discounts range from 10-70%
Of course, under the circumstances of a no-bid, sole-source contract, there’s no competition at all. That’s why, for good reason, the U.S. government limits the profit that a sole-source contractor can make to 3-5%: to keep the contractor from overcharging.
But our oil business insider alleges that the subcontractors aren’t subject to that kind of a ceiling. The subcontractors, he says, can – and do – charge their full rack rate as often as possible. No discounting is necessary.
So how could that apply to Halliburton?
Representative Henry Waxman (D-CA) is leading the charge to investigate the details of Halliburton subsidiary Kellogg Brown & Root’s oil well firefighting contract in Iraq – the one worth as much as $7 billion. The prime contractor in that now-notorious contract is Kellogg Brown & Root, a wholly-owned subsidiary of Halliburton. KBR, in turn, has subcontracted work to two other wholly-owned Halliburton subsidiaries, Halliburton Energy Services and Landmark Graphics. So, according to the expert, Halliburton Energy Services and Landmark Graphics can conceivably charge up to the top rate from their price book and KBR can mark that up an additional 3-5%.
Halliburton profits at both ends of the deal, with just a little extra juice at the subcontracting end.
We e-mailed Halliburton to get their reaction to this insider’s charges, and spokesperson Wendy Hall answered our questions – all except one, which will be discussed later.
Is it true that the subcontracts on KBR’s deal are “unregulated and no bidding is required?” According to Ms. Hall, “The subcontracting opportunities associated with Federal Government contracts are not generally governed by the Federal Acquisition Regulations.”
“However, because KBR’s procurement system has been reviewed and approved by the Federal Government, it requires that we compete all subcontract opportunities over $2500.”
Is it also true that subcontractors are routinely paid the full fee listed in their “price book”? Ms. Hall: “We do not publish the prices that we pay our subcontractors.”
With these kinds of answers from Halliburton, it’s impossible to disregard these allegations.
Halliburton contends “KBR’s subcontractors and potential subcontractors are selected through a competitive process. We evaluate such items as prices, schedule, quality, health & safety, and financial status. The price we agree to pay results from this competition.”
Which brings us to the question that Wendy Hall wouldn’t answer, despite having carefully responded to every other query: Under this contract, what companies have been hired as subcontractors in which Halliburton has partial ownership, through debt, stock or warrants for stock?
The question was e-mailed again, along with the plea: “If you don't have an answer for this off-hand, please tell me. I don't want to infer that this [is] a question Halliburton doesn't want answered.”
Still no response.
For now, I'll leave the inferences to you.
Just remember the obvious: That little "rack rate" card on the hotel room door doesn't mean much of anything.
* * *
More on the “competition” that led to Boots & Coots winning their subcontract – and the conflicts of interest that make it all so unseemly -- coming soon….
* * *
Thanks to Tom Tomorrow for encouraging readers to bookmark this site!
"The U.S. department of defence is due to send auditors to Iraq any day.
"Well, that's a relief.
"With U.S. dollars being doled out by the truckload, and with the Bush administration puzzlingly vague on the estimated costs of reconstruction, it's about time someone moved in to see who's spending what.
"And who better than the defence department?
"And who better than the auditors?
"For the DOD, the Iraq file presents the freshest opportunity to shed its scurrilous reputation as a triad of spendaholics. Long before we heard of WorldCom and Tyco and Dennis Kozlowski's $6,000 (U.S.) shower curtain — and the auditors who turned a blind eye — we got the inside dope on defence-wares misspending. For the longest time, the most popular reference in this regard was the $640.09 toilet seat covers, also known as "toilet assembly 941673-101," ordered for antisubmarine surveillance aircraft...."
"Rep. Henry Waxman of California, ranking Democrat on the House Government Reform Committee and a bulldog the Bush White House loves to hate, has sunk his teeth into the Pentagon for the first time. He told National Journal that partly because no one else is willing to, he is taking on the world's biggest enterprise, the Defense Department, which now spends almost $1 million a minute.
"Never in his 28 years in Congress has the legislative branch been so soft on a president, Waxman lamented. In saying that, he conceded that his own Democratic Party seems to have lost its voice. But he expressed hope that Democrats will get it back once they pick a presidential candidate to challenge George W. Bush in 2004....
"I thought Henry's first name was `Sonuvabitch,' " says Rep. George Miller, D-Calif., recalling his early days of working with Waxman in the House. Waxman, 63, is getting started on the Pentagon by asking Defense Secretary Donald Rumsfeld this question: Why are you giving Vice President Cheney's old company, Halliburton, a $7 billion, no-bid contract to help rebuild Iraq when the oil and gas giant has worked in terrorist states and has run up big cost overruns on previous government contracts?
"I take the oversight responsibility of Congress seriously," said Waxman in what tobacco executives and other witnesses who have appeared before him might consider an understatement. Giving Halliburton such a huge noncompetitive contract after it was found in the 1990s to be "routinely overcharging the government just struck me as a very odd situation, so I decided to get involved," Waxman said.
"His interest grew during an exchange of letters with the Army Corps of Engineers about what was initially portrayed as a quickie contract for Halliburton to put out the oil fires in Iraq. "It was hard to get straight answers," Waxman said. "Whenever you find any area of government giving out only bits and pieces of information and not the full story, it makes you wonder what else they are hiding and [whether] they have reason to hide it. It turned out that the Halliburton contract wasn't short-term, but a $7 billion, two-year contract on a cost-plus basis. And it wasn't just to put out oil fires, but also to run the oil industry in Iraq."..."
"FORT GREELY, Alaska, May 27 — On a barren Alaskan field shorn of the spruces and poplars that once crowded it, construction crews now churn up tons of dirt, carving 80-foot-deep holes for missile silos and erecting about a dozen state-of-the-art military command and support facilities.
"It is here that the Bush administration plans to install a vanguard force of rocket-propelled interceptors for defending the United States against ballistic missile attack. Racing against a deadline 16 months away, the $500 million construction effort has many moving parts that must mesh tightly for the schedule to hold....
"As much as Bush is gambling that Fort Greely will be ready on time, it is not his biggest schedule risk. That lies with the interceptors — or, more specifically, the booster rockets that are supposed to lift “kill vehicles” into space, releasing them to home in on enemy warheads.
"The boosters are months behind schedule. An initial effort, overseen by the Boeing Co., to design a single type of booster gave way last year to plans for two separate models, one now being managed by Lockheed Martin Corp., the other by Orbital Sciences Corp.
"Both models may ultimately be used. But the delay has prompted the Pentagon to cancel three planned intercept attempts this year rather than run the tests with surrogate boosters.
"By autumn, defense officials hope to have at least one of the two new boosters ready. Even so, that will leave time for only two or three intercept tests before Bush’s deployment date. A failure of any of those tests, or further booster delays, could bust the deadline.
"In interviews, several senior program officials acknowledged the hurried nature of the project. But they expressed confidence that the deadline will be met. They also noted that one of the purposes of building the interceptor field is to provide for more realistic testing and future improvements in the system.
"The construction project — a joint effort involving Boeing and Bechtel Group Inc., which are responsible for the silos, and Fluor Corp. and the U.S. Army Corps of Engineers, which have charge of everything else — has managed to stay on schedule...."
"BAGHDAD, Iraq, May 25 — Three days after the United Nations gave the United States and Britain broad authority to govern Iraq, the interim head of the Iraqi Oil Ministry stated today in some of his strongest terms yet that Iraqis controlled the country's oil riches and would continue to do so in the future.
"Iraqi oil production has sharply increased in the last two weeks, and the country will start exporting by mid-June, said the official, Thamir Ghadhban. He credited the work of Iraqi engineers and technicians who still face difficult conditions like poor telecommunications and haphazard security.
"Mr. Ghadhban said Iraqis would determine if and when contracts would be awarded to foreign companies to repair some of the long-term damage to oil wells and reservoirs caused by the lack of spare parts for maintenance under 12 years of sanctions...."
Read these linked articles for more information about privatization in the military. These stories received little attention when they were published in the last couple of weeks. In fact, they were overlooked here -- but all were noted on the excellent World Policy Institute web site:
Mother Jones: SOLDIERS OF GOOD FORTUNE They fly helicopters, guard military bases, and provide reconnaissance. They're private military companies -- and they're replacing U.S. soldiers in the war on terrorism.
"James Woolsey, former CIA boss and influential adviser to President George Bush, is a director of a US firm aiming to make millions of dollars from the 'war on terror', The Observer can reveal.
"Woolsey, one of the most high-profile hawks in the war against Iraq and a key member of the Pentagon's Defense Policy Board, is a director of the Washington-based private equity firm Paladin Capital. The company was set up three months after the terrorist attacks on New York and sees the events and aftermath of September 11 as a business opportunity which 'offer[s] substantial promise for homeland security investment'...."
by William Hartung, senior research fellow at the World Policy Institute "YOU HAD probably never heard of the Vinnell Corp. before the brutal bombing that killed at least nine of its employees in Saudi Arabia, but you should have. This is the second time Vinnell's Saudi operations have been targeted. The first attack, in November 1995, hit the headquarters of the Saudi Arabian National Guard, or SANG, and a nearby office complex that housed Vinnell employees. Though both attacks were decried by U.S. officials as senseless violence, they actually had a chillingly clear, brutal logic.
"Vinnell's job in Saudi Arabia is to train the national guard, which Jane's Defence Weekly has described as "a kind of Praetorian Guard for the House of Saud, the royal family's defence of last resort against internal opposition." That is why company employees were targeted in 1995 and again this month...."
"WASHINGTON, May 23 — Senior Republican and Democratic lawmakers asked today that the Congressional investigation into how federal contracts were awarded for the reconstruction of Iraq be expanded to include nearly every aspect of the American occupation of that country.
"The move was another sign of Congressional displeasure with the Bush administration's plans for rebuilding Iraq and its reluctance to give lawmakers a full role in overseeing those plans.
"In an unusual show of bipartisan cooperation, the ranking Republicans and Democrats on the Senate Foreign Relations Committee and the House International Relations Committee sent a letter today to the head of the General Accounting Office, the investigative arm of Congress, asking that he immediately begin assessing the effectiveness of the security efforts, humanitarian programs, economic development, procurement and political operations in Iraq.
"The letter to David M. Walker, the comptroller general of the G.A.O., was signed by Senator Richard G. Lugar, the Indiana Republican who is chairman of the Foreign Relations Committee, by Senator Joseph Biden, Democrat of Delaware and the committee's ranking minority member, by Representative Henry J. Hyde, the Illinois Republican who is chairman of the International Relations Committee, and by Representative Tom Lantos of California, the committee's ranking Democrat.
"More than a month after President Bush declared "the regime of Saddam Hussein is no more," Congress is more vigorously questioning why the administration's plan has failed to provide basic security and services in Iraq.
""The members gave up on getting the administration to share information so they asked for this full investigation," said a senior Congressional staff member, a Democrat...."
"Few companies represent the corporate face of the Bush administration quite like Bechtel of San Francisco. And few - Vice-President Dick Cheney's old company, Halliburton, is the only possible competitor - were quite so identified with the drive to overthrow Saddam Hussein, starting months before the US-led invasion began.
"The point man from the earliest stages was George Schultz, a Bechtel board member and former secretary of state from the Reagan era. As chairman of the so-called Committee to Liberate Iraq, Mr Schultz was one of the biggest cheerleaders for war who argued both for the removal of Saddam Hussein and also the benefits of rebuilding Iraq after Saddam was gone. He never explicitly said his own company should be in charge of the reconstruction, but nobody much doubted that was what he meant...."
By Warren Vieth and Mark Fineman, Times Staff Writers
"KUWAIT CITY — When the first wave of U.S. forces secured Iraq's southern oil fields and ports, British, Australian and Polish soldiers were at their side, executing daring raids and taking heavy fire from Saddam Hussein's army.
"Now it's payback time.
"As Bechtel Group Inc., Halliburton Co. and other U.S.-based prime contractors award the first wave of subcontracts for the reconstruction of Iraq, British and Australian firms are among the early winners, and Polish companies are said to be on the short list for future deals.
"Officially, the Bush administration and its private-sector collaborators say the competition for subcontracts is open to all comers, and awards will be made to the most qualified companies without respect to their country of origin.
"But in corporate suites and foreign capitals — and in the swank Kuwaiti hotels that have become the nerve centers of postwar reconstruction — the word is making the rounds: When it comes to rebuilding Iraq, America's military partners are first among equals...."
"Let's see. Who's less patriotic, the Dixie Chicks or Dick Cheney's long-term meal ticket, the Halliburton Company?
"The Dixie Chicks were excoriated for simply exercising their constitutional right to speak out. With an ugly backlash and plans for a boycott growing, the group issued a humiliating public apology for "disrespectful" anti-Bush remarks made by its lead singer, Natalie Maines.
"The Chicks learned how dangerous it can be to criticize the chief of a grand imperial power.
"Halliburton, on the other hand, can do no wrong. Yes, it has a history of ripping off the government. And, yes, it's made zillions doing business in countries that sponsor terrorism, including members of the "axis of evil" that is so despised by the president.
"But the wrath of the White House has not come thundering down on Halliburton for consorting with the enemy. And there's been very little public criticism. This is not some hapless singing group we're talking about. Halliburton is a court favorite. So instead of being punished for its misdeeds, it's been handed a huge share of the riches to be reaped from the reconstruction of Iraq and U.S. control of Iraqi oil...."
"WASHINGTON (AP) - The Senate went on record Thursday in favor of full competition for companies seeking to help rebuild Iraq, and Congress pressed for a public explanation when contracts are awarded without open bidding.
"The Senate, by voice vote, placed nonbinding language in a defense spending bill that sought to change, as soon as possible, the policies of the U.S. Agency for International Development and the U.S. Army Corps of Engineers.
"Both the House and Senate asked the Bush administration to publish justifications for the lack of competition. The Senate specifically asked the corps to quickly replace a noncompetitive award to a subsidiary of Halliburton, the company formerly run by Vice President Dick Cheney...."
"WASHINGTON (AP) Members of Congress pressed Thursday for a public explanation of why Iraq reconstruction contracts were awarded by federal agencies without full competition.
"Language inserted in defense spending bills pending in both houses would require the government to explain limited bidding or contracts awarded without competition by publishing a justification in one of two government publications.
"The language inserted by some lawmakers was prompted by policies of the U.S. Agency for International Development and the U.S. Army Corps of Engineers.
"USAID has allowed only a small number of invited firms to bid for rebuilding work in Iraq and it awarded the main contract to Bechtel National, part of the Bechtel Corp., which has had several prominent Republicans as top executives.
"The Corps acted without competition to give the KBR subsidiary of Halliburton a contract to revive Iraq's oil industry. Halliburton formerly was run by Vice President Dick Cheney, whose office said he had no involvement in the award or in Halliburton's current operations.
"The legislation would require the government to justify how federal officials identified contractors invited to bid and how the officials solicited offers. A list of companies receiving solicitations would be published, along with any documents justifying the lack of open bidding...."
"Long lines of corporate supplicants snaked through the atrium of the Ronald Reagan Building yesterday, looking for spoils of war: contracts to help rebuild Iraq.
"About 1,800 representatives of U.S. and foreign companies clamored for space at the event sponsored by Bechtel National Inc., the San Francisco firm that won the U.S. government's lead reconstruction contract. Bechtel plans to hire other companies to do about 90 percent of the work, worth as much as $680 million.
"Michael J. Chavanu of Great Plains Asbestos Control Inc. flew in from Nebraska to see if his company could get a piece of the action. "I had thought seriously about going to Kuwait, hoping it would be easier to get in there," said Chavanu, referring to another planned conference for subcontractors...."
"WASHINGTON (AP) - When he was a Massachusetts official, Bush administration foreign aid chief Andrew Natsios imposed severe financial controls on Bechtel Corp., manager of the nation's most expensive highway project.
"Last month, Natsios' agency awarded Bechtel the primary contract to rebuild Iraq.
"Officials of the Natsios-led U.S. Agency for International Development said they have controls in place to avoid problems like those of Boston's ``Big Dig,'' which has cost more than five times its original price tag.
"Natsios tried to rein in Bechtel's costs three years ago, after being asked by the governor to control the Big Dig's spiraling costs. Bechtel has co-managed the project with a New York company, Parsons Brinckerhoff.
"State and federal officials and taxpayers were stunned in early 2000 when the overseer of the project - Natsios' predecessor as the head of the Massachusetts Turnpike Authority - announced it would cost $1.4 billion more than expected...."
"MCI has won the gig to build Iraq's mobile phone network. The value of the contract is undisclosed.
"Sensibly, the US Government ignored demands from Congressman Darrell Issa (R., San Diego) to ditch the outdated, 'French' GSM option, in favour of an All-American Qualcomm CDMA network. Technical considerations aside, the Middle East is an all GSM-zone. It makes sense for Iraq to be GSM too.
"It's been a good couple of days for MCI, the company formerly known as Worldcom. Today the company agreed to pay shareholders $500m, around one week's revenue, in a settlement with the SEC over fraud charges concerning $9bn, give or take a billion, in inflated revenues...."
"Washington -- Top Republicans and Democrats in Congress are calling for greater scrutiny of the American effort to rebuild Iraq, and some want to investigate how huge contracts were awarded to Bechtel Corp. of San Francisco and Halliburton Co., a Houston firm once run by Vice President Dick Cheney.
"Democrats such as Sen. Joe Lieberman of Connecticut, a presidential candidate, and Rep. Sherrod Brown of Ohio expect that their calls for an investigation will be dismissed as attempts to score partisan points by embarrassing President Bush. But GOP Rep. Henry Hyde of Illinois, usually a firm Bush ally and chairman of the House International Relations Committee, said he is concerned with the "lack of transparency" that has surrounded the reconstruction program for postwar Iraq...."
Documents recently published on the Web show that admitted fraud Reed Slatkin profited from his role in the creation of Boots & Coots International Well Control, an oil well firefighting company contractually allied with Halliburton. The documents, made available as part of Slatkin’s bankruptcy proceedings in Santa Barbara, California, outline thousands of transactions in which he bought and sold stock. Slatkin, a former minister of Scientology, has admitted defrauding clients of upwards of $250 million in what has been described as the largest Ponzi scheme in history. He will be sentenced on June 9, to a maximum of over 100 years in prison.
Boots & Coots International Well Control, Inc. -- which recently benefited from a controversial no-bid contract to extinguish oil well fires in Iraq for Halliburton -- was formed in 1997 in a complex series of business moves called a “reverse triangular merger.” The shell company targeted in that merger, Havenwood Ventures, belonged to Slatkin and partner Mark Leibovit. As compensation, Slatkin and Leibovit – who together openly declared ownership of 92% of Havenwood at the time of the merger – were granted stock in the newly formed company.
The documents released by the court are not indexed, and represent only a fraction of the trades made by Slatkin over his fifteen-year career. A preliminary examination of certain tax documents show sales of Boots & Coots stock in a series of transactions in1998, not long before the stock price plummeted. In that series of transactions, spaced over six months, Slatkin sold 54,724 shares for nearly $340,000. The brokerage for those 1998 transactions, S.G. Cowen, was only one of several used in Slatkin’s wide-ranging fraud.
The court-appointed trustee of Slatkin’s assets, Neilson-Elggren LLP, referred questions about any remaining Boots & Coots stock to their attorney, John Reitman. After an initial conversation with Mr. Reitman, repeated calls for information were not returned.
"SAN FRANCISCO (Reuters) - U.S. construction company Bechtel Corp. on Friday issued details of Iraq rebuilding work it had subcontracted to date, and said it would hold conferences to hear applications for more contracts.
"Privately owned Bechtel, which last month won a $34.6 million contract to help rebuild Iraq's infrastructure, said it has been overwhelmed with applications by companies interested in performing subcontracting work...."
LIEBERMAN WANTS HEARINGS ON LACK OF COMPETITION FOR IRAQ CONTRACTS By Larry Margasak, Associated Press, 5/16/2003 17:52
"WASHINGTON (AP) Sen. Joseph Lieberman, senior Democrat on the Senate Governmental Affairs Committee, urged Friday that hearings be conducted on the Bush administration's limited competition for contracts on reconstruction work in Iraq.
"Committee Chairman Susan Collins, R-Maine, has made no decision on hearings but supports an investigation by Congress' General Accounting office, which already is under way, a committee official said.
"The Agency for International Development invited a small number of firms to bid for nine separate contracts, and has awarded eight. Bechtel National Inc., of San Francisco, won the main contract worth up to $680 million.
"The Army Corps of Engineers separately awarded a contract to a subsidiary of Halliburton Co., of Houston, to revive Iraq's oil production. There was no competition.
'"'It is only appropriate that we provide the American people with the details of these contracts and how they were awarded,'' wrote Lieberman, D-Conn., who also is vying for his party's presidential nomination...."
"WASHINGTON -- Vinnell Corp., the American company whose employees were killed Monday by terrorists in Saudi Arabia, has been a key link between the US and Saudi governments, providing retired US military officials to train the elite armed forces that protect the royal family. That link appears to have led the Virginia-based company to be a target of Al Qaeda terrorists, analysts said.
"Vinnell has a sometimes controversial history with the Saudis. It includes a congressional investigation of its activities, questions about whether it has ties to the CIA, and past links to President Bush and his father, President George H. W. Bush...."
"Paris, May 15 (Bloomberg) -- The car-bomb attacks on three residential compounds in Riyadh, Saudi Arabia, that killed nine Vinnell Corp. employees has triggered alarm bells among the hush- hush coterie of some 200 firms that, like Vinnell, specialize in sutling. That is, the business of supplying U.S. military operations abroad with logistical support and of training foreign armies in the art of war.
"`They are in the terrorist cross-hairs and being targeted,'' says P.W. Singer, an analyst at the Brookings Institution and author of the recently published ``Corporate Warriors: The Rise and Ramifications of the Privatized Military Industry.''
"Adds former U.S. Central Intelligence Agency director James Woolsey, ``These companies need to be concerned. It's of extraordinary importance...""
"AS BEFITS a company that has been accused of being a CIA front, of recruiting “executive mercenaries” and attempting to overthrow the Prime Minister of a Commonwealth state, the Vinnell Corporation kept a low profile in Riyadh.
"Its discreet security fooled nobody, however: the bomb attack was the second it has suffered in eight years. In 1995 seven people were killed. This shadowy corporation is said to have been founded during the Depression. Dan Briody, author of The Iron Triangle, a study of Vinnell’s one-time owners, the Carlyle Group, serialised last week in The Times, says that there is “no publicity, no press releases, no news clippings”.
"He adds: “No one knows who the original owners were.”..."
"WASHINGTON - Construction and engineering firms seeking federal contracts to rebuild war-torn Iraq made millions of dollars in political contributions last year, including extensive use of big-money donations to the major political parties.
"One of the last large political gifts made by an American corporation was a $100,000 contribution to the Republicans by Harbert International, a Birmingham, Ala., construction contractor seeking a deal to build a new U.S. embassy in downtown Baghdad. The firm's only donation last year was made on Nov. 1, five days before a new law banned corporate "soft money" gifts to political campaigns...."
"WASHINGTON — Of the seven military and police forces in Saudi Arabia, perhaps none is more important than the National Guard. It has one overarching assignment: protecting the royal, ruling House of Saud.
"Of the hundreds of U.S. firms operating in Saudi Arabia, perhaps none is more important to the royal family than the Vinnell Corp. The Fairfax, Va., unit of Los Angeles-based Northrop Grumman Corp. trains the National Guard...."
"WASHINGTON (AP) Despite warnings of impending terror acts, the suicide bombers in Riyadh met little resistance when they attacked a housing complex that included Americans who have been training Saudi Arabian national guardsmen.
"It was the second time in eight years that the Saudi business interests of Fairfax, Va.-based Vinnell Corp. have come under terrorist attack...."
"The sanitized version of American foreign policy asserts that the United States is hard at work promoting democratic values around the world in the face of attacks from totalitarian ideologies ranging from communism during the Cold War to Islamic fundamentalism today. Every once in a while an incident occurs that contradicts this reassuring rhetoric by revealing the secret underside of American policy, which is far more concerned with propping up pliable regimes that serve the interests of U.S. multinational corporations than it is with any meaningful notion of democracy....
"...The Saudi National Guard is a 55,000 man military force whose main job is to protect the Saudi monarchy from its own people, using arms from the United States and training supplied by roughly 750 retired U.S. military and intelligence personnel employed by the Vinnell Corporation of Fairfax, Virginia. A January 1996 article in Jane's Defence Weekly describes the SANG as 'a kind of Praetorian Guard for the House of Saud, the royal family's defence of last resort against internal opposition....'"
"WASHINGTON (Reuters) - The U.S. Army said on Monday it awarded a $24 million contract to distribute gasoline and cooking fuel in Iraq to a unit of oil company Halliburton, once run by Vice President Dick Cheney.
"The Army Corps of Engineers said the delivery order was awarded to Halliburton subsidiary Kellogg, Brown & Root on May 4 as part of a $7 billion umbrella contract awarded to the company in March for fire fighting services in Iraq...."
"It's a huge black eye," said Arthur Sulzberger Jr., chairman of The New York Times Company and publisher of the newspaper, whose family has owned a controlling interest in The Times for 107 years. "It's an abrogation of the trust between the newspaper and its readers."
Mr. Sulzberger was referring, of course, to Jayson Blair, the young reporter whose fraudulent reporting stretched over his entire career with the Times. But his diagnosis is a sad act of denial.
It’s not a huge black eye.
To say that this story of slack and deceit is about one man is pure fantasy. William Safire’s advice to slap a steak on that eye and get on with it seems like the punch-drunk advice of a doddering corner man, who doesn’t want to admit that his meal ticket has lost his legs.
Safire asks: “How could this happen at the most rigorously edited newspaper in the world?”
Readers here know that this writer has poured lots of effort into getting the Times' editors to correct a few clear-cut errors of fact from a March 30 article. That profile of Boots & Coots International Well Control, Inc. –“Fighting Oil Fires – and Creditors” – was flawed from the very first sentence.
I let the Times know of the error. Again and again. I e-mailed seven different editors, sending them citations from books, from websites, from the SEC. I argued on the phone – at length – with deputy business editor Rick Gladstone.
Those efforts were rebuffed and ignored.
So in the wake of this scandal at the Times, I’m going to resurrect a story that I'm almost embarrassed to tell. A few weeks ago, I actually promised that the Times would correct.
I was wrong about that. But not about the errors themselves.
* * *
You decide: Should editors have caught these errors – or shouldn't they at least correct the erroneous work of stringer J. Alex Tarquinio?
The March 30 article begins with this sentence:
The war in Iraq might just determine the fate of a little-known Houston company, Boots & Coots International Well Control, which put out about a third of the oil-well fires set in Kuwait in 1991 and earned perhaps as much as $100 million in the process.
These are the errors:
1) Boots & Coots International Well Control did not exist in 1991. The company was formed by a series of mergers in 1997, following the formation of International Well Control by a group of former employees of Red Adair in 1995. According to the SEC, the company was “formerly: HAVENWOOD VENTURES INC (until 1997-06-10).”
2) Any formulation producing the figures “a third of the oil well fires” or “$100 million are insupportable: The numbers must have been derived by some calculation involving aggregate totals from different sources. According to the Kuwaiti Oil Company, and the reference book “Advanced Blowout and Well Control,” Boots & Coots – the privately owned company that was bought up by International Well Control – did far less work than that in Kuwait.
It’s that clear-cut.
The company didn’t exist in 1991 – so the whole first sentence is fallacious.
That’s our beef with the Times. It’s really that simple.
I was much more naïve about the Times’ editors a couple of months ago than I am today. Knowing what I know about the Times now, I would never again wait on a correction of an inaccurate Times story.
That’s why I’m retelling this story: Safire and other defenders of the Times need to understand that Jayson Blair’s frauds – and I must emphasize the plural here – aren’t the end of the story.
As a starter, consider this paragraph from yesterday’s self-expose:
The paper, concerned about maintaining its integrity among readers, tells its journalists to follow many guidelines as described in a memo on the newsroom's internal Web site. Among those guidelines: "When we use facts gathered by any other organization, we attribute them"; "writers at The Times are their own principal fact checkers and often their only ones"; "we should distinguish in print between personal interviews and telephone or e-mail interviews."
The buck clearly doesn’t stop with Jayson Blair.
The editors have written guidelines that promise their writers little fact-checking. That’s just bad policy, slack and irresponsible.
This cancer has been growing for years – long before Jayson Blair filed his first byline.
"WASHINGTON (CNN) -- Democratic U.S. Sen. Barbara Boxer of California suggested Sunday that 'hanky-panky" might have been involved in the awarding of a lucrative contract to a subsidiary of Vice President Dick Cheney's former company to rehabilitate and operate Iraq's oil wells...."
"The Bush administration is proposing to spend billions of dollars rebuilding the country's nuclear weapons manufacturing industry, resuming the production of nuclear components and materials halted after the end of the Cold War.
"Proposals in President Bush's 2004 budget would refurbish virtually every facet of the nuclear weapons complex, ranging from the nuclear test site in Nevada to the Savannah River plant in South Carolina...."
"WASHINGTON (CNN) - U.S. Sen. Frank Lautenberg has asked the Senate Governmental Affairs Committee to formally investigate a contract awarded to Vice President Dick Cheney's former firm to rehabilitate and operate Iraq's oil industry.
"Lautenberg, a New Jersey Democrat who sits on the committee, said Friday he was 'concerned about the lack of transparency' in awarding the contract to a subsidiary of Halliburton Co. (HAL: up $0.19 to $23.70, Research, Estimates), where Cheney was chief executive officer before becoming President Bush's running mate in 2000.
"'I believe that a thorough congressional investigation will help establish standards as we continue in the process of rebuilding an economically independent and prosperous Iraq,' Lautenberg said in a letter to the committee's chairwoman, Sen. Susan Collins, R-Maine....
"Lautenberg wants the Senate committee to hold hearings to probe why the contract was awarded without bidding, why information about the scope of the contract was initially withheld and whether there is any more information that has not been disclosed."
"WASHINGTON -- Halliburton, the Houston-based oil-field services company formerly headed by Vice President Dick Cheney, said federal investigators are still questioning witnesses a year into a probe of the company's accounting.
"The company said Thursday it has provided about 300,000 documents to the Securities and Exchange Commission, a process that "is essentially complete," according to a regulatory filing. The company said it is continuing to make people available to testify under subpoenas.
"The SEC is examining how Halliburton booked and disclosed cost overruns on construction contracts beginning in 1998, when Cheney was chief executive officer. Cheney, who has agreed to be President Bush's running mate again in 2004, has not been contacted by the SEC, according to a lawyer familiar with the matter. Cheney's office confirmed he hasn't been questioned...."
NEW YORK, May 8 (Reuters) - Boots & Coots International Well Control Inc. , which has been hired to fight oil well fires in Iraq, on Thursday said it reached a settlement that eliminates claims against the company by a lender.
The Houston company said the settlement with Checkpoint Business Inc., a group of investors chartered in Panama, concerns Checkpoint's option to buy a Boots & Coots subsidiary in Venezuela.
Copyright 2003, Reuters News Service
* * *
Regular readers may remember Checkpoint as that "shadowy group of Texas oilmen" who threatened to take over Boots & Coots from its shareholders.
The administration's no-bid contract with a Halliburton subsidiary gives the impression of a grab of Iraqi resources for American business.
"The Bush administration is becoming its own enemy in Iraq. Secretary of State Colin L. Powell, White House spokesman Ari Fleischer and other top-ranking officials have clearly stated that the country's oil fields will belong to Iraqis. But a May 2 letter from the Army Corps of Engineers to Rep. Henry A. Waxman (D-Los Angeles) indicates that it has awarded a no-bid contract to a subsidiary of Halliburton Co. called KBR to run the oil fields until August — and maybe longer...."
"Our current fearless leaders would have us believe that men who hop from the world of government to the world of business and back maintain an unassailable, conflict-of-interest-free separation between the two. Whatever happens, they assure us, whatever rules change after industrialists get into office, whatever contracts are awarded to government officials' former companies, it's simply a matter of merit and coincidence...."
Army reveals Halliburton producing for domestic use
Oliver Burkeman in Washington
Thursday May 8, 2003
"Halliburton, the company formerly run by US vice-president Dick Cheney, has been granted a far broader role in Iraq than previously disclosed and is already operating oil fields in the country, the US Army admitted yesterday.
"Kellogg Brown and Root, a Halliburton subsidiary, is pumping oil from fields in the north and south of the country, despite earlier claims that its contract with the US government was for fighting oil fires, a spokesman for the Army Corps of Engineers told the Guardian..."
"WASHINGTON (Reuters) - Halliburton (HAL.N), the oil giant once run by Vice President Dick Cheney, will now be involved in operation and distribution of oil products in Iraq, the U.S. military said on Wednesday, indicating a more direct role in Iraq's energy business than originally believed.
"New orders given to Halliburton subsidiary Kellogg Brown and Root a few days ago included the operation of oil facilities and the distribution of products, said a spokesman for the U.S. Army Corps of Engineers, Scott Saunders.
"'We did not think that operation and distribution (of oil products) would be needed and that that would be handled by a follow-on contract,' said Saunders.
"'But the needs of the Iraqi people dictated otherwise and we had to exercise that option as they are about to run out of gas and propane,' he told Reuters...." [Emphasis added.]
"WASHINGTON -- Since extinguishing Iraq's oil fires and performing related emergency work, Halliburton Co. has been paid an additional $24 million to supply Iraqis with oil from other countries and help restart the petroleum industry, documents showed Wednesday.
"A spokesman for the Army Corps of Engineers, who provided the figures, acknowledged the agency purposely played down the additional work in statements to Congress and the media...." [Emphasis mine.]
"WASHINGTON May 7 —
Halliburton Co.'s emergency, no-bid contract to work on Iraq's oil wells must be fully disclosed, a Democratic lawmaker says, pointing to the Army's admission that the company has a far more lucrative role than originally believed.
"Prior descriptions said Vice President Dick Cheney's former company would fight oil fires. The contract also lets the company operate the oil fields for a time and distribute the petroleum, Rep. Henry Waxman, D-Calif., said Tuesday. Waxman cited information he received from the U.S. Army Corps of Engineers, which awarded the contract...."
Global oil firms vie for a piece
of Baghdad’s black gold
By John W. Schoen
"As Iraq takes its first tentative steps toward self-government, the country’s creaky oil industry is slowly being restored by the U.S. Army Corps of Engineers, which will soon assign contracts for basic repairs. But the real prize comes later — when the reformed Iraq government begins awarding lucrative contracts to develop vast, untapped reserves that some say could rival Saudi Arabia as the world’s largest pool of oil...."
"WASHINGTON (AP) An emergency contract the Bush administration gave to Halliburton Co. to extinguish Iraqi oil fires also gave the firm a more lucrative role in getting the country's oil system up and running, documents showed Tuesday.
"A congressional critic of the Houston company, formerly run by Vice President Dick Cheney, said the administration was hiding the expanded role.
"A spokeswoman for Halliburton said the company's initial announcement of the contract on March 24 disclosed the larger role for its KBR subsidiary.
"The U.S. Army Corps of Engineers, in a letter to Rep. Henry Waxman last Friday, disclosed that the no-bid contract included not only extinguishing fires but 'operation of facilities and distribution of products.'
"Waxman, D-Calif., senior Democrat on the House Government Reform Committee, wrote Lt. Gen. Robert Flowers of the Corps on Tuesday, saying the contract 'is considerably broader in scope than previously known.'..."
Remember that “extra credit” question at the end of the first installment of this series:
Which Cayman Islands shell subsidiary was used by Halliburton to do business with Iran?
It was a trick question, as befits the subject.
Very few people remember that there was a controversy about this at all – much less the name of that Halliburton subsidiary that opened up an office in Iran while Vice President Dick Cheney was CEO. But Rep. Henry Waxman (D-CA) recently revived the controversy in a letter to Secretary of Defense Donald Rumsfeld.
According to news database searches, this particular issue began heating up last summer, shortly before President Bush returned from vacation and rolled out a new agenda for confronting Iraq.
In early August 2002, Arianna Huffington took Mr. Cheney to task in a column titled, “Holding Dick Cheney ‘Accountable.’” Both Cheney and Bush had recently been criticized for establishing shell subsidiaries in tax haven countries – like the Cayman islands. “Enron," Ms. Huffington noted acidly, "had 692 subsidiaries there.”
According to Huffington, “the number of Halliburton subsidiaries registered in tax-friendly locations ballooned from nine in 1995 to 44 in 1999.” Meaning every one of those thirty-five new shell subsidiaries was formed on Dick Cheney’s watch. It's hard to escape the conclusion that CEO Cheney seemed to be implementing a strategy of tax evasion.
Huffington added that in the wake of revelations that Cheney’s Halliburton had done business with Iran, Libya and Iraq, those countries might be dubbed his "Axis of Profits."
True to good marketing form, the administration turned their sights toward Saddam Hussein in September, and whatever scrutiny Cheney -- and President Bush, for that matter -- were enduring for their CEO shenanigans quickly dissipated. Despite the shift in focus, Cheney bristled on "Meet The Press," "The suggestion that I find reprehensible is the notion that somehow, you know, we saved this and now we've sprung it on them for political reasons."
A few months later, good timing sprung Cheney from scrutiny again, when the “Axis of Profits” problem reared its ugly head just as the “Battle of Iraq” was beginning.
In March, New York City Comptroller William Thompson Jr. – on behalf of the New York City Police and Fire Department Pension Funds, which have $18 million invested in Halliburton -- asked the company to put before its shareholders a vote to review the company's activities in Iran and other nations linked to terrorism.
FDNY and NYPD have a certain authority when it comes to speaking out against terrorism, so Halliburton negotiated quickly. According to Halliburton representative Wendy Hall, Halliburton agreed to create a board of directors' committee that will review the Iran operations and report its findings to the full board and the funds.
(General Electric and Conoco-Phillips were also questioned by representatives of the same New York pension funds.)
In short order, the “Battle of Iraq” heated up – and the flap was all but forgotten by the media.
* * *
All of this is just something of a refresher course on the way to answering that “extra credit question.” What with all that's happened in the world, we most of us need reminding that Halliburton has been embroiled in several elements of controversy in the last year.
It hasn’t all stemmed from that no-bid oilfield firefighting contract, however suspect.
It hasn’t all focused on that fat contract to oversee the rebuilding of Iraq, or Dick Cheney’s conflict of interest.
In fact, those two contracts aren’t at all do-or-die deals for Halliburton. The company will almost certainly flourish with or without them.
Rather, the controversy about Halliburton has taken root in the very nature of the way it does business – and the way it executed its business plan under CEO Dick Cheney for five years. During that time, Halliburton's use of off-shore tax shelters grew more and more aggressive, and its tax payments plummeted. At least one “shell subsidiary” was used to circumvent U.S. law which forbids doing business with countries that sponsor terrorism.
So. There’s a little recap of Halliburton’s controversies from the past year, all on the way to revealing the answer to yesterday’s trick question:
The subsidiary used by Halliburton to do business in Iran is/was “Halliburton Products and Services Ltd.”
The trick? It wasn't even on the list. Amid all those other offshore shells, no one even noticed.
“…Since 1995, U.S. laws have banned most American commerce with Iran Halliburton Products and Services Ltd. works behind an unmarked door on the ninth floor of a new north Tehran tower block. A brochure declares that the company was registered in 1975 in the Cayman Islands, is based in the Persian Gulf sheikdom of Dubai and is ‘non-American.’…
“An executive order signed by President Clinton in March 1995 prohibits 'new investments [in Iran] by U.S. persons, including commitment of funds or other assets.' It also bars U.S. companies from performing services 'that would benefit the Iranian oil industry.' Violation of the order can result in fines of as much as $500,000 for companies and up to 10 years in jail for individuals.
"Halliburton spokeswoman Wendy Hall said the Tehran office didn't violate the Treasury Department's restrictions on foreign subsidiaries of U.S. firms operating in Iran.
“’This is not breaking any laws," Ms. Hall said. ‘This is a foreign subsidiary and no U.S. person is involved in this. No U.S. person is facilitating any transaction. We are not performing directly in that country.’”
Ms. Hall and Halliburton seem to understand the shell game very well indeed.
"Almost 60 years ago, Stephen Bechtel Sr. walked the docks of his Sausalito shipyard with a young Saudi prince.
"Faisal bin Abdul Aziz wanted a look at Bechtel's Marinship, where workers cranked out Liberty Ships and tankers for the war. His family, just starting to tap the oil beneath Saudi Arabia, was determined to modernize its desert kingdom. There would be much to build...."
'I BELIEVE THAT KBR AND BOOTS & COOTS HAVE SCAMMED THE ARMY AND THE AMERICAN TAXPAYER'
What does it take to get a proper congressional investigation of a no-bid contract so suspect that a leading industry expert throws around words like “scammed,” “cheated” and “overcharged”?
“Arms And The Man” has obtained a copy of a private letter to the Department of Defense that makes explosive charges in persuasive detail.
The writer is an acknowledged expert in the well control industry, whose anonymity will be guarded here.
What prompted the letter? Boots & Coots’ new quarterly statement – over which “interim” CEO Jerry Winchester, a long-time Halliburton man before shuffling over to B&C, crowed: “Obviously, we are pleased with our earnings this quarter. The response related activity in Iraq and Venezuela led us to the best quarter in the history of the Company.”
Now that’s a surprise. Who would ever have imagined that microcap Boots & Coots IWC – which has struggled with debt through its entire existence – would suddenly show a big profit from a war with Iraq?
To be sure, the industry expert who wrote that letter wasn’t surprised: For months, starting as early as September of last year, the well control industry – which he says consists of “no more than eight or ten firms of reputation” – had been angling for some of that much-anticipated business. According to the expert, one of the firms received word on Office of the Undersecretary of Defense letterhead – dated 12/30/02 and signed by Kathleen Smith for Alan F. Esteveze -- that, “If for any reason, the U.S. Government is called upon to suppress well fires through contractor support, we would do so in accordance with the Competition in Contracting Act and implementing regulations.”
That’s a mouthful. And a meaningless one at that, for in March, it was announced that Halliburton’s Kellogg Brown & Root had been awarded a sole-source contract. No other bids were even considered.
“Clearly,” this expert’s letter states, “the Department of Defense and the Army Corps of Engineers have lied to us, the American Public.” Back in September 2002, those specific agencies had told inquiring well control firms that “no contingency plans were being made.”
But they must have been made some time before the invasion.
Who made them? And when?
* * *
The expert’s letter criticizes that secretive contingency planning – which clearly existed, despite government denials – for failing to involve the “eight or ten companies” that would have shouldered the load if Iraqi oilfields had been set alight en masse. The contingency plans inarguably stopped short of a worst-case scenario, for the limited supply of oilfield firefighters hadn’t even been consulted.
Halliburton, perhaps for several years, had planned to go it alone with its "alliance." Halliburton had long touted its “Strategic Event Planning” for oilfield blowouts.
According to Boots & Coots SEC documents from 2000, Strategic Event Planning -- dubbed S.T.E.P. -- is “a critical component of the services offered by the Halliburton Alliance[,]… a strategic and tactical planning process addressing action steps, resources and equipment necessary for an operator to control a blowout…. It also addresses optimal recovery of well production status, insurance recovery, public information and relations and safety/environmental issues.”
In other words, Halliburton's KBR must have had it covered all along.
Its “WELLCALL” alliance with Boots & Coots touted “contingency planning consultation where WELLCALL specialists meet with customers, identify potential problems, and help develop a comprehensive contingency plan” (SEC, 10-K, 12/31/2000).
What’s more, Halliburton paid handsomely to make sure its strategic alliance with Boots & Coots was ready to go. According to SEC documents, in 1999 – under Dick Cheney’s leadership as CEO – “in connection with a $5,000,000 purchase by Halliburton of the Company’s Series A Cumulative Senior Preferred Stock, the Company and Halliburton entered into an expanded Alliance Agreement.” That may not be enough to make Boots & Coots a subsidiary of Halliburton, but it’s a sizeable ownership stake.
So – in terms of national security -- any contingency planning of Halliburton’s that could conceivably involve Boots & Coots’ competitors represented a clear conflict of interest.
* * *
In his letter, the industry expert – who admits he doesn’t “know the facts for sure because no one will tell” him -- speculates that KBR and B&C “exploited and abused the opportunity provided by their sole source contract and charged the American taxpayer exorbitant rates.”
Although KBR, the expert points out, “was limited to a small percentage over cost, as a sole source subcontractor Boots & Coots were permitted to write their own job description and name their own prices.”
The expert describes “rumors here in the oil field” that Boots & Coots charged two or three times the fair value of its services, and that they “charged $6.2 million for four sets of fire fighting equipment… worth at most a total of about $1.5-$2.0 million. These totals… appear to be substantiated by their 1st Quarter SEC filings….
“I believe Boots & Coots were instrumental in writing the contingency plan and wrote it to their advantage. I believe they may have been motivated more by their serious financial difficulties than the good of the project….
"I believe that KBR and Boots & Coots have scammed the Army and the American Taxpayer. If someone will help me, I'll sort it out….
“If there is nothing to hide, why are the details of this deal being withheld? Let's just open the deal up, let the light of day shine on it and let honest men be the judge. Show me I'm wrong, and I'll shut up….
“I believe this entire incident should be investigated and that investigation will reveal that the Army and the American public have been cheated and overcharged by KBR and Boots & Coots.”
* * *
There you have it, in the expert’s own words.
Scammed? Cheated? Overcharged?
Let’s hope Rep. Henry Waxman can get to the bottom of this -- and that a few principled Republicans on the House Committe for Government Reform will see the necessity of public hearings.
* * *
Thank you, Tom Tomorrow, for encouraging readers to bookmark this site!
In a press release dated May 2, Boots & Coots International Well Control, Inc. announced a profitable first quarter of the year.
In response, one leading industry expert faxed a letter to the Department of Defense criticizing Brown & Root's no-bid deal -- and questioning whether Boots & Coots overcharged for its services in Iraq. "Arms And The Man" has obtained a copy of that letter, which calls for a government investigation.
Yesterday, Boots & Coots announced it missed the April 30 deadline to file its proxy statement because it is still working on amendments to its 10-K annual report to the SEC. Boots & Coots said "recent unusual demands on personnel and temporary staffing constraints were responsible for the delay."
We'll report more about that industry expert's letter tomorrow....
Magicians know that there’s only one thing wrong with performing that old stand-by of street hustling, the shell game: There’s no punchline.
Oh, sure, you can astound a crowd, even make lots of money. The grift is so simple, so neat, that once you find a mark, you can work him until you’ve got every dollar from his pocket. And he still won’t figure it out. It’s easy enough to get all his money – but magicians know they won’t get applause without some kind of a “gotcha” – a punchline.
When it comes to corporate shell games, many of the same complications arise. The grifts go on and on, money gets made, the unsuspecting get fleeced – and the con is only rarely exposed.
This short series of reports is aimed at wising up some of those unsuspecting marks: us.
And the hustlers we're aiming the spotlight on have more money and power than most ordinary people could ever dream of having.
So what’s the real nature of these business ruses, the ones we're comparing to a street hustler's shell game?
And what kind of magic could possibly yield a punchline?
* * *
In a grifter’s shell game, the object is to get a bettor to wager that one particular shell is hiding a pea; the grifter moves and shuffles the shells in a way that makes the game look simple and straightforward. But since the guy running the game knows how to cheat – largely through misdirection -- there’s no way for the bettor to win unless the cheater wants him to.
Of course, misdirection works at the corporate level, too, with the help of byzantine legal codes. Yesterday, Rep. Henry Waxman sent a letter to Secretary of Defense Donald Rumsfeld inquiring about Halliburton’s alleged ties to the “axis of evil,” focusing in part on one of the company’s subsidiaries that did business with Iran.
Such a subsidiary, based in the Cayman Islands, has been referred to as a “shell” – and for good reason. By using a foreign-based corporation to negotiate potentially illegal, or high-margin, business, the subsidiary shell deflects prosecution or taxation of its parent company. In this case, the “shell” company in the Cayman Islands holds the “pea” of the parent company’s business in Iran. It’s the same old Halliburton “pea” – buying and selling oilfield equipment and services – but it’s hidden in a handy little Cayman Islands “shell.”
This particular kind of shell appears also to be something of a cheat, since incorporating a subsidiary in the Cayman Islands can help the parent company dodge U.S. corporate and tax law. So even though U.S.-based Halliburton may have even been legally barred from doing business with Iran, its subsidiary could have somehow been in the clear. And thanks to the corporate shell game, the profits from that Iran deal could also somehow find their way back to the United States.
Want to know more about Halliburton’s subsidiaries? Be warned. Following the money between their subsidiaries is much harder than guessing which shell holds the pea. And it gets much harder when there are more than three shells.
We’ll start and finish with this, for today: a list of Halliburton's foreign subsidiaries (call them “shells” if you will) compiled by transnationale.org, from Bahrain to Vanuatu. And these are just the ones in countries with reputations as tax and asset shelters.
Extra credit if you can figure out which Cayman Islands shell Halliburton used to do business with Iran. It even opened an office in Tehran in February, 2000!
* * *
Bahrain Security DBS (MEM) E.C. (20%)
Barbados Grove Foreign Sales Corporation
Barbados Kellogg Foreign Sales Corporation
Barbados Landmark Sales Corporation
Barbados Shaw International Ltd. (50%)
Bermuda Professional Resouces Ltd.
Bermuda Property and Casualty Insurance, Ltd.
Brunei Mashhor Well Services Sdn Bhd (60%)
Brunei Subtec Laut Sdn Bhd
Cyprus Bredero Price (Middle East) Ltd. (50%)
Cyprus Bredero Price (West Africa) Ltd. (50%)
Cyprus Bredero Price Custom Coating Ltd. (50%)
Cyprus CEBO Cyprus Ltd. (50%)
Cyprus Chalfont Ltd.
Cyprus Kapeq Trading Ltd. (50%)
Cyprus Kellogg Intercontinental Ltd.
Cyprus SIF Overseas Trading Ltd. (50%)
Cyprus Sperry Sun Drilling Services (Cyprus) Ltd.
Cyprus Uniglobe Engineering Ltd. (50%)
Cyprus Vosnoc Ltd. (50%)
Guam Dresser Foreign Sales Corporation
Guam KDC Foreign Sales Corporation (50%)
Hong-Kong Kinhill Advance Ltd. (50%)
Mauritius Asian Marine Contractors Ltd.
Cayman Islands Avalon Financial Services, Ltd.
Cayman Islands Baroid Caribbean Ltd.
Cayman Islands Brown & Root Cayman Holdings, Inc.
Cayman Islands Caspian Transco Inc. (51%)
Cayman Islands Dresser-Rand C.I. Ltd. (51%)
Cayman Islands Halliburton Energy Development (Kazakhstan)
Cayman Islands Halliburton Energy Development Ltd.
Cayman Islands Halliburton Geophysical Services (Cayman) Ltd.
Cayman Islands Halliburton Global, Ltd.
Cayman Islands Halliburton Offshore Services, Inc.
Cayman Islands Halliburton Overseas Ltd.
Cayman Islands Halliburton West Africa Ltd.
Cayman Islands Halliburton Worldwide Ltd.
Cayman Islands Halson Financial Services Ltd.
Cayman Islands International Administrative Services Ltd.
Cayman Islands International Oil Field Engineering Ltd. (51%)
Cayman Islands Kellogg International Service Ltd.
Cayman Islands Kellogg ISL Ltd.
Cayman Islands Kellogg-Chiyoda Services Inc. (51%)
Cayman Islands MWKL Field Services Ltd.
Cayman Islands Overseas Administration Services Ltd.
Cayman Islands Petroleum and Industrial Maintenance Company Ltd.
Cayman Islands Service Employees International, Inc.
Cayman Islands Walbridge Brown & Root International LLC (50%)
Solomon Islands Kinhill Kramer Solomon Islands Pty Ltd.
Tonga Kinhill Kramer (Tonga) Ltd.
British Virgin Islands Brown & Root NA Ltd (50%)
Ireland Dresser Ireland Finance Co.
Jersey AOC Services Ltd.
Liechtenstein Dresser AG
Liechtenstein Dresser Anstalt
Mexico Parque Industrial Del Norte
Panama Brown & Root International, Inc.
Panama Halliburton Latin America SA
Panama HGS Enterprises Inc.
Panama Kellogg Overseas Services Corp.
Panama Landmark America Latina, SA
Panama Sub Sea Overseas, Inc.
Panama Sub Sea Worldwide, Inc.
Philippines Brown & Root Industrial Services Philippines, Inc.
Singapore Baroid (Far East) Pte. Ltd.
Singapore DB Stratabit Pte. Ltd.
Singapore Dresser Singapore Pte. Ltd.
Singapore Dresser-Rand (SEA) Pte. Ltd.
Singapore Halliburton Singapore Pte. Ltd.
Singapore Masoneilan (S.E.A.) Private Ltd.
Switzerland Dresser-Rand Compression Services, S.A.
Switzerland Dresser-Rand Services, S.A.R.L. (51%)
Trinidad y Tobago Baroid Trinidad Services Ltd. (50%)
Trinidad y Tobago Halliburton Trinidad, Ltd.
Vanuatu Kinhill Kramer (Vanuatu) Ltd.
"NEW YORK, May 1 (Reuters) - Boots & Coots International Well Control Inc. WEL.A , the troubled oil well firefighter, on Thursday said it missed the deadline for filing its proxy statement with federal securities regulators because of personnel problems...."
"...Earlier this month the company, whose stock has whipsawed on speculation about winning oil field contracts in Iraq, said bankruptcy was a possibility because of its debt load, which totaled about $21 million at the end of 2002. Last month it rejected a proposal from one of its creditors to file for Chapter 11 bankruptcy protection."
"Oil giant Halliburton's work in countries considered sponsors of terrorism came under fire Wednesday from California Rep. Henry Waxman, who questioned whether the company should receive lucrative government contracts...." [See below for link to letter.]