Global Policy Forum

Harnessing Halliburton


By Charlie Cray*

Tom Paine
September 27, 2004

The Army's recent decision to break up Halliburton's logistics contract doesn't make a dent in the war profiteer's monopoly. And despite evidence that the giant corporation was vastly overcharging taxpayers for services it provides, it still has almost exclusive access to many contracts in Iraq. The good news is that there's a bipartisan proposal in the Senate to create a war profiteering oversight committee. Corporate policy expert Charlie Cray explains.

Criminologist Edwin Sutherland could not have imagined the heights of war profiteering reached by Halliburton in Iraq. In his 1949 groundbreaking study White Collar Crime, Sutherland wrote about the role of corporations in last century's world wars. He observed that: "…the large corporations in time of war, when Western civilization was endangered, did not sacrifice their own interests and participate wholeheartedly in a national policy, but instead they attempted to use this emergency as an opportunity for extraordinary enrichment of themselves at the expense of others. …Profits are more important to large corporations than patriotism."

As the largest contractor in the war on terror, Halliburton deserves all the scrutiny it has received—disregarding the partisan expectation that any resulting scandal would rub off on ex-CEO Dick Cheney. Recently, John Kerry finally took off the gloves and used the H-word in a blistering attack on the Bush administration's Iraq quagmire. "As president," Kerry said, "I will stop companies like Halliburton from profiting at the expense of our troops and taxpayers. … And as commander in chief, I will have two words for companies that cheat the U.S. military: ‘You're fired.'"

Leading Pentagon watchdogs have been calling for Halliburton's debarment or suspension from Pentagon contracts since August. At that time the Defense Contract Audit Agency (DCAA) issued a memo complaining that Halliburton could not account for more than $1.8 billion of $4.3 billion of work in Iraq and Kuwait. For the third time, the DCAA recommended that the Pentagon not pay Halliburton until it coughed up all the receipts.

The long list of waste, fraud, bribery and other abuses associated with Halliburton's Iraq contracts now fill volumes. Vigilant oversight by Rep. Henry Waxman's office and Pentagon investigators—with the help of company whistleblowers—have uncovered attempts to charge taxpayers $45 per case of soda, $100 per bag of laundry, $10,000 a day to use five-star hotels in Kuwait. (Meanwhile, the troops are sweating it out in tents in the desert). There's been $167 million worth of price gouging for imported gasoline, and $186 million charged for meals that were never served to the troops, and a $6 million kickback to two employees (fired by the company) from a subcontractor.

Nor has the company's record in Iraq been the only basis for calls for debarment, which come not only from members of Congress but also from watchdog groups like the Project on Government Oversight. POGO is a Washington, D.C.-based non-partisan non-profit organization with more than two decades experience monitoring Pentagon contracts.

Halliburton's Rap Sheet In fact, there have been so many Halliburton scandals that it's been hard to keep up (go to for an up-to-date rap sheet). A few of the bigger ones:

• U.S., Nigerian and French government officials continue to investigate bribery allegations involving a natural gas consortium directed by Halliburton in Nigeria. Jack Stanley—the former head of KBR (the Halliburton subsidiary that also does most of the company's contracting with the military)—was let go after it was discovered that $5 million was siphoned off into a personal bank account. The Financial Times recently reported that while Dick Cheney was CEO the company forced its consortium partners to reappoint a business agent believed to have masterminded the scheme, which involved the use of offshore subsidiaries and Swiss bank accounts.

• For years, Halliburton has been questioned about circumventing a ban on conducting business with the government of Iran, a member of Bush and Cheney's so-called "axis of evil." After the Treasury Department referred the case to the Department of Justice, a grand jury in Houston opened up an investigation. During Cheney's time as CEO, the company also did business with Saddam. Cheney also led an effort to lobby against the sanctions. "The problem is that the good Lord didn't see fit to put oil and gas reserves where there are democratically elected regimes friendly to the interests of the United States," Cheney once explained.

• The company recently agreed to pay the SEC more than $7.5 million in penalties for securities violations for certain accounting irregularities. After the SEC settled the case, a new civil suit was filed against the company (Cheney is not a defendant in the case, though it covers a period when he was CEO). It's no surprise that Cheney has been railing against "frivolous lawsuits" on the campaign trail—obviously intended as a jab at John Edwards and a sop to his friends at Halliburton and other companies who have been pushing for relief from asbestos liability and other lawsuits. (As one comedian put it during the RNC, "they hate trial lawyers because they hate trials.") No one has asked how many of the 151-plus claims the company filed while Cheney was Halliburton's CEO are "frivolous," but in August the Houston Chronicle slammed the company for deciding to sue retirees who complained about the company's termination of health insurance benefits. "It was a blunder on a par with the cattle industry's decision to sue Oprah Winfrey, or Fox News' lawsuit against author and liberal talk radio host Al Franken for using 'fair and balanced' in the title of his latest book."

Suspension and debarment are not unusual remedies for serious contractor abuse and corporate crime. After cooking the books, for example, Enron, WorldCom and Arthur Andersen were all suspended from federal contracts for a period of time.

But when it comes to the contractor abuses witnessed in Iraq, it seems like all has been forgiven. Even the most egregious cases have failed to result in a suspension. For example, CACI International received an extension of its contract even after its role in the Abu Ghraib prison scandal was revealed. There are at least 25 ongoing criminal investigations related to the Iraq reconstruction contracts. Wanna bet how many result in suspension?

Another reason for the lack of action is the lack of any clear standards for the debarment penalty. Soon after assuming the presidency in 2000, Bush quietly repealed a Federal Acquisition Regulation (FAR) standard that provided guidance for suspension or debarment. Without the rule, contracting officers admit that such decisions are subject to all kinds of political pressure and other considerations.

Yet short of debarment there are few effective penalties for waste, fraud and abuse. (No one has talked about a war profiteering tax or criminal sanction like the one enacted before WW I.) Although Pentagon auditors have repeatedly advised withholding payments to Halliburton for its work in Iraq, the company essentially has the Army in a bind, since it has threatened to withhold payment to its subcontractors in the event that it doesn't get paid. And that can mean an interruption in service. Army spokespeople have warned against any action that might affect the troops.

But as Marie deYoung, a former Halliburton/KBR employee and Army captain, put it in a Senate hearing earlier this month, poorly planned contracts like those managed by Halliburton "can compromise military readiness and operational security." Describing low morale among foreign contract workers whose loyalties could shift under pressure, problems with information security, and the hiring of thousands of truckers and civilians who have had to drive and work in the line of fire without the capacity or legal right to defend themselves in the face of insurgents who have attacked the convoys (dozens of Halliburton employees have died in Iraq), de Young concluded that "the Bush-Cheney administration compromised our military security by commercializing and outsourcing the military's command and control of all phases of planning and management of combat service support missions for Operation Iraqi Freedom."

Just before the Senate hearing, the military announced that it would be breaking up Halliburton's big logistics contract (known as the LOGCAP) so that other bidders could compete, an acknowledgment of the fundamental problem: Halliburton has a virtual monopoly on the work it is doing in Iraq. What they didn't say was that this monopoly was created in 1992 by then-secretary of Defense Dick Cheney, who characteristically justified the decision with a still-classified study that the Pentagon paid KBR to conduct. Halliburton CEO David Lesar's reaction to the Army's announcement that it would break up the massive LOGCAP work (worth up to $9.4 billion so far for Halliburton): "If we do choose to rebid, we're going to jack the margins up significantly."

Lesar's response reveals just how little competition the company expects to result from the announcement. That should be no surprise. It's hard to imagine how anyone else will be able to seriously compete with the company given all the advantages it has from its existing work, presence in the region and familiarity with the byzantine Pentagon contracting bureaucracy. Given the plan to establish up to 14 permanent bases in the country and reports of low troop reserves, there will likely be as much work for Halliburton in Iraq and elsewhere in the coming years as it can handle, even if a few token task orders are thrown to another company.

Anyone who isn't convinced should look back at the Pentagon's record in reforming the oil restoration contracts (worth up to $8.2 billion for the company so far) after the original no-bid contract was "opened up" to the competition. At the Senate hearing on the Iraq contracts, the former head of Bechtel's bidding team described the process that resulted as a "sham," ultimately resulting in Bechtel's withdrawal from the bidding process.

"In their conduct of the entire (Restore Iraqi Oil) program, I believe Pentagon officials, up and down the chain of command, ignored our federal laws and regulations and the procedures that normally ensure fair play," the former Bechtel employee concluded. "I never saw anything approaching the arrogant and egregious ways in which the Corps treated Halliburton's competitors and violated federal laws and regulations to ensure KBR kept its RIO work."

Meanwhile, in June, GAO investigators confirmed that Pentagon officials had broken competitive contracting requirements and overruled objections from one of the army's own lawyers to grant the first oil-related work order to Halliburton before the war. The decision, which was made by political appointees working under the direction of Under Secretary of Defense for Policy Douglas Feith, was "coordinated w VP's office," according to an Army Corps of Engineers e-mail that surfaced around the same time.

Toward the Future

The good news is that a bipartisan proposal has been introduced by Sens. Durbin, D-Ill., and Craig, R-Idaho, to re-establish a special committee that would have oversight over the contracts awarded in the war on terrorism. Modeled after Sen. Harry Truman's famously successful World War II committee on war profiteering, the proposal would provide much-needed oversight over the war profiteers, a task that a timid and partisan Congress has so far been reluctant to undertake.

"By any measure you want to use, Halliburton has been a great success story over the last few years," Dick Cheney said before he was sworn into office. Despite Cheney's dubious claim during his debate with Joe Lieberman that the millions he made had "nothing to do" with the government, it's clear that that success has been borne at the expense of U.S. taxpayers. (Last year, Cheney claimed that he has "no ongoing financial ties" to the company on national television, despite continuing to receive deferred compensation payments.)

By no means is Halliburton the only company that should be investigated by such a committee (Bechtel's handling of water and electricity contracts also bears investigation, as does the attempt to privatize the country's state-owned industries—a move by Paul Bremer that experts in international law have suggested is a violation of the rights of an occupying power under the Geneva Convention). There are many issues that should be investigated, alas, but only partisan interests could stop the committee from prioritizing an investigation into the nation's leading war profiteer.

About the Author: Charlie Cray is the director of the Center for Corporate Policy and a collaborator on Halliburton Watch. His book, The People's Business: Controlling Corporations and Restoring Democracy, (co-authored with Lee Drutman) will be published by Berrett-Koehler in November.

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