Global Policy Forum

By Colum Lynch

During last year's presidential campaign, Richard B. Cheney acknowledged that the oil-field supply corporation he headed, Halliburton Co., did business with Libya and Iran through foreign subsidiaries. But he insisted that he had imposed a "firm policy" against trading with Iraq.

"Iraq's different," he said.

According to oil industry executives and confidential United Nations records, however, Halliburton held stakes in two firms that signed contracts to sell more than $73 million in oil production equipment and spare parts to Iraq while Cheney was chairman and chief executive officer of the Dallas-based company.

Two former senior executives of the Halliburton subsidiaries say that, as far as they knew, there was no policy against doing business with Iraq. One of the executives also says that although he never spoke directly to Cheney about the Iraqi contracts, he is certain Cheney knew about them.

Mary Matalin, Cheney's counselor, said that if he "was ever in a conversation or meeting where there was a question of pursuing a project with someone in Iraq, he said, 'No.' "

"In a joint venture, he would not have reviewed all their existing contracts," Matalin said. "The nature of those joint ventures was that they had a separate governing structure, so he had no control over them."

The trade was perfectly legal. Indeed, it is a case study of how U.S. firms routinely use foreign subsidiaries and joint ventures to avoid the opprobrium of doing business with Baghdad, which does not violate U.S. law as long as it occurs within the "oil-for-food" program run by the United Nations.

Halliburton's trade with Iraq was first reported by The Washington Post in February 2000. But U.N. records recently obtained by The Post show that the dealings were more extensive than originally reported and than Vice President Cheney has acknowledged.

As secretary of defense in the first Bush administration, Cheney helped to lead a multinational coalition against Iraq in the Persian Gulf War and to devise a comprehensive economic embargo to isolate Saddam Hussein's government. After Cheney was named in 1995 to head Halliburton, he promised to maintain a hard line against Baghdad.

But in 1998, Cheney oversaw Halliburton's acquisition of Dresser Industries Inc., which exported equipment to Iraq through two subsidiaries of a joint venture with another large U.S. equipment maker, Ingersoll-Rand Co.

The subsidiaries, Dresser-Rand and Ingersoll Dresser Pump Co., sold water and sewage treatment pumps, spare parts for oil facilities and pipeline equipment to Baghdad through French affiliates from the first half of 1997 to the summer of 2000, U.N. records show. Ingersoll Dresser Pump also signed contracts -- later blocked by the United States -- to help repair an Iraqi oil terminal that U.S.-led military forces destroyed in the Gulf War.

Former executives at the subsidiaries said they had never heard objections -- from Cheney or any other Halliburton official -- to trading with Baghdad. "Halliburton and Ingersoll-Rand, as far as I know, had no official policy about that, other than we would be in compliance with applicable U.S. and international laws," said Cleive Dumas, who oversaw Ingersoll Dresser Pump's business in the Middle East, including Iraq.

Halliburton's primary concern, added Ingersoll-Rand's former chairman, James E. Perrella, "was that if we did business with [the Iraqi regime], that it be allowed by the United States government. If it wasn't allowed, we wouldn't do it."

Dumas and Perrella said their companies' commercial links to the Iraqi oil industry began before the U.N. Security Council imposed an oil embargo on Baghdad in the wake of its 1990 invasion of Kuwait.

They returned to dealing with Iraq after the council established the "oil-for-food" program in December 1996, permitting Iraq to export oil under U.N. supervision and use the proceeds to buy food, medicine and humanitarian goods. The program was expanded in 1998 to allow Iraq to import spare parts for its oil facilities.

The Halliburton subsidiaries joined dozens of American and foreign oil supply companies that helped Iraq increase its crude exports from $4 billion in 1997 to nearly $18 billion in 2000. Since the program began, Iraq has exported oil worth more than $40 billion.

The proceeds funded a sharp increase in the country's nutritional standards, nearly doubling the food rations distributed to Iraq's poor.

But U.S. and European officials acknowledged that the expanded production also increased Saddam Hussein's capacity to siphon off money for weapons, luxury goods and palaces. Security Council diplomats estimate that Iraq may be skimming off as much as 10 percent of the proceeds from the oil-for-food program.

Cheney has offered contradictory accounts of how much he knew about Halliburton's dealings with Iraq. In a July 30, 2000, interview on ABC-TV's "This Week," he denied that Halliburton or its subsidiaries traded with Baghdad.

"I had a firm policy that we wouldn't do anything in Iraq, even arrangements that were supposedly legal," he said. "We've not done any business in Iraq since U.N. sanctions were imposed on Iraq in 1990, and I had a standing policy that I wouldn't do that."

Cheney modified his response in an interview on the same program three weeks later, after he was informed that a Halliburton spokesman had acknowledged that Dresser Rand and Ingersoll Dresser Pump traded with Iraq. He said he was unaware that the subsidiaries were doing business with the Iraqi regime when Halliburton purchased Dresser Industries in September 1998.

"We inherited two joint ventures with Ingersoll-Rand that were selling some parts into Iraq," Cheney explained, "but we divested ourselves of those interests."

The divestiture, however, was not immediate. The firms traded with Baghdad for more than a year under Cheney, signing nearly $30 million in contracts before he sold Halliburton's 49 percent stake in Ingersoll Dresser Pump Co. in December 1999 and its 51 percent interest in Dresser Rand to Ingersoll-Rand in February 2000, according to U.N. records.

Perrella said he believes Halliburton officials must have known about the Iraqi links before they purchased Dresser. "They obviously did due diligence," he said.

And even if Cheney was not told about the business with Baghdad before the purchase, Perrella said, the CEO almost certainly would have learned about it after the acquisition. "Oh, definitely, he was aware of the business," Perrella said, although Perrella conceded that this was an assumption based on knowledge of how the company worked, not a fact to which he could personally attest because he never discussed the Iraqi contracts with Cheney.

A long-time critic of unilateral U.S. sanctions, which he has argued penalize American companies while failing to punish the targeted regimes, Cheney has pushed for a review of U.S. policy toward countries such as Iraq, Iran and Libya.

In the first expression of that new thinking, the Bush administration is campaigning in the U.N. Security Council to end an 11-year embargo on sales of civilian goods, including oil-related equipment, to Iraq.

U.S. officials say the new policy is aimed at easing restrictions on companies that conduct legitimate trade with Iraq, while clamping down on weapons smuggling and other black-market activity.

If the plan is approved, there would be "nothing to stop Iraq from importing [as many] oil spare parts as it needs" from Halliburton and other suppliers, according to a British official who briefed reporters on the proposal when it was introduced last month.

Cheney resigned as chairman of Halliburton last August. Although he has retained stock options worth about $8 million, he has arranged to donate to charity any profits from the eventual exercise of those options, Glover Weiss said. Confidential U.N. documents show that Halliburton's affiliates have had broad, and sometimes controversial, dealings with the Iraqi regime.

For instance, the documents detail more than $2.5 million in contracts between Ingersoll Dresser Pump Co. and Iraq that were blocked by the Clinton administration. They included agreements by the firm to sell $760,000 in spare parts, compressors and firefighting equipment to refurbish an offshore oil terminal, Khor al Amaya.

The Persian Gulf terminal was badly damaged during the 1980-88 Iran-Iraq War and later was destroyed by allied warplanes during Operation Desert Storm. At the time, Cheney was secretary of defense.

Washington halted the sale because the facility was "not authorized under the oil-for-food deal," according to U.N. documents. Under the terms of the oil-for-food program, Baghdad is permitted to export crude oil, subject to U.N. supervision, through only two terminals, Ceyhan in Turkey and Mina al Bakr on the Persian Gulf.

The equipment was never delivered to Iraq, but Baghdad subsequently repaired the Khor al Amaya facility on its own. A senior Iraqi oil ministry official, Faiz Shaheen, told an official Iraqi newspaper that Iraq would soon be able to export about 600,000 barrels a day of crude oil from the terminal.

Dumas said he was not aware of the dispute over the Khor al Amaya terminal. It was unlikely, he added, that Cheney or other top Halliburton executives would have known about the specific deals. "We had great independence in running our business," he said.

U.S. officials say the Bush administration is prepared to allow Iraq to resume exports from Khor al Amaya, as long as the earnings are placed in a U.N. escrow account that is used to pay for humanitarian supplies and further improvements to the oil industry.

"The U.S. attitude towards Iraqi exports has evolved considerably," said James A. Placke, a Washington-based analyst for Cambridge Energy Research Associates, a consulting firm. "They used to tightly restrict Iraqi oil exports, and now there is no limitation on Iraqi exports."

Iraq's power to entice foreign investment, meanwhile, has increased with the soaring demand for oil. U.S. companies, which have been able to trade with Iraq only through foreign subsidiaries and middlemen, are wary of dealing with Baghdad but eager to get a piece of the action, according to industry sources.

"The American oil industry is very interested in trying to enter Iraq," said J. Robinson West, chairman of Petroleum Finance Co., a consulting firm. "But I think that they are quite respectful of U.S. policy towards Saddam Hussein. There is a very strong feeling that in fact he is the greatest threat to oil production in the Middle East."