Top Ten War Profiteers of 2004
Contractors: Above the law
By Center for Corporate Responsibility
You know it's bad when Halliburton is #7
At the beginning of the Iraq war, Andrew Natsios, head of the U.S. Agency for International Development (AID), proclaimed that the reconstruction of Iraq would look like a modern-day Marshall Plan. But a year and a half later, a combination of bureaucratic ineptitude, corporate corruption and the growing Iraqi resistance threaten to undermine the Bush administration's grand designs.
In mid-July, U.S. officials admitted that fewer than 140 of the 2,300 reconstruction projects funded by the U.S. were underway. Although AID says "dirt has been turned" on 1,167 projects including schools and hospitals, with at least 70 new ones staring each week, it's unlikely that the big picture has changed much. The kidnapping and execution of contract personnel and the ongoing sabotage of key projects-power plants, electricity lines and oil pipelines-has slowed work in many areas of the country to a crawl, jacking up the cost of security, insurance and other ancillary expenditures, which in most cases amount to half of the contractors' budgets.
By August, Ambassador John Negroponte had to announce that more than $3 billion of $18 billion in U.S. aid earmarked by Congress for engineering and reconstruction work would be used for security and counterinsurgency operations.
The announcement was tacit recognition that a kind of vicious cycle is at work. The aggravation caused by the lack of electricity and other basic services is certain to be blamed on the CPA and the contractors, which could result in further support for the resistance. Exactly how much the resistance has gained from the festering resentments caused by the stalled reconstruction process is difficult to say. But an increase in attacks on construction sites - more than one a day according to the Army - indicates that they are a clear target of the resistance.
In late December, Contrack International, the lead partner on a $320 million transportation systems contract, announced that it was withdrawing from Iraq because of "prohibitive" security costs.
By the fall, news that just 7 percent of the $18 billion originally allocated for reconstruction set off fireworks in Congress. Senator Richard Lugar, R-Indiana, blasted the Bush administration as "incompetent" for failing to devote adequate on-the-ground personnel to contract administration, management, and oversight.
"It's beyond pitiful, it's beyond embarrassing, it's now in the zone of dangerous," added Chuck Hagel, R-Nebraska.
Searching for Root Causes
The Professional Services Council, a trade association representing some of the Iraq contractors, says much of the blame can be placed upon "a growing politicization of government procurement," as well as the distance between the procurement planners sitting in Washington and contractors in the field.
They have a point. The lack of accountability, reports the Project on Government Oversight in a recent report, can be attributed to the gutting of acquisition workforce and oversight personnel, mandated by Congress starting in the mid-1990s, at a time when the Pentagon began to hand out large open-ended (Indefinite-Delivery/Indefinite-Quantity) contracts to well-connected firms including Bechtel and Halliburton. The result is layer upon layer of subcontracts, with little transparency and reduced government oversight.
Ironically, the contracting agencies' solution has been to outsource much of the oversight process itself. While the CPA's audit staff was cut by nearly half during 2004, for example, AID and other agencies were hiring contractors to oversee other contractors with whom they already had ongoing contractual relationships, according to this report released by Henry Waxman, D-California, and Senate Democrats.
U.S. firms are not the only ones to complain about how difficult it has been to get in on the action. (Rep. James P. Moran Jr., D-Virginia, told to a Washington Post reporter that a company in his district was told by Pentagon officials that "if they want the money they really have to go though Halliburton.") Even the administration's closest Iraqi allies have been critical.
Last February, for example, Rend Rahim Francke, the U.S.-appointed Iraq Governing Council's representative in Washington, openly criticized the CPA for passing over Iraqi firms when awarding billions of dollars in reconstruction contracts. Iraqi firms, she said, could easily have done the work more cheaply and quickly. In December, AID claimed at least 100,000 Iraqis were currently employed in U.S.-funded reconstruction projects, a figure it expects will grow.
The CPA's rush to impose new economic rules - especially the announced intention to rapidly privatize 200 state-owned enterprises, has also done considerable damage to the confidence and trust that Iraqis have had. Critics say the CPA's Orders were clearly designed to benefit foreign investors more than the Iraqi people, and constitute a virtual blueprint for economic colonialism.
CPA Order 39, for example, would essentially privatize Iraq's 200 state-owned industries. The order allows for "national treatment" of foreign investors (i.e. no preferences for local bidders and investors), who can also own 100 percent of any privatized business with unrestricted, tax-free remittance of all profits.
A leaked memo written by British attorney general Lord Goldsmith acknowledges that the CPA may have out stepped its own legitimate authority in issuing the orders, warning Prime Minister Tony Blair that 'major structural economic reforms would not be authorized by international law.' "
Yet the legality of the orders is probably a moot point. With so much instability, it's not as if foreign investors have been beating the doors town to seize the country's assets. The country is so unstable that most of the pitches to foreign investors have taken place outside the country. To little avail.
A legal quagmire
In October, a new twist was added to the confusion surrounding the contracts (are they wasting our money or not spending it fast enough?): the CPA, it was revealed, paid $12 billion to the contractors out of the Development Fund of Iraq (DFI). I.e., instead of using the money earmarked by Congress for the reconstruction, the CPA used Iraq's oil revenues to pay off the U.S. contractors - money that before the war was said (by Secretary of State Powell, among others) to be the "Iraqi people's" money.
According to an independent audit [PDF] conducted by KPMG for the multilateral International Advisory and Monitoring Board (established under UN Security Council Resolution 1483 as an audit oversight board), nearly $1.5 billion was extracted from the DFI to pay Halliburton.
"If we are going to look at how Iraq's oil proceeds have been managed, we have an obligation to examine not only the actions of the U.N., but also our own actions," Congressman Henry Waxman, D-California, suggested in October, referring to the attacks in Congress on the UN's handling of the oil-for-food program before the war. "This money belongs to the Iraqi people. It is not a slush fund."
The CPA's quasi-governmental status has not only been criticized by those who say the CPA's orders violate the Geneva Convention - it has also created a kind of legal shell game that shields contractors from any attempt to hold them accountable for defrauding U.S. taxpayers. As CorpWatch's Dave Phinney recently reported, lawyers for Custer Battles, a company accused of defrauding taxpayers, claim that the fact they were paid out of the DFI by the CPA means that the company cannot be sued under the False Claims Act. The CPA's ambiguous legal status adds to the confusion-the Bush administration has issued contradictory assessments of the CPA's status - making it unclear if it considers it a federal agency or not-e.g. see this memo by the Congressional Research Service.
Major Major Major Major Screwups
The problems plaguing the Iraq contracts extend far beyond questions of legality, blind ideology, heartless favouritism and mindless sloppiness. Recent revelations suggest that the Pentagon's handoff to Halliburton may have also allowed individual employees to demand kickbacks from potential subcontractors. Congressman Waxman's office dropped a new "H-bomb" in November, when it announced that it had received 400 pages of internal State Department documents which suggest that Halliburton officials were "on the take" and "soliciting] bribes openly" from potential subcontractors.
Although the company did not respond directly to Waxman's assertions, in a quarterly SEC filing the company said the Pentagon's Inspector General "may investigate" two employees who "may have solicited and/or accepted payments from these third-party subcontractors while they were employed by us."
The lack of effective oversight extends far beyond Halliburton. We are now witnessing an epidemic of corruption. According the CPA's latest report, 38 potential criminal cases associated with the Iraq contracts are still under investigation, while 75 had been closed or referred to other investigative agencies. The Defence Criminal Investigative Service had 16 open cases as of the beginning of October.
Some members of Congress believe the corruption has become enough of a problem that it is time to establish a special oversight committee. A bipartisan coalition of Senators led by Dick Durbin, D-Illinois, and Larry Craig, R-Idaho, introduced a resolution in September to re-establish Harry Truman's famous WWII committee on war profiteering.
The litmus test of the proposal will likely come in early 2005, shortly after Iraq's scheduled elections (if and when they occur), when the Bush administration is expected to push for another appropriation.
The Center for Corporate Policy's Top Ten War Profiteers of 2004
In June, the Pentagon's Program Management Office in Iraq awarded a $293 million contract to coordinate security operations among thousands of private contractors to Aegis, a UK firm whose founder was once investigated for illegal arms smuggling.
An inquiry by the British parliament into Sandline, Aegis head Tim Spicer's former firm, determined that the company had shipped guns to Sierra Leone in 1998 in violation of a UN arms embargo. Sandline's position was that it had approval from the British government, although British ministers were cleared by the inquiry. Spicer resigned from Sandline in 2000 and incorporated Aegis in 2002.
The Aegis contract has stirred up considerable controversy, even in the shadowy world of private military contractors. A protest by rival bidder Dyncorp - whose bid was deemed unacceptable by the Army - was dismissed by the General Accountability Office, which concluded that Dyncorp "lacked standing to challenge the integrity of the awardees (Aegis)." Spicer's defendants point out that there is no provision in contract law to deny a contract based on a bidder's "colourful" past.
Critics say that's just the problem. U.S. and international law have failed to address the role of PMCs in Iraq, resulting in a near-total lack of accountability that epitomizes what's wrong with the corporate takeover of Iraq.
"Who gives the orders? Where do contractors fit in the chain of command? Who is responsible if things go wrong?" Rep. Jan Schakowsky (D-IL) asks.
Not only do PMCs fall outside the Military Code of Justice but, thanks to another order passed by Paul Bremer (CPA order #17), it's not clear that they could be prosecuted under Iraq's own laws. That's because the order grants foreign contractors, including private security firms, full immunity from Iraq's laws, even if they injure or kill an innocent party.
Critics find it ironic that Bearing Point, the former consulting division of KPMG, received a $240 million contract in 2003 to help develop Iraq's "competitive private sector," since it had a hand in the development of the contract itself.
According to a March 22 report by AID's assistant inspector general Bruce Crandlemire, "Bearing Point's extensive involvement in the development of the Iraq economic reform program creates the appearance of unfair competitive advantage in the contract award process."
Bearing Point spent five months helping USAID write the job specifications and even sent some employees to Iraq to begin work before the contract was awarded, while its competitors had only a week to read the specifications and submit their own bids after final revisions were made.
"No company who writes the specs for a contract should get the contract," says Keith Ashdown, the vice president of Washington, DC-based Taxpayers for Common Sense.
"Bearing Point was selected through a transparent and competitive bidding process to undertake the challenging Economic Governance project in Iraq," says BearingPoint's John LaPlace. "We were pleased to be selected to lead this work, just as we were pleased to be selected through competitive bids to lead similar large reform efforts in Afghanistan, Montenegro, Kosovo and other countries around the world."
Neither Crandlemire nor other critics have ever said that Bearing Point broke the law. But the company's ties to the Bush administration (according to the Center for Responsive Politics, Bearing Point employees gave $117,000 to the 2000 and 2004 Bush election campaigns, more than any other Iraq contractor) is an example of "crony contracting" that undermines the legitimacy of those who might claim to be working to establish competitive markets in the "newly liberated" country.
Schools, hospitals, bridges, airports, water treatment plants, power plants, railroad, irrigation, electricity, etc. Bechtel was literally tasked with repairing much of Iraq's infrastructure, a job that was critical to winning hearts and minds after the war.
According to the company's contract, "the U.S. government envisions a post-war reconstruction effort as a highly visual symbol of good faith toward building trust for economic, social and cultural efforts as well as for political stability in the region."
To accomplish this, the company hired over 90 Iraqi subcontractors for at least 100 jobs. Most of these subcontracts involved rote maintenance and repair work, however, and for sophisticated work requiring considerable hands-on knowledge of the country's infrastructure, the company bypassed Iraqi engineers and managers.
Although Bechtel is not entirely to blame, the company has yet to meet virtually any of the major deadlines in its original contract. In October, according to AID, the CPA had restored only 4,400 MW of electrical generating capacity target, falling short of its goal of 6,000 MW by end of June (AID's goal was 9.000, a level that existed in the country before the first gulf war). According to a June GAO report, "electrical service in the country as a while has not shown a marked improvement over the immediate post-war levels of May 2003 and has worsened in some governorates."
Some of the delay is obviously due to the difficulties of getting employees and materials safely to project sites.
4) BKSH & Associates
Chairman Charlie Black, is an old Bush family friend and prominent Republican lobbyist whose firm is affiliated with Burson Marsteller, the global public relations giant. Black was a key player in the Bush/Cheney 2000 campaign and together with his wife raised $100,000 for this year's re-election campaign.
BKSH clients with contracts in Iraq include Fluor International (whose ex-chair Phillip Carroll was tapped to head Iraq's oil ministry after the war, and whose board includes the wife of James Woolsey, the ex-CIA chief who was sent by Paul Wolfowitz before the war to convince European leaders of Saddam Hussein's ties to al Qaeda). Fluor has won joint contracts worth up to $1.6 billion.
Another client is Cummins Engine, which has managed to sell its power generators thanks to the country's broken infrastructure.
Most prominent among BKSH's clients, however, is the Iraqi National Congress, whose leader Ahmed Chalabi was called the "George Washington of Iraq" by certain Pentagon neoconservatives before his fall from grace. BKSH's K. Riva Levinson was hired to handle the INC's U.S. public relations strategy in 1999. Hired by U.S. taxpayers, that is: Until July 2003, the company was paid $25,000 per month by the U.S. State Department to support the INC.
BKSH has also represented other foreign governments, including Columbia and Equatorial Guinea. In July, O'Dwyer's, the public relations industry trade publication, reported that BKSH would represent the new government of Haiti (established after a U.S.-supported coup that had thrown Jean Bertrand Aristide out) "on a pro bono basis."
"We're not looking to make any money off these people," Black explained. "It's a very poor country. We're just trying to do what we can to help out."
O'Dwyer's has also reported that Levinson is now representing Radio Sedaye Iran (Radio Voice of Iran), a Beverly Hills-based network that advocates regime change in Iran.
5) CACI and Titan
Although members of the military police face certain prosecution for the horrific treatment of prisoners at the Abu Ghraib prison, so far the corporate contractors have avoided any charges.
Maj. Gen. Antonio Taguba reported in an internal Army report that two CACI employees "were either directly or indirectly responsible" for abuses at the prison, including the use of dogs to threaten detainees and forced sexual abuse and other threats of violence. Another internal Army report suggested that Steven Stefanowicz, one of 27 CACI interrogators working for the Army in Iraq, "clearly knew [that] his instructions" to soldiers interrogating Iraqi prisoners "equated to physical abuse."
The Army says it has referred cases involving unidentified employees of CACI to the Department of Justice. Through his attorney, Stefanowicz denies any wrongdoing.
"The CACI personnel performing services in Iraq were at all times subject to the military chain of command and took their orders from military personnel," CACI officials responded to intense scrutiny of its involvement in the atrocities in a statement released in July. "While these advisors provide valuable insight and advise to the military intelligence officers they serve, they do not issue orders or exercise operational control of interrogation activities."
"Titan's role in Iraq is to serve as translators and interpreters for the U.S. Army," company CEO Gene Ray said, implying that news reports had inaccurately implied the employees' involvement in torture. "The company's contract is for linguists, not interrogators."
But according to Joseph a. Neurauter, a GSA suspension and debarment official, CACI's role in designing its own Abu Ghraib contract "continues to be an open issue and a potential conflict of interest."
Nevertheless, the GSA and other agencies conducting their own investigations have yet to find a reason to suspend the company from any new contracts. As a result, in August the Army gave CACI another $15 million no-bid contract to continue providing interrogation services for intelligence gathering in Iraq; In September, the Army awarded Titan a contract worth up to $400 million for additional translators.
The companies' apparent success in waging an aggressive damage-control campaign has been aided by heavy-hitting lobbyists. For CACI: former representatives Vin Weber (R-MN) and Vic Fazio (C-CA), as well as Edward Kutler, an aide to former House Speaker Newt Gingrich. In addition, CACI has retained a firm managed by former House Speaker Bob Livingston (R-LA), among others. Titan's impressive stable of lobbyists includes Michael Herson and Van Hipp, who once worked at the Pentagon under then-Secretary of Defense Dick Cheney.
"It is patently clear that these corporations saw an opportunity to build their businesses by proving they could extract information from detainees in Iraq, by any means necessary. In doing so they not only violated a raft of domestic and international statutes but diminished America's stature and reputation around the world," says Susan Burke, an attorney who joined with the Center for Constitutional Rights to file a RICO lawsuit against CACI and Titan in June.
Another national security concern has snagged at least one Titan employee already. One of Titan's translators, Ahmed Fathy Mehalba, was arrested after visiting his family in Egypt with classified information contained on computer disks that he had taken with him from Guantanamo Bay, Cuba. Mehalba has been in jail, awaiting trial ever since.
Meanwhile, allegations of bribery association with Titan's operations in Saudi Arabia and other countries have wrecked an anticipated $2 billion buyout by Lockheed Martin.
6) Custer Battles
At the end of September, the Defense Department suspended Custer Battles (the name comes from the company's two principle founders - Michael Battles and Scott Custer) and 13 associated individuals and affiliated corporations from all federal contracts for fraudulent billing practices involving the use of sham corporations set up in Lebanon and the Cayman Islands.
The CPA caught the company after it left a spreadsheet behind at a meeting with CPA employees. The spreadsheet revealed that the company had marked up certain expenses associated with a currency exchange contract by 162 percent.
Robert Isakson, a company employee, drew attention to the problem by filing a false claims action against the company. Isakson also alleged that Custer's "war profiteering . contributed to the deaths of at least four Custer Battles employees."
In a prepared statement, company attorneys suggested that the government's decision to not participate in Isakson's case is evidence that the charges are baseless, and that "the individuals [involved] filed this claim solely as a last ditch effort to achieve a competitive edge over CB."
The suspension was the first for any company in association with its work in Iraq. The FBI and the Pentagon inspector general's Defense Criminal Investigative Services are both conducting ongoing investigations.
In December Congressman Waxman (D-CA), announced that "a growing list of concern's about Halliburton's performance" on contracts that total $10.8 billion have led to multiple criminal investigations into overcharging and kickbacks.
In nine different reports, government auditors have found "widespread, systemic problems with almost every aspect of Halliburton's work in Iraq, from cost estimation and billing systems to cost control and subcontract management." Six former employees have come forward, corroborating the auditors' concerns.
Another "H-bomb" dropped just before the election, when a top contracting official responsible for ensuring that the Army Corps of Engineers follows competitive contracting rules accused top Pentagon officials of improperly favouring Halliburton in an early-contract before the occupation. Bunnatine Greenhouse says that when the Pentagon awarded the company a 5-year oil-related contract worth up to $7 billion, it pressured her to withdraw her objections, actions that she said were unprecedented in her experience.
Halliburton spokesperson Beverly Scippa says that while she cannot comment on the allegations until specific charges are filed, any suggestion that the company's involvement made it difficult for other companies to fairly compete are "absolutely untrue," pointing to a earlier GAO report that found that Halliburton/KBR was "the only contractor DOD had determined was in a position to provide the services within the required time frame given pre-war planning requirements."
But others, including Waxman, believe that Greenhouse's version of events corroborates existing evidence that the contracting process was biased toward Vice President Dick Cheney's old company.
Pentagon officials referred the matter to the Pentagon's inspector general, a move that critics say effectively buried the issue.
(For everything you want to know about Halliburton and more visit Halliburton Watch).
8) Lockheed Martin
Lockheed Martin remains the king among war profiteers, raking in $21.9 billion in Pentagon contracts in 2003 alone. With satellites and planes, missiles and IT systems, the company has profited from just about every phase of the war except for the reconstruction. The company's stock has tripled since 2000 to just over $60.
Lockheed is helping Donald Rumsfeld's global warfare system (called the Global Information Grid), a new integrated tech-heavy system that the company promises will change transform the nature of war. In fact, the large defense conglomerate's sophistication in areas as diverse as space systems, aeronautics and information and technology will allow it to play a leading role in the development of new weapons systems for decades to come, including a planned highly-secure military Internet, a spaced-based missile defence system and next-generation warplanes such as the F-22 (currently in production) and the Joint Strike Fighter F-35.
When it comes to defence policy, Lockheed's network of influence is virtually unmatched. E.C. Aldridge Jr., the former undersecretary of defence for acquisitions and procurement, gave final approval to begin building the F-35 in 2001, a decision worth $200 billion to the company. Although he soon left the Pentagon to join Lockheed's board, Aldridge continues to straddle the public-private divide, Donald Rumsfeld appointed him to a blue-ribbon panel studying weapons systems.
Former Lockheed lobbyists and employees include the current secretary of the Navy, Gordon England, secretary of transportation Norm Mineta (a former Lockheed vice president) and Stephen J. Hadley, Bush's proposed successor to Condoleeza Rice as his next national security advisor.
Not only are Lockheed executives commonly represented on the Pentagon various advisory boards, but the company is also tied into various security think tanks, including neoconservative networks. For example, Lockheed VP Bruce Jackson (who helped draft the Republican foreign policy platform in 2000) is a key player at the neo-conservative planning bastion known as the Project for a New American Century.
9) Loral Satellite
In the build-up to the war the Pentagon bought up access to numerous commercial satellites to bolster its own orbiting space fleet. U.S. armed forces needed the extra spaced-based capacity to be able to guide its many missiles and transmit huge amounts of data to planes (including unmanned Predator drones flown remotely by pilots who may be halfway around the world), guide missiles and troops on the ground.
Industry experts say the war on terror literally saved some satellite operators from bankruptcy. The Pentagon "is hovering up all the available capacity" to supplement its three orbiting satellite fleets, Richard DalBello, president of the Satellite Industry Association explained to the Washington Post. The industry's other customers - broadcast networks competing for satellite time - were left to scramble for the remaining bandwidth.
Loral Space & Communications Chairman Bernard L. Schwartz is very tight with the neoconservative hawks in the Bush administration's foreign policy ranks, and is the principal founder of Blueprint, the newsletter of the Democratic Leadership Council.
In the end, the profits from the war in Iraq didn't end up being as huge for the industry as expected, and certainly weren't enough to compensate for a sharp downturn in the commercial market. But more help may be on its way. The Pentagon announced in November that it would create a new global Intranet for the military that would take two decades and hundreds of billions of dollars to build. Satellites, of course, will play a key part in that integrated global weapons system.
Two CPA officials resigned this year after claiming they were pressured by John Shaw, the deputy undersecretary of defence for technology security to change an Iraqi police radio contract to favour Qualcomm's patented cellular technology, a move that critics say was intended to lock the technology in as the standard for the entire country.
Iraq's cellular market is potentially worth hundreds of millions of dollars in annual revenues for the company, and potentially much more should it establish a standard for the region. Shaw's efforts to override contracting officials delayed an emergency radio contract, depriving Iraqi police officers, fire-fighters, ambulance drivers and border guards of a joint communications system for months.
Shaw says he was urged to push Qualcomm's technology by Rep. Darrell E. Issa, a Republican whose San Diego County district includes Qualcomm's headquarters. Issa, who received $5,000 in campaign contributions from Qualcomm employees from 2003 to 2004, sits on the House Small Business Committee, and previously tried to help the company by sponsoring a bill that would have required the military to use its CDMA technology.
"Hundreds of thousands of American jobs depend on the success of U.S.-developed wireless technologies like CDMA," Issa claimed in a letter to Donald Rumsfeld. But the Pentagon doesn't seem to be buying the argument. The DoD's inspector general has asked the FBI to investigate Shaw's activities.
(For an excellent, in-depth investigation of Qualcomm see Michael Scherer, Crossing the Lines, Mother Jones, Sept./Oct. 2004)
This report was compiled by the Center for Corporate Responsibility, a non-profit, non-partisan public interest organization working to curb corporate abuses and make corporations publicly accountable.