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A CounterPunch Special Report
Sticky Fingers
The Making of Halliburton
By JEFFREY ST. CLAIR
There's no more pungent symbol of the corrupt nature of the Bush administration's invasion and occupation of Iraq than Halliburton, the Houston, Texas-based oil services conglomerate, which has made billions from the war even in the face of charges of massive overbilling, shoddy work, official bribery and political influence-peddling.
The remarkable thing is that Halliburton's looting of Iraq and the US treasury happened in broad daylight, right under the nose of the press, the Democrats and Michael Moore, who made Dick Cheney's former company the bete noir of his film "9/11." Nothing deterred the company from capitalizing on the war it helped orchestrate.
Even the Pentagon's own team of auditors, who nailed Halliburton red-handed for bilking the government for $108.4 million in overcharges for only "one task order" of its work in Iraq, found their report languishing in a kind of bureaucratic netherland for many months.
The damning investigation by the Defense Contract Audit Agency was completed in early October of 2004 and shipped up the line to Pentagon's dark triumverate, Douglas Feith, Paul Wolfowitz and Donald Rumsfeld. And there it sat. The Pentagon's civilian leadership mothballed the explosive report for more than five months, until after the election, the inauguration, the State of the Union Address and the Defense Department budget request had all safely transpired.
Even congress was denied a peek at the report's findings until mid-March 2005. The Pentagon rejected 12 separate requests from Congressman Henry Waxman, the California Democrat who has spearheaded the ad hoc congressional inquiry into Halliburton's contract abuse, seeking to examine the internal audits of Halliburton's $2.5 billion contract for fuel supplies and other services to the US military and occupation government in Iraq.
Waxman charged that the Pentagon withheld the damaging reports at the behest of the office of Vice President Dick Cheney, the former CEO of Halliburton.
The Halliburton audits were also concealed from a team of investigators from the United Nations, which is probing profiteering from oil contracts in Iraq. More than $1.5 billion of Halliburton's $2.5 billion deal was funded by Iraqi oil sales overseen by the UN.
"The evidence suggests that the Pentagon used Iraqi oil proceeds to overpay Halliburton," says Waxman. "And then the company and the Pentagon sought to hide the evidence of these overchages from the international auditors."
Call it the Oil-for-Contracts scandal. But you didn't hear daily drumbeats about the outrageous rip-off on FoxNews.
When someone finally leaked the audit to Waxman's office, the documents disclosed a thick wad of Halliburton billings that the Pentagon bookkeepers deemed "illogical."
The most peculiar billing found in this limited series of transactions was a $27.5 million charge for shipping cooking gas and heating fuel that the Pentagon auditors valued at $82,000. This single invoice amounted to an overcharge of more than 335 times the value of the liquified natural gas delivered by Halliburton's subcontractors.
The auditors examined only a single task order in Halliburton's scandal-plagued contract with the Army Corps of Engineers, yet their report lambasted nearly every aspect of the deal, from the no-bid award to the cost-plus nature of the contract to the almost total lack of supervision of the work orders and the subcontractors.
From May 2003 to March 2004, Halliburton sent the Corps of Engineers bills totalling more than $875 million for supplies of fuel to US operations in Iraq. For this task order alone, the Pentagon auditors estimated that Halliburton overbilled the government by at least $108.4 million. That's real money, even by Pentagon standards.
But that's only a rough opening bid for the true scale of the looting, in large part because the company's indefatigable stonewalling. The auditor's report accuses Halliburton of misleading the government inspectors at nearly every turn. For example, the auditors allege that Halliburton simply refused to hand over any information on its subcontractors in Kuwait. "Halliburton failed to demonstrate its prices for Kuwait fuel were 'fair and reasonable'", the auditors wrote in their report.
Similarly, Halliburton kept the Pentagon investigators in the dark about the prices it paid for purchasing fuel from Turkey and Jordan.
The Defense Contract Audit Agency report comes on top of previous investigations tagging Halliburton, and its Kellogg, Brown and Root subsidiary, for more than $442 million in "unsupported" billings for its work in Iraq, including charges for meals that were never served, $45 cases of pop, unnecessary heavy equipment, tailoring fees and $152,000 for movie screenings. In all a report prepared by the Democratic Policy Committee estimates that Halliburton's overcharges in Iraq alone exceed $1 billion.
Okay, the Pentagon learned a billion-dollar lesson the hard way, right? Wrong. In July, the Pentagon discreetly let slip that it had awarded Halliburton a fat new contract for yet more logistics work in Iraq. How fat? Try $5 billion. In fact, the contract was secretly handed to Halliburton in May, but the Pentagon kept it underwraps for more than a month. Why? "The Army didn't consider it necessary" to reveal the terms of the deal, a Pentagon spokesman explained to Reuters.
In the ever-expanding universe of Pentagon contracting, cost is never the problem, public exposure is.
* * * #2
Halliburton, the signature corporation of the Bush-Cheney onslaught on Iraq, didn't start its corporate life on the government dole. In fact, the company patriarch, Erle P. "Red" Halliburton, despised the federal government. His distaste for Uncle Sam was matched only by his ferocious hatred of Mexicans, blacks and labor unionists.
In 1919, Red Halliburton started the New Method Oil Well Cementing Company from his home in Wilson, Oklahoma, a hardscrabble town in the oil patch. Halliburton's big innovation was something called the Cement Jet Mixer. When the oil boom hit Texas, the wildcatters and other drillers quickly began experiencing problems with their deep shafts. The steel pipe funneling the oil up from the Permian basin and other reservoirs of crude would sooner or later develop cracks, allowing groundwater to contaminate the crude. In some cases, the pipes would even explode.
Halliburton's solution, which he unveiled in the oil town of Burkburnett, Texas, was to seal the well-pipes in a sheath of concrete, protecting the pipes from corrosion and precious loads of crude from contamination. He was soon in demand across the oil fields of Texas and Oklahoma. Erle changed the name of the company to Halliburton and raked in millions from his patent. Halliburton continues to garner millions from its drilling technology, from Saudi Arabia to the Amazonian rainforest.
Meanwhile, in that same crucial year of 1919, the other half of Halliburton was also beginning to take shape as two friends from San Marcos, Texas, Herman Brown and Dan Root, formed a road paving company that would eventually become one of the world's largest construction firms. The Brown & Root Company shared Halliburton's antipathy toward organized labor, but realized early on that there was a fortune to be made through outsourced government work.
Brown & Root also understood that government contracts are a lot easier to get if you have a politician on retainer.
* * * #3
In the late winter of 1937, the imperious Texas Congressman James P. "Bucky" Buchanan, chairman of the House Appropriations Committee, suddenly died in office. Buchanan departed the living with some unfinished business of extreme importance to his political cronies. The congressman, who controlled the federal purse, was in the midst of pushing through congress the Lower Colorado River Project, a scheme to build a network of dams across the Texas hill country that would bring water to the people and millions in federal funds to favored contractors. The centerpiece of this enterprise was the Marshall Ford Dam outside Austin and the company that had won the contract to build the dam was none other than Brown & Root.
The $10 million dam deal was the biggest Brown & Root contract to date. But there were two problems left by Buchanan's ill-timed passing: the money for the dam hadn't yet been approved by congress and the land at the dam-site wasn't owned by the federal government. What had suddenly looked like a sure thing, now found Brown & Root on the unnerving verge of bankruptcy. The company had gone into debt by more than $1.5 million in order to purchase the equipment needed to build the dam.
Brown & Root decided there was no turning back. They began construction on the dam before getting any federal funds and before the feds had actually acquired the land from the state of Texas.
But the company had an ace in the hole in the shape of Lyndon Baines Johnson, the lumbering former schoolteacher who was vying to replace the departed Buchanan. In the spring of that year, young LBJ met several times with Herman Brown, vowing to make congressional approval of the dam project his top priority. Brown sluiced cash into LBJ's campaign and he sailed to victory in a special election on May 13, 1937. LBJ lived up to his obligations.
A little more than a week after having arrived in DC, the freshly hatched congressman had engineered congressional approval for both the appropriation and the land purchase.
The Marshall Ford Dam deal launched LBJ's career a can-do politician without parallel in American politics and it set Brown & Root on course to become one of the federal government's favorite contractors. The apex political fixer Thomas "Tommy the Cork" Corcoran later observed that "LBJ's whole world was built on that dam". So too was Brown & Root's.
LBJ had the good fortune to land on the congressional committee overseeing the operations of the US Navy as it prepared for World War II. When LBJ's fortunes rose on the Hill, so did Brown & Root's. As a brawny member of the Naval Affair Committee, the ambitious congressman, a key southern supporter of FDR's New Deal and therefore confident of the backing of the White House for almost any pet project, steered as many big contracts to his political financiers as possible.
It was courtesy of LBJ, and his privileged position in the congress, that Brown & Root got into the Pentagon contracting business in a big way. In 1940, the former road paving firm won a huge contract to build the Corpus Christi Naval Air Station, a complex of runways, hangars, barracks and command centers
sprawling across 2,000 acres of swamp and scrubland on the gulf coast of Texas. It was a model for things to come.
The Corpus Christi Naval Air Station was one of the first "cost-plus" contracts, a sweet deal where the government simply pays every bill the contractor submits. The initial price-tag was pegged at $23.5 million, with Brown & Root guaranteed a profit of $1.2 million. But within a year, the cost had soared to more than $45 million, with Brown & Root pocketing more than $2.4 million in profits. It was an early lesson in the demented logic of Pentagon contracting: the bigger the cost-overruns, the juicier the profits. In the end, the Naval Air Station cost the Pentagon more than $125 million.
The Corpus Christi deal initiated Brown & Root into the risk-free fraternity of favored Pentagon contractors. The company that had prospered through the Great Depression thanks to federal dam projects was poised to make a killing from World War II, with most of the deal coming courtesy of the US Navy and its congressional overlord LBJ and the powerful congressman from Houston, Albert Thomas. Working together, LBJ and Thomas convinced the Navy to give Brown & Root a lucrative shipbuilding contract, even though, as investigative reporter Robert Bryce notes, up until that point the company "had never built so much as a canoe."
But over the next five years, Brown Shipbuilding, a huge operation on the Houston Ship Channel, would build 355 ships for the Navy, specializing in sub chasers and escorts for destroyers. The company made a cool $500 million from the deal.
As the war drew to a close, Brown & Root went from building ships to melting more than 20,000 surplus airplanes they bought on the cheap from the War Assets Administration. They were soon one of the big players in the aluminum business, much of which they sold right back to the feds, making tens of millions in profits. This neat trick was followed by a huge cost-plus contract to build the US military base on Guam in the south Pacific, a deal that started out with a price tag of $25 million but soon ballooned to more than $250 million.
Never say that Brown & Root wasn't grateful. They knew that their fortunes rode on the backs of their political benefactors and they did their best to keep them happy. Unlike many others in Congress during the 1940s, Johnson wasn't rich. He and Lady Bird fretted about money during the early years of their marriage. Then, in the mid-1940s, opportunity came calling when KTBC, Austin's first radio station, went on the market. Using money from Lady Bird's inheritance and generous infusions of cash from Brown & Root, the Johnsons bought the station, made major upgrades in its operations and squeezed federal broadcast regulators into allowing it to expand its output and change its location to a more central place on the dial. Soon the Johnsons were rich. As LBJ said, "Finally, I was a millionaire".
For Johnson, money was the route to political power. From his early days running the Texas branch of FDR's National Youth Administration, LBJ had set his eyes on landing a seat in the US senate. LBJ got the NYA position, at the age of 29, through the intervention of Alvin Wirtz, the lead attorney for Brown & Root and a noted fixer. As for LBJ, he later said that Wirtz was "like a daddy to me". Brown & Root harbored similar ambitions for their man. They owned a few congressmen, but an obedient senator was the key to a higher order of riches.
* * *
LBJ's first shot at the senate came in 1941, after Texas Senator Morris Sheppard keeled over from a brain hemorrhage. Running as a New Dealer and fueled by cash from Herman Brown, Johnson embarked on a fabulously corrupt campaign against the populist governor of Texas, W. Lee "Pass the Biscuits, Pappy" O'Daniel, a flour magnate and the state's most popular radio personality. He ran on an anti-union and anti-FDR platform that appealed to rural Texas voters.
Ballot boxes were bought by both campaigns. Johnson bought them in San Antonio and southern Texas, while O'Daniel, called the greatest campaigner in Texas history, purchased them throughout east Texas. With 97 per cent of the votes counted, Johnson led the race and seemed assured of victory. Then more ballots mysteriously materialized, and O'Daniel claimed victory by 1,311 votes. The final fix may have been made by a cabal of Texas oil men and ranchers who wanted O'Daniel out of Austin. They figured he could do them less damage in Washington.
Johnson vowed to learn the lessons of his defeat. He shed much of his New Dealer image and reemerged as a Southern populist, touting his votes against an anti-lynching bill, against Truman's bill to outlaw the poll tax, and for the union-busting Taft-Hartley Act. He also courted cash from every corporation and mogul he could find, promising to return their investment tenfold.
When he ran again in 1948, Johnson almost certainly lost the vote, but stole the election, abetted by Brown & Root, the company's lawyer Alvin Wirtz, and newspaper tycoon Charles Marsh.
Once again, Johnson faced a popular and reactionary governor for the Texas senate seat, vacated when Pappy O'Daniel (grew bored of living in DC. This time his opponent was Coke Stevenson, rancher, bigot and anti-communist. In the Democratic primary, Stevenson steamrollered Johnson by more than 70,000 votes; yet in a crowded field, the governor didn't top 50 per cent, forcing a run-off election in the fall. It would become the most expensive political campaign waged in Texas until George W. Bush, underwritten by the descendents of LBJ's backers, defeated Anne Richards in the fierce 1994 gubernatorial campaign.
Stevenson was a wildly popular figure in Texas, but LBJ had an equalizer: a nearly bottomless reservoir of campaign money provided by Brown & Root and Wirtz's client list of oil barons, including H.L. Hunt and Sid Richardson. LBJ also enjoyed free access to a DC3, courtesy of Brown & Root, which would rush him across the vast Texan plains for as many as 10 appearances in a single day.
Fifty-two years later, Halliburton offered its corporate jets for use by George Bush and his campaign team during the 2000 campaign and subsequent tumultuous Florida recount. For those flights, the Bush campaign reimbursed Halliburton only the cost of one first class ticket.
In 1948 it was also this same DC-3 that made emergency flights to Austin and Dallas in search of cash from the accounts of Brown & Root. The money was delivered in $100 bills stuffed into grocery bags. The bagman was none other than John Connolly, the future governor of Texas and Halliburton board member. Each haul would net between $40,000and $50,000 for the Johnson campaign.
Johnson also prevailed upon the Bell Helicopter Company, which would soon relocate to Texas, to loan him a chopper for his campaign. One of the first politicians to use the newfangled machine, Johnson would descend upon his campaign venues with the "Yellow Rose of Texas" blaring from loudspeakers attached to the landing gear a prelude for the Wagner-screaming choppers in Apocalypse Now.
All of this got LBJ close, but quite not close enough, to assure him of an outright victory. The 1948 election needed to be both bought and stolen.
As the polls closed in the Texas senate race of 1948, the margin was razor thin, with Coke Stevenson running slightly ahead of LBJ. Over the next few days, precincts across the vast state counted and recounted their votes. Five days after the election, an amended return came in from Jim Wells County in the southern outback of Texas. It seems that a certain Luis Salas, following the suggestion of a Brown & Root lawyer, began scouring the courthouse for a missing box of ballots. He chanced upon the infamous Box 13 from the hamlet of Alice, Texas, which contained 220 votes, all for Johnson, which was enough to push LBJ into the lead by 87 votes. (A later analysis by Johnson biographer Robert Caro showed that 220 names had been added to the voters' list after the polls had closed.)
Stevenson rushed to the courts for relief. He won round one. He got a state judge in Texas to place an injunction against the ballots from Alice. Again, the race was ultimately decided by the U.S. Supreme Court by the intervention of a single justice, Hugo Black. Black was a New Dealer elevated to the high bench by FDR. With time running out, LBJ's lawyers Abe Fortas (whom LBJ ultimately rewarded by putting him on the Supreme Court) and Alvin Wirtz, who was also Brown & Root's lead corporate counsel, arranged a secret meeting with Black in his chambers at the Supreme Court. At this ex parte conclave, Wirtz impressed upon Black the importance of LBJ's election to the senate, saying that many New Deal programs (he presunmably did not mention the gross topic of Pentagon contracts) hinged on the outcome.
On September 29, 1948, Black came through. The justice issued an order overturning the state judge's injunction and also put the brakes on a parallel investigation into vote fraud in Jim Wells County. LBJ was pronounced the winner of the primary by 87 votes and then went on to crush his Republican opponent in November.
True to form, Johnson never tried to conceal the role his corporate sponsors played in securing the 1948 election. Indeed, he bragged about his prowess at securing powerful and deep-pocketed backers, saying that his rise to the senate had been "Brown & Root funded."
Once again, it didn't take LBJ long to pay back his political investors with interest. In the spring of 1949, only months after claiming his senate seat, LBJ, the former New Dealer, launched an assault on Leland Olds, the chairman of the Federal Power Commission. Olds, a former muckraking reporter, was appointed by FDR to head the commission, which set power rates and regulated natural gas prices. His term expired in 1948, and Harry Truman had just announced his intention to reappoint him to the position, enraging the oil and gas industry. On Olds' advice, Truman had vetoed a bill that would have deregulated the natural gas industry.
In addition to Brown & Root, the Brown family also owned the Texas Eastern Transmission Corporation, then the nation's biggest natural gas pipeline company. The Browns were furious at Olds's rulings and pleaded with Johnson to defeat his renomination. LBJ did more than that. He destroyed the man in a set of hearings that would lay the groundwork for the show trials of the McCarthy era.
With the help of his pals Sam Rayburn and Senator Robert Kerr, Johnson, a freshman senator, got himself appointed chairman of the committee overseeing the Federal Power Commission. From this position, he launched into an onslaught on Olds, smearing the former supporter of Herbert Hoover as a "communist" who "travels with those who proposed the Marxian answer." LBJ, who only a few years earlier had used his political muscle to secure the vast public hydropower projects on the Little Colorado with the goal of providing cheap power to the citizens of the Hill Country, now accused Olds of "plotting a course toward confiscation and public ownership".
LBJ's ambush of Olds was scripted by none other than Brown & Root's lawyer, Alvin Wirtz. After this grilling, Olds was rejected by the senate on a vote of 53-15 and left the government a broken man. Johnson, however, flew back to Houston the night after his destruction of Olds on a private jet owned by Brown & Root. A company limousine met him at the airport and whisked away to the Brown & Root suite at the Lamar Hotel, where a victory party was in full swing featuring whiskey, women and the richest oil men in Texas men who were primed to get a lot richer.
* * *
As the partnership between LBJ and Brown & Root propelled both the company and the politician to new heights of power and wealth, Halliburton was taking a different track: capitalizing on the globalization of the oil industry.
During World War II, Halliburton was called upon to help build the infrastructure for the oil fields of Saudi Arabia, launching a profitable relationship with the petro-kingdom that persists to this day. While the US oil companies were later given the boot by the Saudi royal family, Halliburton continued to prosper, constructing pipelines, refineries and oil terminals.
Soon there were other summonses from the Middle East. In late 1940s, Halliburton began doing business in Bahrain, followed by an equally lucrative contract with the royal family of Kuwait to manage that kingdom's oil fields.
The big prize in the 1950s was Iran, where Halliburton enjoyed tens of millions in contracts which were suddenly placed in jeopardy with election of Mohammed Mossadegh, who had campaigned on a pledge to nationalize Iran's enormous oil reserves. Needless to say, this prospect didn't sit well with Halliburton and the consortium of British and American oil companies exploiting Iran's petroleum wealth.
When Mossadegh moved forward with his plans, the oil companies appealed to President Eisenhower to intervene, who turned the matter over to his National Security Council. As it happened, Halliburton had a man on the inside to press its case in the person of Dillon Anderson. Anderson was a partner in the Houston law firm of Baker Botts, the family firm of James A. Baker, III, which had represented Halliburton for many years. Soon after Eisenhower's election, Anderson, who had funneled more than $200,000 into the Eisenhower-Nixon campaign, was invited to join the administration as a consultant to the National Security Council.
The NSC, with judicious prodding from Dillon Anderson, quickly sanctioned a CIA plan, devised by Kermit Roosevelt, to overthrow Mossadegh. And so it came to pass. On August 19, 1953, the CIA launched its coup. Mossadegh was arrested and thrown in to jail and Reza Pahlavi was re-installed on the Peacock Throne as the Shah of Iran.
In return, the Shah soon signed over control of Iran's oil resources to a consortium of western oil companies, lead by Exxon, Mobil and Texaco. Halliburton was also back in Iran. Over the next 25 years, the company cashed in on more than $10 billion in contracts with Iran.
As for Dillon Anderson, Ike soon elevated the Yale-trained lawyer from Texas to the position of National Security Adviser, where he served until 1957.
* * * #4
In 1962, Herman Brown died and his brother, George, began searching for possible corporate suitors who might take over the company. In the summer of that year, George Brown worked out a strange deal with Halliburton, which was looking to diversify its operations. Halliburton agreed to acquire Brown & Root for the bargain basement price of $36.7 million, far below the market value of the company. But in exchange, Halliburton executives agreed to let Brown and his colleagues run the new Brown & Root subsidiary as a quasi-independent arm of Halliburton.
Of course, the acquisition of Brown & Root had another great advantage for Halliburton. The fiercely Republican oil services company, which prospered under Eisenhower, now found many familiar doors in Washington shuttered under the Kennedy administration.
Brown & Root, though, was riding higher than ever thanks to its old political fixer, LBJ, now Kennedy's vice president. At the time of the merger, Brown & Root had just been handed one of its biggest federal contracts, the multi-billion dollar deal to build NASA's Manned Space Center outside Houston-a complex that would later be renamed the Johnson Space Center.
But the most majestic profits, as always, were to be made during wartime and LBJ gave them a big one. During World War II and Korea, Brown & Root made billions building bases and ships in the US. But Johnson's Vietnam War forever changed the role of Pentagon contractors, and Halliburton's Brown & Root subsidiary lead the way.
For the first time, the Pentagon began to privatize construction and logistics operations during wartime in the war zone. In 1965, Halliburton formed a consortium with the Idaho-based firm Morrison-Knudsen to manage big construction projects for the Pentagon in Vietnam. Over the next five years, the contracts would fatten to more than $2 billion. They also followed a familiar contour: the contracts were awarded without competitive bidding and on a cost-plus basis with a guaranteed profit built-in.
Soon Halliburton employees were a common sight across South Vietnam-- digging wells, building latrines, managing commissaries, excavating harbors and constructing barracks-- from Da Nang to Cam Rahn Bay.
The biggest project by far was its $220 million contract to build the mammoth Air Force Base at Phan Rang, which Halliburton constructed on top of some the most beautiful Cham temple complexes in Vietnam. Phan Rang, from which US bombers pounded North Vietnam and later Cambodia, gained a little notoriety in December 1967, when Bob Hope brought his Christmas show there featuring a sultry performance by Raquel Welch that nearly caused a riot on the base.
The cost overruns in Vietnam quickly swelled and soon caught the attention of auditors with the General Accounting Office. In 1967, a GAO report on Halliburton's operations in Vietnam skewered the company for abandoning "normal management controls" and for wasting millions of dollars. The GAO disclosed that Halliburton "could not account for the whereabouts of approximately $120 million worth of materials which had been shipped from Vietnam to the United States."
The GAO audit should have given the company a black eye and caused the government to reconsider the outscourcing of wartime logistics work, but the prophetic report was buried by the Pentagon and ignored by the press. As a result, Halliburton flourished. Over the course of the Vietnam war, Halliburton's annual revenues nearly tripled and it emerged from the war as the world's second largest construction firm, trailing only Bechtel.
***
In the fall of 1979, the Iranian revolution led to the expulsion of Halliburton from the lucrative sinecure it had enjoyed under the Shah's dictatorship.
Not to worry. Halliburton quickly moved to replace those revenues with an equally rich stream from Iran's neighbor and blood enemy, the Baathist republic of Iraq, now under the grip of Saddam Hussein.
Like many other US companies that choose to turn a blind eye to the regime's more sanginary manifestations, Halliburton had been working in Iraq since the early 1970s, even though the Ford and Carter administrations had both refused to recognize the socialist government.
In 1973, Halliburton won a $120 million contract to build Iraq's two mammoth oil terminals in the Persian Gulf off the coast from Umm Qasr. This contract was to prove immensely profitable over the next three war-plagued decades. For one thing, those big terminals, the Mina al-Bakr and the Khor al-Amaya were inviting targets. With the outbreak of the prolonged Iran/Iraq, those oil terminals, Iraq's main source of getting its crude to global markets, were hit time and time again by Iranian saboteurs. Each time they were bombed, Halliburton was called in to repair the damage. Then thirty years after they were constructed, Halliburton was hired by the Pentagon to take control of the two terminals and get them into working condition in the earliest days of the US invasion.
Because the offshore terminals were such easy targets for Iranian gunboats, in 1981 Saddam signed a $2.5 million contract with Halliburton to build a feeder pipeline from the terminals out into the Gulf where the crude oil could be safely sluiced into wary tankers.
Two years later Saddam hired Halliburton once again. This time the Iraq government contracted with the Houston firm to build a long oil pipeline, that would skirt Iranian bombs, running from Basra to Yanbu on the Red Sea in Saudi Arabia. The deal was worth $2 billion. The pipeline won the approval of the US Undersecretary of State Lawrence Eagleburger, who would later land a spot on the Halliburton board.
Halliburton would continue to work on a variety of projects in Iraq right up until the first Gulf War. Indeed, a few weeks before Saddam sent his tanks into Kuwait, the Iraqi government had paid Halliburton $57 million for its work on the Mina Al-Bakr terminal and a seismographic project to help the Iraqi Oil Exploration Company enhance its exploration technology.
* * *
In 1990, Halliburton was picked by the Pentagon to put out 300 oil well fires in Kuwait, while its subsidiary, Kellogg, Brown & Root, grabbed the big contract to reconstruct the ravaged buildings of Kuwait City.
In 1992, Halliburton won a $3.9 million contract from the Pentagon in the waning days of the George H.W. Bush administration to a develop a scheme for outsourcing to private corporations much of the logistics and construction work previously handled by the US Army Corps of Engineers. The plan came to be known as LOGCAP and Halliburton soon got an additional $5 million to flesh out the details.
The LOGCAP deal was sanctioned by none other than Secretary of Defense Dick Cheney. Under the initial contract, Halliburton established a plan for housing and feeding 20,000 troops in various hot spots around the globe. In a scenario that would be reprised in the Iraq war, Halliburton soon won the contract to implement the LOGCAP plan that it had devised. First stop Somalia, where Halliburton set up shop providing fuel, food, laundry services and even morticians for US troops.
Then in 1995, at the same time Cheney was taking over the reins at Halliburton, the Pentagon handed the company a $550 million contract to provide logistical support for US and NATO's IFOR forces in Bosnia, Croatia and Hungry. Halliburton won another $6.3 million contract to service US troops stationed at the air base in Aviano, Italy, from which US jets launched bombing raids on Yugoslavia.
The contract was another of the notorious cost-plus deals, where Halliburton simply faxed over receipts to the Pentagon and got fully reimbursed, along with a guaranteed 1 percent profit and performance bonuses that went as high as 8 percent of the total costs. It's the contract that keeps on giving.
While Defense Secretary, Cheney defended this kind of military outsourcing as an efficient way to control spiraling costs. In reality, of course, the privatization of military logistics operations was neither cost-conscious nor particularly efficient. But it was politically expedient since it allowed civilian officials in the Pentagon to steer billions into the coffers of favored contractors, such as Halliburton, Lockheed and DynCorp. Far from being the path toward a leaner military, the General Accounting Office pegged the LOGCAP program as an adventure in "high risk government spending."
In 1997, the renewal of the LOGCAP contract was finally put up for competitive bid and, lo and behold, DynCorp snatched the golden egg of Pentagon contracts away from Halliburton. But even the Clinton administration showed mercy to the Republican firm. It cushioned the blow by awarding Halliburton a $405 million no bid deal to provide support for US troops in Bosnia. Two years later, Halliburton won the 5-year renewal of this deal, valued at $180 million.
Then in 1999 Halliburton struck gold once again in the Balkans when Clinton went to war against Serbia over Kosovo. Halliburton got a $200 million cost/plus contract to work in Kosovo. But before the year had ended that contract, covering everything from road construction, vehicle maintenance and power generation to food services, latrines and mail delivery, had generated nearly a billion dollars in revenues for Halliburton.
Of course, the deal had sublime benefits for the Clinton administration as well. By outsourcing most of the logistics work in Kosovo, the Pentagon was able to reduce its deployment by around 8,000 troops, helping Clinton and Albright to sell an unpopular war at home.
The company's Kosovo operations were rife with fraud. Halliburton charged the US Army $85.98 for each sheet of plywood it used in construction projects during Clinton's war on Serbia and its aftermath. A later probe found that the company had bought the plywood for $14 per sheet. A GAO investigation also revealed that Halliburton was billing the Pentagon for cleaning offices in US bases the Balkans four times a day. One former Halliburton employee said that the company had inflated costs on 224 different projects in Kosovo.
There were also numerous allegations of human rights violations by Halliburton workers, including mounting claims of racial discrimination and sexual harassment in the Balkans. Halliburton, which employed thousands of foreign-born subcontractors, even went so far as to operate segregated dining facilities and "Americans Only" bathrooms.
In Iraq, LOGCAP would be a recipe for rampant fraud over the basic of services. For example, Halliburton sent the Pentagon a bill for $240 million in dining hall charges for feeding 4,700 troops each day. But a review by Pentagon auditors found that the bill was inflated by nearly 200 percent, since the company never served more than 2,500 soldiers on any single day.
The Clinton years were very good to Halliburton right to the final days. In the fall of 2000, Halliburton won a $300 million contract to build a massive prison at Guatanamo Bay in Cuba. This prison, which serves as the torture and interrogation center for Bush's wars, was originally designed to hold Haitians and, according to some sources, Cubans, in the event of the collapse of the Castro government. Two years later, Halliburton would land the contract to build the other big torture center at Bagram Air Base in Afghanistan.
* * * #5
In 1995, Halliburton hired Dick Cheney as its CEO. Cheney swiftly announced two goals for the company: make it the top Pentagon contractor and greatly expand its contractual relationships with foreign governments. Speaking of Halliburton's logistics work for the Pentagon in the Balkans, Cheney said, "the first person to greet our soldiers as they arrive and the last one to wave good-bye is one our employees." Halliburton: the Alpha and Omega of Pentagon contractors.
Cheney didn't have much experience in the corporate world before becoming Halliburton's chieftain and his tenure there shows it. But Cheney was no mere figurehead. At least he didn't see himself that way. Almost immediately, Cheney began poking his fingers into the Halliburton corporate machine, with, it must be said, less than glamorous results. Old hands at Halliburton remember Cheney as arrogant and inept, a clumsy autocrat.
Of course, Cheney did deliver some morsels for the shareholders. Most notably, Halliburton's US government contracts bulged from $1.2 billion to $2.3 billion under Cheney's reign as CEO. Moreover, US government financing for Halliburton projects in the Third World soared soon after the Wizard of Wyoming took control of the company, ballooning from $100 million in the five years prior to Cheney's arrival to more than $1.5 billion during his time at the helm.
Of course, Cheney didn't wrest these deals from the feds alone. When Cheney went to Halliburton he took along some of his old pals at the Pentagon with him, most notably Admiral Joe Lopez, a top Cheney aid during the Bush I regime. In 1999, Cheney urged Lopez to leave the Pentagon and join Halliburton. He rewarded him with the plum position of vice president for governmental operations-in other words, Halliburton's top lobbyist.
Another Cheney veteran worked along side Lopez to keep the government contracts flowing to Houston. Dave Gribbin, one of Cheney's closest aides, left his position as Assistant Secretary of Defense for Legislative Affairs for a slot as one of Halliburton's top lobbyists. He later served as a key figure on the Bush-Cheney transition team.
Yet, even the most forgiving analysis of the Yale dropout's leadership of Halliburton must admit that the Cheney years were marked by a series of staggering false moves and financial missteps that nearly crippled the company. Indeed, it's fair to say that the only life-support for the company during those five years was the nearly inexhaustible tide of cash coming from Halliburton's Pentagon contracts. Nearly every other venture racked up huge levels of debt and legal liabilities
Witness Cheney's disastrous decision to acquire Dresser Industries, another oil services and engineering company. Cheney pursued a company that no one else really wanted and to compound his blunder he paid an outrageous price for it. Halliburton acquired Dresser for $7.7 billion, which proved to be at least 16 percent more than the company's actual value. In the end, Dresser's workers paid the price. In the immediate wake of the Dresser acquisition, Cheney fired 10,000 of the company's employees.
There was an even uglier problem with the Dresser deal that somehow escaped Cheney's notice. When Halliburton bought Dresser, it also acquired the company's enormous asbestos liability, a burden which Cheney assured company stockholders would be resolved "without material effect." It's the kind of casual lie covering a metastasizing problem that would become a Cheney signature as vice president.
At the time of the takeover, Dresser was facing more than 66,000 claims for asbestos-related health problems from its subsidiary Harrison-Walker. These claims eventually totaled something on the order of $5.5 billion, an amount that threatened to bankrupt Halliburton.
Yet, instead of firing of Cheney for this calamitous mistake, the Halliburton board, now ornamented by the rotund figure of former Secretary of State Lawrence Eagleburger, awarded its chieftain a $1.5 million bonus for his decisive role in the doomed acquisition.
Cheney also approved a legally dubious scheme to set up dozens of offshore shell corporations designed to exploit Enron-style accounting hijinks in order to make Halliburton's bottom line seem more robust than it really was. These scams didn't lead to an indictment of Halliburton executives, but the SEC did ding the company with a $7.5 million fine for its deviant accounting practices--a slap on the wrist, to be sure, but a black eye for the moral hypocrite Dick Cheney.
Evidence of the systematic accounting fraud at Halliburton during the Cheney years has now been marshaled into a class action suit by Halliburton shareholders that may even yet doom the company.
But those off-shore subsidiaries weren't merely a way of hiding money from corporate auditors, the SEC and the IRS. They were also designed to help Halliburton evade government prohibitions against US-based companies doing business with unsavory regimes.
In 1995, the State Department hit Cheney's Halliburton with a $3.8 million fine for violating the trade embargo with Libya. A similar investigation by the Department of Justice was launched in 2004 into Halliburton's operations in the second-leg of the axis of evil, Iran. Using a subsidiary corporation set up in Cheney time in the Cayman Islands, Halliburton had been doing business with the Mullahs of Iran since 1997, in flagrant violation of the US trade embargo.
In a way then, it's not surprising that Cheney's official biography, posted on the White House's website, forsakes all mention of his career as the commander-in-chief of Halliburton. But Cheney does have the quaint habit of taking this modesty too far. In 2003, he was asked about his financial ties to Halliburton. The vice president demurred, as if the very name of the company was unfamiliar to him. "I have no financial interests in Halliburton of any kind," Cheney said flatly. In fact, at that precise moment Cheney enjoyed options on 43,300 shares of Halliburton stock and was pocketing $162,392 a year in deferred compensation from the company.
* * * #6
On February 26, 2003, less than a month before the invasion of Iraq, a meeting was convened in the inner sanctum of the Pentagon. The purpose of this conclave was to devise a project that would come to be known as RIO or Restore Iraq Oil. Gathered around that table just down the hall from the office Douglas Feith were ranking officials from the State Department and the US Agency for International Development (USAID), as well as the Pentagon. The meeting was chaired by Lt. General Carl Strock, a ranking official at the US Army Corps of Engineers.
The top priority on that February morning was to decide which US company would receive the juicy contract to put out the expected oil field fires and to rebuild and manage Iraq's oil infrastructure, from the wellheads to the pipelines to the big oil terminals off the coast near Basra.
In a way, this meeting in the bowels of the Pentagon was all for show, a kind of mating ritual between the government and its favorite contractor. There was little doubt about who was going to land the deal. So little doubt, in fact, that a Halliburton executive had been invited to attend the secret conclave.
Indeed, a few months earlier Halliburton had already been paid $1.9 million to draft a plan for how to implement RIO. The company had essentially written its own job description, a scenario that would make that initial payment mushroom into the billions.
There were several other companies that could have done the job that was given to Halliburton. Fluor-Daniel, Parsons and GSM Services were all were just as qualified for the task. Yet, none of these firms were invited to submit a bid or a plan of action. Instead, Lt. General Strock steered the cost-plus contract into Halliburton's hands without the faintest whiff of competition. When his own contract auditors objected, Strock sought to silence them by saying he had determined that "the compelling emergency" in Iraq dictated swift and unilateral action.
Of course, this decision had been set in motion much earlier and by figures far loftier in the power hierarchy of the Bush administration than lowly Lt. General Strock from the bureaucratic outback of the Corps of Engineers.
An Army Corps of Engineers email, uncovered by Time Magazine, disclosed that the initial decision to have Halliburton draft the RIO plan had been "coordinated" with the office of Vice President Dick Cheney. Over the course of the fall of 2002 and the early winter of 2003, Halliburton executives met on several occasions with Cheney's staff at the White House and at the Pentagon.
At an October 2002 meeting, Michael Mobbs, an assistant to Undersecretary of Defense Douglas Feith, parlayed with Cheney's chief of staff Lewis "Scooter" Libby to personally deliver the jubilant news that Halliburton had gotten the RIO planning contract.
Cheney, as is his natural inclination, continues to deny any involvement, direct or implicit, in the Pentagon deals that have sent billions in no bid contracts to his former company, at the very same time Halliburton continued to sweeten his bank accounts with more than $140,000 a year.
There was another curious hitch to the Halliburton RIO deal. Instead of being administered by Douglas Feith's office at the Pentagon (as were almost all of the other Iraq contracts), the Halliburton RIO contract was pawned off on the Corps of Engineers, a remote outpost of the Pentagon known, to the extent that it is known at all, for the management of locks and dams on American rivers.
Then an unexpected thing happened. Despite a lot of baiting from the US military and the most bellicose voices of in Bush administration, Saddam didn't ignite the Basra oil fields.
For a moment, it looked as if Halliburton might be left out in the cold. But no. As if they were rerouting an river in the Smokey's, the quick-fix generals at the Corps of Engineers simply reconfigured the terms of the Halliburton contract, changing it from putting out oil well fires to hauling fuel for US military operations.
* * * #7
When it came time to select a space for its corporate offices to oversee the new Iraq contracts, Halliburton decided not to bunker down inside the Green Zone in Baghdad. Instead, the company opted for posh offices at the Khalifa resort on the beaches of the Persian Gulf a few miles from Kuwait City. The spot was sunny, safe and expensive. Halliburton spent more than $73 million a year just to house its executives in Kuwait--that's $73 million a year billed to the Pentagon, plus a two percent profit tacked on for good measure.
It turns out that there wasn't much for these managers from Houston to manage. That's because nearly all of Halliburton's work in Iraq was farmed out to subcontractors. The tricky part was trying to find the right subcontractor. Not necessarily the company that would do the best job, but the one that would charge the most for the work, since Halliburton's built-in profits came as a fixed percentage of the costs. The higher the costs, the bigger the profits.
Several of the subcontracts in Iraq were doled out accompanied by the judicious application of cash bribes. Even here Halliburton benefited. As Halliburton executives and managers dispensed and received millions in kickbacks, the company itself simply wrote the dispensations directly onto the invoices submitted by the subcontractors. Often these bills exceeded the true costs of the projects by 300 or even 400 percent--with Halliburton snagging a built-in profit from the bribe-bloated contracts.
Apparently, Halliburton views these kickbacks and bribes as a kind of a priori cost of doing business across the globe. A pungent example: A team of French investigators unearthed a robust Swiss bank account harboring $5 million, which reportedly derived from bribes involving Halliburton contracts in Nigeria. In June 2004, the company eased out Jack Shanley, chairman of its Kellogg, Brown & Root subsidiary, for having received "improper benefits" from this very account.
A Department of Justice investigation charged that Halliburton bribed the Nigerian officials in order to win a billion-dollar construction contract. Halliburton later discreetly disclosed that it may have paid upwards of $180 million in bribes.
A parallel probe was launched by the Securities and Exchange Commission into an admission by Halliburton that one of its managers slipped $2.4 million into the pockets of another Nigerian official in order to secure illegal tax-breaks for its business in the impoverished African nation.
* * * #8
In southern Iraq, much of Halliburton's logistics work ended up in the hands of a Kuwaiti firm called La Nouvelle, which handled meals, sanitation facilities and laundry. Before La Nouvelle picked up the subcontract to do the laundry at a US military base near Basra, the monthly cleaning bill had averaged around $62,000. A few months after La Nouvelle took over, the tab soared to $1.2 million a month. La Nouvelle billed $108 for each 15-pound bag of laundry at this base, $80 a bag more than the very same company charged at another base.
Pentagon auditors concluded that La Nouvelle was overbilling for its laundry services alone by at least $1 million a month, with Halliburton enjoying its slice of the profits without even having had to break a sweat. They were quite literally laundering money.
While millions were splurged on opulent accommodations for its executives, bribes and kickbacks and scandalously inflated laundry bills, Halliburton skimped on the maintenance of its vehicles, which were transporting fuel and supplies on the dangerous desert roads from Kuwait to the US bases in Iraq. Only six months into the occupation of Iraq, Halliburton's fleets of trucks began to breakdown due to lack of spare parts and shoddy upkeep. The result was not just a slow down in the delivery of fuel and military supplies, but a greatly enhanced risk to the lives of Halliburton's drivers, who were becoming easily identifiable targets for the growing insurgency in Iraq. By the end of March 2005, more than 65 Halliburton employees had been killed in Iraq and more than 200 injured--the most of any private contractor in the war zone.
Much of the fuel those Halliburton drivers were carrying into Iraq came courtesy of a company called Altanmia, a Kuwait firm with cozy ties to the country's royal family.
Altanmia charged Halliburton a hefty $2.65 per gallon, roughly the price charged at the pump in Washington, D.C. But this rate was nearly three times the 97 cents per gallon that the Iraqi Oil State Marketing Organization was paying to buy oil from Jordan and Turkey.
Halliburton never uttered the meekest protest about the grossly inflated fuel prices. With good reason. It simply passed the bills on to the Pentagon and cashed its reimbursement checks, complete with the 4 percent government gratuity.
In the first six months of the war, Pentagon auditors estimated that Halliburton had overcharged the US Treasury by at least $61 million for its fuel deliveries.
Ironically, Altanmia executives griped that they were forced to charge that hefty amount in order to cover the kickbacks and bribes they were forced to pay to Halliburton officials in order to secure the contract. In an email documenting a meeting between Altanmia executives and officials at the US embassy in Kuwait City an Altanmia manager is quoted as saying that "anyone visiting their [i.e., Halliburton's] seaside villas at the Kuwaiti Hilton who offers provide services will be asked for a bribe."
When the price gouging by Altanmia began to draw the attention of Pentagon auditors, the US Army Corps of Engineers, which was responsible for overseeing the implementation of the contracts, came up with an elegant solution. It informed Halliburton that the company no longer had to submit a public record of the fuel purchases.
This bizarre and secret waiver of standard Pentagon accounting practices was signed by the Corps' top contracting officer, Gordon A. Sumner, on December 19, 2003--stymieing the pending congressional and Pentagon investigations in contract fraud by the company.
* * * #9
In February 2005, the State Department finally weighed in with a damning report on Halliburton's work to rehabilitate the oil fields in southern Iraq. The unusually frank assessment accused Halliburton of undocumented cost overruns totaling tens of millions of dollars and generally "poor performance."
The State Department report pointed out that Iraqi oil production at the beginning of 2005 was lower than it had been during the previous fall. The situation had gotten so dire that the US Embassy in Baghdad, then under the command of John Negroponte, issued what is known as a "Cure Notice," a stark warning to Halliburton executives that if the company's performance didn't improve the $1.2 billion contract would be terminated.
Negroponte followed up his threat by recruiting the Parsons Corporation, Halliburton's archrival, to "execute some of the remaining work in the south." Parsons had previously been awarded the $800 million contract to repair and manage the oil fields around Kirkuk in northern Iraq.
As far as the Pentagon was concerned all of this was written off to carping from the sidelines by busy-bodies and tightwads at the State Department. In the spring of 2005, the Bush administration over-ruled its own auditors and awarded Halliburton a $9.4 million bonus for its work in Afghanistan and Kuwait, operations which the Pentagon described as "excellent."
With the bulk of the Pentagon contracts cashed in and government investigators closing in on all fronts, Halliburton placed Kellogg, Brown & Root on the market, looking to squeeze one final payout from its golden goose.
So who says crime doesn't pay?
This is an excerpt from Jeffrey St. Clair's forthcoming book,
Grand Theft Pentagon (Common Courage, 2005).
Bingham Canyon mine - Utah
