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Halliburton Faces New Criminal Probe

by JASON LEOPOLD

Halliburton and its former chief executive, Vice President Dick Cheney, could become President Bush’s Achilles heel come the November presidential election.

On Monday, the Pentagon said it launched a criminal investigation into allegations that Halliburton Inc. subsidiary Kellogg Brown & Root overcharged the federal government upwards of $65 million for fuel delivered into Baghdad during the Iraq war.

Halliburton spokeswoman Wendy Hall has repeatedly said that the company did not intentionally overcharge the government. To hear her tell it, Halliburton was being a good corporate citizen because the company’s accountants, who uncovered evidence of the overcharges during a routine audit last year, immediately brought it to the attention of Pentagon officials. But Halliburton’s got a rap sheet a mile long so when the company says its innocent its hard to take their word for it.

Since the start of the Iraq war last March, Cheney’s former company has been the subject of intense scrutiny on Capital Hill ever since it was hand picked by the federal government to lead reconstruction efforts in Iraq. Halliburton stands to earn as much as $11 billion for its work in rebuilding Iraq’s schools and buildings, a financial reward Democrats say is a direct result of the Vice President’s ties to the company. It’s important to note that Halliburton’s military contracts ballooned while Cheney was chief executive of the company from 1995 to 2000. Cheney claims he severed all ties with the company after he became vice president and that he hasn’t used his influence to help the company secure its recent military contracts, but Cheney still receives $150,000 annually in deferred compensation from Halliburton and holds about $18 million in stock options.

Halliburton has also been targeted by Democrats and the comptroller of a New York City police and fire department pension fund for skirting U.S. law and opening a Cayman Island subsidiary so it do business with Iran, a country the Bush administration said sponsors terrorism.

What’s interesting about the Pentagon’s criminal probe into Halliburton is that it’s the second time in four years the company has been the target of a criminal investigation on charges that Halliburton defrauded the federal government, an unprecedented occurrence for a Fortune 500 company, according to officials in the Justice Department.

In October 2000, the Justice Department and a federal grand jury in Sacramento launched a criminal investigation into Brown & Root for allegations stemming from a 1997 whistleblower lawsuit that said the company, which Vice President Cheney was chief executive of at the time, defrauded the government of about $6 million.

Former Brown & Root contracts manager Dammen Gant Campbell of Monterrey, Calif., claimed that his superiors at Brown & Root told him to “capture the budget” for construction projects at the U.S. Army base at Fort Ord by billing the federal government for work that was never performed.

In 1994, Brown & Root landed a major contract with the government after the military decided to close Fort Ord during a wave of peacetime base closings. Brown & Root was hired to convert the base to government and civilian uses. Campbell claimed that between 1995 and 1997, Brown & Root inflated its billings by about $6 million.

Campbell said in his lawsuit that Brown & Root promised to use cast-iron plumbing and sheet metal heat ducts on an office building but instead used much cheaper material and billed the government for the more expensive supplies and work it never used or performed.

The suit dragged for two years. In 2002 Halliburton paid a $2 million fine to settle the fraud charges without admitting guilt. The General Accounting Office also found evidence in 1997 and 2000 that Brown & Root overcharged the government for work it performed for the Army in the Balkans. The GAO said that Brown & Root charged the government $86 for a sheet of plywood that the company paid $14 for. Halliburton said transportation costs accounted for the price spike, the same reason the company gave the Pentagon for jacking up the price of fuel Brown & Root delivered to Iraq.

Under federal law, federal contractors are required to have a “satisfactory record of integrity and business ethics,” but Halliburton has been repeatedly let off the hook with a mere slap on the wrist when evidence of its malfeasance surfaces.

Last May, Halliburton revealed in a Securities and Exchange Commission filing that it paid $2.4 million in bribes to a Nigerian tax official to obtain favorable tax treatment in the country where it is building a natural gas plant and an offshore oil and gas facility. The bribes, discovered again during an internal audit, were paid between 2001 and 2002 to “an entity owned by a Nigerian national who held himself out as a tax consultant, when in fact he was an employee of a local tax authority.”

Then there’s the other Nigerian scandal the Justice Department, the SEC and French authorities are checking out: accusations that a Halliburton joint venture paid $180 million in bribes in connection with a Nigerian natural gas plant in the 1990s while Cheney was Halliburton’s chief executive.

There was also a Halliburton scandal in China about ten years ago. In June 1993, law enforcement officials in Taiwan questioned an executive of Brown & Root’s International subsidiary about alleged bribes made by the company and others to obtain a contract to build a wastewater treatment facility. No charges were filed in the case.

And then there’s Iraq. In addition to charges that the company overcharged the government for fuel, Hall, the Halliburton spokeswoman, said the company fired two Brown & Root employees for allegedly taking more than $6 million in kickbacks for awarding a Kuwaiti company sub-contracts for work in Iraq. Halliburton said it would repay the government. In addition, Halliburton also agreed earlier this month to pay back $27 million to the Pentagon for inflating the costs on a contract to supply meals to the US military in Iraq and Kuwait. Halliburton has temporarily stopped charging the US military for meals until they agree on a better method for regulating contracts.

So it appears that the latest news out of Washington, D.C. concerning Halliburton, one of the largest oil field service companies in the world, is just more fuel for the fire that’s beginning to engulf the Bush administration. Meanwhile, Halliburton launched a media blitz to clean up its public image.

But like the saying goes, if it walks like a duck and talks like a duck. To quote a recent statement made by Supreme Court Justice Antonin Scalia, who last month accompanied Cheney on a duck hunting together at a private camp in south Louisiana just three weeks after the Supreme Court agreed to take up the vice president’s appeal in lawsuits over his handling of the administration’s energy task force, “…quack, quack.”

JASON LEOPOLD can be reached at: jasonleopold@hotmail.com

 

JASON LEOPOLD is the former Los Angeles bureau chief of Dow Jones Newswires where he spent two years covering the energy crisis and the Enron bankruptcy. He just finished writing a book about the crisis, due out in December through Rowman & Littlefield. He can be reached at: jasonleopold@hotmail.com

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