This story first appeared on the Tom Dispatch website.
Is Halliburton Forgiven and Forgotten?
Or How to Stay Out of Sight While Profiting From the War in Iraq
By Pratap Chatterjee
The Houstonian Hotel is an elegant, secluded resort set on an 18-acre wooded oasis in the heart of downtown Houston. Two weeks ago, David Lesar, CEO of the once notorious energy services corporation Halliburton, spoke to some 100 shareholders and members of senior management gathered there at the company's annual meeting. All was remarkably staid as they celebrated Halliburton's $4 billion in operating profits in 2008, a striking 22% return at a time when many companies are announcing record losses. Analysts remain bullish on Halliburton's stock, reflecting a more general view that any company in the oil business is likely to have a profitable future in store.
There were no protestors outside the meeting this year, nor the kind of national media stakeouts commonplace when Lesar addressed the same crew at the posh Four Seasons Hotel in downtown Houston in May 2004. Then, dozens of mounted police faced off against 300 protestors in the streets outside, while a San Francisco group that dubbed itself the Ronald Reagan Home for the Criminally Insane fielded activists in Bush and Cheney masks, offering fake $100 bills to passers-by in a mock protest against war profiteering. And don't forget the 25-foot inflatable pig there to mock shareholders. Local TV crews swarmed, a national crew from NBC flew in from New York, and reporters from the Financial Times and the Wall Street Journal eagerly scribbled notes.
Now the 25-foot pigs are gone and all is quiet on the western front. How did Halliburton, once branded the ugly stepchild of Dick Cheney—the company's former CEO—and a poster child of war profiteering, receive such absolution from anti-war activists and the media? Of course, the defeat of the Republicans in the 2008 election, the departure of the Bush administration, and a general apathy towards the ongoing, but lower-level war in Iraq are part of the answer, but don't ignore a potentially brilliant financial sleight of hand by Halliburton either. That move played a crucial role in the cleansing of the company.
"Burn & Loot"
Halliburton has been doing work in war zones since the early 1960s, when it acquired the construction company Brown & Root and was tasked by the Pentagon with building the infrastructure for the Vietnam War. Back in those days, it was vilified as "Burn & Loot." After more than three decades in news obscurity, in March 2003, with the invasion of Iraq, it suddenly returned to national attention. After all, not only had its former CEO been beating the public drums for an invasion, but its subsidiary KBR (the old Brown & Root) had been given a vast, open-ended, multi-billion dollar contract to build and maintain the new infrastructure of bases that the U.S. military was rushing to construct in that country.
More than six years later, KBR has taken in over $31 billion for a variety of services to the U.S. military, notably in the field of logistics, and the money continues to flow in. As of April 2008, under a renewed contract, the company estimated that it had served more than 720 million meals, driven more than 400 million miles on various convoy missions, treated 12 billion gallons of potable water, and produced more than 267 million tons of ice. While these numbers may be impressive, so are the multiple claims from Pentagon investigators of Godzilla-like overcharges and waste, not to speak of spiraling claims of workplace negligence, including faulty electrical wiring that led to deaths and injuries on bases KBR built, and a failure to provide adequately clean water supplies to the troops; and then there are those allegations of war profiteering made by activist groups and politicians.
In September 2004, Lesar announced that Halliburton was considering spinning off KBR as a separate company, in part he claimed because it was bearing the brunt of a "vicious campaign" of political attacks and its employees didn't "deserve to have their jobs threatened for political gain." It took three years, but in April 2007 the spin-off of KBR was completed. It is now officially on its own, and the results for both companies seem little short of miraculous. No protestors even attended the three annual shareholder meetings that KBR has since held, though its activities in the war zones have hardly changed, and only five made it to Halliburton's in 2008. This year, of course, the protesting larder was bare.
Five shareholder activists did manage to attend Halliburton's annual meeting, including me. (I own a single share of Halliburton stock.) When I asked Lesar about the company's links to KBR, he responded unequivocally, "First of all, let's be very clear, KBR and Halliburton are legally separated."
Just three months ago, however, Halliburton didn't hesitate to pay off $382 million in fines to the U.S. Department of Justice as part of the settlement of a controversial KBR gas project in Nigeria in which the company admitted to paying a $180 million bribe to government officials. Halliburton, Lesar assured us, had been willing to pony up such a sum to ensure that KBR could survive on its own. He painted the payment as an act of corporate generosity. I asked Albert Cornelison and Mark McCollum, Halliburton's top lawyer and chief financial officer, if the company had similarly agreed to pay off any future judgments against the company on its monster military logistics contracts in Iraq. Cornelison responded that he doubted the company had financial obligations for KBR's work in Iraq.
Military Investigations Continue
In reality, Halliburton's decision to spin the company off was surely tied to hopes that it might indeed escape a number of pending Iraq investigations and lawsuits, as well as tamp down the bad publicity KBR was generating. Still, those investigations are ongoing. At Fort Belvoir, Virginia, the headquarters of the Defense Contract Audit Agency (DCAA), the office in charge of reviewing the Pentagon's payments to KBR, a small group of investigators continue to pursue that company's failures.
In early May, at a hearing on Capitol Hill, DCAA director April G. Stephenson told the independent, bipartisan, congressionally-mandated Commission on Wartime Contracting in Iraq and Afghanistan that, since 2004, her staff had sent 32 cases of suspected over-billing, bribery, and other possible violations of the law to the Pentagon inspector general. The "vast majority" of these cases, she testified, were linked to KBR, which accounts for a staggering 43% of the dollars the Pentagon has spent in Iraq. "I don't think we're aware of a program, contract, or contractor that has had this number of suspensions or referrals," she told the hearing. (In the allied area of overpricing services, DCAA also recommended $4.3 billion worth of reductions to proposed or billed costs and pointed to another $3.3 billion worth of costs under the KBR contract that they believed were simply not supported.)
Stephenson's staff, she indicated, recommended not paying the costs KBR had billed to the Pentagon on more than 100 occasions, among other things suspending or blocking some $553 million in payments. In but one example of typical KBR practices revealed at the hearing, the company allegedly billed the Pentagon for 4,100 prefabricated living units for military bases in Iraq at an average price of $38,000, even though another contractor offered to provide similar units for $18,000 each.
None of this may, however, matter, if the Pentagon continues to follow the precedents it has recently set. As Stephenson notes, the Pentagon has already agreed to pay out at least $439 million of the $553 million the DCAA questioned, after accepting the company's explanations for each incident.
"I'm struck by the fact [that] the military doesn't seem to care about the cost as long as they get the service," said Commissioner Christopher Shays, former Republican congressman from Connecticut. "Is part of the problem that, in essence with this one contractor, we've basically said, 'KBR is too big to fail?'"