Page 1 of 2 DISPATCHES FROM AMERICA
Is Halliburton forgiven and forgotten?
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, chief
executive officer (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 US$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 protesters 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 protesters in the streets outside, while a
San Francisco group that dubbed itself the "Ronald Reagan Home for the
Criminally Insane" fielded activists in George W Bush and Dick 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 and 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 and 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 US 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 US 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. 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 US 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, bi-partisan, 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?'"
Shocking revelations
The Pentagon even appears willing to pay KBR for contracts that may have
resulted in the deaths of military personnel in Iraq, who were allegedly
electrocuted due to shoddy work by the company's electricians.
Just as Lesar was addressing Halliburton's shareholders in Houston, Senator
Byron Dorgan's Senate Democratic Policy Committee was holding a hearing on
Capitol Hill focused on KBR. Testifying was Jim Childs, a master electrician
hired by the US Army to help review military facilities in Iraq.
Childs claims that as many as 70,000 KBR-maintained buildings where troops
lived and worked were unsafe because of faulty electrical wiring. "When I began
inspecting the electrical work performed by KBR, my co-workers and I found
improper electrical work in every building we inspected," Childs said. Hundreds
of soldiers are believed to have received electrical shocks in showers and
elsewhere as a result. There have been four documented fatalities, including
Staff Sergeant Ryan Maseth of Pittsburgh, Pennsylvania, a Green Beret, who died
of electrocution while showering in his barracks in Iraq on January 2, 2008.
(Maseth's family has sued KBR, alleging wrongful death.)
According to Senator Dorgan, documents show that KBR was paid huge bonuses by
the Pentagon for this work, much of it after the allegations became public. If
accurate, this gives "shocking" a new meaning. "How could it be that, given
these obviously
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