Halliburton and MIC

Halliburton and Kellogg, Brown and Root [KBR] =
Transnational Corporations and the Nation-state “USA”,
A Focused Exploration of the
"Military-Industrial Complex"
in the Early 21st Century

Table of Contents

*2001fe01:Dow Jones, “Halliburton Connected to Office in Tehran”
*2006jy21:Charlie Cray, “Halliburton's [...] Good Deal”
*2007mr12:WDC | CBS/AP
*2007je28:Huffington Post | Charlie Cray
*2007no:Vanity Fair | David Rose (a Vanity Fair contributing editor), “The People vs. the Profiteers” [huge summary article]

Some keywords =
Dorgan
ESS
GAO = Government Accountability Office
LOGCAP = Logistics Civil Augmentation Program| Substituting prv.cmp~ for mlt.quartermastering
SERCO
SIGIR
Waxman

[SAC editor has introduced boldface at those points most relevant to our course]
["C.E.O." appears here as CEO, "G.A.O." as GAO]
[Here is the official Halliburton website]
[Wikipedia on Halliburton, on KBR, and on Dresser Industries]

FOR EARLY HISTORY, G/nrg&plt

 

<>1991:Kuwait | In the aftermath of the Gulf War, Halliburton played role in the suppression of fires started in 320 oil wells

<>1992:At end of the Gulf War and in the last months of the first George Bush administration, Defense Secretary Dick Cheney arranged for the Pentagon to pay Brown and Root nearly $9 million to study how private armies might be coordinated with regular US troops in war time.
*--Over the next few years, Halliburton was fined heavily for violation of several US trade regulations in its dealings with Iraq and Libya. The company sold Iraq and Libya restricted, high-security “dual-use” equipment with possible military application [ID], including pulse neutron generators

<>1992mr:1995no; Balkan Wars

<>1995mr:USA President Clinton signed an executive order which prohibited “new investments [in Iran] by U.S. persons, including commitment of funds or other assets.” US companies cannot perform services “that would benefit the Iranian oil industry.” Violation of the order can result in fines of as much as $500,000 for companies and up to 10 years in jail for individuals

<>1995:Dick Cheney replaced Thomas H. Cruikshank as Halliburton chairman and CEO
*--Halliburton was a significant defense contractor throughout the Balkan Wars which NATO waged against Yugoslavia. The Clinton administration encouraged and supported Halliburton in this role

<>1995:2002; Over a seven-year period, Halliburton Brown and Root Services Corp was awarded at least $2.5 billion to construct and run military bases as part of the Army's Logistics Civil Augmentation Program [LOGCAP]. This contract was a cost plus 13% contract and BRS employees were trained on how to pass GAO audits to ensure maximum profits were attained

<>1998:Halliburton CEO Dick Cheney arranged for Dresser Industries [ID] to merger with the larger Halliburton. At this time Dresser was directed by Prescott Bush [ID]. The deal included the Kellogg company

<>2001fe01:Dow Jones, “Halliburton Connected to Office in Tehran” [Source] =

Halliburton Co. [...] has opened an office in Tehran and operated in Iran in possible violation of U.S. sanctions, Thursday's Wall Street Journal reported.

Since 1995, U.S. laws have banned most American commerce with Iran [ID]. Halliburton Products and Services Ltd. works behind an unmarked door on the ninth floor of a new north Tehran tower block. A brochure declares that the company was registered in 1975 in the Cayman Islands, is based in the Persian Gulf sheikdom of Dubai and is 'non-American.' But, like the sign over the receptionist's head, the brochure bears the Dallas company's name and red emblem, and offers services from Halliburton units around the world.

[...]

Halliburton spokeswoman Wendy Hall said [...] “This is not breaking any laws [...]. This is a foreign subsidiary and no U.S. person is involved in this. No U.S. person is facilitating any transaction. We are not performing directly in that country.” Ms. Hall suggested that other companies were performing in a similar fashion in Iran but did not elaborate. The Halliburton brochure in Tehran says the company has performed oil-drilling services on two offshore drilling contracts in the Iranian sector of the Persian Gulf. One is the Sirri field, being developed by France's TotalFinaElf SA, and the other is Phase 1 of the South Pars field, being developed by an Iranian company. “We are committed to position ourselves in a market that offers huge growth potential,” it says.

<>2001su:YUG Bosnia and Herzegovina | Bunnatine Greenhouse, civilian procurement chief at the Army Corps of Engineers, led a team of Pentagon inspectors sent to Bosnia and Kosovo. The team, she says, found that KBR and its bills were "out of control." The General Accounting Office, now named the Government Accountability Office [GAO], reached similar conclusions, reporting that KBR's Balkans operation was over-equipped and overstaffed to the point where "half of these crews had at least 40 percent of their members not engaged in work." [Source]

<>2002:2004au; Judicial Watch, a public action law firm, filed suit against Halliburton and its management, including the accounting firm Arthur Andersen LLP [ID]. In the end, Halliburton was fined $7.5 million.

<>2002ap:KBR granted $7 million contract to construct Camp X-Ray [ID], a detention or concentration camp
*--This same year, in UT Salt Lake City, the Urban Warfare Center was founded [W]

<>2003my:Mother Jones: Smart, Fearless Journalism, “Soldiers of Good Fortune” detailed privatization of military (e.g., Blackwater and Halliburton), a new form of “Military-Industrial Complex” [TXT]

<>2004su:Vice President Dick Cheney delivered sworn testimony to the Securities and Exchange Commission about 1998 fraudulent accounting practices at Halliburton [W].

<>2004no24:WDC | HalliburtonWatch.org, “FBI interviews Army whistleblower over Halliburton contracts” =

The Federal Bureau of Investigation (FBI) interviewed a senior Army contracting specialist over accusations that Halliburton's KBR subsidiary illegally received military contracts.

The Army specialist, Bunnantine Greenhouse, repeatedly complained to superiors that they were illegally favoring KBR by excluding competitors from bidding on contracts. In particular, she complained about the Army's $7 billion firefighting contract for Iraqi oil wells, which was awarded to KBR without competition in March of last year. The Army claimed that only KBR was qualified to perform the contract since it is the only company suited to extinguish oil well fires. However, critics say the Army is incorrect. [EG]

Greenhouse also said Army officials repeatedly violated regulations designed to shield contract awards from unethical outside influences. At one point, KBR executives were present in a meeting of Army officials who were deliberating whether KBR should be awarded a contract. The executives left the meeting only after Ms. Greenhouse urged them to leave.

"[T]he line between government officials and KBR had become so blurred that a perception of conflict of interest existed," Greenhouse's attorney, Michael Kohn, said in a letter to the acting Secretary of the Army [W]. "Employees of the U.S. government have taken improper action that favored KBR's interests," he said. "This conduct has violated specific regulations and calls into question the independence" of the contracting process.

In an interview with the AP, Kohn said the FBI questioned Ms. Greenhouse about all of her concerns and that "they asked questions regarding potential involvement of people at higher-level positions."

According to the AP: "A legal source familiar with the interview, speaking only on condition of anonymity, said Greenhouse provided the FBI with new information about intervention on one of the Halliburton matters by a senior defense official. The source declined to be more specific, saying the lead was still being pursued by investigators."

FBI agents interviewed Greenhouse for more than eight hours on Nov. 17, and asked questions about who in the Pentagon might have been applying pressure to get business to Halliburton. No White House names were discussed at the meeting.

Greenhouse said the contracting process was so flawed that KBR's Army logistics work in the Balkans was "out of control." Government auditors found KBR had overcharged taxpayers for everything from plywood to cleaning military offices. But Army officials ignored her concerns. Instead, they renewed Halliburton's contract in the Balkans for another five years. Greenhouse said Tina Ballard, deputy assistant Army secretary for policy and procurement, was telephoned during a meeting and ordered to renew the contract for "political reasons."

The FBI also interviewed Greenhouse regarding KBR's contract for importing gasoline from Kuwait to Iraq. Pentagon auditors accused KBR of overcharging by at least $61 million, but Democrats in Congress say the figure is closer to $167 million. The U.S. Justice Department is conducting a criminal investigation into the matter.

Greenhouse blew the whistle last month by disclosing her complaint to Time Magazine.

<>2005no10:WDC |(HalliburtonWatch.org) “Republicans kill amendment to investigate Halliburton contract abuse; pledge hearings in December” =

Although Senate Republicans killed an amendment that would have established a special investigation into war profiteering by Halliburton and other companies by a vote of 53 to 44 today, they have pledged to investigate Halliburton before the end of the year.

The amendment, introduced by Senator Byron Dorgan, D-ND, during Senate consideration of the 2006 Defense Authorization bill, would have established a special committee modeled after Senator Harry Truman's World War II committee, which cost just thousands, but saved taxpayers $15 billion in 1940s' dollars. It was the third time in two years that the Senate rejected Dorgan's amendment.

After Dorgan introduced his amendment again yesterday, Sen. John Ensign, R-NV, made a surprise announcement that he would hold formal hearings into Halliburton's contract abuses in Iraq sometime in December. Ensign chairs a subcommittee of the Armed Services Committee -- known as the Subcommittee on Readiness and Management Support [ID].

For two years, the Republican-controlled Senate has resisted public calls for a formal investigation into Halliburton, once headed by Vice President Dick Cheney, even though it is being investigated for numerous violations, including criminal bid-rigging, overcharging of taxpayers, bribery and criminally profiting in a nation believed by President Bush to sponsor terrorism.

Although Republicans maintain that the Special Inspector General for Iraqi Reconstruction [SIGIR] is conducting an investigation, the Senate has failed to provide its own oversight.

The Army Corps of Engineers' top civilian contracting official, Bunnatine H. Greenhouse, was demoted in August after blowing the whistle on the Corps and Halliburton. "I can unequivocally state that the abuse related to contracts awarded to [Halliburton] represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," Greenhouse said.

[...]

The following senators are members of Ensign's subcommittee:

Senator Ensign, Subcommittee Chairman
Senator McCain
Senator Inhofe
Senator Roberts
Senator Sessions
Senator Chambliss
Senator Cornyn
Senator Thune

Senator Akaka, Ranking Member
Senator Byrd
Senator Bill Nelson
Senator Ben Nelson
Senator Dayton
Senator Bayh
Senator Clinton

<>2006ja24:Halliburton’s subsidiary KBR (formerly Kellogg, Brown and Root) announced that it had been awarded a $385 million contingency contract by the Department of Homeland Security to build "temporary detention and processing facilities". Halliburton will team up with the U.S. Army Corps of Engineers, Fort Worth District. Critics point to the Guantanamo Bay detention camp [ID] as a possible model for these detention or concentration camps
*--According to a press release posted on the Halliburton website, “The contract, which is effective immediately, provides for establishing temporary detention and processing capabilities to augment existing Immigration and Customs Enforcement (ICE) Detention and Removal Operations (DRO) Program facilities in the event of an emergency influx of immigrants into the U.S., or to support the rapid development of new programs. The contingency support contract provides for planning and, if required, initiation of specific engineering, construction and logistics support tasks to establish, operate and maintain one or more expansion facilities” [Full TXT].

<>2006jy21:Charlie Cray, ”Halliburton's [...] Good Deal” [Charlie Cray is the director of The Center for Corporate Policy [W] in Washington, D.C., and co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler, 2004) =

Last week, the Army announced with much fanfare that it was canceling the monopoly logistics contract that Halliburton/KBR has used to bilk U.S. taxpayers since the occupation of Iraq began [W]. The contract will be broken up and divided among at least three different companies, but it’s not clear that this will make much difference to taxpayers, or even that Halliburton will stop making a killing.

The new policy is, in effect, tacit recognition of the epidemic of waste, fraud and poor contract oversight that have plagued the Iraq occupation from the start. It vindicates key congressional critics, such as Sen. Byron Dorgan, D-N.D., and Rep. Henry Waxman, D-Calif., whose dogged persistence has exposed a cornucopia of corruption associated with contracts like Halliburton’s. Yet, if the history of the Iraq contracts so far is any indication, that’s about as much as can be read into the policy.

The history of Halliburton’s other major contract in Iraq -- the oil contract -- indicates the need for skepticism. It is well known that Halliburton received its first oil contract (RIO I) as the result of a dubious no-bid contract ordered by top Pentagon officials (including Paul Wolfowitz [ID]) -- a decision that was “coordinated with the vice president’s office,” according to a Pentagon e-mail uncovered by Judicial Watch [TXT].

The rest, as they say, is history. After getting a leg up on all potential competitors, KBR also used its incestuous relationship with the Army Corps of Engineers to extract a second no-bid oil contract (RIO II).

The fix was in, according to the Corps’ top civilian contracting expert, Bunnatine Greenhouse: “I can unequivocally state that the abuse related to contracts awarded to KBR represents the most blatant and improper contract abuse I have witnessed during the course of my professional career” [W].

Greenhouse exposed the collusive relationship at an unofficial congressional hearing held by the Democrats last June (no official committee has yet chosen to invite her to testify), before she was demoted for speaking out.

As was the case with the oil contracts, Halliburton remains eligible to bid for the new logistics contracts in Iraq, despite a horrendous record of dubious cost overruns, waste, employees who took kickbacks, the torching of $85,000 trucks that required only minor repairs, $45 cases of soda, $100 per bag of laundry, and evidence that Halliburton served contaminated water to the troops. All of this and so much more have been uncovered by the Pentagon’s auditors, the Inspector General for Iraq Reconstruction, numerous whistleblowers, Waxman and Dorgan, and plenty of outside investigators, including my colleagues at Halliburton Watch [ID]. The point is that in Halliburton’s case, there is more than enough basis [ID] for suspension or debarment from future contracts.

Yet the fact remains that with weak oversight, it's impossible to imagine anything will change. In fact, it could get worse, especially if the responsibility for oversight itself is outsourced. With the network of contract cronyism and subcontracting ties in Iraq and elsewhere, it will be hard to find any contractor to conduct such oversight that does not have a significant conflict of interest. Waxman, Dorgan and other members have already identified this conflict of interest in other Iraq-related contracts [ID].

Meanwhile, the powerful Republicans who control key committees in Congress have staunchly resisted all calls for in-depth investigations, while rebuffing numerous attempts by Sen. Dorgan to establish a special Senate investigative committee on war profiteering, modeled after a similar committee established by Harry Truman in World War II. The last time Dorgan raised his proposal was in May, when it was shot down in a strict partisan vote.

Leading Senate Democrats, including Dorgan, Durbin, D-Ill., Harry Reid and Pat Leahy have also introduced a comprehensive contracting reform proposal [ID] -— “The Honest Leadership and Accountability in Contracting Act of 2006” (S. 2361) [TXT]. The bill would establish criminal penalties for war profiteering, require that lawbreaking companies be excluded from any new contracts and protect whistleblowers from retaliation, among other provisions. It was brought up for a vote during the Senate’s consideration of the 2007 Defense bill, and similarly shot down by the Republican Congress’ highly-partisan Halliburton protection racket.

The only contract reform bill that continues to survive with bipartisan support is the Federal Funding Accountability and Transparency Act (S. 2590) -- a proposal introduced by Sens. Barack Obama, D-Ill., and Tom Coburn, R-Okla., with support from other Republicans including John McCain. This bill would require the White House Office of Management and Budget (OMB) to create a publicly available database that tracks federal spending as well as the entities that receive federal funds. A useful proposal, but quite modest when measured against the epidemic of contracting abuses.

“We have not done the oversight,” Dorgan suggests. “I think part of it is because we have one-party rule in this town -- the White House and the House and Senate. Nobody wants to embarrass anybody. But the fact is there is such massive amount of money that is going out the door in support of these contracts -- sole-source, no-bid contracts that have promoted waste. And nobody wants to take a second look at it. Nobody wants to see what is going on.”

Because Halliburton remains eligible to bid on any of the new Iraq logistics work, there is every reason to watch for new scams invented to circumvent the Potemkin-like oversight asserted by the Pentagon. For example, when the buzz about breaking up the monopoly contract began last year, Halliburton's CEO David Lesar, a former partner at Arthur Andersen suggested, “If we do choose to rebid, we're going to jack the margins up significantly.” [W]

Another problem with outsourcing oversight is that all kinds of fraud can be hidden under layer after layer of subcontracts, especially when the subcontractors are incorporated in different countries all over the world. It may be difficult for anyone but the best forensic accountant to determine if the other contractors and their subcontractors have no connection to Halliburton. After all, we’re talking about a company experienced at using offshore subsidiaries and tax haven accounts to avoid restrictions on doing business in Iran and who hid a $180 million bribery scheme in Nigeria. Halliburton is a company that knows how to hide its dirty linen from inattentive eyes. Lesar and his colleagues are plenty confident they can continue business as usual despite the stepped up attention.

U.S. taxpayers, at least, deserve better. If the congressional protection racket that surrounds Halliburton is willing to play hardball, then Democrats should up the ante. Rather than conceding defeat, they should push for tougher reforms to demonstrate what a difference a midterm election can make. As leverage they should continue to expose the culture of corruption that has gutted all kinds of enforcement standards and procurement policies that are merely sweetheart deals and just plain giveaways to former government workers turned kleptocratic contractors.

<>2006se26:WDC | HalliburtonWatch.org | Halliburton paid $4 million to politicians for 600% gain on contracts since 2000 | Halliburton spent $4.6 million since 2000 buying influence in Washington via campaign donations and lobbying, a HalliburtonWatch analysis reveals.

The board of directors and their spouses personally gave $828,701 to candidates for Congress and the presidency while Halliburton's political action committees gave $1.2 million, most of it donated to Republicans and political organizations with strong Republican ties.

The company spent an additional $2.6 million lobbying members of Congress, the White House and federal agencies.

Conclusion: Halliburton's $4.6 million in political arm-twisting since 2000 has paid-off magnificently as the company's government contracts ballooned by over 600 percent in value by the end of 2005, mostly because of the war in Iraq. [W]

In 2000, Halliburton was the 20th largest federal contractor, receiving $763 million in federal contracts [W]. By 2005, Halliburton had grown to become the 6th largest federal contractor, receiving nearly $6 billion in federal contracts during that year.

Between March 2003 and June 30, 2006, Halliburton received $18.5 billion in revenue from the federal government for the war in Iraq.

The company has seen its profits in government contracting almost quadruple to $330 million in 2005 compared to $84 million in 2004.

During one quarter in 2005, Halliburton's war profits skyrocketed by 284 percent. [W]

War contracts, intensified violence in the Middle East and record oil prices helped quadruple the stock price between the March 2003 invasion of Iraq and March 2006. As a result, the board of directors together saw the value of their stock holdings in the company increase by over $100 million.

CEO David Lesar holds the largest number of shares of any Halliburton official, owning 844,928 common shares and share options as of March 1, 2006. The shares were worth $17.3 million as the troops first rolled into Baghdad in 2003. Three years later, on April 10, 2006, the shares were worth $66.8 million, for a $49.5 million gain. Lesar sold an additional 631,071 shares during the war at various stock prices for gross amounts totaling between $12.9 million on March 20, 2003, and $49.9 million on March 1, 2006. [W]

<>2006oc25:Washington Post | Griff Witte (staff writer), “Halliburton Cited For Iraq Overhead: Costs in Oil Contract Called Extreme” | Administrative overhead accounted for more than half the costs that a Halliburton Co. subsidiary passed on to the government under a key contract to restore Iraq's oil industry, a figure that critics said was unusually high.

A report released yesterday by the inspector general's office overseeing Iraq spending found that at least 55 percent, or $163 million, of $296 million in total costs rung up by Halliburton unit KBR went to expenses such as back-office support, transportation and security. That percentage was significantly higher than it was on work by other firms in Iraq, and experts said it is far above what is typically found on a government contract.

The findings are the latest that call into question KBR's work under the deal, which required the company to rehabilitate oil facilities in southern Iraq. Under the contract's terms, KBR is reimbursed for its costs and then receives a percentage for profit on top, an arrangement that critics contend has given the firm an incentive to run up its bills.

According to internal government documents released in March, auditors found that the company had repeatedly overcharged the government by, among other things, billing for work it didn't actually do and paying suppliers more than they were owed. Meanwhile, work schedules slid and company officials balked at requests for accurate cost estimates. At one point, officials threatened to terminate the deal. Instead, KBR -- which has received more money from the Iraq war effort than any other firm -- was allowed to keep the contract and is now winding up work.

In a statement, Halliburton spokeswoman Melissa Norcross defended the company's administrative spending. "All of these costs were incurred at the client's direction and for the client's benefit, and they have been extensively audited and deemed allowable and legitimate," she said.

The Army Corps of Engineers -- which oversaw the contracts -- acknowledged that some of the administrative costs were high. But in a response to the inspector general's findings, the Corps argued that important work was getting done even when money was being spent on administrative matters rather than directly on Corps projects.

In government contracting, administrative rates can vary widely depending on the kind of work being done and on the circumstances.

Work in Iraq, for instance, often involves high security costs that inflate overhead.

Yesterday's report by the special inspector general for Iraq reconstruction [SIGIR] does not directly say whether KBR's overhead costs were excessive. But it does offer a more comprehensive look than was previously available at where the money has gone on the firm's oil contract, as well as on deals involving other companies to construct hospitals and schools. In many cases, contractors have failed to meet expectations, leaving the job of rebuilding critical services in Iraq to the Iraqis.

The United States has devoted more than $20 billion to rehabilitate Iraq, but critics contend that much of the money has been wasted as contractors used the government's checkbook to spend lavishly on hotels, food and employee salaries. Halliburton has come under particularly intense scrutiny because of the volume of work it has done in Iraq and because Vice President Cheney was once the firm's chief executive.

"Halliburton was given a blank check by the Bush Administration and the Republican Congress did nothing to stop the hemorrhaging of taxpayer dollars," said Rep. Henry A. Waxman (D-Calif.), a frequent Halliburton critic, in a statement.

Yesterday's report cites one contract in Iraq that had administrative rates of between 2.3 percent and 17 percent. Of the five contracts that auditors reviewed in depth, rates ranged from a high of 55 percent for the KBR deal to a low of 11 percent. The report cautions, however, that all of the estimates may be too low because of the way they were tabulated.

KBR's "rates are high," said Scott Amey, general counsel of the watchdog group Project on Government Oversight. "They would send up a red flag for me." But Amey said it would take a more thorough review of exactly where the money went to know how much was wasted.

In addition to noting KBR's overhead costs generally, the report focuses on a nine-month stretch between February 2004 -- when KBR was directed by the government to gear up for work -- and November 2004, when substantial work actually began. During that period, KBR spent $53 million on overhead and $13 million on direct project costs.

Report authors said that was due to "poor planning" by the government, which had asked the company to mobilize before key decisions had been made about which projects would be funded.

Halliburton stock jumped $1.58 yesterday, to close at $30.84 after news that the company had beaten Wall Street's expectations for third-quarter revenue and profit.

Halliburton had previously announced that it garnered $611 million in profit last quarter, up from $499 million in the comparable quarter last year.

KBR took in $1.2 billion in revenue for the quarter from Iraq-related work, though the company said the profit margin on that work was just 3.7 percent before corporate expenses and taxes.

Halliburton, which does most of its work in energy services, filed documents yesterday with federal regulators to spin off a portion of KBR as a public company.

Halliburton officials have said in the past that the unit is a drag on the parent company's earnings and share price.

<>2006no:USA mid-term elections brought Democratic Party majorities to House of Representatives and Senate. Three months later =

<>2007fe26:Halliburton press release announced total liquidation of its KBR assets [TXT] *--Then three weeks later =

<>2007mr12:WDC | CBS/AP =

U.S. oil services firm Halliburton Co. was shifting its corporate headquarters and chief executive from Houston to Dubai [ID#1 | ID#2] in a move that immediately sparked criticism from U.S. members of Congress.

Halliburton Chief Executive Dave Lesar, speaking at an energy conference in nearby Bahrain, said he will relocate to Dubai from Texas to oversee Halliburton's intensified focus on business in the Mideast and energy-hungry Asia, home to some of the world's most important oil and gas markets.

"Halliburton is opening its corporate headquarters in Dubai while maintaining a corporate office in Houston," spokeswoman Cathy Mann said. "The chairman, president and CEO will office from and be based in Dubai to run the company from the UAE."

Sen. Patrick Leahy, D-Vt., called the decision to move as "an example of corporate greed at its worst."

"This is an insult to the U.S. soldiers and taxpayers who paid the tab for their no-bid contracts and endured their overcharges for all these years," Leahy said in a statement.

"At the same time they'll be avoiding U.S. taxes, I'm sure they won't stop insisting on taking their profits in cold hard U.S. cash," Leahy said.

Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee, is already planning a hearing on Halliburton's move, Time Magazine reports online.

Lesar's announcement appears to signal one of the highest-profile moves by a U.S. corporate leader to Dubai.

"As the CEO, I'm responsible for the global business of Halliburton in both hemispheres, and I will continue to spend quite a bit of time in an airplane as I remain attentive to our customers, shareholders and employees around the world," Lesar said. "Yes, I will spend the majority of my time in Dubai."

Dubai is an Arab boomtown, where free-market capitalism has been paired with some of the world's most liberal tax, investment and residency laws.

"The Eastern Hemisphere is a market that is more heavily weighted toward oil exploration and production opportunities and growing our business here will bring more balance to Halliburton's overall portfolio," Lesar said.

In 2006, Halliburton — once headed by Vice President Dick Cheney — earned profits of $2.3 billion on revenues of $22.6 billion.

More than 38 percent of Halliburton's $13 billion oil field services revenue last year stemmed from sources in the Eastern Hemisphere, where the firm has 16,000 of its 45,000 employees.

Cheney was Halliburton's chief executive from 1995-2000, and the Bush administration has been accused of favoring the conglomerate with lucrative no-bid contracts in Iraq.

Federal investigators last month alleged Halliburton was responsible for $2.7 billion of the $10 billion in contractor waste and overcharging in Iraq.

Halliburton last month announced a 40-percent decline in fourth-quarter profit, despite heavy demand for its oil field equipment and personnel.

<>2007mr12:WDC | Halliburton.Watch.org report =

With various ongoing investigations, Halliburton's sale of KBR and the move to UAE [United Arab Emirates] are tantamount to fleeing the scene of a crime,” said Jim Donahue, co-director of Halliburton Watch, in response to the company’s announcement today that it will move its headquarters to Dubai, UAE.

Halliburton is moving to UAE at a time when it is being investigated in the U.S. for bribery, [W], bid rigging [W], defrauding the military [W] and illegally profiting in Iran [W]. It is currently in the process of divesting all of its ownership interest in the scandal-plagued KBR subsidiary [W], notorious for overcharging the military and serving contaminated food and water to the troops in Iraq [W] .

Although Halliburton will still be incorporated inside the United States, moving its corporate headquarters to UAE will make it easier to avoid accountability from federal investigators. The company has proven adept at using offshore subsidiaries [W] to circumvent restrictions on doing business in Iran [W] and to elude responsibility for paying benefits to former employees.

Halliburton has also used its operational structure for contracts in Iraq and post-Katrina -- especially multiple layers of subcontractors -- to elude oversight and accountability to taxpayers.

Moving to UAE may also hinder ongoing government investigations into Halliburton's alleged bribes paid to the government of Nigeria. CEO David Lesar, a former accountant who is presumably very adept at structural finance, supervised former KBR chairman Albert "Jack" Stanley during the time when KBR is alleged to have bribed Nigerian government officials. Stanley was subsequently fired after allegedly receiving $5 million in "improper" payments related the bribery scheme. Lesar, who was president and chief operating officer at the time, reported directly to then CEO Dick Cheney. According to the Dallas Morning News, "Mr. Cheney ran Halliburton when one of four suspicious payments occurred." (Dallas Morning News, Sept. 8, 2004.)

The United States has no extradition treaty with the UAE.

“Given the multiple ongoing investigations into Halliburton's alleged wrongdoing, policymakers should closely scrutinize Halliburton's latest move, and whether it will allow the company to further elude accountability,” said Charlie Cray, co-director of Halliburton Watch and director of the Center for Corporate Policy [ID]. “Moreover, this underscores the need for Congress to bar companies that have broken the law, or avoided paying taxes, from receiving federal contracts.”

Sarah Anderson of the Institute for Policy Studies notes that most Fortune 500 companies have global operations, so that moving an entire headquarters to another country is not necessary. “With today's technologies, there's no real reason to have to physically relocate,” she said. “Those that have are trying to evade U.S. oversight and tax authorities. And Dubai is a tax-free haven –- no corporate or employee taxes. Halliburton claims this is not a big deal, but I can’t imagine Lesar will be working over there alone in a little cubicle. This will be a much-expanded operation in Dubai.”

“Despite the billions in US government contracts Halliburton has received, it has no loyalty or sense of obligation to US troops or taxpayers,” she said, adding, “I find it ironic that Lesar is going to the same place as one of the only other individuals who's received even more bad publicity in recent years -- Michael Jackson.”

Martin Sullivan, contributing editor at the nonpartisan Tax Notes magazine, said relocating to the no-tax jurisdiction of Dubai would change Halliburton's tax situation "significantly" even though the company would still be registered in the US. By re-locating its CEO and other top executives to Dubai, Halliburton can argue that a portion of its profits should be attributed to the no-tax jurisdiction, he said. [W]

Halliburton earned a record $2.3 billion in profit last year. That's almost equal to the $2.7 billion the Pentagon found in the company's overcharges in Iraq.

Members of Congress have called for an investigation. Sen. Byron Dorgan (D-ND) said, “I want to know, is Halliburton trying to run away from bad publicity on their contracts? Are they trying to run away from the obligation to pay US taxes? Or are they trying to set up a corporate presence in Dubai so that they can avoid the restrictions that currently exist on doing business with prohibited countries like Iran?”

Sen. Patrick Leahy (D-VT) said, “This is an insult to the US soldiers and taxpayers who paid the tab for their no-bid contracts and endured their overcharges for all these years.”

Rep. Henry Waxman, chairman of the powerful House Committee on Oversight and Government Reform, has promised hearings into the matter. "I want to understand the ramifications for U.S. taxpayers and national security," he said. [W]

More Information =

Senator calls on Treasury to investigate if Halliburton move linked to Iran [source]

<>2007mr14:WDC | HalliburtonWatch.org, “Dubai 'ecstatic' about Halliburton's move” =

Dubai's business community is ecstatic about Halliburton's announcement that it will move its headquarters to the city known for its lax or non-existent restrictions on corporations. "I'm sure everyone in Dubai, especially the government of Dubai, is ecstatic," Yusef Ibrahim, managing director for the Strategic Energy Investment Group (SEIG) [ID], told WBUR Radio's On Point program [TXT]. SEIG's clients include some of the best-known Western corporations with business in Dubai, including Exxon Mobil, British Petroleum, Norway's Statoil, France's Totalfinaelf and JP Morgan.

Referring to Halliburton's move, Ibrahim made the following observations on the On Point program:

"I think they are rushing toward what I would call a 'comfort zone.' Dubai is a 'comfort zone' because what many people here, for example, in the United States would consider 'corruption' is not necessarily considered a vice in a place like Dubai. It's a very free-wheeling atmosphere where all kinds of businessmen come and they don't expect too many questions to be asked. Don't forget that Dubai from its inception was conceived as a place where you can -- how shall we say -- go around the rules. Dubai started out as a place from which you smuggled gold to India and the subcontinent. And then it evolved. And today it's still considered the largest spot on the earth where you launder money. All the Russian moguls came there. I don't mean that it's a place that spends all its time doing things that are irregular, but basically it prefers to let people work under soft light rather than under spotlights."

"Halliburton is a known quantity. ... It works in areas and with countries that deal in oil and weapons. Halliburton has worked with Iran in the past -- directly and indirectly. The Middle East is an area where you need some ambiguity when it comes to things like paying commissions. Other people would call it "bribes." But this is the way business is done out there. You can't be constantly scrutinized. You can't forget that Halliburton is now under tremendous scrutiny and a number of investigations. Especially KBR. It has had a history that has disturbed some people in Congress...they would feel a lot more comfortable in a place like Dubai."

"Part of this is a campaign of pressure, so that the United States and the SEC ease up on their scrutiny, which has increased tremendously in light of corporate compensation and the amazing packages we've seen in the last few years ... Halliburton is part of a push back from the business community. After all who runs Halliburton? People who think they know better than the average person."

"I don't think Halliburton is doing this because its clients are having a hard time getting to the United States."
\\
*2010au19:NYBooks, "Good-bye Dubai" [TXT]

<>2007je28:Huffington Post | Charlie Cray, “KBR’s Giant New Contract” [W] =

Just days after [??make" LOOP on Bowen] Stewart Bowen, the Special Inspector General [for Iraqi Reconstruction, or SIGIR] released a new report [TXT] which explains how KBR has been gouging taxpayers from inside the Green Zone, the Army announced that the company (which was split off from Halliburton this year) will divvy up another $150 billion with two other contractors -- Fluor and Dyncorp -- over the next ten years [W].

The results of Bowen's audit come as no surprise, because they track the kinds of abuses that whistleblowers and others working for the company and the military have said are quite common. For example, one of Bowen's conclusions is that the company lacks adequate inventory controls, and hasn't kept good track of the fuel it is disbursing.

That problem should remind everyone of the situation that ultimately led the military to cancel a gasoline contract years ago. [W]

In a report on that earlier scam, GAO report found "a pattern of contractor management problems" at KBR, including ineffective planning, a poor materials requisition system and inadequate supervision of subcontractors.

At one point investigators working for Rep. Henry Waxman reported that KBR had charged an extra $165 million to transport the gasoline into Iraq. The situation caused an embarrassed Pentagon's Defense Energy Support Center (DESC) to stop using KBR and take responsibility for its own fuel supply in April 2004. (A year after it lost the contract, KBR reportedly attempted to disrupt fuel deliveries by other subcontractors. [W])

Now, three years later, KBR seems to be up to its old tricks. The "inadequate controls" over the gas inventory provide another opportunity to cook the books and bilk the taxpayers. All from the comfort of the Green Zone.

And who was going to catch them if Bowen didn't conduct the audit?

In its 2004 report, GAO criticized military officials for failing to properly oversee Halliburton's work. GAO reported interviewing military officials who "told us that they knew nothing about LOGCAP before they deployed and had received no training regarding their roles and responsibilities."

But now that they are promising KBR and the other companies another ten years and up to $150 billion worth of contract work, the Army says hold on, it has found a solution: To beef up its ability to provide adequate oversight, it hired ??another contractor.

I.e., because it isn't competent enough to oversee contractors who are being hired to do the work it used to do (that's the whole point of the logistics contract to begin with), the Army has decided to hire a [private] British-American company -- SERCO -- to oversee the three logistics contractors.

If you're beginning to think there's something absurd in all this, you wouldn't be alone. But the Army has apparently anticipated your objections. In section 1.3 of the SERCO contract [... (TXT)] it says, "It is not the intent of this contract to have the contractor perform inherently Governmental functions, or to have the contractor make discretionary decisions for the Government relating to the program or contract support," even though that's essentially what the contract does!

This new arrangement will also make worse one of the big unresolved issues identified by Rep. Waxman and Senator Byron Dorgan over the course of their years of investigations: By adding another layer of contracts, the government has made it all the more difficult for government officials themselves to oversee the actual work.

No company can be expected to provide this kind of accountability -- companies are designed to make money for themselves and their shareholders, not safeguard the taxpayers. The buck ultimately stops somewhere in the Pentagon's chain of command where, instead of overseeing the actual work (keep in mind that KBR has some 200 subcontractors working in Kuwait and Iraq) they will spend increasingly more time evaluating SERCO's work. And even then, SERCO has influence over the process. (See page 31 of SERCO's contract -- "Contractors Self-Assessment")

All of this outsourcing of government functions is part of a broader pattern that started long ago, but is now epidemic in scale, according to Waxman, who recently updated his review of federal contracting during the Bush administration [W].

The report -- Dollars, Not Sense: Government Contracting Under the Bush Administration -- measures the magnitude of this wholesale outsourcing of government.

The figures are staggering:

Between 2000 and 2005, federal procurement spending rose by over 80%, no-bid and other contracts awarded without full and open competition increased by over 100%. The amount raked in by the administration's corporate cronies and other contractors rose from $203.1 billion in 2000 to $412.1 billion in 2006, a new record.

Talk about major major major major opportunities to fleece the taxpayers! [A purposeful reference to Joseph Heller’s classic anti-Military novel with its character Major Major Major [ID]?]

As Waxman reports, the kind of abuses witnessed in Iraq are now ubiquitous across the entire federal government: He identified 189 contracts valued at $1.1 trillion that have been plagued by waste, fraud, abuse, or mismanagement.

Which is why a new example pops up just about every day. On Thursday, for example, Robert O'Harrow reported [in the 2007je27:Washington Post] that a $2 million no-bid contract given by DHS to Booze Allen ballooned to $124 million [TXT].

Like the LOGCAP contract (which Cheney's Pentagon first gave to KBR during the Bush I administration), this one was supposed to save us money. Yet as O'Harrow reports, it turns out that the average annual cost of a contract employee has been $250,000 -- almost twice that of a federal employee, according to an estimate recently cited by the Senate Select Committee on Intelligence.

The conclusion to be drawn is that Bush and Cheney are rapidly transforming the entire government into a turnkey operation run by their corporate cronies. And ten-year contracts like the LOGCAP one given to KBR will ensure that they don't run out during the next two terms (i.e. last until Jeb [Bush] arrives?).

The outsourcing of inherently governmental work in recent years has reached an extreme level. And whether it's intelligence operations, running security and background checks, providing contract oversight, processing of FOIA requests, even counting our votes -- the corporatization has gone to ridiculous extremes.

Although doing so may not [be] illegal, per se, it's one of those huge crimes that is so pervasive that it's hard to perceive.

[...]

<>2007oc03:www.cfo.com | Stephen Taub, “Cheney Blamed CFO [Chief Financial Officer] for Halliburton Impropriety” =

Vice President Dick Cheney, in sworn testimony to the Securities and Exchange Commission in 2004, blamed former Halliburton Co. finance executives for questionable accounting practices, and said he had no "specific recollection" of an alleged conversation with the defense contractor's former CFO about the accounting issue.

On Tuesday, in response to a Freedom of Information Act request from Dow Jones, the SEC released the vice president's testimony in the case to the news service.

In his testimony, according to the report, Cheney said he did not remember discussing the accounting with former finance chief Gary Morris — in a conversation that Morris in June 2004 told SEC investigators had taken place six years earlier. According to Dow Jones News Service, Morris had said plans were discussed to treat as revenue some disputed, over-budget expenses. At the time of the alleged discussions, in 1998, Cheney was Halliburton's CEO.

Halliburton booked millions of dollars in construction cost overruns at a construction project in Egypt and in other countries as income, the wire service said. It also said that, according to the SEC, Cheney was not the target of the commission, and that he cooperated fully with the investigation.

The vice president reportedly said in 2004 that the Halliburton chief financial officer was "probably" the person "whose general area of responsibility this fell into."

"I remember the project and the project got into trouble," Cheney told investigators, referring to the Egyptian work, according to the report. "But I don't have any recollection of the revenue recognition or the accounting for the project."

Two days after Cheney testified in 2004, the SEC charged Halliburton, CFO Morris, and one-time controller Robert Muchmore Jr. for failure to disclose a change to its accounting practice.

In May 2007, the SEC dismissed claims against Morris, asserting it was "in the interests of justice" [W]. According to the SEC at the time, Halliburton and Muchmore settled the enforcement actions by agreeing to cease and desist from committing or causing future securities law violations. Halliburton agreed to pay a $7.5 million penalty to settle civil charges for not fully cooperating with the SEC's probe. Muchmore also agreed to pay $50,000.

In the original charges, the SEC alleged that Morris and Muchmore were responsible for hiding a 1998 accounting change that was supposed to be reported in Halliburton's public filings. The failure to disclose the change, for six quarters, caused the company's 1998 and 1999 stated income to be materially misleading. The duo also played key roles in the preparation and review of quarterly earnings releases and analyst teleconference scripts that included the affected income figures, said the SEC at the time.

Dow Jones said this week that Cheney's account differs from testimony by a Halliburton executive whom the SEC didn't identify in its documents. However, citing sources that it did not name, the wire service said that the individual was Morris.

Dow Jones also said that Morris had testified that he told Cheney about plans to treat some disputed, over-budget expenses as revenue.

The conversation between the two executives took place before a 1998 Halliburton board meeting that addressed recording cost overruns for the Egyptian project, according to the wire service report.

<>2007no:Vanity Fair | David Rose (a Vanity Fair contributing editor), “The People vs. the Profiteers” =

Americans working in Iraq for Halliburton spin-off KBR have been outraged by the massive fraud they saw there. Dozens are suing the giant military contractor, on the taxpayers' behalf. Whose side is the Justice Department on?

On first meeting him, one might not suspect Alan Grayson of being a crusader against government-contractor fraud. Six feet four in his socks, he likes to dress flamboyantly, on the theory that items such as pink cowboy boots help retain a jury's attention. He and his Filipino wife, Lolita, chose their palm-fringed mansion in Orlando, Florida, partly because the climate alleviates his chronic asthma, and partly because they wanted their five children to have unlimited access to the area's many theme parks.

Grayson likes theme parks, too. Toward the end of two long days of interviews, he insists we break to visit Universal Studios, because it wouldn't be right for me to leave his adopted city without having sampled the rides. Later he sends me an e-mail earnestly inquiring which one I liked best.

He can be forgiven a little frivolity. In his functional home-office in Orlando, and at the Beltway headquarters of his law firm, Grayson and Kubli, Grayson spends most of his days and many of his evenings on a lonely legal campaign to redress colossal frauds against American taxpayers by private contractors operating in Iraq. He calls it "the crime of the century."

His obvious adversaries are the contracting corporations themselves -- especially Halliburton, the giant oil-services conglomerate where Vice President Dick Cheney spent the latter half of the 1990s as CEO, and its former subsidiary Kellogg, Brown and Root, now known simply as KBR. But he says his efforts to take on those organizations have earned him another enemy: the United States Department of Justice.

Over the past 16 years, Grayson has litigated dozens of cases of contractor fraud. In many of these, he has found the Justice Department to be an ally in exposing wrongdoing. But in cases that involve the Iraq war, the D.O.J. has taken extraordinary steps to stand in his way. Behind its machinations, he believes, is a scandal of epic proportions -- one that may come to haunt the legacy of the Bush administration long after it is gone.

Consider the case of Grayson's client Bud Conyers, a big, bearded 43-year-old who lives with his ex-wife and her nine children, four of them his, in Enid, Oklahoma. Conyers worked in Iraq as a driver for Kellogg, Brown and Root. Spun off by Halliburton as an independent concern in April, KBR is the world's fifth-largest construction company. Before the war started, the Pentagon awarded it two huge contracts: one, now terminated, to restore the Iraqi oil industry, and another, still in effect, to provide a wide array of logistical-support services to the U.S. military.

In the midday heat of June 16, 2003, Conyers was summoned to fix a broken refrigerated truck -- a "reefer," in contractor parlance -- at Log Base Seitz, on the edge of Baghdad's airport. He and his colleagues had barely begun to inspect the sealed trailer when they found themselves reeling from a nauseating stench. The freezer was powered by the engine, and only after they got it running again, several hours later, did they dare open the doors.

The trailer, unit number R-89, had been lying idle for two weeks, Conyers says, in temperatures that daily reached 120 degrees. "Inside, there were 15 human bodies," he recalls. "A lot of liquid stuff had just seeped out. There were body parts on the floor: eyes, fingers. The goo started seeping toward us. Boom! We shut the doors again." The corpses were Iraqis, who had been placed in the truck by a U.S. Army mortuary unit that was operating in the area. That evening, Conyers's colleague Wallace R. Wynia filed an official report: "On account of the heat the bodies were decomposing rapidly.… The inside of the trailer was awful."

It is not unheard of for trucks in a war zone to perform hearse duty. But both civilian and U.S.-military regulations state that once a trailer has been used to store corpses it can never again be loaded with food or drink intended for human consumption. According to the U.S. Army's Center for Health Promotion and Preventive Medicine, "Contact with whole or part human remains carries potential risks associated with pathogenic microbiological organisms that may be present in human blood and tissue." The diseases that may be communicated include aids, hepatitis, tuberculosis, septicemia, meningitis, and Creutzfeldt-Jakob disease, the human variant of mad cow.

But when Bud Conyers next caught sight of trailer R-89, about a month later, it was packed not with human casualties but with bags of ice -- ice that was going into drinks served to American troops. He took photographs, showing the ice bags, the trailer number, and the wooden decking, which appeared to be stained red. Another former KBR employee, James Logsdon, who now works as a police officer near Enid, says he first saw R-89 about a week after Conyers's grisly discovery. "You could still see a little bit of matter from the bodies, stuff that looked kind of pearly, and blood from the stomachs. It hadn't even been hosed down. Afterwards, I saw that truck in the P.W.C. -- the public warehouse center -- several times. There's nothing there except food and ice. It was backed up to a dock, being loaded."

As late as August 31, 11 weeks after trailer R-89 was emptied of the putrefying bodies, a KBR convoy commander named Jeff Allen filed a mission log stating that it had carried 5,000 pounds of ice that day. This ice, Allen wrote, was "bio-contaminated." But to his horror, on that day alone, "approx 1,800 pounds [were] used."

Conyers and Logsdon say that R-89 was not the only truck that was loaded with ice after being used as a mortuary. They attribute this state of affairs to a chronic shortage of trucks brought about by systemic failures in KBR's operation. The firm had purchased some 200 reefers in Iraq, but only a quarter of them worked. "We had crap-assed trucks they'd bought from local dealers," Logsdon says. "Often you'd be driving one they'd pieced together from several just to get it on the road." He and other former KBR workers say that even new vehicles, some of which cost hundreds of thousands of dollars, often broke down because of an absence of affordable spare parts. Instead of paying to repair them, the company often burned disabled trucks in pits or by the side of the road. Conyers tried repeatedly to draw his superiors' attention to these and other alleged abuses, but to no avail. (In an e-mailed statement, KBR denied that it "did or does" order defective vehicles, adding that it disposes of equipment only with "the approval of designated Army personnel.")

Like many of KBR's employees, Conyers was risking his life on the job, which paid about $7,000 a month. He had already lost half a leg in an accident -- coincidentally, while working for Halliburton -- in 1990. Twice, in August and October 2003, his convoy was hit by roadside bombs, and although he was not seriously injured, his prosthetic leg was damaged. A third attack caused swelling and infection, making it impossible to wear the prosthesis. Then, three days after Christmas of 2003, about three months after he'd reported the contaminated ice, he was fired. His superiors accused him of refusing to work, an allegation he denies. Conyers says he had already been warned by KBR management that he was "not a team player," and he believes that the real reason for his dismissal was his refusal to keep quiet. Along with his job went his health insurance. Now confined to a wheelchair, he is still unable to work.

Others in the world of Iraq contracting have fared much better. Halliburton's stock price rose fourfold between the time of the invasion and early 2006, from $10 to $40. And in 2006 alone, according to Forbes, Halliburton CEO David Lesar collected nearly $30 million in compensation.

In the fall of 2006, Conyers [an ex-employee of KBR] told me he was planning to file a lawsuit against KBR under the False Claims Act, a law crafted by Abraham Lincoln to punish war profiteers. Under the act's "qui tam," or whistle-blowing, provisions, anyone who comes across a suspected fraud can file a suit on taxpayers' behalf. ("Qui tam" is an abbreviation of a Latin phrase that means "He who sues for the king as well as for himself.") If the government -- in the shape of the Department of Justice -- decides that the case has merit, it "intervenes," adopting the suit as its own and bearing its costs. The original whistle-blower will get a proportion (usually about 18 percent) of the damages, which can be considerable: when qui tam cases succeed, contractors have to pay back three times as much as they stole.

A suit ordinarily remains sealed for 60 days while the D.O.J. makes up its mind about whether or not to proceed. During this period, anyone who divulged the suit's contents -- plaintiff, lawyer, or journalist -- would risk prosecution, fines, and imprisonment. According to court precedents, a violation of the seal might also cause the case in question to collapse. But when the seal expires, the lawsuit's contents are made public -- whether the D.O.J. intervenes or not.

We must assume that Conyers did file his suit, because he now says he's unable to talk at all about his experiences with KBR in Iraq. This is presumably because the case remains under seal, though neither he nor Grayson can confirm even that. The seal is, in effect, a sweeping gag order, preventing them or anyone else from discussing the case in any way. Vanity Fair is able to publish Conyers's story only because he told it before any gag was imposed, to a writer for Hustler magazine, and to me. If he spoke about his allegations now, he could go to jail.

So far, Alan Grayson estimates, his efforts to pursue qui tam cases against contractors in Iraq have cost him about $10 million. The severe terms of the False Claims Act mean that he cannot even reveal how many fraud whistle-blowers he represents, but there are dozens. Stuart Bowen is the special inspector general for Iraqi reconstruction (SIGIR), a unique watchdog whose office reports to both the Pentagon and State Department. He reported last year that his office knew of 79 suppressed qui tam cases, some of which have multiple plaintiffs. As of August, 66 are still under seal. There may be many more. (KBR refuses to say how many qui tam cases have been filed against it.)

If some of Grayson's clients win their cases, he could see a return on his investment, in the shape of reimbursed costs and a percentage of any damages. There is also the possibility that he won't see a dime. Fortunately for him, he doesn't need the money. In 1990 he launched a telecommunications company and installed its switching system in a bathroom above a New York funeral home. It grew to become IDT, the world's largest calling-card corporation, nearly half of which was sold in 1998 to AT&T for $1 billion. More recently, Grayson has realized impressive returns in far-flung locations: he is, for example, the third-largest shareholder in Kentucky Fried Chicken Indonesia. "I made all this money in my spare time," he says with a shrug. "I don't quite know how it happens. I'm like Dustin Hoffman in Rain Man."

He certainly didn't start with much. Born in 1958, he grew up in the Bronx in a 21st-floor apartment next to an elevated train. His father was the principal of an elementary school where a third-grader once threatened him with a knife. Grayson's mother spent much of her time attending to her son's asthma. "I had a lot of trouble breathing, and needed special injections four times a week," he remembers. "Each time, she had to take me to the hospital. She also made huge efforts to ensure I got a good education."

Those efforts paid off. Admitted as a student at the highly selective Bronx High School of Science, Grayson went on to Harvard and then Harvard Law School. (While still a law student, he somehow managed to obtain a master's degree in public policy and to pass the exam for a Ph.D. in government.) But his struggles weren't over yet. A brief first marriage left him so broke that he once found himself locked out of the motel room where he'd been living.

In 1984, he got a job as a clerk for the D.C. federal appeals court, where he worked for future Supreme Court justices Antonin Scalia and Ruth Bader Ginsburg. The following year, he joined Ginsburg's husband, Marty, at his renowned Washington law firm, Fried, Frank, Harris, Shriver and Jacobson. "There," Grayson says, "I learned the smallest details of the law that applies to government contracting." The Federal Acquisition Regulation, 600 small-type pages of rules governing every aspect of commercial relationships between the U.S. government and private business, became his bible.

A cynic might argue that Grayson is hoping for political dividends from his Iraq-fraud campaign. He mounted a run for Congress last year in his local Florida district and, after joining the race very late, came within 2,000 votes of winning the Democratic primary. But he maintains that his emergence as a whistle-blowers' white knight was anything but calculated.

He had, he says, handled a "trickle" of qui tam cases for years, representing both whistle-blowers and contractors. Many of those cases were swiftly adopted by the D.O.J. But when the Bush administration came to power and the "war on terror" began, he quickly came to realize that the scale of fraud spawned in its wake was of a different order of magnitude. More and more would-be plaintiffs began to contact his firm after hearing about it on the informal whistle-blowers' grapevine or through nonprofit organizations such as Taxpayers Against Fraud and the Project on Government Oversight, both based in D.C. "I certainly could be doing a lot of different things in my life," says Grayson. "It's possible that when all is said and done on these cases I will have lost a substantial amount of money. I'm O.K. with that. Some things you do because they're really worthwhile and important."

It is perfectly normal, Grayson says, for the D.O.J. to seek to extend the seal on a qui tam suit for 6 or 12 months while it carries out investigations. But with many of the Iraq cases it has gone back to court time and again, successfully asking judges for extension after extension. As a result, even many suits first filed in 2003 and 2004 remain entirely secret.

"What you have here is a uniform practice that goes across an entire class of cases, something I've never seen before," says Grayson. "They're being treated in a fundamentally different way from normal cases that don't involve fraud in Iraq. They're being bottled up indefinitely."

In fiscal year 2006, according to Taxpayers Against Fraud, the D.O.J. won damages in 95 separate qui tam cases in fields ranging from Medicare to homeland security, recovering a total of almost $3.2 billion. Yet not a cent of this sum arose from suits against contracting firms in Iraq. In four years, the total False Claims Act damages from Iraq amount to just $14 million, the result of four cases that were settled out of court, according to the D.O.J.

Nine other cases have been unsealed, but the D.O.J. decided not to intervene in any of them. Five promptly collapsed, because neither the whistle-blowers nor their lawyers were prepared to bear what might have been huge costs. That leaves four suits that are being fought in public, all by Alan Grayson.

Given that the same lawyers who are suppressing the Iraq cases continue to be cooperative on other matters, Grayson suspects that they are following orders from on high. Would it be so outlandish, he wonders, to suggest that the same Justice Department that has been accused of firing U.S. attorneys for political reasons might be suppressing war-related fraud claims for political purposes?

One such purpose might be to shield from view the monumental scale of U.S. military contracting in Iraq and elsewhere, and the size of the flaws associated with it. The Department of Defense is easily the biggest federal agency, with a budget that has ballooned more than 90 percent since 2000, to about $460 billion this year. Much of that increase has been spent on private contracting, which rose from $106 billion in 2000 to $297 billion in 2006.

KBR's Iraq logistics contract was awarded in December 2001, almost a year and a half before the war started. By August 2007 the company had received about $25 billion from the D.O.D., and the funds continue to roll in at a rate of more than $400 million a month. KBR builds America's bases and trucks in soldiers' food, cooks their meals, washes their laundry, and provides their gyms and Internet connections. When the Pentagon decided to outsource the repair of military communications equipment, this too was assigned to KBR. Soon, as Grayson points out, there will be no one left in the U.S. Army who knows how to fix a radio. This profound shift of duties from the military to private companies was supposed to save the government money, and it is an uncomfortable political fact that it has instead triggered a free-for-all of fraud and waste.

At the same time, the Bush administration has special sensitivities to claims concerning KBR and its former parent company, Halliburton. Dick Cheney's deep connection with the firm is well established. It is less widely known that former attorney general Alberto Gonzales, the Cabinet member who headed the Justice Department until August, when he was forced to resign, also has long-standing links with both Halliburton and its legal counsel, the venerable Texas firm of Vinson and Elkins.

Grayson says that all the qui tam suits he has filed against Halliburton and KBR have been defended by attorneys from V&E. In 1982 it was V&E that gave Gonzales his first job as a lawyer. Nine years later he became one of the firm's first minority partners -- a promotion that his biographer Bill Minutaglio would single out as "the defining moment of his life." In 2000, Gonzales amassed a record $843,680 war chest to finance a race for the Texas Supreme Court, even though he had no Democratic opponent. V&E, which had already represented Halliburton for many years, was the source of his biggest donation -- almost $30,000. Halliburton executives also stepped up, with a gift of $3,000.

The Justice Department declined to answer detailed questions about the qui tam cases, saying, "We cannot comment on the number of cases that are under investigation or under seal." In an e-mail, a spokesman wrote, "We do not agree with any statement that might suggest that the Department is not giving these cases due consideration for political or other improper reasons, and there is no support for such a conclusion." The cases, he added, "arise from allegations of fraud in a war zone, where acquiring evidence is necessarily more time consuming and complex."

Whatever the government's reason for keeping the qui tam cases under seal, its secrecy has so far obscured the true picture of alleged fraud in Iraq. For now, only slivers of the whole are visible -- thanks to the handful of cases that have been opened to scrutiny.

"In my mind, one of the basic reasons, maybe even the basic reason, why the war has gone badly is war profiteering," says Grayson. "You could say that the only people who have benefited from the invasion of Iraq are al-Qaeda, Iran, and Halliburton. America has spent so much money that we literally could have hired every single adult Iraqi and it would have cost less than what it has cost to conduct this war through U.S. military forces and contractors."

In Grayson's view, a nightmare combination of jacked-up bids, waste, kickbacks, and inflated subcontracts means that as much as half the value of every contract he has seen "ends up being fraudulent in one way or another." He adds, "Cumulatively, the amount that's been spent on contractors in the four-plus years of the war is now over $100 billion. Pick any number between 10 percent and 50 percent -- I don't think you can seriously argue that the scale of the fraud is less than 10 percent. Either way, you're talking cumulatively about something between $10 and $50 billion."

Indeed, in February, the House Committee on Oversight and Government Reform got the news from Pentagon auditors that contractors in Iraq had claimed at least $10 billion -- three times more than previous official estimates -- in expenditures that were either unreasonably high or unsupported by proper documentation. Of this amount, $2.7 billion had been billed to the government by KBR.

KBR's current military-support contract is known as the Logistics Civil Augmentation Program, or LOGCAP. This is the contract's third incarnation, and, like its predecessors, LOGCAP 3 is a "cost-plus" contract: whatever KBR spends, the government agrees to reimburse, with the addition of a fee of about 3 percent. The more the company spends, the more it makes, so it pays to be profligate. All the former employees I spoke to told of KBR's over-ordering equipment such as computers, generators, and vehicles on an epic scale. Millions of dollars' worth of equipment was left to rot in yards in the desert.

LOGCAP is also an "indefinite-delivery, indefinite-quantity" contract, which means that the Pentagon can go on commissioning whatever it wants from KBR whenever it wants. Instead of being subject to competitive bids, fresh items can be added to the contract at will: all officials have to do is issue a "task order." These can be worth hundreds of millions of dollars -- even billions, in the case of Task Order 59, which put KBR in charge of supporting the 130,000 U.S. troops in Iraq.

The first LOGCAP contract dates back to 1992, when Secretary of Defense Dick Cheney paid Brown and Root, as KBR was then known, to devise a contract for providing overseas support services to the military. Under federal law, a firm that designs a contract is prohibited from bidding for it, but this regulation was ignored, and B&R bid for and won LOGCAP 1. (More than a decade later, the rules were breached again when Halliburton designed and then won the $2 billion contract to restore Iraq's oil industry.) Three years after LOGCAP 1 was awarded, Cheney, who had no business experience, became CEO of B&R's parent company, Halliburton, where he would collect some $44 million in earnings.

LOGCAP 1 expired in 1997 [early in President Bill Clinton’s second term], and Halliburton lost its bid for LOGCAP 2 to DynCorp. By this time, however, B&R was so deeply embedded in Bosnia and Kosovo [??ID], where U.S. forces were then concentrated, that the region was exempted from LOGCAP 2 altogether. DynCorp was left fuming on the sidelines while Halliburton remained in the Balkans, reaping a harvest that eventually reached $2.2 billion.

In the April 2005 issue of this magazine [Vanity Fair], Michael Shnayerson wrote about Bunnatine Greenhouse, a former civilian procurement chief at the Army Corps of Engineers. Greenhouse had been demoted after protesting the decision to give Halliburton the Iraqi-oil-industry contract. In the summer of 2001, she had led a team of Pentagon inspectors sent to Bosnia and Kosovo. The team, she says, found that KBR and its bills were "out of control." The General Accounting Office, now named the Government Accountability Office [GAO], reached similar conclusions, reporting that KBR's Balkans operation was over-equipped and overstaffed to the point where "half of these crews had at least 40 percent of their members not engaged in work."

Verdicts such as these should have been devastating, especially since they were delivered in the fall of 2001, when the Pentagon was about to decide which of several rival corporations should be awarded the new LOGCAP 3. The contract promised to be extremely lucrative: after 9/11, war was looming, and big foreign deployments seemed inevitable. Somehow, KBR's record of wasting government money was overlooked.

One reason may have been KBR's shrewd strategy of employing former government regulators. Tom Quigley, Bunny Greenhouse's predecessor as civilian procurement chief of the Army Corps of Engineers, went on to become KBR's LOGCAP procurement director in Iraq. Still more senior was Chuck Dominy, who had been a three-star general with the Army Corps when Cheney hired him, at Halliburton, in 1996. When it came time to award LOGCAP 3, Dominy was Halliburton's vice president for government affairs and chief Washington lobbyist. (KBR denies courting government favor through its hiring practices.)

Although Cheney was by then vice president, he still owned substantial stock options and was receiving deferred salary payments from Halliburton, which have totaled more than $946,000 during his first five years in office. To date, no hard evidence has surfaced to suggest that he or his staff was directly involved in awarding LOGCAP 3. However, as Time first reported, an Army Corps internal e-mail states that the firm's Iraqi oil contract was "coordinated with the VP's [vice president's] office."

The upshot was that KBR's past sins were forgiven in 2001. "What is clear is that they took no heed of what I'd been saying about Halliburton in the Balkans," Greenhouse says. "And they should have. Many of the problems that have become apparent with LOGCAP in Iraq, I had identified years earlier in Kosovo and Bosnia."

And they were apparent almost from the start of the Iraq war. On November 23, 2004, the SIGIR, Stuart Bowen, complained to the Pentagon that it had proved impossible to determine whether KBR was delivering value for money. He wrote in a memo: "The LOGCAP contract was awarded to KBR even though the contractor did not have certified billing or cost and schedule reporting systems." In other words, there was no way to track how money was being spent, and those responsible for awarding the multi-billion-dollar contract hadn't seemed to care.

In the early years of his career, [attorney] Alan Grayson spent most of his time representing military contractors. "It was the most heavily regulated business in existence anywhere in the world, and the result of that was that it was clean," he says. "There was a tremendous bureaucracy that existed to make sure that contractors stuck to the rules, and also to punish those who did not stick to the rules very severely." In one famous case, he recalls, a uniform manufacturer that had made hundreds of thousands of military garments was investigated because he asked his workers to sew one dress as a gift for his daughter.

Today, such stringency is unthinkable. "What has happened is a systematic dismantling of the protections that kept the system honest," says Grayson. Between 1991 and 2005 [the Clinton and early G.W. Bush terms], the size of the staff responsible for managing and auditing Pentagon contracts was cut in half. "What we have seen in recent years is an explosion in contracting, while at the same point in time we have seen a contraction of those engaged in oversight of contracting matters," says Comptroller General David M. Walker, the head of the GAO. This, he says, serves "to exacerbate the systemic problems that have existed for years."

GAO reports on contracting in Iraq describe a state of affairs that borders on the surreal. According to one document, issued in December 2006, the Army Materiel Command -- the division that assigned LOGCAP and is responsible for cutting KBR's checks -- was "unable to readily provide [the GAO] with comprehensive information on the number of contractors they were using at deployed locations or the services those contractors were providing to U.S. forces."

KBR's performance is supposed to be monitored by another part of the Pentagon bureaucracy, the Defense Contract Management Agency. This, says the GAO report, is so short-staffed that one of its officials, who was supposed to be overseeing LOGCAP at 27 separate locations, "told us that he was unable to visit all these locations during his 6-month tour in Iraq." As a result, the GAO remarks dryly, "he could not effectively monitor the contractor's performance at those sites." Then again, at least he got to the Middle East. Other officials from the agency supposedly overseeing KBR in Iraq are based in Germany and the United States.

The D.O.J.'s stifling of fraud claims against the big contracting companies is all the more curious in light of its willingness to prosecute individuals for offenses including bribery and embezzlement. Eight people who worked under LOGCAP are being investigated for such crimes. Two employees of a KBR subcontractor have already pled guilty. In a separate case, a former KBR employee pled guilty in July to participating in a kickback scheme. In August 2007, Bowen reportedly promised that a new task force drawn from several government departments was escalating the fight against fraud and corruption, which he labeled the "second insurgency."

Grayson says that the crackdown on individuals "creates an illusion of activity, but so far they've done nothing against firms such as KBR." When it comes to qui tam cases, he adds, the government isn't just hiding the complaints from view; it also appears to be neglecting its obligation to investigate their claims.

In 2006, Grayson filed the most recent version of a suit on behalf of four former KBR employees: Julie McBride, Linda Warren, Denis Mayer, and Frank Cassaday. Their formal complaint, which was sealed for more than a year, focuses on the fall of 2004, when Marines in Fallujah were daily risking their lives in grim street combat. Meanwhile, KBR managers back at their base outside the city were allegedly telling their staff to record grossly exaggerated numbers of soldiers using the Morale, Welfare, and Recreation (M.W.R.) facility, a two-building complex with a gym, a cinema, a game room, and an Internet café.

"Everyone who came through the doors had to sign in," Warren says, "and that was recorded as a user visit. But if they went from one room to another -- say, from the gym to the Internet area -- that was supposedly another visit; the same if someone put his backpack down in the movie theater, whether he watched the film or not. If someone wanted a bottle of water, or a towel, the same person who'd already been counted would be counted again. Then there were the hourly counts: everyone using the facility was counted once more as if they'd just arrived. You could easily be counted 12 times in two hours."

According to the complaint, the practice of reporting inflated figures "increases the M.W.R. budget in Iraq, allowing for more KBR facilities, administrators, staff and equipment, and boosting KBR's fee." (At a hearing in June, KBR denied basing its M.W.R. billing on the number of reported users.)

The practice, the suit alleges, was not confined to Fallujah -- which might help explain a September 2006 press statement in which KBR boasted of having served "more than 73.5 million patrons in MWR facilities." As the complaint notes, "the number of patrons that KBR says it has hosted at MWR facilities is three times the population of Iraq." Given that Iraqis weren't allowed to use the facilities, it's worth noting that the figure is roughly 565 times the total number of U.S. troops deployed in the country.

Linda Warren, a former Marine who brought up five children as a single mother in Abilene, Texas, says she "flatly refused" to fill in the bogus head counts. She had gone to Iraq for patriotic reasons, and recoiled at being asked to compile inflated records. Once, she says, "I did the head counts accurately. Next day when I got to work I could see that the sheet had been replaced."

She and her colleague Julie McBride, a former attorney from California, both protested to their KBR bosses. Having filed a formal grievance, Warren was accused of "not getting along with employees" and was fired in January 2005. "They made it clear there was no place for me any longer," she says. "There was no appeal, no accountability."

Two months later, the complaint states, McBride was summoned to the office of Kevin Clarke, KBR's top official at Camp Fallujah. Having repeated her concerns about the M.W.R. head count, she was told she was being fired for "insubordination." Among her offenses: occasionally using a pencil instead of a pen to fill in her time sheets. Shipped by helicopter to Camp Victory South, near Baghdad, she was told by Ted Kowalski, KBR's human-resources supervisor in Iraq, that she was under "house arrest." "KBR guards surrounded McBride," says the complaint. "They made her ride with them in a sports utility vehicle. They did not tell McBride where they were taking her. She feared for her safety.… They required her to stay in an isolated trailer, with no amenities. They stood guard outside the trailer throughout the night." Eventually she was escorted to the Baghdad airport and flown back to America.

Warren and Cassaday both say that neither federal agents nor D.O.J. lawyers have ever made any attempt to ask them about the claims in their suit. Mayer wasn't interviewed, either, according to Grayson. "The [D.O.J.] investigation consisted of asking KBR for an explanation," he says. "Then, without checking into its validity, they declined to prosecute. Having spoken to the firm, the government said, 'Okey-dokey, then we decline the case.'" The suit makes three further allegations, involving overpayments that run into the millions, but the D.O.J. didn't investigate them at all.

KBR declined to comment on any aspect of the suit's allegations in its statement. Meanwhile, the Justice Department's summary investigation has left the four plaintiffs in a bind. "The way this normally works, in non-Iraq cases, is that, even when the government does decline to prosecute, they subpoena records, they interview witnesses, and they tell you what they are doing," Grayson says. "We could have built on that. Here, too, they screwed us up and put us at a terrible disadvantage."

Qui tam cases from Iraq are investigated by an F.B.I. unit in Rock Island, Illinois. According to Grayson, the unit has a "standing order" to get approval from the attorneys at Vinson and Elkins before questioning anyone at Halliburton or KBR. "F.B.I. agents are not supposed to politely ask permission," he says. "The most common interview technique by the F.B.I. is a knock on your door at nine o'clock at night. They're not allowed to do that when it comes to Halliburton and KBR employees." (In its e-mailed statement, the D.O.J. said it cannot comment on how any Iraq case has been investigated; Vinson and Elkins did not respond to a request for comment.)

Inflated bills are not the only factor driving up the price of LOGCAP. There's also this astounding fact: according to government auditors, 80 percent of the work under contract is being done not by KBR but by a bewildering array of subcontractors. In essence, Grayson says, LOGCAP is not a contract to provide services but "a contract to shop" -- to the tune of some $20 billion.

Some of these subcontracting firms are large and well-established companies from countries such as Britain, Kuwait, and Saudi Arabia; others are fly-by-night outfits owned by Iraqis who insist on having their names concealed, owing to well-founded fears of reprisal.

In one place the job of laundering soldiers' uniforms, for example, might be performed by a company working directly for KBR. But in another a subcontractor will have sub-subcontracted the work to someone else, and sometimes even sub-sub-sub-subcontracted it. "I've come across examples where you get down four or five levels," says a government auditor who spoke on condition of anonymity. "There's the U.S. prime, the subcontractor from the Middle East, then a sub-subcontractor from Pakistan, then a shell corporation with a box number in Michigan, and finally the Iraqis who're actually doing the work -- for next to nothing."

This system has created great difficulties for anyone attempting to oversee the process on behalf of American taxpayers. It has also substantially increased the overall costs of the war by creating the conditions for obscene markups between contract levels. "There is an enormous need to get a closer handle on the detail in the field," says the auditor. "If you go ask one of the inspectors general, 'Tell me about the subcontracts,' they can't tell you anything. It's a black hole. What this means for oversight, and basic issues of fairness, is that there is none."

Establishing LOGCAP as a contract to shop has had a further consequence. Whereas government contracting is bound by a stringent set of rules, the requirements are far more lax when it is KBR or one of its subcontractors that's farming out work. "The government has basically deputized Halliburton to do its contracting for it," says Grayson. "And Halliburton, rather than enforcing the rules of government contracting that have developed since World War II, has generated its own set of rules."

Instead of offering a given job to bidders in an open and public auction, for instance, KBR can approach a few favored subcontractors. And whereas government agencies tend to favor cheaper bids, the fact that LOGCAP is cost-plus means that KBR benefits from accepting the most expensive offer. The higher the subcontract's cost, the higher KBR's "award fee" profit.

For more than three years after the Iraq invasion, matters were further obscured by KBR's insistence that all its contract data was "proprietary" -- of potential value to competitors and therefore not subject to disclosure. In October 2006 a stinging report by Stuart Bowen, the SIGIR, found that this was making it almost impossible to determine whether LOGCAP was delivering value for money, and was "an abuse of the procurement system." Since the report, says Bowen, KBR has begun to make more information available.

On one occasion, the secrecy engendered by multiple levels of subcontracting descended to black farce. On September 28, 2006, Tina Ballard, the deputy assistant secretary of the army, testified to the House committee on government reform about one of the watershed moments in the developing Iraqi insurgency, the lynching of four security contractors on March 31, 2004. The men were employed by the North Carolina security firm Blackwater USA, and Army Secretary Francis J. Harvey had denied in a letter that they had been doing work for KBR under LOGCAP. That would have been a breach of contract, Ballard told the House committee, since LOGCAP prohibits KBR from billing the government for private security. The company is supposed to rely on U.S. troops for protection.

On February 7, 2007, Ballard came before the committee again to say that her earlier claims, and Harvey's letter, had been mistaken. After "extensive research," the army had ascertained that the murdered Blackwater guards were working for KBR under LOGCAP after all -- though not directly. They had been engaged by the Kuwait-registered Regency Hotel and Hospital Company, which in turn had been subcontracted by ESS Support Services. ESS had a subcontract from KBR to build and operate dining facilities for troops. "We understand that these security costs, which were not itemized in the contracts or invoices, were factored into ESS's labor costs under its service contracts with KBR," Ballard said.

KBR had spent an awful lot on these guards it didn't know it had. Blackwater was paying them $500 a day, but billed their services to Regency at a rate of between $815 and $1,075 a day. Regency was adding a markup of $285 to $425 per guard per day when it in turn billed ESS, bringing the annual cost for each individual to between $401,500 and $547,000 -- about 4 to 10 times higher than an army sergeant's salary. All of this was billed to the government by KBR, which naturally claimed its usual fees on top. (In September, the government of Iraq threatened to expel Blackwater from the country after an incident in which at least eight civilians were killed.)

Before she went to Fallujah, Linda Warren had been supervising a KBR military laundry in Baghdad. She says KBR was billing the government $75 per bag, whereas the Iraqi sub-subcontractor whose staff actually did the work got just $12. The laundry workers themselves, several of whom would be killed by insurgents, were paid just $5 a day.

The dirtiest open secret about contracting in Iraq is that much of the real physical work is done not by Americans but by an army of "third-country nationals" -- or T.C.N.'s -- from places such as India, Nepal, Sri Lanka, and the Philippines. In 2006, a Pentagon investigation found that T.C.N.'s are often subject to abuses, "some of them considered widespread." In addition to "substandard living conditions" and illegal confiscation of their passports, many workers have had to deal with "deceptive" hiring practices -- meaning that they weren't told that their jobs were in Iraq until they'd been shipped there. According to the State Department, T.C.N.'s seeking employment have been forced to pay large "recruitment fees," which are deducted from their future earnings. The effect is to reduce them to a state of "involuntary servitude." (KBR claims to be "an industry leader in implementing a policy in Iraq against trafficking in persons.")

"There were times when their treatment made me ashamed to be an American," says Linda Warren, who became especially close to some Filipino women while posted at Radwaniyah, an installation just outside Baghdad. "They'd come into work with a hard-boiled egg and some tea and offer to share it, while Americans were taking enough to feed five people at the chow halls and throwing most of it away. They were virtually imprisoned, told they would lose all their pay unless they served out their contracts." Several former KBR staff say that the equipment used to protect T.C.N.'s, from blast walls to body armor, was markedly inferior to that of the Americans. As of August, about 1,000 civilian contract workers had been killed in Iraq. Most were T.C.N.'s.

Like many of those who went to work for KBR in Iraq, Barrington Godfrey -- a naturalized U.S. citizen who was born in Wales -- is a military veteran who applied for the job because he wanted to support the war effort. He, too, is a Grayson client, and his suit was kept under seal for well over a year. When the D.O.J. asked for a further extension in April 2007, its lawyers were so confident of their chances that they showed up in court with a drafted legal order marked motion for extension granted ready to be signed. Instead, Judge Gerald Bruce Lee of the Eastern District of Virginia made a show of crossing out granted and inserting the word denied.

Now in his early 60s, Godfrey has 18 years' experience as a contract-management executive in Saudi Arabia's oil industry. When he joined KBR, in the summer of 2004, concerns had already begun to surface in Washington about overcharging from KBR's troop dining facilities -- known in the trade as "D-Facs." Hoping to allay those concerns, KBR set up a "tiger team" -- a group that operated outside the normal chain of command -- and tasked it with negotiating new D-Fac contracts and cleaning up the existing ones. Godfrey was assigned to the unit.

The team's boss, Jill Pettibone, was another beneficiary of KBR's revolving-door relationship with the Pentagon. Until 2000 she had been executive director for operations at the Defense Contract Management Command, which had been responsible for overseeing KBR's very expensive work in the Balkans. (The body has since been renamed the Defense Contract Management Agency.)

Like most service facilities in Iraq, the D-Facs were staffed by T.C.N.'s. They were paid a bit better than the laundry workers observed by Linda Warren. Depending on their skills and seniority, they earned between $300 and $400 a month.

Unlike most qui tam plaintiffs, Godfrey managed to retain documentary records, and they reveal just how huge the margins on subcontracts can be. For example, a Kuwaiti subcontractor named ABC International Group was in charge of providing D-Fac labor at H4, a base near Mosul. Between March and November of 2004, ABC sent KBR monthly bills ranging from $756,000 to $1.38 million. Godfrey discovered that the facility employed precisely 137 people, all of them T.C.N.'s. On the most generous assumption, that they were all making $400 a month, the true amount being paid to the workers was no more than $54,800. The markup, therefore, was between 1,500 and 2,500 percent.

Until February 2004, H4's D-Fac had been staffed by a Turkish company named Serka. Actually, that continued to be the case. The only difference now was that Serka had become a sub-subcontractor to ABC. "All ABC did was take their slice of the profit. There was no change to the operation at all," Godfrey says.

Godfrey's documents show that margins well in excess of 1,000 percent were to be found at other D-Facs, which Grayson says is unexceptional among contractors in Iraq. "A thousand percent is common, 500 percent routine. I have never seen a markup of less than 100 percent." Back in the U.S., "the average markup under government contracts is 10 percent, and anything more than 12 percent will usually be rejected when the government conducts audits. If your profit margin on a government contract conducted outside Iraq is more than 10 percent, you may well be accused of committing fraud."

Huge labor markups were not the only irregularities Godfrey says he found in the ABC invoices he processed. He also came across blatant accounting inflation of the kind Linda Warren had seen in Fallujah. According to his qui tam complaint, there was a period in 2004 when the D-Fac at H4 was serving 1,000 to 2,000 people a day but billing as if there were 5,400: "At three meals a day, this was billing for almost 10,000 meals a day that were not served at H4."

Godfrey made repeated attempts to force ABC to reduce its bills. All of them, he says, were blocked inside KBR. That December, Godfrey went on leave. When he came back, his cell phone and computer had been stolen. Meanwhile, ABC's CEO was writing to Tom Quigley, the KBR chief of Iraq contracts, who had once been Bunnatine Greenhouse's colleague at the Army Corps of Engineers, claiming that Godfrey was "treating ABC unfairly." Godfrey was suspended for 10 days and told by another KBR executive, "We can't have subcontractor CEO's complaining about subcontract administrators."

As a result of KBR's inaction, his complaint says, "ABC's overbilling continued through the completion of its first contract period in June 2005, and through the filing of this complaint, and beyond. The amount that ABC overbilled to KBR, and KBR overbilled to the government, exceeded $10 million." This figure covered just one of about a hundred D-Facs spread across Iraq.

In December 2004, a suicide-bomb attack on the H4 dining hall killed 22 people, including 14 troops. Afterward, according to Godfrey's complaint, ABC was paid not once but twice for new kitchen equipment and a new $2 million facility. The complaint also alleges that a Saudi firm, Gulf Catering Company, used inflated head counts to overcharge KBR by nearly $5.3 million between February and October 2004. He relayed these findings to Quigley, who promised to "forward the matter for further inquiry." Then, in a separate e-mail, Quigley told Godfrey he felt "submarined" by the disclosures. (KBR refused to comment on the suit to Vanity Fair.)

Godfrey left Iraq in February 2005, frustrated that the waste he'd encountered seemed uncontrollable. He had come across officials from the Defense Contract Management Agency, his team leader's former billet, and he had little faith that they would succeed where he had failed. "The ones I met were pathetic," he says. "Some had no experience: they'd just got their degrees. They didn't ask questions, and they missed the issues that I brought up. They had access to me and my memos, and not once did one ever come to me and say, 'Can we talk, Barry?'" [More Godfrey]

Apart from its connections in Washington, there is something else that protects KBR: the perception, widespread throughout the military, that it has provided generally good-quality services in war-zone conditions. As Grayson puts it, "Halliburton's philosophy is not to deliver crap. Halliburton's philosophy is to deliver extraordinarily overpriced but adequate services in support of the government."

That these have cost billions of dollars more than they should have is an inconvenient detail, and already the Pentagon is moving on. Officials now accept that the monopoly granted by LOGCAP 3 had its drawbacks, and at the end of June [2007] the army announced that the contract will soon be terminated and replaced with a new one, LOGCAP 4. Under this, the largesse will be split among three corporations: DynCorp, Fluor, and KBR. LOGCAP 4 is another cost-plus, indefinite-delivery, indefinite-quantity contract, but at least this time KBR's income, as well as DynCorp's and Fluor's, will be capped. Over the next 10 years, KBR will have to satisfy itself with charging American taxpayers $50 billion for its services under LOGCAP 4.

These improvements may turn out to be little more than cosmetic. According to Bowen, what's needed is full disclosure of all subcontracting arrangements and a substantial increase in the number of officials who spend their time designing and policing contracts.

With LOGCAP 4, however, the reverse is about to happen. The government agencies responsible for oversight will be assisted by SERCO [ID], a Virginia-based services company that in February was awarded a "planning support contract" worth up to $45 million a year. The Bush administration maintains that hiring SERCO to regulate LOGCAP 4 will improve efficiency and counter fraud and waste.

David Walker, of the GAO, fears that the weakened state of oversight is poised to get "much worse." Not only is there a large "skills gap," but "a significant percentage of the existing contract workforce is eligible to retire or will be eligible to retire within the next few years." Outsourcing oversight brings still more problems in its wake, he says, starting with conflicts of interest, which arise whenever the company being monitored has other business, existing or potential, with the one doing the monitoring.

False Claims Act suits could help to remedy these deficiencies, if only the Department of Justice weren't suppressing them. One day, though, the seals on the complaints will have to be lifted. "I wish I could tell you about the ones that are under seal," says Grayson, "because some of them really are time bombs. They're literally burying these cases to keep the public from finding out about them, and to keep anything from being done on them. But it is a time bomb, because any normal amount of attention on these cases would result in massive amounts of money being recovered for the taxpayers."

There are a few encouraging signs that a day of reckoning is drawing near. Committees in both the House and the Senate have held hearings on contracting in Iraq, and several plan to hold more. Patrick Leahy, the Democratic chairman of the Senate judiciary committee, has introduced a War Profiteering Prevention Act, which would make it much easier to investigate corrupt contractors and call them to account. And in August, the news that tens of thousands of weapons intended for Iraqi security forces had vanished or been stolen prompted the Pentagon to announce that its inspector general, Claude M. Kicklighter, would lead an 18-person team to investigate "contracting practices" in Iraq.

In the more distant future, a Democratic administration might open up the vaults and expose the American public to the scale of what has been looted. "What we have seen up to now is the worst of the worst in terms of a deliberate cover-up," Grayson says. But if and when it comes to an end, he thinks it's entirely possible that Congress will appoint a special prosecutor -- one whose targets might one day reach "an extremely high level."

[Source]

<>2007de06:WDC | HalliburtonWatch.org, “Senate Democrats to hold hearing on wasteful spending in Iraq” =

U.S. Senator Byron Dorgan announced Thursday the Senate Democratic Policy Committee (DPC) will conduct a hearing to examine the extent to which the Bush Administration is safeguarding U.S. tax dollars spent in the Iraq war effort. Dorgan said the hearing is prompted by reports from government auditors which found that questioned and unsupported costs associated with Iraq reconstruction and military support contracts exceed $10 billion. That's more than one in six tax dollars audited.

[...]

As President Bush demands even more money for Iraq and threatens to layoff Defense Department employees if Congress does not comply, witnesses at this hearing will examine the wasteful spending practices that have become the hallmark of the war effort. Two whistleblower witnesses will give first-hand testimony about waste, fraud and abuse in Iraq. Two additional witnesses, who are former Defense Department officials, will discuss the wasteful budget systems at the department and recommend reforms to improve these systems.

Since the start of the war in Iraq, the Senate DPC has held eleven hearings to examine allegations of waste, fraud and abuse in Iraq contracting. Throughout these hearings, a common theme has become apparent: eyewitness accounts of waste, fraud and abuse in Iraq are not being taken seriously by federal contractors or the Bush Administration. This lack of accountability has been compounded by system-wide deficiencies in budgeting practices at the Department of Defense, which analysts believe result in billions of dollars in wasted taxpayer money every year.

Witnessess: Barry Godfrey, former KBR employee who witnessed and reported fraudulent activity in Iraq; Beth Hanken, an Iowa beef exporter who witnessed and reported fraudulent practices with regard to supplying meat in Iraq; Philip Coyle, Senior Advisor to the Center for Defense Information and former Assistant Secretary of Defense and Director of its Operational Test and Evaluation unit from 1994 to 2001. Larry Korb, Senior Fellow at the Center for American Progress and a Senior Advisor to the Center for Defense Information. From 1981 to 1985, Korb served as Assistant Secretary of Defense (Manpower, Reserve Affairs, Installations and Logistics), where he administered approximately 70 percent of the Department of Defense budget.

<>2008ap28:WDC | Senate Democratic Policy Committee [DPC] Hearing, “Contracting Abuses in Iraq: Is the Bush Administration Safeguarding American Taxpayer Dollars?” | Hearing Notice issued by Byron L. Dorgan, Chairman, DPC | Witnesses at this hearing, which will be the thirteenth in a series of hearings conducted by the Democratic Policy Committee on waste, fraud, and abuse in Iraq, will testify about widespread, systemic examples of contracting abuses by American companies in Iraq. One former KBR employee will describe how the company used “burn pits” to overcharge the U.S. government on cost-plus contracts. Another former KBR employee will testify that the company ignored theft by its employees from the U.S. military and the Iraqi government. The final witness at the hearing will explain how American taxpayers have ended up paying for 1,000 percent mark-ups on contracts involving multiple layers of sub-contractors.

Witness Frank Cassaday: Mr. Cassaday worked as an ice plant operator for KBR in Iraq. During the two years he worked in Iraq, Mr. Cassaday witnessed KBR employees using “burn pits” to dispose still useable products that were purchased by KBR on a cost-plus basis, including lumber, electronic equipment, and food. He will also testify about pervasive theft by KBR employees of military equipment and supplies, including weapons and munitions.

Witness Linda Warren: Ms. Warren is a former KBR employee who worked as a Laundry Foreman and as a Morale Welfare and Recreation technician in Iraq. She will testify about KBR employees who stole items, including gold, crystal and expensive rugs, from Iraqi government facilities, and at least one KBR employee who sold the stolen goods on eBay. She will also testify about how KBR deliberately overcharged the U.S. government by systematically exaggerating head counts at recreational facilities the company operated for American troops.

Witness Barry Halley: Mr. Halley is a former U.S. Marine who worked as a Project Manager for WWNS on a DynCorp contract and as an Operations and Security Manager at CAPE Environmental. Mr. Halley will testify that American taxpayers paid 1,000 percent mark-ups on DynCorp contracts in Iraq involving multiple layers of sub-contractors. Mr. Halley will also testify that while at CAPE, he witnessed the company double-bill the U.S. government for meals and charge the government for work that was never performed. Mr. Halley will also state that he was beaten by CAPE employees in retaliation for reporting misconduct to the U.S. Embassy.

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