Dems: war profiteering should be a crime

BY JEREMY BRENINGSTALL

U.S. Senate Democrats would like to create a new category of federal crime: war profiteer. Under legislation proposed last week, those who deliberately defraud or overcharge in a war zone could face new penalties of up to $1 million in fines and 20 years in prison. Whether this legislation has any chance of passing remains to be seen. There are 29 co-sponsors to the bill.

The proposal comes on the heels of a series of hearings the Democratic Policy Committee has held over the last few years regarding contracting abuses in Iraq.
Sen. Byron Dorgan (D-North Dakota), committee chairman, contends he has been forced to hold the hearings in a partisan committee because Congressional Republicans are unwilling to provide oversight. They are afraid of embarrassing the President, he said in a phone interview with Pulse Friday.

“Congress is responsible to hold oversight hearings,” Dorgan said. “If they ever begin holding oversight hearings, we’ll certainly cede the territory on this.”
The proposed legislation comes only days after the Pentagon announced it would award Halliburton $253 million in disputed reimbursements for reconstruction-related costs that were found to be unjustified by government auditors. The scale of the reimbursement, covering more than 96 percent of disputed costs, is highly unusual, according to news reports. Typically, less than half of disputed costs end up being reimbursed.

In one committee hearing, Dorgan raised allegations that Halliburton subsidiary Kellogg, Brown and Root (KBR) was charging the governments for thousands of meals it never even provided. In another committee hearing, former KBR employees testified the contractor was using “highly polluted” untreated water from the Euphrates River for soldiers as non-potable water (used in showering, shaving, etc.).

Speaking at the hearing, Sen. Mark Dayton said, “I’ve been in Iraq twice. I flew by helicopter over the Euphrates. I mean, it is a cesspool for everything running off. It’s got all sorts of toxic munitions, toxic chemicals, everything, in addition to raw sewage.”

Halliburton and military officials quickly disputed the allegations, but their denial conflicted with internal memos—including one in which a top KBR water quality supervisor said soldiers may have been getting untreated water for up to a year.
How can a company so easily escape accountability? Hard to say. But a cynic might say that the company’s board knew what it was doing when it chose Cheney—a politician with no real business experience—as its chief executive officer in 1995.

Before the Iraq war, Halliburton shares were selling for $9 a share. Today, with the assistance of billions of dollars in war-related contracts (as well as the resolution of asbestos-related litigation), they’re selling at $69.50 a share.
In the meantime, the United States has become bogged down in a costly ongoing conflict in Iraq. In March 2003, just as the war was about to begin, the Army signed a no-bid contract with Halliburton.

Ostensibly (as it was presented), the contract was supposed to retain Halliburton as a company to put out any oil fires created in the wake of the invasion. In actuality, the no-bid contract was a five-year deal worth up to $7 billion.
The deal was critized at the time by Bunny Greenhouse, the Army’s chief contracting officer, in an internal document. Writing next to her signature on the review document, she said a no-bid contract should cover a year at the most.
Greenhouse was subsequently demoted after her note was discovered by a Time magazine reporter and became an issue in the 2004 presidential campaign [See “Whistleblower” article in 2/22 Pulse].

“I can unequivocally state that the abuse related to contracts awarded to [Halliburton subsidiary] KBR represents the most blatant and improper contract abuse I have witnessed during the course of my professional career,” Greenhouse said in July of last year, testifying before members of the Senate.
Halliburton’s critics have charged that, among other irregularities, the company purchased fuel from Kuwait for up to twice the going rate. Halliburton representatives, defending the company, have said the disparity was not that high and any extra costs incurred were a result of the chaotic security situation in Iraq, combined with the need to provide fuel supplies quickly.

Halliburton executives have also written that government contracts carry relatively low profit margins compared to private sector dealings. But while the profit “margins” may be low, so are some of the risks.
Halliburton’s deal gave it a 2 percent “base fee” for all charges incurred, plus the possibility of additional bonuses. In other words, the more money Halliburton tabulated on its bill, the more money they could make from the government—as long as the government didn’t find the company was completely derelict in its cost management.

In the case of the oil contract, one of several Halliburton oversees in Iraq, auditors questioned $263 million in costs, but the Pentagon agreed to reimburse the company for almost all of those disputed costs.
Halliburtion ended up making close to $100 million in profit from the contract, said Rep. Henry Waxman (D-California). Dorgan said he is concerned about the contracts Halliburton is still overseeing in Iraq—and now on the Gulf Coast, where KBR, the subsidiary, is repairing naval installations and assessing water pumps as part of a contract agreement reached prior to Hurricane Katrina.
“There are times when you have no-bid contracts in a crisis situation but that evaporates in a few months,” Dorgan said.