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War Profiteers

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Corporate Patriotism or War Profiteering?:
Hundreds of Americans soldiers have made the ultimate sacrifice for a war that was sold to the American public by misleading assertions about an imminent threat, weapons of mass destruction, and ties to terrorist groups like Al Qaeda. In November, American taxpayers were asked to foot the bill as Congress passed the Bush administration's request for an additional $87 billion for the ongoing occupation and reconstruction of Iraq. Yet where is the $87 billion going? Mostly to companies with long-standing connections to the Bush administration, including Halliburton and Bechtel, the two contractors that have made the most money.

On December 5, Deputy Secretary of Defense Paul Wolfowitz issued a memo which stated that "[i]t is necessary for the protection of the essential security interests of the United States to limit competition for the prime contracts of these procurements to companies from the United States, Iraq, Coalition Parties and force contributing nations."

It's unclear, however, how U.S. interests (particularly the interests of U.S. taxpayers) or the interests of the Iraqi people have been served by a contracting process that has been dominated by the administration's corporate cronies, riddled with conflicts of interest, and designed in a manner that effectively undermines competition, transparency and accountability. For example, reports from Iraq suggest that due to the ban, the reconstruction process has been slowed down by the inability to get spare parts for key equipment.

There are also numerous reports of shoddy fulfillment of work orders, huge gas surcharges by Halliburton. In addition, the process has hampered Iraqis' ability to get their own economy running. Congressional investigators report instances where Iraqi businesses have been able to complete certain work for a fraction of the cost estimated by U.S. contractors.

Although we hear repeated claims that the reconstruction and occupation are being managed in the interest of the Iraqi people, the ability of the Iraqi people to make key decisions about the structure of their own economy has been blocked. The Coalition Provisional Authority (CPA) has invoked a law established during the regime of Saddam Hussein to keep unions illegal so that they can't come together as a force opposed to the privatization of state-owned industries, and CPA Directive 39 has opened up Iraq to foreign investors, allowing them to buy formerly state-owned companies and expatriate the profits.

Meanwhile, the reluctance of commercial insurers to back contractors seeking to do business in Iraq may result in further costs to U.S. taxpayers through the use of a little-know development agency (the Overseas Private Insurance Corporation, OPIC), which critics suggest is a massive corporate welfare scam designed to benefit U.S. multinational corporations abroad.

While Wolfowitz claims the Coalition Provisional Authority (CPA) aims to create the "conditions in which the Iraqi people can freely determine their own political future," contractors have also been given the authority to redesign Iraq's new economy and privatize state-owned industries, a situation that authorities on international law say may be illegal.

The following measures should be taken to protect U.S. taxpayers and the interests of Iraqi citizens:

Improved oversight and open bidding. End all no-bid contracts like the open-ended cost-plus multi-billion dollar contracts awarded to Halliburton and Bechtel before the start of the war. All companies bidding for contracts should meet rigorous standards of accountability, and should be required to submit their history of compliance with the law with any contract bid. The GAO should independently review each contract worth over $25 million. Some of these provisions are in the "Clean Contracting in Iraq Act of 2003" (H.R. 3275) introduced by Rep. Maloney.

Eliminate conflicts of interest and ban corporate crooks from contracts. On the same day in May that the Pentagon awarded WorldCom/MCI a contract to provide wireless service in Baghdad, the SEC announced the penalties for what was the largest accounting fraud in history. Law-breaking companies should not be awarded taxpayer-funded contracts. For more information click here.

Ban corporate tax dodgers from any contracts. The IRS estimates that offshore tax scams cost the Treasury $70 billion per year. In 2002, the President said, "we ought to look at people who are trying to avoid U.S. taxes as a problem. I think American companies ought to pay taxes here and be good citizens." Companies that move their headquarters to offshore tax havens and otherwise use offshore subsidiaries to avoid paying their fair share of taxes should be ineligible for taxpayer-funded contracts. For more information click here.

Curb war profiteering and excessive executive pay. Defenders of sky-high CEO pay often argue that corporate leaders bear tremendous responsibilities and must oversee complicated business activities. But many of the companies that have received Iraq reconstruction contracts award their top executives pay packages that are 30 to 175 times as much as a U.S. army general with 20 years experience, and nearly 2,000 times the pay of entry-level soldiers. Congress should keep in mind the words of President Franklin Delano Roosevelt who, in the aftermath of WWII said, "I don't want to see a single war millionaire created in the United States as a result of this world disaster." For more information about curbing CEO pay for war contractors click here. Also see the "War Profiteering Prevention Act" (H.R. 3673) introduced by Rep. Emanuel (D-IL).

Cancel all contracts that work against Iraqi self-determination. The direction of Iraq's economy should be left for the Iraqi people to decide. Contracts such as the Bearing Point contract, which gives the company the right to "privatize state-owned enterprises" should be cancelled or amended. Under the principle of self-determination, such decisions are best left to a sovereign government once it is established.

Related Links:

Government sites:
Coalition Provisional Authority business information page
CPA Program Management Office
OMB Quarterly Reports to Congress
House Committee on Government Reform (Rep. Henry Waxman, ranking member) Iraq Contracts page
Center for Public Integrity's links to Iraq contracts and reports
Wolfowitz policy memo forbidding foreign countries from contracts
Senators Daschle and Dorgan's response to Halliburton kickback story (Congressional Record)

Business Sites:

Iraq Business Reporter
Patton Boggs Government Contracts Practice Group, Washington, DC
The Center for Public Integrity has posted a list of contractors.

Key News Reports:

"Contract Sport" (What did the Vice-President do for Halliburton?) by Jane Mayer, The New Yorker, 2/9/04.
Halliburton kickbacks story Wall St. Journal, 1/23/04 (as read into Congressional Record)
"Windfalls of War" is an excellent overview by the Center for Public Integrity
"Iraq Reconstruction Bottom Line" by Herbert Docena (Asia Times, 12/25/03)
Making a Killing (Institute for Southern Studies special investigation)
Risky Business by Naomi Klein (explores key role that OPIC plays as a consequence of reluctant insurers)
"Band of Brothers" report by Stephen Pizzo. (Includes profiles of different contractors).
"Operation Iraqi Lawsuit" by George C. Wilson (originally published in the National Journal) - explores possible legal consequences of the war and post-war decisions such as privatization.
Companies that did business with Saddam (L.A. Times story)

Groups Monitoring the Occupation and the Contracts:

Iraq Revenue Watch, a project of the Open Society Institute
Labor rights in Iraq are monitored by U.S. Labor Against the War
Corpwatch USA has regular news reports from Iraq.
Taxpayers for Common Sense analyzes contractor accountability questions.
Common Cause (Eye on Iraq) is monitoring the contracts and pushing for action on the Hill.
Project on Government Oversight exposes waste, fraud and abuse in defense and other government contracts.
The Institute for Southern Studies is organizing a Campaign to Stop War Profiteers
World Policy Institute's Arms Trade Resource Center
Government Accountability Project is challenging the Bush administration's Executive Orders (e.g. 13303) which grant legal immunity to U.S. oil companies operating in Iraq.
Sustainable Energy and Economy Network investigates oil-related issues.

General Iraq sites:

Occupation Watch
Foreign Policy in Focus
IPS Iraq Index
Global Policy Forum
Electronic Iraq

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