Iraq War Profiteering Talking Points
March 10, 2006
By Charlie Cray
Center for Corporate Policy
** Federal Acquisition Regulations (FAR) require that the federal government award
contracts to “responsible prospective contractors only.” Yet suspension and
debarment are discretionary actions, not usually exercised against larger companies.
** No one seemed to care that ten companies awarded billion of dollars in reconstruction
contracts had paid more than $300 million in penalties over the three previous years
to resolve allegations of bid rigging, fraud, delivery of faulty military parts and
environmental damage. (Matt Kelley, AP, April 26, 2004; Steve Pizzo,
“Band of Brothers,” 2003)
** The Department of Defense has 149 prime contracts with 77 contractors in Iraq worth
approximately $42.1 billion and funded at $25.4 billion as of May 2005. According to
Defense Department auditors, Halliburton “alone represents
52% of the total contract value.” (Defense Contract Audit Agency, Briefing Slides:
DCAA Contract Audit Support for Iraq Reconstruction (May 3, 2005).
** Halliburton, and/or its employees and subcontractors are being investigated
for numerous violations in Iraq and elsewhere, including criminal bid-rigging,
overcharging of taxpayers, bribery and criminally profiting in a nation
believed by President Bush to sponsor terrorism.
** Nineteen members of Congress have demanded that the Bush Administration
apply the FAR “responsible contractor” rules to Halliburton and exclude it
from any new contracts.
** Just one company (Custer Battles) has been suspended for its actions in
Iraq and charged with fraud. According to the Project on Government Oversight,
four of the top 10 Federal contractors had at least two criminal convictions
between 1990 and 2001, yet only one of the top 43 contractors was ever suspended
or debarred – in that case for just five days.
** The competence and honesty of those responsible for enforcing standards of
ethics in contracting is questionable. The Bush administration’s former top
procurement policymaker, David Safavian, has been indicted for obstructing an
investigation into the activities of lobbyist Jack Abramoff.
** In April 2003, immediately after the fall of Baghdad, the head of the U.S.
Agency for International Development, Andrew Natsios, stated that “the American part”
of the cost of rebuilding Iraq “will be just $1.7 billion. We have no plans for
any further-on funding for this.” (Nightline, 4/23/03) Months later $18 billion
was allocated by Congress – the first of multiple appropriations for the reconstruction.
** The Congressional Budget Office estimates that $320 billion has been spent on
Iraq and Afghanistan since September 11, 2001, with the Bush administration asking
for an additional $72 billion supplemental appropriation in 2006.
** More than $50 billion has been used to pay private contractors hired to guard
bases, drive trucks, feed and shelter the troops and rebuild Iraq’s infrastructure.
** Investigators say the CPA lost track of $8.8 billion dollars. The SIGIR says that
money is "not accounted for" and acknowledges that nobody really knows exactly
where it went.
** Congress has failed to provide adequate oversight or fully investigate charges
of incompetence, waste, fraud, bribery and other reported abuses in Iraq. Without
such oversight, not only are taxpayer dollars wasted, but both Iraq's transition
to democracy and U.S. troops have been put at further risk, and contractors are
rarely brought to justice.
** Congressional committees responsible for providing such oversight have failed
to invite numerous whistleblowers ready to testify, including the Army Corps of
Engineers' top civilian contracting official, Bunnatine H. Greenhouse, who was
demoted in August after blowing the whistle on the Corps blatant favoritism
towards Halliburton, the largest contractor: "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.
** Proposals in Congress to establish a special committee modeled after
then-Senator Harry Truman's World War II committee, which cost just thousands
while saving $15 billion in 1940s' dollars, have been rejected three times
in two years by the Senate.
** The Pentagon and other contracting agencies have also failed to provide
adequate oversight, while routinely ignoring reports and recommendations
from its own auditing arm. On February 27, 2006, for example, the Army
decided to reimburse Halliburton subsidiary KBR nearly all of its disputed
costs on a $2.41 billion no-bid contract to deliver fuel and repair equipment
in Iraq, despite Pentagon auditors identifying over $250 million in charges
as "potentially" excessive. By paying the company $250 million, the Army
upheld just 3.8 percent of its own auditor’s challenge to KBR.
** The Pentagon pulled its lead agency in charge of investigating
and reporting fraud and waste in Defense Department spending in Iraq
out of the war zone in 2004 - leaving what experts said are gaps in the
oversight of how more than $140 billion is being spent. (Knight-Ridder, 10/17/05)
** The ability of auditors to provide oversight, especially from thousands
of miles away, has been obstructed by the use of large monopoly contracts –
some provided without competitive bids, in violation of contracting regulations.
The use of these contracts has resulted in multiple layers of subcontractors,
making it nearly impossible to provide complete oversight of expenditures or
measure contract performance, especially when the government does not have a
direct relationship with the actual companies performing the work and therefore
cannot subpoena documents from the subcontractors themselves.
** Contracting agencies have outsourced their own responsibilities for oversight,
paying contractors to oversee one another, in some cases creating a direct
conflict-of-interest. (See, “Contractors Overseeing Contractors: Conflicts of
Interest Undermine Accountability in Iraq,” a joint report prepared for Senators
Dorgan and Wyden and Representatives Waxman and Dingell.)
** Although originally touted as a kind of Middle East Marshall Plan, the U.S.
government’s reconstruction of Iraq has been a failure when measured against key
indicators of progress used by the government itself. These shortfalls can be
attributed in part to an insurgency that took advantage of the occupying force’s
lack of any counterinsurgency plan, leading to sabotage and attacks on contractors,
necessitating a massive diversion of resources from “bricks and mortar” expenditures
toward the provision of additional security. Yet widespread corruption, fueled by
the lack of effective oversight, and contractor fraud have also been a significant
factor in the program’s overall failure.
** Problems include uninstalled phone lines, shoddily repaired schools, uncollected
garbage, clogged roads, defective sewerage. “Iraqis are in broad agreement that
life is deteriorating rather than improving. The prevailing sentiment is a complex
mix of resentment and resignation, frustration and incredulity.” (Herbert Docena,
Iraq Reconstruction Bottom Line. Asia Times, 12/25/03)
** The Special Inspector General for Iraq Reconstruction (SIGIR) reported in
January 2006 that just slightly more than a third of all water projects planned
as part of the reconstruction will ever actually be completed. Currently, two of
three Iraqis are left with no potable water; only one in five has sewerage.
** At the end of November 2005, nation-wide electrical generating capacity in
Iraq stood at 4,000 Megawatts, below pre-war levels and far below the goal of
6,000 MW. Instead of rebuilding several steam-turbine power stations— as Iraqi
engineers and managers recommended—the CPA’s crony contractors chose to build
new natural gas and diesel-powered combustion-turbine stations, despite the fact
that Iraq doesn’t have adequate supplies of either. As a result of this arrogance
and neglect, hundreds of millions – perhaps billions -- were wasted while the
electricity in Baghdad is on for just a few hours each day.
** In June 2005, U.S. AID’s Inspector General examined 22 electricity projects
worth $1.1 billion performed by Bechtel, one of the largest contractors operating
in Iraq. The IG found that 7 of the 22 projects reviewed had not or were not
achieving their intended output. The failing projects represented a $744 million
investment. (U.S. AID OIG, Audit of Electrical Power Sector Activities, 6/29/05)
** Very little of the $72 billion that President Bush is requesting from Congress
in 2006 would go to finish the reconstruction job. Worse, SIGIR warns that “the
Iraqi government is not yet prepared to take over the near or long-term management
and funding of infrastructure.”
** U.S. officials have spent or disbursed over $19 billion of Iraqi money from
the Development Fund for Iraq – the financial successor to the Oil for Food Program
created through a UN resolution and managed by the CPA. Companies that overcharged
the government – including Custer Battles and Halliburton – were paid in part out
of the DFI. Nearly $12 billion in cash was shipped to Iraq and disbursed with
virtually no financial controls or reliable accounting. The Administration cannot
account for over $8 billion transferred to Iraqi ministries.
** Evidence of the resulting corruption includes charges against a senior CPA
official charged with accepting hundreds of thousands of dollars in bribes and
kickbacks from a U.S. contractor.
** Inspector General Stuart Bowen reported in January 2006 that his office is
still processing 57 cases of fraud and corruption.
** Frank Willis, a top CPA official, told 60 Minutes that the CPA’s accounting
system was “nonexistent.” "I think that what they were doing was of the nature
of what I understand war-profiteering to be about — which is to get into a
chaotic situation and milk every penny out of it you can, as fast as you can,
before the opportunity goes away," Willis said.
** CPA employees were witnessed tossing around football-sized $100,000 bricks of
100 bills inside the Green Zone – money that was the “Iraqi people’s” money,
withdrawn from Federal Reserve accounts and flown to Iraq in the final days of
the CPA’s control over the funds.
** “With so much cash arriving in Iraq, you might think that extensive
precautions would be taken,” says Rep. Henry Waxman, (D-CA). “But exactly
the opposite happened: U.S. officials used virtually no financial controls …
payments were made from the back of a pickup truck … and cash was stored in
unguarded sacks in Iraqi ministry offices…”
(Statement by Rep. Henry Waxman, June 21, 2005).
** After a CPA order by Paul Bremer immunized U.S. contractors from any legal
liability for human rights, labor or environmental violations stemming from
their work in Iraq, a number of human rights violations involving contract
personnel have either been investigated without any resulting charges or passed
unnoticed.
** Private security contractors working for the U.S. government in Iraq have
shot and killed Iraqi civilians. (Washington Post, 2/9/06)
** Several interrogators at the infamous Abu Ghraib prison were civilian
employees of CACI.
** Five defense lobbying groups, representing thousands of firms, including
“some of the industry’s biggest names, such as DynCorp International and
Halliburton subsidiary KBR, both of which have been linked to trafficking-related
concerns” have stalled a Pentagon proposal prohibiting defense contractor involvement
in human trafficking for forced prostitution or labor. (Chicago Tribune, 12/27/05)
** The lack of oversight and corruption by U.S. contractors and CPA officials have,
to put it mildly, also failed to set an example for Iraq’s transition to democracy.
** On January 5, 2006, the New York Times reported that “a sitting member of the
Iraqi National Assembly has been indicted in the theft of millions of dollars
meant for protecting a critical oil pipeline against attacks and is suspected of
funneling some of that money to the insurgency.”
** Iraq’s finance minister Ali Allawi warned in 2005 that between $1.3 and
$2.3 billion of government funds had disappeared. The U.K.-based Independent
reported that “government officials in Baghdad even suggest that the skill
with which the robbery was organized suggests that the Iraqis involved were
only front men, and ‘rogue elements’ within the U.S. military or intelligence
services may have played a decisive role behind the scenes.”
** Whistleblowers and government investigators also report Halliburton/KBR
"misplaced" portable military bases, purchased VCRs for a thousand dollars,
served expired food, imported workers from Asia who were underpaid, charged
$100 per 15 lb bag of laundry service and $45/case of soda, overcharged for
importing fuel from Kuwait into Iraq by at least $60 million, lost up to $26
million worth of government property, fed outdate food to the troops, and
“torched” $85,000 trucks purchased with taxpayer funds that only required
minor repairs.
** Halliburton’s own water quality experts say the company failed to alert
American troops and civilian contractors at a US base in Ramadi that the
water they used to shower and for other purposes was contaminated. The company
denies there was a problem. No charges have yet been filed.
** Inspector General Bowen told 60 Minutes in February that there are nearly
50 ongoing investigations involving suspected "fraud, kickbacks, bribery, waste."
** To date, the only action taken against any contractor has been a one-year
contracting suspension of Custer Battles. According to 60 Minutes (2/12/06),
Custer Battles has also been found liable for fraud by a jury in Alexandria, VA.
An Air Force investigation found that Custer Battles set up sham companies in
the Cayman Islands to fabricate phony invoices that it submitted to the Coalition
Authority with the intention of fraudulently inflating its profits.
** On February 17, 2006 – a KBR executive hired to fly cargo into Iraq pled
guilty to inflating invoices by $1.14 million to cover fraudulent "war risk
surcharges."
** Average compensation for C.E.O.'s at 34 leading military contractors
tripled from 2001 to 2004, to $3.9 million. C.E.O. pay packages were 23 times
larger than the salaries of Army generals serving in the field, and 160
times the size of an average soldier's pay.
(See IPS/UFE, “Executive Excess 2005: More Bucks for the Bang”)
** David H. Brooks, CEO of bulletproof vest maker DHB Industries, earned $70
million in 2004, 13,349% more than his 2001 compensation of $525,000. Brooks
sold company stock worth about $186 million in 2004, spooking investors
drove DHB’s share price from more than $22 to as low as $6.50. In May 2005,
the US Marines recalled more than 5,000 DHB armored vests after questions
were raised about their effectiveness. By that time, Brooks had pocketed
about $180 million in war windfalls. Later that year, Mr. Brooks spent
$10 million on a bat mitzvah party for his daughter that was held atop
Rockefeller Center in New York. (Timothy O’Brien, “All’s Not Quiet on the
Military Supply Front,” NYTimes, January 22, 2006)
For More Information:
HalliburtonWatch.org
Washington, DC
info@halliburtonwatch.org
CorpWatch
Oakland, CA
http://www.warprofiteers.com
The Project on Government Oversight
Washington, DC
The Center for Public Integrity, "Windfalls of War"
Washington, DC
(CPI has posted most of the individual contracts)
Rep. Henry Waxman (D-CA)
House Government Reform – Minority Office
Special Investigations on Iraq Reconstruction
The Arms Trade Resource Center
New York, NY
The Institute for Policy Studies
Washington, DC