Meet the War Profiteers
Forty-five dollar cases of soda; $85,000 trucks, in need of minor repairs, torched and abandoned; tens of millions of dollars in gasoline surcharges; thousands of meals prepared but never served to the troops, while Third World nationals, paid a pittance by their subcontractors get fed spoiled leftovers; contaminated water served to the troops. These are among the many abuses committed by Halliburton/KBR and its subsidiaries in Iraq, brought to light by a relative handful of whistleblowers and government officials.
Halliburton has been the biggest contractor in Iraq, receiving some $20 billion from both its oil and troop logistics contracts, but it is not alone. The Iraq war is the most privatized war in U.S. history, and many corporations have gotten fat feeding off the public trough.
Stuart Brandes, author of Warhogs, a history of war profiteering in the United States, suggests that all wars introduce new meaning to the term “war profiteer.”
In the Revolutionary War, officers of the Continental Army were convicted of defrauding troops of their pay, embezzlement and misappropriating government property.
During the Civil War, stories about the adulteration of supplies made “shoddy” a dirty word, leading Congress to pass the Frauds Act of 1863 — the legacy of which survives in the False Claims Act.
Anticipating the country’s entry into World War I, Congress made the deliberate inflation of prices (“profiteering”) during wartime a crime. By then it was clear that war profiteering not only harmed taxpayers, but also undermined the military’s own mission.
During World War II, Senator Harry Truman held hundreds of hearings on the issue, saving taxpayers an estimated $15 billion (in 1940s dollars).
As Edwin Sutherland suggested in his 1948 book White Collar Crime, the first comprehensive look at corporate crime, industry regulations for most of the major war-related industries “were made chiefly by representatives of the large industries and in their favor.” The result was after-tax profits of 100 percent and higher in the steel, meat and chemicals sectors. Despite their considerable influence over war-time standards, many large corporations were charged with violating price regulations, restraint of trade in war-related materials and tax evasion, according to Sutherland. Some (such as RCA) were accused of treason for passing technological secrets (in this case, related to radar) to the enemy (the Department of Justice dropped the issue when the chief of the Signal Corps, who pushed for the prosecution, went on to work for RCA).
The historical record throughout these wars, and others, suggests that the definition of “war profiteering” is — perhaps out of necessity due to ever-evolving corporate perfidy — “disturbingly imprecise,” as Brandes puts it.
Without a strict definition, it’s impossible to objectively determine who might be the worst war profiteer in the Iraq war, and the broader “war on terror.” But there is no shortage of bad actors. Here, presented alphabetically, is a list of 10 of the worst war profiteers not named Halliburton.
Aegis Defense Services
The General Accountability Office (GAO) estimates that there are about 48,000 private security and military contractors (PMCs) in Iraq. Industry analysts expect it will be a $200 billion-a-year global business by 2010.
This increased use of contractors is creating a novel set of battlefield problems. As the GAO puts it, because PMCs fall outside the chain of command, as well as the Code of Military Justice, they “continue to enter the battle space without coordinating with the U.S. military, putting both the military and security providers at a greater risk for injury.”
George Washington University Professor Deborah Avant, an expert on the industry, says while some established PMCs may act very professionally, companies like Aegis — a UK firm whose founder and CEO Tim Spicer was implicated for breaking an arms embargo in Sierra Leone — give the entire industry a black eye and reputation for being “mercenaries.”
In March, the Charlotte News-Observer reported that security contractors in Iraq regularly reported shooting into civilian cars. The newspaper’s report was based on documents provided by the military in response to a Freedom of Information Act request; the military redacted names from the released documents.
Like the abuses at Abu Ghraib, the problem was largely ignored until a “trophy video” of security guards firing with automatic rifles at civilian cars was posted on a web site linked to Aegis.
The Army’s Criminal Investigation Division determined that no charges would be filed against Aegis or its employees. One reason: President Bush signed Executive Order 13303 in 2003, granting the contractors immunity from prosecution in Iraq’s courts. Some experts on the industry believe private military contractors were immune from military prosecution until late 2006, when Congress passed legislation bringing PMCs under the Uniform Code of Military Justice, although others say that prior legislation already provided for such prosecution.
Aegis officials say an independent review board investigation of the “trophy video” found that “the films were recorded during Aegis’ legitimate operations in support of the Multi-National Force Iraq and the incidents recorded were within the Rules for the Use of Force. There was no evidence of any civilian casualties as a result of the incidents and the images published were all taken out of context and were therefore highly misleading in what they represented.”
“It is regrettable that the actions of one Aegis contractor, who has been the subject of separate court action in the UK, brought into question the high standards of behavior achieved by our team in Iraq,” Spicer says. “Aegis is a prime contractor to the U.S. Government with an exemplary record of performance.”
BearingPoint — Economic Hit Men
BearingPoint was brought into Iraq under a $240 million U.S. Agency for International Development (AID) sole-source contract to “facilitate Iraq’s economic recovery” — to take charge of writing its business law, set up its tax collection system and trade and customs rules, close down the oil-for-food program (the main source of food for 60 recent of the population), and plan the privatization of key state-owned industries, among other things.
BearingPoint later received a contract to facilitate “private-sector involvement in strategic sectors.” The company was reportedly “assigned” by the U.S. government to help the Iraqi Oil Ministry draft a new oil law. Iraqis have ultimately had less influence over the drafting of their own economic laws than the technocrats at the CPA, U.S. AID and BearingPoint, a situation many believe violates international law on the duty of occupiers.
A leaked memo written on March 26, 2003 by Lord Goldsmith, the British attorney general, apparently warned British Prime Minister Tony Blair that “the imposition of major structural economic reforms would not be authorized by international law.” On the U.S. side, General Jay Garner, the first CPA head, says he was sacked a month into the job because he had called for swift and free elections, rejecting proposals to impose a privatization program first.
BearingPoint actually helped AID write the specifications for the contract to design Iraq’s “competitive private sector” — the contract that BearingPoint then went on to administer.
“Economic reform work is part of a public-sector division that is BearingPoint’s most successful unit and has buoyed the company in recent years,” according to the Washington Post. “The 550 people working in economic reconstruction have often spent years in government jobs or working with organizations like the World Bank.”
Bechtel: Precast Profits
The San Francisco-based construction and engineering giant received one of the largest no-bid contracts — worth $2.4 billion — to help coordinate and rebuild a large part of Iraq’s infrastructure, including electric power systems, roads, railroad systems, municipal water and sanitation services, government buildings, irrigation systems, and a port. But the company has been criticized for everything from shoddy school repairs to failing to finish a large hospital on-time and within budget.
Although U.S. AID chief Andrew Natsios originally promised a Middle Eastern Marshall Plan, Iraq reconstruction is now widely acknowledged to have been a total failure.
Natsios should have known that all would not go smoothly with Bechtel in the lead: Prior to joining the Bush administration, he was chief executive of the Massachusetts Turnpike Authority, where he oversaw the Big Dig — a major highway tunnel project — as the cost exploded from $2.6 billion to $14.6 billion under Bechtel’s lead.
In July, Stuart Bowen, the Special Inspector General for Iraq Reconstruction (SIGIR), released an audit of the Basra Children’s Hospital Project, a favorite project of Laura Bush’s, which was $70 million to $90 million over budget, and a year-and-a-half behind schedule. Bechtel’s contract to coordinate the project was immediately canceled.
In November the company announced it was leaving Iraq, having completed most of the rest of its contract obligations. By almost any standard, the results were terrible. After over three years of work, the country was generating less electricity than it was before the war, potable water hookups were delivered to just over half of the number of people anticipated, and sewage services had also not met the anticipated goal, according to SIGIR.
CACI, Titan and the Outsourcing of Intelligence
In early 2005, CIA officials admitted that at least 50 percent of its estimated $40 billion budget that year would go to private contractors.
Years before the war on terror began, Pentagon officials began to raise serious national security concerns about the outsourcing of intelligence and related work considered to be an inherent function of government. A December 2000 Army intelligence memo uncovered by the Center for Public Integrity warned explicitly against the use of contractors for sensitive intelligence work.
“At the tactical level,” the memo explained, “the intelligence function under the operational control of the Army performed by military in the operating forces is an inherently governmental function barred from private sector performance.”
That was no longer the Pentagon view by the time of the Iraqi invasion, as private firms gained huge intelligence responsibilities in Iraq.
Leading contractors CACI and Titan surpassed the worst fears of privatization opponents.
The firms were centrally involved in the abuses at Abu Ghraib. CACI provided a total of 36 interrogators, including up to 10 at Abu Ghraib at any one time, according to the company. Titan personnel provided translation services.
Neither CACI nor its employees have yet been charged with a crime. Company officials claim their employees were never involved in the most egregious acts at the prison. Critics, however, cite a leaked report from Army investigator Major General Antonio Taguba that implicates CACI employee Stephen Stefanowicz in the abuse of prisoners. They say the contractors have so far escaped punishment only because of the lack of any system of accountability.
CACI denies the findings of the Taguba report, asserting in a briefing paper titled “Truth and Error in the Media Portrayal of CACI in Iraq” that “All of Maj. Gen. Taguba’s allegations regarding this employee remain unsupported based on all of the evidence made available to date.” The company adds that other investigations have not supported Taguba’s findings.
Since the war on terror began, just one civilian, CIA contract interrogator David A. Passaro, has been indicted and convicted, for felony assault associated with interrogation tactics.
The Center for Constitutional Rights (CCR) in New York has helped some of the detainees at Abu Ghraib file civil lawsuits in the U.S. against CACI and Titan and their employees.
“We believe that CACI and Titan engaged in a conspiracy to torture and abuse detainees, and did so to make more money,” says Susan Burke, an attorney hired by CCR, whose lawsuit has survived various motions to dismiss and is proceeding into discovery before a federal district court. Whatever the outcome of that and related cases, it’s already clear that the publicity generated by the cases have had an effect: CACI announced last September that it would no longer do interrogation work in Iraq. (CACI’s CEO says its interrogation work was only 1 percent of the company’s business.)
Despite Titan’s other problems (in early 2005, it pleaded guilty to three felony international bribery charges and agreed to pay a record $28.5 million Foreign Corrupt Practices Act penalty), its contract with the Army has been extended numerous times, and is currently worth over $1 billion.
The Coalition Provisional Authority: The Lords of War
The Coalition Provisional Authority (CPA) was the temporary governing authority set up by the United States to rule Iraq at the start of the U.S. occupation. It disbanded on June 28, 2004, after the transfer of sovereignty to the new Iraqi government. Virtually every aspect of the CPA’s performance is now viewed as defined by incompetence.
But problems at the CPA extend far beyond mere questions of competence. In at least a couple of respects, the CPA itself can be accused of war profiteering.
The most obvious form of that occurred in the southern province of Al-Hillah, where U.S. contracting officials conspired to rig more than $8 million worth of construction and services contracts. A CPA former comptroller, Robert Stein, pleaded guilty in February 2006 to bribery, money laundering, conspiracy and using government money to purchase an array of high-powered rifles and grenade launchers. Stein admitted that, in exchange for payments and other favors, he steered business to companies owned by his co-conspirator, Philip Bloom. In April, Bloom admitted to plying CPA personnel for favors with jewelry, first-class plane tickets and sexual favors from women he employed at a villa in Baghdad. Bloom faces as long as 40 years in prison and nearly $8 million in penalties.
Other CPA’s officials charged for their involvement in the scam include Lt. Col. Michael Wheeler, who smuggled $100,000 of stolen money into the United States, and Lt. Col. Debra Harrison, who used still more money to buy a Cadillac and build a hot tub at her house back in New Jersey.
At the end of July, Inspector General Bowen, whose office uncovered the scam, reported that 82 preliminary and criminal investigations were still open, involving a variety of crimes, including bribery/kickbacks (21), theft/larceny (19), contract fraud (17), falsified billing, embezzlement and other alleged crimes. Twenty-five of those cases have been referred to the Department of Justice, including 15 that stem from the Bloom/Stein conspiracy.
“Most current investigations directly or indirectly involve allegations against a U.S. government official or military officer,” Bowen reported to Congress.
The environment created by the CPA “positively encouraged corruption,” says Alan Grayson, a Florida-based attorney who has represented a number of whistleblowers now trying to expose the fraud.
At the CPA’s headquarters inside the Green Zone, for example, inexperienced political appointees were seen tossing bricks of $100 bills around like footballs. Other news reports suggested one contractor had been paid $100,000 to refurbish an Olympic swimming pool, and that a military assistant had gambled away as much as $60,000 while accompanying the Iraqi Olympic team to the Philippines.
“In the early days, there was no record keeping. They were flushed with money and seized assets. People just didn’t follow established procedures,” said Charles Krohn, a former CPA official. “You were dealing with inexperienced people who didn’t understand that there’s always a day of reckoning.”
According to Representative Henry Waxman, D-California, “the CPA’s entire accounting system consisted of just one contractor maintaining excel spreadsheets. That’s one person for $20 billion.” The flagrant frittering away of Iraqi funds reached a crescendo right before the CPA pulled up stakes and went home. In the final weeks before it turned control of the country over to Iraq’s interim government, the CPA went on an extraordinary spending spree — even flying in two planes stuffed with $4 billion worth of cash loaded onto pallets during the last week alone.
In March 2006, Custer Battles became the first Iraq occupation contractor to be found guilty of defrauding the U.S. government. The jury in the case found the company and its top executives guilty on a total of 37 charges of fraud, ordering them to pay more than $10 million in damages for, among other things, using fake invoices and sham companies incorporated offshore to bilk U.S. taxpayers.
In August, the judge in the case dismissed the charges, ruling that since the CPA was not technically part of the U.S. government, there was no basis for claiming the United States was defrauded.
According to Custer Battles’ attorney Robert Rhoad, the company’s two owners — Mike Battles and Scott Battles — were “ecstatic” about the decision.
“As we have said all along, the evidence at trial showed that Custer Battles performed the [contracted-for services] on time, on budget, and to the satisfaction of the Coalition Provisional Authority,” David Douglass, trial counsel for Custer Battles, stated. “There simply was no evidence of fraud or an intent to defraud the CPA nor were any false claims submitted to the United States,”
But the judge stated in his ruling that that the company had submitted “false and fraudulently inflated invoices.”
He allowed the jury’s verdict to stand against the company (but not its owners) for retaliating against the whistleblowers who originally brought the case under the False Claims Act, which allows citizens to initiate a private right of action to recover money on taxpayers’ behalf.
Among the evidence presented in court: documents which revealed that Custer Battles had marked up invoices for food (a $33,000 order billed at $432,000), electricity ($400,000 for $74,000 worth) and other equipment by huge margins.
During the trial, retired Brigadier General Hugh Tant III testified that the fraud “was probably the worst I’ve ever seen in my 30 years in the Army.” Tant reported that when he originally confronted company co-founder Mike Battles about the fact that 34 of 36 trucks supplied by the firm didn’t work, Battles responded: “You asked for trucks and we complied with our contract and it is immaterial whether the trucks were operational.”
With the Stuart Bowen’s office estimating that there is a backlog of some 70 fraud cases pending against various contractors, critics say the Department of Justice has been dragging its feet and should create a special task force devoted to the problem, like it did when the accounting fraud at Enron spread like an epidemic to other companies. “I hope this administration is not in denial, but that may be the case,” says James Moorman, an expert in False Claims Act cases with the group Taxpayers Against Fraud.
Normally, the government makes a decision to join or not join a case within 60 days, but many of the Iraq False Claims Act cases have been delayed for two years and more — an unprecedented duration. Cases filed under the False Claims act are sealed and prevented from moving forward until the government decides whether or not it will join the case, which means that the defendants can’t even be publicly identified, making it impossible for federal contracting officers to suspend alleged fraudsters from any new contracts. (In May, the U.S. Air Force barred Custer Battles from any new contracts until March 2009.)
General Dynamics has received the most direct benefit from the Iraq war of all the large defense contractors, according to a July 2006 report in the Washington Post. “The combat-systems business … it’s a cash cow for them,” one industry analyst told the Post.
The company’s profits have tripled since 9/11. Among those who can take credit is David K Heebner, a former top aide to Army Chief of Staff Eric Shinseki who was hired by General Dynamics in 1999. The company won a $4 billion contract to produce Stryker armored vehicles a year later, 1,658 of which have been delivered to the Army since the Iraq invasion began.
“It’s clear that the Army was leaning toward handing a multi-billion dollar contract to General Dynamics at the very time Heebner may have been in negotiations with the company for a high-paying executive position,” says Jeffrey St. Clair, author of Grand Theft Pentagon. By March 2006 Heebner reported owning 33,500 shares in the company, which were worth well over $4 million. He also reported 21,050 options.
Not everyone in the military has been happy with the Stryker contract. A former Pentagon analyst describes the 8-wheeled vehicle as “riding in a dune buggy armored in tinfoil,” i.e. particularly vulnerable to the Iraqi insurgents’ favorite weapons, rocket-propelled grenades and improvised explosive devices.
The GAO has also found other problems, including serious maintenance requirements and deficiencies in the training provided to soldiers for its use.
Meanwhile, the company has added former Attorney General John Ashcroft to its stable of high-powered lobbyists. Also working the account are Juleanna Glover Weiss, Vice President Dick Cheney’s former press secretary, Lori Day Sharp, who worked under Ashcroft at the Justice Department, and Willie Gaynor, a former Commerce Department official who was worked for the 2004 Bush/Cheney re-election campaign.
Nour USA Ltd.
Incorporated shortly after the war began, Nour has received contracts worth up to a total of $400 million, including a contract to provide security for Iraq’s oil infrastructure.
Nour’s founder, Abul Huda Farouki, a resident of Northern Virginia, is closely tied to Ahmed Chalabi, the formerly favorite Iraqi exile of the Bush administration neoconservatives who provided misleading information about WMDs.
Given his background and numerous ties to Nour and a network of other companies, including Erinys (bankrolled by Nour and tied to Chalabi through his nephew, the company’s attorney), many Iraqis are skeptical about Chalabi’s denial of reports that he received a $2 million finder’s fee for helping Nour obtain an $80 million pipeline security contract. One company consultant who didn’t deny getting paid to help out is William Cohen, the former defense secretary under President Clinton.
Other bidders on the contract, including Dyncorp, point out that Nour had no prior related experience and that its bid on the oil security contract was too low to be credible. The company reportedly recruits from Chalabi’s former militia, a charge the company has denied.
Nour contends on its website that “the collaborating entities that formed Nour have almost a century of successful corporate history in performing contracts and making investments throughout the Middle East, particularly under difficult circumstances. Their operations have been defined by their application of Western management techniques and economic principles tempered by local customs and conditions and needs of local personnel.” The company did not respond to a request for comment for this story.
Chevron, ExxonMobil and the Other Petro-imperialists
Despite all the talk about civil war and chaos, just four years into the occupation, the oil giants’ takeover of Iraq’s oil is nearly complete. The process has involved an evolving series of deft legal maneuvers and appointments, starting with Paul Bremer’s CPA orders, and provisions inserted into the new Iraqi constitution that open the doors to foreign investors. Key will be whether the petro-imperialists can convince the Iraqi parliament to pass a new petroleum law to facilitate foreign control, as now appears virtually certain.
The oil industry giants have kept a relatively low profile throughout the process, lending just a few senior statesmen to the CPA, including Philip Carroll (Shell U.S., Fluor) and Rob McKee (ConocoPhillips and Halliburton). In addition, the CPA’s liaison to the fledgling Iraqi Oil Ministry, a highly sensitive position, was filled by ChevronTexaco Vice President Norm Szydlowski.
Greg Muttitt of the UK non-profit Platform says Chevron, Shell and ConocoPhillips are among the most interested in Iraq of all the major oil companies.
Companies such as Shell and Chevron have signed agreements with the Iraqi government, and begun to train Iraqi staff and conduct studies. These have given the companies vital access to Oil Ministry officials, as well as geological data, which would give them an advantage in bidding for future contracts, although Iraqi Oil Minister Hussain al-Shahristani said in August that the final competition will be wide open.
A key milestone in the privatization process occurred in September 2004, when U.S.-appointed Interim Prime Minister Ayad Allawi preempted Iraq’s January 2005 elections (and the subsequent drafting of the Constitution) by writing guidelines which were intended to form the basis of a new petroleum law. His policy would have effectively excluded the government from any future involvement in oil production, while promising to privatize the Iraqi National Oil Company. Although Allawi is no longer in power, his plans heavily influenced future thinking on oil policy.
The plans for a new Iraq petroleum law were made public at a press conference in Washington D.C. by Adel Agbdul Mahdi, formerly the finance minister and now a Deputy President of Iraq.
A key provision in the new law is a commitment to using Production Sharing Agreements (PSAs), which will lock the government into a long-term commitment (up to 50 years) to sharing oil revenues, and restrict its right to introduce any new laws that might affect the companies’ profitability. Muttitt says they are designed to favor private companies at the expense of exporting governments, which is why none of the top oil producing countries in the Middle East use PSAs.
Under Iraq’s forthcoming petroleum law, all new fields and some existing fields are likely to be opened up to private companies through the use of PSAs. Since less than 20 of Iraq’s 80 known oil fields have already been developed, if Iraq’s government commits to signing the PSAs, it could cost the country up to nearly $200 billion in lost revenues, according to Muttitt.
The Baker-Hamilton Commission lent further support for this agenda, emphasizing the need for privatization and foreign control of Iraqi oil resources.
Thus, despite the common perception that the war has been a total failure, for those who initiated it, the ultimate prize may still be within reach.
Former CIA director James Woolsey was an outspoken proponent of regime change in Iraq, even before 9/11. And since the Iraq war began, he and his wife Suzanne have done pretty well. Woolsey is a vice president at Booz Allen Hamilton, a contractor called “the shadow intelligence community” by one former CIA deputy director.
In addition to serving on the board of Fluor, one of the largest Iraq reconstruction contractors, Suzanne Woolsey also works as a trustee at the Institute for Defense Analysis, a nonprofit corporation paid to do analytical and strategic research for top Pentagon officials.
For Mr. Woolsey, the war was the ultimate pay-off for years of anti-Saddam advocacy. In addition to being a member of the neoconservative cabal known as the Project for a New American Century (PNAC), he was also appointed by Douglas Feith and Donald Rumsfeld to the Bush administration’s Defense Policy Board, as well as advisory boards for the Navy and CIA.
Woolsey was also a member of the Committee for the Liberation of Iraq (CLI), a private group founded to build support for the war in 2002 by former Lockheed Martin vice president Robert Jackson, another PNAC member who also wrote the Republican Party foreign policy platform in 2000.
Woolsey and the CLI lobbied members of Congress to pass the Iraq Liberation Act (ILA), which allocated nearly $100 million to Ahmed Chalabi’s Iraq National Congress (INC), for whom Woolsey was a paid adviser. Right after 9/11, Woolsey went off to Europe, returning with an unnamed source’s dubious claim that he had observed a meeting between Mohammed Atta, the lead 9/11 skyjacker, and an Iraqi agent in Prague.
As soon as the occupation began, Woolsey turned his attention to helping businesses get in on the action, becoming a featured speaker at related contractor and investor gatherings.
In addition to working for Booz Allen, he is a principal in the Paladin Capital Group, a Carlyle-like investment strategies firm, and has connections to Global Options, a risk management consulting firm headed by Neil Livingstone, with whom Woolsey serves on the Defense Policy Board.
Besides Woolsey and Livingstone, seven other members of the 30-member Defense Policy Board selected by Douglas Feith and Donald Rumsfeld have stood to benefit financially from the war, according to the Center for Public Integrity.
Multinational Monitor Contributing Editor Charlie Cray is Director of the Center for Corporate Policy.
© Multinational Monitor November-December 2006