Halliburton's problematic Cheney connection

Hoping to escape the election spotlight, the vice president's old firm may shed its KBR division, the one doing billions of dollars of work in Iraq.


David Teather
October 6, 2004 5:47PM (UTC)

It must have seemed like a terrific stroke of luck: Dick Cheney, the man who for the past five years had been the chief executive of Halliburton, became the vice president in 2000. The oil services and engineering company was given a direct line to the White House. But Halliburton's relationship with the Bush administration is beginning to prove more problematic than it is worth.

The company admitted 12 days ago that it was considering selling Kellogg Brown & Root (KBR), the division carrying out billions of dollars' worth of work for the U.S. government in Iraq, in a desperate attempt to get out of the spotlight. It is considering a sale, a spinoff or a separate listing for the business on the stock exchange. The company's shares have fallen from $50 when Cheney first took office in the White House to the low $30s.

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Halliburton's business with the federal government has grown considerably since the current administration took office. According to the New York Times, the business went from being the 22nd biggest military contractor in 2000 to the seventh largest in 2003. Prior to the invasion of Iraq, without being asked to tender, Halliburton was handed a contract worth up to $7 billion to repair the nation's oil fields. It was also given a contract to provide logistical support to U.S. troops, handling everything from food to transport and laundry services. That deal, awarded under an existing long-term contract to provide emergency services, was worth a potential $13 billion.

When the first secretive contract came to light, shortly after the March 2003 invasion, Democrats rounded on the company, arguing that it was evidence of an old-boy network in the White House. Cheney, who walked away from Halliburton with a $36 million package, continued to receive deferred income from the firm.

The oil fields contract was eventually put out to tender, with KBR retaining part of the business. The higher profile of Halliburton has ensured that the company has remained on the front pages throughout a series of controversies that might otherwise have gone unreported. This year the firm agreed to pay $7.5 million to settle allegations that it failed to disclose a key accounting change in 1998 that allowed it to inflate profits and meet Wall Street targets while Cheney was still in charge. The accounting change, concerning the booking of disputed cost overruns on projects, allowed it to increase its profits by more than $200 million. A class action lawsuit brought on behalf of shareholders has accused the firm of systemic accounting fraud -- allegations the company denies.

Investigations are still underway into claims that a consortium KBR now leads paid bribes to Nigerian officials to secure a contract to build a natural gas plant. The company has admitted uncovering discussions of bribes, though it has no evidence they were actually paid. A Treasury Department inquiry has also been reopened into dealings the company may have had with Iran. Military officials, meanwhile, have accused KBR of routinely overcharging for work carried out as part of its logistics contract in Iraq and have threatened to withhold payment on 15 percent of bills.

A Pentagon auditors' report said the company had failed to account for at least $1.8 billion worth of work done. In a little-covered development, the Pentagon's Defense Contract Management Agency said last month that the company's billing methods were adequate, but that has had no effect on the other investigations and audits still pending.

The Pentagon is now considering breaking the contract up into six pieces and inviting new tenders. Tired of the onslaught of invective, Halliburton has said it is not certain if it will bid for any of the smaller pieces. Another reason for wanting to quit Iraq is that 45 of the company's workers have died there.

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In a meeting with investors in Houston toward the end of September, Halliburton's chief executive, David Lesar, said the company had become the target of a "vicious campaign" of political attacks ahead of the presidential election. The company's workers, he added, "don't deserve to have their jobs threatened for political gain."

As the presidential election has heated up, so has the temperature surrounding Halliburton. The company has become a useful piece of shorthand for the newly aggressive Democratic nominee, John Kerry. He told an audience in Albuquerque, N.M., on a campaign trip last month: "Dick Cheney's old company, Halliburton, has profited from the mess in Iraq at the expense of American troops and taxpayers. While Halliburton has been engaging in massive overcharging and wasteful practices under this no-bid contract, Dick Cheney has continued to receive compensation from his former company."

In last week's presidential debate, the Democratic nominee assailed Halliburton again on national television. He said the administration had deliberately limited overseas participation in Iraqi reconstruction to save the "spoils of war" for the company.

Cheney, it turns out, may have been of little real help to Halliburton at all: KBR filed for bankruptcy earlier this year, weighed down by asbestos litigation it inherited from an acquisition the vice president made while he was still running the firm.

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David Teather

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