Top Ten War Profiteers of 2004

http://www.guerrillanews.com/articles/article.php?id=1029

Introduction

At the beginning of the Iraq war, Andrew Natsios, head of the U.S.
Agency for International Development (AID), proclaimed that the
reconstruction of Iraq would look like a modern-day Marshall Plan. But a
year and a half later, a combination of bureaucratic ineptitude,
corporate corruption and the growing Iraqi resistance threaten to
undermine the Bush administration's grand designs.

In mid-July, U.S. officials admitted that fewer than 140 of the 2,300
reconstruction projects funded by the U.S. were underway. Although AID
says "dirt has been turned" on 1,167 projects including schools and
hospitals, with at least 70 new ones staring each week, it's unlikely
that the big picture has changed much. The kidnapping and execution of
contract personnel and the ongoing sabotage of key projects-power
plants, electricity lines and oil pipelines-has slowed work in many
areas of the country to a crawl, jacking up the cost of security,
insurance and other ancillary expenditures, which in most cases amount
to half of the contractors' budgets.

By August, Ambassador John Negroponte had to announce that more than $3
billion of $18 billion in U.S. aid earmarked by Congress for engineering
and reconstruction work would be used for security and counterinsurgency
operations.

The announcement was tacit recognition that a kind of vicious cycle is
at work. The aggravation caused by the lack of electricity and other
basic services is certain to be blamed on the CPA and the contractors,
which could result in further support for the resistance. Exactly how
much the resistance has gained from the festering resentments caused by
the stalled reconstruction process is difficult to say. But an increase
in attacks on construction sites - more than one a day according to the
Army - indicates that they are a clear target of the resistance.

In late December, Contrack International, the lead partner on a $320
million transportation systems contract, announced that it was
withdrawing from Iraq because of "prohibitive" security costs.

By the fall, news that just 7 percent of the $18 billion originally
allocated for reconstruction set off fireworks in Congress. Senator
Richard Lugar, R-Indiana, blasted the Bush administration as
"incompetent" for failing to devote adequate on-the-ground personnel to
contract administration, management, and oversight.

"It's beyond pitiful, it's beyond embarrassing, it's now in the zone of
dangerous," added Chuck Hagel, R-Nebraska.

Searching for Root Causes

The Professional Services Council, a trade association representing some
of the Iraq contractors, says much of the blame can be placed upon "a
growing politicization of government procurement," as well as the
distance between the procurement planners sitting in Washington and
contractors in the field.

They have a point. The lack of accountability, reports the Project on
Government Oversight in a recent report, can be attributed to the
gutting of acquisition workforce and oversight personnel, mandated by
Congress starting in the mid-1990s, at a time when the Pentagon began to
hand out large open-ended (Indefinite-Delivery/Indefinite-Quantity)
contracts to well-connected firms including Bechtel and Halliburton. The
result is layer upon layer of subcontracts, with little transparency and
reduced government oversight.

Ironically, the contracting agencies' solution has been to outsource
much of the oversight process itself. While the CPA's audit staff was
cut by nearly half during 2004, for example, AID and other agencies were
hiring contractors to oversee other contractors with whom they already
had ongoing contractual relationships, according to this report released
by Henry Waxman, D-California, and Senate Democrats.

U.S. firms are not the only ones to complain about how difficult it has
been to get in on the action. (Rep. James P. Moran Jr., D-Virginia, told
to a Washington Post reporter that a company in his district was told by
Pentagon officials that "if they want the money they really have to go
though Halliburton.") Even the administration's closest Iraqi allies
have been critical.

Last February, for example, Rend Rahim Francke, the U.S.-appointed Iraq
Governing Council's representative in Washington, openly criticized the
CPA for passing over Iraqi firms when awarding billions of dollars in
reconstruction contracts. Iraqi firms, she said, could easily have done
the work more cheaply and quickly. In December, AID claimed at least
100,000 Iraqis were currently employed in U.S.-funded reconstruction
projects, a figure it expects will grow.

The CPA's rush to impose new economic rules - especially the announced
intention to rapidly privatize 200 state-owned enterprises, has also
done considerable damage to the confidence and trust that Iraqis have
had. Critics say the CPA's Orders were clearly designed to benefit
foreign investors more than the Iraqi people, and constitute a virtual
blueprint for economic colonialism.

CPA Order 39, for example, would essentially privatize Iraq's 200
state-owned industries. The order allows for "national treatment" of
foreign investors (i.e. no preferences for local bidders and investors),
who can also own 100 percent of any privatized business with
unrestricted, tax-free remittance of all profits.

A leaked memo written by British attorney general Lord Goldsmith
acknowledges that the CPA may have outstepped its own legitimate
authority in issuing the orders, warning Prime Minister Tony Blair that
'major structural economic reforms would not be authorized by
international law.' "

Yet the legality of the orders is probably a moot point. With so much
instability, it's not as if foreign investors have been beating the
doors town to seize the country's assets. The country is so unstable
that most of the pitches to foreign investors have taken place outside
the country. To little avail.

A legal quagmire

In October, a new twist was added to the confusion surrounding the
contracts (are they wasting our money or not spending it fast enough?):
the CPA, it was revealed, paid $12 billion to the contractors out of the
Development Fund of Iraq (DFI). I.e., instead of using the money
earmarked by Congress for the reconstruction, the CPA used Iraq's oil
revenues to pay off the U.S. contractors - money that before the war was
said (by Secretary of State Powell, among others) to be the "Iraqi
people's" money.

According to an independent audit [PDF] conducted by KPMG for the
multilateral International Advisory and Monitoring Board (established
under UN Security Council Resolution 1483 as an audit oversight board),
nearly $1.5 billion was extracted from the DFI to pay Halliburton.

"If we are going to look at how Iraq's oil proceeds have been managed,
we have an obligation to examine not only the actions of the U.N., but
also our own actions," Congressman Henry Waxman, D-California, suggested
in October, referring to the attacks in Congress on the UN's handling of
the oil-for-food program before the war. "This money belongs to the
Iraqi people. It is not a slush fund."

The CPA's quasi-governmental status has not only been criticized by
those who say the CPA's orders violate the Geneva Convention - it has
also created a kind of legal shell game that shields contractors from
any attempt to hold them accountable for defrauding U.S. taxpayers. As
CorpWatch's Dave Phinney recently reported, lawyers for Custer Battles,
a company accused of defrauding taxpayers, claim that the fact they were
paid out of the DFI by the CPA means that the company cannot be sued
under the False Claims Act. The CPA's ambiguous legal status adds to the
confusion-the Bush administration has issued contradictory assessments
of the CPA's status - making it unclear if it considers it a federal
agency or not-e.g. see this memo by the Congressional Research Service.

Major Major Major Major Screwups

The problems plaguing the Iraq contracts extend far beyond questions of
legality, blind ideology, heartless favoritism and mindless sloppiness.
Recent revelations suggest that the Pentagon's handoff to Halliburton
may have also allowed individual employees to demand kickbacks from
potential subcontractors. Congressman Waxman's office dropped a new
"H-bomb" in November, when it announced that it had received 400 pages
of internal State Department documents which suggest that Halliburton
officials were "on the take" and "solicit[ing] bribes openly" from
potential subcontractors.

Although the company did not respond directly to Waxman's assertions, in
a quarterly SEC filing the company said the Pentagon's Inspector General
"may investigate" two employees who "may have solicited and/or accepted
payments from these third-party subcontractors while they were employed
by us."

The lack of effective oversight extends far beyond Halliburton. We are
now witnessing an epidemic of corruption. According the CPA's latest
report, 38 potential criminal cases associated with the Iraq contracts
are still under investigation, while 75 had been closed or referred to
other investigative agencies. The Defense Criminal Investigative Service
had 16 open cases as of the beginning of October.

Some members of Congress believe the corruption has become enough of a
problem that it is time to establish a special oversight committee. A
bipartisan coalition of Senators led by Dick Durbin, D-Illinois, and
Larry Craig, R-Idaho, introduced a resolution in September to
re-establish Harry Truman's famous WWII committee on war profiteering.

The litmus test of the proposal will likely come in early 2005, shortly
after Iraq's scheduled elections (if and when they occur), when the Bush
administration is expected to push for another appropriation.

The Center for Corporate Policy's Top Ten War Profiteers of 2004

1) AEGIS

In June, the Pentagon's Program Management Office in Iraq awarded a $293
million contract to coordinate security operations among thousands of
private contractors to Aegis, a UK firm whose founder was once
investigated for illegal arms smuggling.

An inquiry by the British parliament into Sandline, Aegis head Tim
Spicer's former firm, determined that the company had shipped guns to
Sierra Leone in 1998 in violation of a UN arms embargo. Sandline's
position was that it had approval from the British government, although
British ministers were cleared by the inquiry. Spicer resigned from
Sandline in 2000 and incorporated Aegis in 2002.

The Aegis contract has stirred up considerable controversy, even in the
shadowy world of private military contractors. A protest by rival bidder
Dyncorp - whose bid was deemed unacceptable by the Army - was dismissed
by the General Accountability Offfice, which concluded that Dyncorp
"lacked standing to challenge the integrity of the awardee (Aegis)."
Spicer's defendants point out that there is no provision in contract law
to deny a contract based on a bidder's "colorful" past.

Critics say that's just the problem. U.S. and international law have
failed to address the role of PMCs in Iraq, resulting in a near-total
lack of accountability that epitomizes what's wrong with the corporate
takeover of Iraq.

"Who gives the orders? Where do contractors fit in the chain of command?
Who is responsible if things go wrong?" Rep. Jan Schakowsky (D-IL) asks.

Not only do PMCs fall outside the Military Code of Justice but, thanks
to another order passed by Paul Bremer (CPA order #17), it's not clear
that they could be prosecuted under Iraq's own laws. That's because the
order grants foreign contractors, including private security firms, full
immunity from Iraq's laws, even if they injure or kill an innocent
party.

2) BearingPoint

Critics find it ironic that BearingPoint, the former consulting division
of KPMG, received a $240 million contract in 2003 to help develop Iraq's
"competitive private sector," since it had a hand in the development of
the contract itself.

According to a March 22 report by AID's assistant inspector general
Bruce Crandlemire, "Bearing Point's extensive involvement in the
development of the Iraq economic reform program creates the appearance
of unfair competitive advantage in the contract award process."

BearingPoint spent five months helping USAID write the job
specifications and even sent some employees to Iraq to begin work before
the contract was awarded, while its competitors had only a week to read
the specifications and submit their own bids after final revisions were
made.

"No company who writes the specs for a contract should get the
contract," says Keith Ashdown, the vice president of Washington,
DC-based Taxpayers for Common Sense.

"BearingPoint was selected through a transparent and competitive bidding
process to undertake the challenging Economic Governance project in
Iraq," says BearingPoint's John LaPlace. "We were pleased to be selected
to lead this work, just as we were pleased to be selected through
competitive bids to lead similar large reform efforts in Afghanistan,
Montenegro, Kosovo and other countries around the world."

Neither Crandlemire nor other critics have ever said that BearingPoint
broke the law. But the company's ties to the Bush administration
(according to the Center for Responsive Politics, BearingPoint employees
gave $117,000 to the 2000 and 2004 Bush election campaigns, more than
any other Iraq contractor) is an example of "crony contracting" that
undermines the legitimacy of those who might claim to be working to
establish competitive markets in the "newly liberated" country.

3) Bechtel

Schools, hospitals, bridges, airports, water treatment plants, power
plants, railroad, irrigation, electricity, etc. Bechtel was literally
tasked with repairing much of Iraq's infrastructure, a job that was
critical to winning hearts and minds after the war.

According to the company's contract, "the U.S. government envisions a
post-war reconstruction effort as a highly visual symbol of good faith
toward building trust for economic, social and cultural efforts as well
as for political stability in the region."

To accomplish this, the company hired over 90 Iraqi subcontractors for
at least 100 jobs. Most of these subcontracts involved rote maintenance
and repair work, however, and for sophisticated work requiring
considerable hands-on knowledge of the country's infrastructure, the
company bypassed Iraqi engineers and managers.

Although Bechtel is not entirely to blame, the company has yet to meet
virtually any of the major deadlines in its original contract. In
October, according to AID, the CPA had restored only 4,400 MW of
electrical generating capacity target, falling short of its goal of
6,000 MW by end of June (AID's goal was 9.000, a level that existed in
the country before the first gulf war). According to a June GAO report,
"electrical service in the country as a while has not shown a marked
improvement over the immediate postwar levels of May 2003 and has
worsened in some governorates."

Some of the delay is obviously due to the difficulties of getting
employees and materials safely to project sites.

4) BKSH & Associates

Chairman Charlie Black, is an old Bush family friend and prominent
Republican lobbyist whose firm is affiliated with Burson Marsteller, the
global public relations giant. Black was a key player in the Bush/Cheney
2000 campaign and together with his wife raised $100,000 for this year's
reelection campaign.

BKSH clients with contracts in Iraq include Fluor International (whose
ex-chair Phillip Carroll was tapped to head Iraq's oil ministry after
the war, and whose board includes the wife of James Woolsey, the ex-CIA
chief who was sent by Paul Wolfowitz before the war to convince European
leaders of Saddam Hussein's ties to al Qaeda). Fluor has won joint
contracts worth up to $1.6 billion.

Another client is Cummins Engine, which has managed to sell its power
generators thanks to the country's broken infrastructure.

Most prominent among BKSH's clients, however, is the Iraqi National
Congress, whose leader Ahmed Chalabi was called the "George Washington
of Iraq" by certain Pentagon neoconservatives before his fall from
grace. BKSH's K. Riva Levinson was hired to handle the INC's U.S. public
relations strategy in 1999. Hired by U.S. taxpayers, that is: Until July
2003, the company was paid $25,000 per month by the U.S. State
Department to support the INC.

BKSH has also represented other foreign governments, including Columbia
and Equatorial Guinea. In July, O'Dwyer's, the public relations industry
trade publication, reported that BKSH would represent the new government
of Haiti (established after a U.S.-supported coup that had thrown Jean
Bertrand Aristide out) "on a pro bono basis."

"We're not looking to make any money off these people," Black explained.
"It's a very poor country. We're just trying to do what we can to help
out.">

O'Dwyer's has also reported that Levinson is now representing Radio
Sedaye Iran (Radio Voice of Iran), a Beverly Hills-based network that
advocates regime change in Iran.

5) CACI and Titan

Although members of the military police face certain prosecution for the
horrific treatment of prisoners at the Abu Ghraib prison, so far the
corporate contractors have avoided any charges.

Maj. Gen. Antonio Taguba reported in an internal Army report that two
CACI employees "were either directly or indirectly responsible" for
abuses at the prison, including the use of dogs to threaten detainees
and forced sexual abuse and other threats of violence. Another internal
Army report suggested that Steven Stefanowicz, one of 27 CACI
interrogators working for the Army in Iraq, "clearly knew [that] his
instructions" to soldiers interrogating Iraqi prisoners "equated to
physical abuse."

The Army says it has referred cases involving unidentified employees of
CACI to the Department of Justice. Through his attorney, Stefanowicz
denies any wrongdoing.

"The CACI personnel performing services in Iraq were at all times
subject to the military chain of command and took their orders from
military personnel," CACI officials responded to intense scrutiny of its
involvement in the atrocities in a statement released in July. "While
these advisors provide valuable insight and advise to the military
intelligence officers they serve, they do not issue orders or exercise
operational control of interrogation activities."

"Titan's role in Iraq is to serve as translators and interpreters for
the U.S. Army," company CEO Gene Ray said, implying that news reports
had inaccurately implied the employees' involvement in torture. "The
company's contract is for linguists, not interrogators."

But according to Joseph a. Neurauter, a GSA suspension and debarment
official, CACI's role in designing its own Abu Ghraib contract
"continues to be an open issue and a potential conflict of interest."

Nevertheless, the GSA and other agencies conducting their own
investigations have yet to find a reason to suspend the company from any
new contracts. As a result, in August the Army gave CACI another $15
million no-bid contract to continue providing interrogation services for
intelligence gathering in Iraq; In September, the Army awarded Titan a
contract worth up to $400 million for additional translators.

The companies' apparent success in waging an aggressive damage-control
campaign has been aided by heavy-hitting lobbyists. For CACI: former
representatives Vin Weber (R-MN) and Vic Fazio (C-CA), as well as Edward
Kutler, an aide to former House Speaker Newt Gingrich. In addition, CACI
has retained a firm managed by former House Speaker Bob Livingston
(R-LA), among others. Titan's impressive stable of lobbyists includes
Michael Herson and Van Hipp, who once worked at the Pentagon under
then-Secretary of Defense Dick Cheney.

"It is patently clear that these corporations saw an opportunity to
build their businesses by proving they could extract information from
detainees in Iraq, by any means necessary. In doing so they not only
violated a raft of domestic and international statutes but diminished
America's stature and reputation around the world," says Susan Burke, an
attorney who joined with the Center for Constitutional Rights to file a
RICO lawsuit against CACI and Titan in June.

Another national security concern has snagged at least one Titan
employee already. One of Titan's translators, Ahmed Fathy Mehalba, was
arrested after visiting his family in Egypt with classified information
contained on computer disks that he had taken with him from Guantanamo
Bay, Cuba. Mehalba has been in jail, awaiting trial ever since.

Meanwhile, allegations of bribery association with Titan's operations in
Saudi Arabia and other countries have wrecked an anticipated $2 billion
buyout by Lockheed Martin.

6) Custer Battles

At the end of September, the Defense Department suspended Custer Battles
(the name comes from the company's two principle founders - Michael
Battles and Scott Custer) and 13 associated individuals and affiliated
corporations from all federal contracts for fraudulent billing practices
involving the use of sham corporations set up in Lebanon and the Cayman
Islands.

The CPA caught the company after it left a spreadsheet behind at a
meeting with CPA employees. The spreadsheet revealed that the company
had marked up certain expenses associated with a currency exchange
contract by 162 percent.

Robert Isakson, a company employee, drew attention to the problem by
filing a false claims action against the company. Isakson also alleged
that Custer's "war profiteering . contributed to the deaths of at least
four Custer Battles employees."

In a prepared statement, company attorneys suggested that the
government's decision to not participate in Isakson's case is evidence
that the charges are baseless, and that "the individuals [involved]
filed this claim solely as a last ditch effort to achieve a competitive
edge over CB."

The suspension was the first for any company in association with its
work in Iraq. The FBI and the Pentagon inspector general's Defense
Criminal Investigative Services are both conducting ongoing
investigations.

7) Halliburton

In December Congressman Waxman (D-CA), announced that "a growing list of
concern's about Halliburton's performance" on contracts that total $10.8
billion have led to multiple criminal investigations into overcharging
and kickbacks.

In nine different reports, government auditors have found "widespread,
systemic problems with almost every aspect of Halliburton's work in
Iraq, from cost estimation and billing systems to cost control and
subcontract management." Six former employees have come forward,
corroborating the auditors' concerns.

Another "H-bomb" dropped just before the election, when a top
contracting official responsible for ensuring that the Army Corps of
Engineers follows competitive contracting rules accused top Pentagon
officials of improperly favoring Halliburton in an early-contract before
the occupation. Bunnatine Greenhouse says that when the Pentagon awarded
the company a 5-year oil-related contract worth up to $7 billion, it
pressured her to withdraw her objections, actions that she said were
unprecedented in her experience.

Halliburton spokesperson Beverly Scippa says that while she cannot
comment on the allegations until specific charges are filed, any
suggestion that the company's involvement made it difficult for other
companies to fairly compete are "absolutely untrue," pointing to a
earlier GAO report that found that Halliburton/KBR was "the only
contractor DOD had determined was in a position to provide the services
within the required time frame given prewar planning requirements."

But others, including Waxman, believe that Greenhouse's version of
events corroborates existing evidence that the contracting process was
biased toward Vice President Dick Cheney's old company.

Pentagon officials referred the matter to the Pentagon's inspector
general, a move that critics say effectively buried the issue.

(For everything you want to know about Halliburton and more visit
Halliburton Watch).

8) Lockheed Martin

Lockheed Martin remains the king among war profiteers, raking in $21.9
billion in Pentagon contracts in 2003 alone. With satellites and planes,
missiles and IT systems, the company has profited from just about every
phase of the war except for the reconstruction. The company's stock has
tripled since 2000 to just over $60.

Lockheed is helping Donald Rumsfeld's global warfare system (called the
Global Information Grid), a new integrated tech-heavy system that the
company promises will change transform the nature of war. In fact, the
large defense conglomerate's sophistication in areas as diverse as space
systems, aeronautics and information and technology will allow it to
play a leading role in the development of new weapons systems for
decades to come, including a planned highly-secure military Internet, a
spaced-based missile defense system and next-generation warplanes such
as the F-22 (currently in production) and the Joint Strike Fighter F-35.

When it comes to defense policy, Lockheed's network of influence is
virtually unmatched. E.C. Aldridge Jr., the former undersecretary of
defense for acquisitions and procurement, gave final approval to begin
building the F-35 in 2001, a decision worth $200 billion to the company.
Although he soon left the Pentagon to join Lockheed's board, Aldridge
continues to straddle the public-private divide, Donald Rumsfeld
appointed him to a blue-ribbon panel studying weapons systems.

Former Lockheed lobbyists and employees include the current secretary of
the Navy, Gordon England, secretary of transportation Norm Mineta (a
former Lockheed vice president) and Stephen J. Hadley, Bush's proposed
successor to Condoleeza Rice as his next national security advisor.

Not only are Lockheed executives commonly represented on the Pentagon
various advisory boards, but the company is also tied into various
security think tanks, including neoconservative networks. For example,
Lockheed VP Bruce Jackson (who helped draft the Republican foreign
policy platform in 2000) is a key player at the neo-conservative
planning bastion known as the Project for a New American Century.

9) Loral Satellite

In the buildup to the war the Pentagon bought up access to numerous
commercial satellites to bolster its own orbiting space fleet. U.S.
armed forces needed the extra spaced-based capacity to be able to guide
its many missiles and transmit huge amounts of data to planes (including
unmanned Predator drones flown remotely by pilots who may be halfway
around the world), guide missiles and troops on the ground.

Industry experts say the war on terror literally saved some satellite
operators from bankruptcy. The Pentagon "is hovering up all the
available capacity" to supplement its three orbiting satellite fleets,
Richard DalBello, president of the Satellite Industry Association
explained to the Washington Post. The industry's other customers -
broadcast networks competing for satellite time - were left to scramble
for the remaining bandwidth.

Loral Space & Communications Chairman Bernard L. Schwartz is very tight
with the neoconservative hawks in the Bush administration's foreign
policy ranks, and is the principal funder of Blueprint, the newsletter
of the Democratic Leadership Council.

In the end, the profits from the war in Iraq didn't end up being as huge
for the industry as expected, and certainly weren't enough to compensate
for a sharp downturn in the commercial market. But more help may be on
its way. The Pentagon announced in November that it would create a new
global Intranet for the military that would take two decades and
hundreds of billions of dollars to build. Satellites, of course, will
play a key part in that integrated global weapons system.

10) Qualcomm

Two CPA officials resigned this year after claiming they were pressured
by John Shaw, the deputy undersecretary of defense for technology
security to change an Iraqi police radio contract to favor Qualcomm's
patented cellular technology, a move that critics say was intended to
lock the technology in as the standard for the entire country.

Iraq's cellular market is potentially worth hundreds of millions of
dollars in annual revenues for the company, and potentially much more
should it establish a standard for the region. Shaw's efforts to
override contracting officials delayed an emergency radio contract,
depriving Iraqi police officers, firefighters, ambulance drivers and
border guards of a joint communications system for months.

Shaw says he was urged to push Qualcomm's technology by Rep. Darrell E.
Issa, a Republican whose San Diego County district includes Qualcomm's
headquarters. Issa, who received $5,000 in campaign contributions from
Qualcomm employees from 2003 to 2004, sits on the House Small Business
Committee, and previously tried to help the company by sponsoring a bill
that would have required the military to use its CDMA technology.

"Hundreds of thousands of American jobs depend on the success of
U.S.-developed wireless technologies like CDMA," Issa claimed in a
letter to Donald Rumsfeld. But the Pentagon doesn't seem to be buying
the argument. The DoD's inspector general has asked the FBI to
investigate Shaw's activities.

(For an excellent, in-depth investigation of Qualcomm see Michael
Scherer, Crossing the Lines, Mother Jones, Sept./Oct. 2004)

This report was compiled by the Center for Corporate Responsibility, a
non-profit, non-partisan public interest organization working to curb
corporate abuses and make corporations publicly accountable.