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« KS-02: Making Tom DeLay Smile | Main | Jewish Family Services »

Top U.S. Defense Contractors Move Offshore to Avoid Taxes

By Simone Davis
March 6, 2008

A "no bid contractor" usually refers to a private for-profit corporation that receives American tax payer monies in large amounts (billions of dollars) without having to competitively bid for the contract. One of the most famous "no bid contractors" is Halliburton. Since Bush and Cheney have been in the White House, Halliburton has received tens of billions of dollars of our money.

There's four important things to remind ourselves about Halliburton...

  1. Dick Cheney served as its CEO right before becoming Bush's VP,
  2. Halliburton has received numerous "no bid" contracts since Bush became the U.S. President,
  3. Halliburton made profits hand over fist in Iraq, and,
  4. Halliburton moved its corporate offices out of Texas and into the Middle Eastern country of Dubai so that Halliburton could avoid paying U.S. taxes.
In other words, Halliburton has had carte blanche access to our tax payer funds, has profited enormously by banking our tax payer monies, but then, Halliburton itself does all it can do to doing its part to support the government that feeds it.

Now, there's even more to report...

Another "no bid" defense contractor moved offshore to avoid U.S. laws and to avoid paying U.S. taxes. This one was also a part of the Halliburton/Dick Cheney gravy train. It has moved it's payroll offices to the Cayman Islands in order to sidestep U.S. laws:

CAYMAN ISLANDS - Kellogg Brown & Root, the nation's top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.

When Texas pipe-fitter Danny Langford applied for unemployment compensation after being let go by Service Employers International Inc., he was rejected, he was told, because he worked for a foreign company.

More than 21,000 people working for KBR in Iraq - including about 10,500 Americans - are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands. (Top Iraq contractor skirts US taxes offshore, Boston Globe)

How does this sit with you? Does it bother you? You know, things weren't always this corrupt in the United States.

There are many aspects to this that bother me. I don't like it that the large profitable corporations that spend our taxpayer money don't have to competitively bid for those projects. I don't like it that they use my tax money to fill their shareholder's bank accounts but they don't pay their fair share of taxes to our government.

I don't especially don't like it that companies like Halliburton and KBR have huge lobbying efforts in Washington DC and they expect great favors from our government, yet, they do little to nothing to help pay for our government.

KBR is now widely believed to be the largest private employer of foreigners in Iraq, and it hires twice as many workers through its Cayman Island subsidiaries as it does by direct hires. Service Employers International alone employs more than 20,000 truck drivers, electricians, accountants, and engineers, roughly half of whom are American, according to Browne, the KBR spokeswoman...

Last year a Senate subcommittee estimated that US corporations avoid paying $30 and $60 billion annually in income taxes by using offshore tax havens... (Top Iraq contractor skirts US taxes offshore, Boston Globe)

We should have laws and policies that say we will only give out contracts to those who competitively bid for them, to those who maintain their corporate offices in the United States, to those who pay their fair share of corporate and payroll taxes - and, to those companies that have an arm's length relationship to the White House or members of Congress. Naturally, KBR and Halliburton would fail on all these counts.

By my way of thinking, these companies are leeches that are sucking us dry and may actually bring about the demise of our country. The practice could become an even more costly problem in the future, as an increasing number of American companies register subsidiaries overseas and bring American employees to work abroad while raking in tax payer revenues to run their companies.

Comments (2)

Enlightened Author Profile Page:

When will people pay attention to the news or facts? Halliburton does not receive no-bid government contracts, it is KBR (Kellogg, Brown & Root) that does contracting work for the defense department. These are two separate entities/companies and the media (including you) want to hype up their stories by continuing to claim this association/realtionship between the two companies. This being the case, Halliburton moved offshore, but not for government contracting purposes. Get your facts straight.

Dear Enlightened Commenter,

I appreciate you leaving a comment at my blog, but your information is wrong. KBR was a fully owned subsidiary of Halliburton until just last year. This means, of course, that Halliburton has been receiving billions of dollars worth of no-bid contracts through that subsidiary as well as other subsidiaries.

Apparently, you have been victimized by Halliburton's shell game. By re-naming and spinning off some of its companies with other names, and moving their offices to offshore locations, like the Caymans and Dubai, Halliburton has succeeded in obscuring the fact that it is the primary no-bid contractor - not just in the defense department but also in the Homeland Security Department.

I stand fully by my blog post above.

Here's a 2003 piece published on CBS News. This shows, that before Halliburton spun off some companies and started playing the shell game that it was brazenly accepting no-bid contracts as far back as 2003:

All In The Family Sept. 21, 2003

Company Official Defends No-Bid Army Contract

(CBS) Almost as soon as the last bomb was dropped over Iraq, the United States began the business of rebuilding the country. As it turns out, it's very big business.

The U.S. will spend approximately $25 billion to repair Iraq by the end of next year - and billions will be needed after that.

Almost all of that money will go to private contractors who vie for lucrative government deals to rebuild Iraq's roads, retrain its police force and operate its airports.

Given all the taxpayer money involved, you might think the process for awarding those contracts would be open and competitive.

But, as 60 Minutes reported last spring, the earliest contracts were given to a few favored companies. And some of the biggest winners in the sweepstakes to rebuild Iraq have one thing in common: lots of very close friends in very high places. Correspondent Steve Kroft reports.One is Halliburton, the Houston-based energy services and construction giant whose former CEO, Dick Cheney, is now vice president of the United States.

Even before the first shots were fired in Iraq, the Pentagon had secretly awarded Halliburton subsidiary Kellogg, Brown & Root a two-year, no-bid contract to put out oil well fires and to handle other unspecified duties involving war damage to the country’s petroleum industry. It is worth up to $7 billion.

But Robert Andersen, chief counsel for the Army Corps of Engineers, says that oil field damage was much less than anticipated and Halliburton will end up collecting only a small fraction of that $7 billion. But he can't say how small a fraction or exactly what the contract covers because the mission and the contract are considered classified information.

Under normal circumstances, the Army Corps of Engineers would have been required to put the oil fire contract out for competitive bidding. But in times of emergency, when national security is involved, the government is allowed to bypass normal procedures and award contracts to a single company, without competition.

And that's exactly what happened with Halliburton.

“We are the only company in the United States that had the kind of systems in place, people in place, contracts in place, to do that kind of thing,” says Chuck Dominy, Halliburton’s vice president for government affairs and its chief lobbyist on Capitol Hill.

He says the Pentagon came to Halliburton because the company already had an existing contract with the Army to provide logistical support to U.S. troops all over the world.

“Let me put a face on Halliburton. It's one of the world's largest energy services companies, and it has a strong engineering and construction arm that goes with that” says Dominy.

“You'll find us in 120 countries. We've got 83,000 people on our payroll, and we're involved in a ton of different things for a lot of wonderful clients worldwide.”

“They had assets prepositioned,” says Anderson. “They had capability to reach out and get sub-contractors to do the various types of work that might be required in a hostile situation.”

“The procurement of this particular contract was done by career civil servants, and I know that it's a perception that those at the very highest levels of the administration, Democrat and Republican, get involved in procurement issues. It can happen. But for the very most part, the procurement system is designed to keep those judgments with the career public servants.”

But is political influence not unknown in the process? In this particular case, Anderson says, it was legally justified and prudent.

But not everyone thought it was prudent. Bob Grace is president of GSM Consulting, a small company in Amarillo, Texas, that has fought oil well fires all over the world. Grace worked for the Kuwait government after the first Gulf War and was in charge of firefighting strategy for the huge Bergan Oil Field, which had more than 300 fires. Last September, when it looked like there might be another Gulf war and more oil well fires, he and a lot of his friends in the industry began contacting the Pentagon and their congressmen.

“All we were trying to find out was, who do we present our credentials to,” says Grace. “We just want to be able to go to somebody and say, ‘Hey, here's who we are, and here's what we've done, and here's what we do.’”

“They basically told us that there wasn't going to be any oil well fires.”
Grace showed 60 Minutes a letter from the Department of Defense saying: "The department is aware of a broad range of well firefighting capabilities and techniques available. However, we believe it is too early to speculate what might happen in the event that war breaks out in the region."

It was dated Dec. 30, 2002, more than a month after the Army Corps of Engineers began talking to Halliburton about putting out oil well fires in Iraq.

“You just feel like you're beating your head against the wall,” says Grace.
However, Andersen says the Pentagon had a very good reason for putting out that message.

“The mission at that time was classified, and what we were doing to assess the possible damage and to prepare for it was classified,” says Andersen. “Communications with the public had to be made with that in mind.”

“I can accept confidentiality in terms of war plans and all that. But to have secrecy about Saddam Hussein blowing up oil wells, to me, is stupid,” says Grace. “I mean the guy's blown up a thousand of them. So why would that be a revelation to anybody?”

But Grace says the whole point of competitive bidding is to save the taxpayers money. He believes they are getting a raw deal. “From what I’ve read in the papers, they're charging $50,000 a day for a five-man team. I know there are guys that are equally as well-qualified as the guys that are over there that'll do it for half that.”

Grace and his friends are no match for Halliburton when it comes to landing government business. Last year alone, Halliburton and its Brown & Root subsidiary delivered $1.3 billion worth of services to the U.S. government.
Much of it was for work the U.S. military used to do itself.

“You help build base camps. You provide goods, laundry, power, sewage, all the kinds of things that keep an army in place in a field operation,” says Dominy.

“Young soldiers have said to me, ‘If I go to war, I want to go to war with Brown & Root.’"

And they have, in places like Afghanistan, Rwanda, Somalia, Kosovo and now Iraq.

“It's a sweetheart contract,” says Charles Lewis, executive director of the Center For Public Integrity, a non-profit organization that investigates corruption and abuse of power by government and corporations. “There's no other word for it.”

Lewis says the trend towards privatizing the military began during the first Bush administration when Dick Cheney was secretary of defense. In 1992, the Pentagon, under Cheney, commissioned the Halliburton subsidiary Brown & Root to do a classified study on whether it was a good idea to have private contractors do more of the military's work.

“Of course, they said it's a terrific idea, and over the next eight years, Kellogg, Brown & Root and another company got 2,700 contracts worth billions of dollars,” says Lewis.

“So they helped to design the architecture for privatizing a lot of what happens today in the Pentagon when we have military engagements. And two years later, when he leaves the department of defense, Cheney is CEO of Halliburton. Thank you very much. It's a nice arrangement for all concerned.”

During the five years that Cheney was at Halliburton, the company nearly doubled the value of its federal contracts, and the vice president became a very rich man.

Lewis is not saying that Cheney did anything illegal. But he doesn't believe for a minute that this was all just a coincidence.

“Why would a defense secretary, former chief of staff to a president, and former member of congress with no business experience ever in his life, not for a day, why would he become the CEO of a multibillion dollar oil services company,” asks Lewis

“Well, it could be related to government contracts. He was brought in to raise their government contract profile. And he did. And they ended up with billions of dollars in new contracts because they had a former defense secretary at the helm.”

Cheney, Lewis says, may be an honorable and brilliant man, but “as George Washington Plunkett once said, ‘I saw my … seen my opportunities and I took them."

Both Halliburton and the Pentagon believe Lewis is insulting not only the vice president but thousands of professional civil servants who evaluate and award defense contracts based strictly on merit.

But does the fact that Cheney used to run Halliburton have any effect at all on the company getting government contracts?

“Zero,” says Dominy. “I will guarantee you that. Absolutely zero impact.”

“In fact, I wish I could embed [critics] in the department of defense contracting system for a week or so. Once they'd done that, they'd have religion just like I do, about how the system cannot be influenced.”
Dominy has been with Halliburton for seven years. Before that, he was former three-star Army general. One of his last military assignments was as a commander at the Army Corps of Engineers.

And now, the Army Corps of Engineers is also the government agency that awards contracts to companies like Halliburton.

Asked if his expertise in that area had anything to do with his employment at Halliburton, Dominy replies, “None.”

But Lewis isn’t surprised at all.

“Of course, he’s from the Army Corps. And of course, he’s a general,” says Lewis. “I’m sure he and no one else at Halliburton sees the slightest thing that might look strange about that, or a little cozy maybe.”

Lewis says the best example of these cozy relationships is the defense policy board, a group of high-powered civilians who advise the secretary of defense on major policy issues - like whether or not to invade Iraq. Its 30 members are a Who's Who of former senior government and military officials.

There’s nothing wrong with that, but as the Center For Public Integrity recently discovered, nine of them have ties to corporations and private companies that have won more than $76 billion in defense contracts. And that's just in the last two years.

“This is not about the revolving door, people going in and out,” says Lewis. “There is no door. There's no wall. I can't tell where one stops and the other starts. I'm dead serious.”

“They have classified clearances, they go to classified meetings and they're with companies getting billions of dollars in classified contracts. And their disclosures about their activities are classified. Well, isn't that what they did when they were inside the government? What's the difference, except they're in the private sector.”

Richard Perle resigned as chairman of the defense policy board last month after it was disclosed that he had financial ties to several companies doing business with the Pentagon.

But Perle still sits on the board, along with former CIA director James Woolsey, who works for the consulting firm of Booz, Allen, Hamilton. The firm did nearly $700 million dollars in business with the Pentagon last year.

Another board member, retired four-star general Jack Sheehan, is now a senior vice president at the Bechtel corporation, which just won a $680 million contract to rebuild the infrastructure in Iraq.

That contract was awarded by the State Department, which used to be run by George Schultz, who sits on Bechtel's board of directors.

“I'm not saying that it's illegal. These guys wrote the laws. They set up the system for themselves. Of course it's legal,” says Lewis.

“It just looks like hell. It looks like you have folks feeding at the trough. And they may be doing it in red white and blue and we may be all singing the "Star Spangled Banner," but they're doing quite well.” Halliburton has done extremely well. So far, the company has earned almost a billion dollars on the oil well fire contract, and could earn another billion providing logistical support for U.S. troops stationed in Iraq.

As for Vice President Cheney, he says he had nothing to do with the Army Corp's decision to give the no bid contract to Halliburton. Cheney also insists he cut all financial ties to the company three years ago.

But this week, Senate democrats challenged that assertion. They say the vice president still gets hundreds of thousands of dollars from his former company each year - and they called for congressional hearings on Halliburton's contract.

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