|USA: Halliburton Settles with SEC|
September 7th, 2004
Halliburton agreed to a $7.5 million settlement with the U.S. Securities
and Exchange Commission (SEC) over the company's suspect accounting
practices while Dick Cheney headed the company. It's worth looking at
what led up to that settlement as well as Cheney's statements regarding
all things Halliburton with an eye towards the vice-president's
culpability in the matter, not to mention his veracity.
After all, it was only a couple of years ago when both Cheney and
President George W. Bush demanded higher ethical standards for
corporations, tougher laws against corporate malfeasance and more
responsible corporate executives. "We must usher in a new era of
integrity in corporate America," Bush told the Association for a
Better New York in July 2002. He called for an end to "cooking the
But it appears that tough talk by Bush and Cheney applies to all
corporations and their executives except Halliburton and
During his tenure as Halliburton's CEO (1995-2000), Cheney may have
participated in getting the company's finance executives to use
aggressive accounting methods that gave Wall Street the false impression
that the oil-field services company was profitable between 1998 and 1999,
which boosted the value of Halliburton's stock and helped Cheney earn
more than $35 million when he sold his shares in 2000.
The SEC said that Halliburton changed the way it accounted for
construction revenues in 1998 and did not report that change to investors
for more than a year, a violation of securities rules. The accounting
sleight-of-hand by Halliburton caused the company's public statements
regarding its income in 1998 and 1999 to be materially misleading,
boosting Halliburton's paper profits by $120 million.
"In the absence of any disclosure, the investing public was deprived
of a full opportunity to assess Halliburton's reported income more
particularly, the precise nature of that income, and its comparability to
Halliburton's income in prior periods," the SEC said.
The changes to the company's accounting practices led to a
"significant difference in their respective effects on Halliburton's
financial presentation: the new practice reduced losses on several large
construction projects" and allowed the company to report a higher
profit, the SEC said.
When Halliburton changed its accounting practices in 1998, the company
was already enduring huge financial losses as a result of some of the
long-term contracts it signed, quarterly filings with the SEC show.
Halliburton's stock subsequently tanked, due in part, to a recession in
the oil industry, which author Robert Bryce, who has written extensively
on Halliburton, explained during an appearance on PBS' The News Hour on
July 24, 2002 following Halliburton's announcement that it was under
investigation by the SEC.
"In '98 the world oil industry was in a world of hurt," Bryce
said. "Oil prices were depressed. Drilling activity was very low.
And Halliburton had also just completed a merger with Dresser
Industries..." It should be noted that the New York Times quoted two
former Dresser Industries executives in a May 22, 2002 story as saying
that after Cheney guided the merger of Dresser with Halliburton in 1998,
Halliburton "instituted aggressive accounting practices to obscure
Bryce elaborated on this point during his interview, saying Halliburton
"was eager to show any revenue that it could and by using
mark-to-market on this one small segment of their business, they were
able to add $90 million or $89 million in '98. And then in '99, it was
$98 million. And then in 2000 it was $113 million. So again that's a
relatively small figure compared to the tens of billions or over $10
billion that they were counting in revenue but it still counted
significantly in terms of their profit statement."
When the investigation into Halliburton's accounting methods was first
launched two years ago, Cheney was dogged by questions about his role in
the scandal. Like Gary Winnick of Global Crossing, Dennis Kozlowski of
Tyco, John Regas of Adelphia and Ken Lay of Enron, Cheney employed a Sgt.
Schultz defense, saying publicly on a number of occasions that he was
unaware of the financial machinations that went on at Halliburton while
he was chief executive. (Of course, each of the aforementioned corporate
executives has been prosecuted by the Justice Department for allegedly
cooking the books at their respective companies despite their public
So how much exactly did Cheney know about Halliburton's accounting
practices? Let's turn to Halliburton's current chief executive, David
Lesar, who told Newsweek magazine in July 2002 that Cheney knew about
Halliburton's accounting practices and that "Cheney was aware that
the firm was counting projected cost-overrun payments as
"The vice president was aware of who owed us money, and he helped us
collect it," Lesar said.
Wendy Hall, a spokeswoman for Halliburton, also said at the time that
Cheney "was aware we accrued revenue on unapproved claims in
accordance with generally accepted accounting principles."
Those "generally accepted accounting principles" are something
called mark-to-market accounting, whereby profits from long-term
contracts are booked immediately rather than when the money is actually
received by the company. This accounting trick allowed companies like
Enron and Halliburton to create an illusion of a profitable business when
in fact the company was losing cash.
This is an example of how it worked: Halliburton's construction projects,
which make up the bulk of the company's business, often went over budget.
The company used to account for the revenue it received from these
projects after settling with its clients on an agreed upon figure. But
after 1998, Halliburton took a more aggressive approach, booking revenues
that it assumed its customers would eventually pay even though the
numbers that were agreed upon were lower than what Halliburton had
This gimmick, approved by now defunct accounting firm Arthur Andersen,
allowed Halliburton to add $89 million in revenues to its books in 1998,
helping the company beat its earnings target by 2 cents a share for the
year and increasing its stock value. If the accounting change hadn't been
employed, said Wall Street analysts, the company would have missed its
earnings target by 11 cents a share. Under Cheney's tenure, accounting
irregularities at the company exceeded $234 million, according to
documents obtained by the watchdog group Center for Public
Furthermore, Halliburton's SEC filings raise other red flags indicating
the company used aggressive accounting methods to mask other types of
"According to S.E.C. filings, Halliburton's accounts receivable
sales booked by the company even though it had not yet been paid for them
- soared relative to its total sales during Cheney's tenure,"
reported the Times in a May 22, 2002 story. "At the same time, its
competitors' accounts receivable fell slightly. When Cheney became
Halliburton's chief executive in October 1995, Halliburton had roughly 95
cents in receivables for every dollar in quarterly revenues. When he left
in July 2000, the ratio was $1.20 in receivables for each dollar in
quarterly sales. Over the same period, the average ratio of receivables
to sales at five big competitors of Halliburton fell slightly, from 92
cents per dollar of sales in 1995 to 86 cents per dollar 5 years
In other words, Halliburton was inflating its accounts receivables which
made the company seem more profitable than it was. And all the SEC
filings were signed by Cheney.
Fleecing Uncle Sam
Similar to the current charges that the company has over-billed the
federal government for its contract work in Iraq, it was announced in
2000 that the company was being investigated related to its over-billing
of the feds for its work at Fort Ord in California - under Cheney's
watch. Following revelations that he made a $35 million windfall from his
sales of Halliburton stock, right before the company's share price
crashed on the announcement that it was being investigated by the grand
jury, the Washington Post summed up Cheney's tenure at Halliburton this
way on July 16, 2002: "The developments at Halliburton since
Cheney's departure leave two possibilities: Either the vice president did
not know of the magnitude of problems at the oilfield services company he
ran for five years, or he sold his shares in August 2000 knowing the
company was likely headed for a fall."
Still, as Halliburton's chief executive, Cheney was responsible for
Halliburton's books. Cheney, to some degree, acknowledged that Arthur
Andersen, which unraveled in 2002 after the company was found guilty of
obstruction of justice for destroying documents related to its role in
the Enron debacle, was pushing the envelope in its use of aggressive
accounting tactics. Cheney appeared in a 1996 promotional video for
Andersen and spoke glowingly about the company for going above and beyond
routine audits for Halliburton: "One of the things I like that they
do for us is that, in effect, I get good advice, if you will, from their
people based upon how we're doing business and how we're operating, over
and above the, just sort of the normal by-the-books audit
The SEC did question Cheney during its two-year-long probe and said that
the vice president should not be held accountable for the accounting
shenanigans that went on behind the scenes at Halliburton. All five of
the SEC commissioners who interviewed Cheney and approved the recent $7.5
million settlement were appointed by President Bush. The questions
surrounding what Cheney knew about Halliburton's misdeeds and when he
knew it does not begin and end with the company's accounting practices.
The vice president has also been implicated in a scandal involving
bribery in Nigeria.
In that case, a French judge is poring over evidence to determine whether
Cheney may have been responsible under French law for at least one of
four bribery payments exchanged between a Halliburton subsidiary and
Nigerian officials to obtain contracts for liquefied natural projects.
Under French law, "the head of a company can be charged with 'misuse
of corporate assets' for bribes paid by any employee - even if the
executive didn't know about the improper payments." The U.S. Justice
Department is also investigating the issue.
Doing business in Baghdad
What are impressive about the five years Cheney spent at the helm of
Halliburton are the reams of documents in the public domain that, if one
were to simply connect the dots, prove that the vice president's business
acumen and ethical standards as a corporate executive is at odds with the
rhetoric Cheney has been spewing on the campaign trail.
An example of such doublespeak is the way in which the vice president
talks about Iraq and its former dictator, Saddam Hussein, as
long-standing enemies of the United States, which is a fact, but one that
Cheney seemed not to be concerned with when he presided over
When Cheney was Secretary of Defense under George Bush, Sr. he lashed out
at American companies that profited from dealings with Iraq after the
first Gulf War.
His stance apparently changed when it appeared that Halliburton was
headed for financial disaster in the mid-1990s. Cheney said sanctions
against countries such as Iraq were hurting corporations like
"We seem to be sanction-happy as a government," Cheney said at
an energy conference in April 1996, as reported in the oil industry
publication Petroleum Finance Week. "The problem is that the good
Lord didn't see fit to always put oil and gas resources where there are
Sanctions make U.S. businesses "the bystander who gets hit when a
train wreck occurs," Cheney told Petroleum Finance Week.
"While virtually every other country sees the need for sanctions
against Iraq and Saddam Hussein's regime there, Cheney sees general
agreement that the measures have not been very effective despite their
having most of the international community's support. An individual
country's embargo, such as that of the United States against Iran, has
virtually no effect since the target country simply signs a contract with
a non- U.S. business," the publication reported.
Moreover, Cheney had personally lobbied Congress in 1996 to lift
sanctions against several Middle Eastern countries so Halliburton could
onduct business in the Gulf, despite concerns that such countries
sponsored terrorism. When Congress declined such requests Cheney oversaw
Halliburton's business dealings with Iran and Libya regimes that
President Bush has referred to as two-thirds of the "axis of
evil" at a time when U.S. companies were prohibited from entering
into such deals as a result of sanctions placed on those countries.
Halliburton set up a Cayman Island subsidiary to skirt U.S. law in order
to do business with Iran and Libya.
Under Cheney, Halliburton signed contracts with Iraq to sell the country
more than $73 million in oil production equipment and spare
But when he spoke about it on a July 30, 2000 edition of "This
Week" on ABC-TV, Cheney said: "I had a firm policy that we
wouldn't do anything in Iraq, even arrangements that were supposedly
legal. We've not done any business in Iraq since U.N. sanctions were
imposed on Iraq in 1990, and I had a standing policy that I wouldn't do
Halliburton has since acknowledged such dealings took place under
Cheney's leadership. Now the Justice Department is investigating whether
Halliburton violated sanctions that prohibit U.S. corporations and
businesses from engaging in commercial, financial, or trade transactions
with Iran while Cheney headed the company.
In July 2004, a federal grand jury issued a subpoena to Halliburton
seeking information about its work in Iran. Government officials told the
Washington Post such cases are referred to Justice only when there is
evidence of "intentional or willful" violations.
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