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Iraq: The Fight for Iraq

by Neil KingJr. and Glenn R. SimpsonWall Street Journal
March 10th, 2004

The Pentagon has asked the Justice Department to join an inquiry into alleged fuel overcharging by Halliburton Co. in Iraq, indicating that Pentagon officials see possible grounds for criminal charges or civil penalties.

The broadening of the fuel inquiry, which one military official described as "highly significant," would give the investigation considerably more heft.

Justice investigators have the power to indict and to press criminal fraud charges -- abilities denied the Pentagon's civilian watchdogs. They also can assess hefty penalties and seek additional damages, a power the Pentagon lacks, though its auditors can reject a contractor's billings as being too high and decline to pay.

A senior Justice official said the department was "expected" to take up the investigation, but said that because the allegations involved both civil and criminal violations it is unclear which division will take up the case.

Halliburton spokeswoman Wendy Hall said the referral to the Justice Department was "to be expected ... in the current political environment."

But she said it was simply "a method of further studying the issue and not a condemnation" of the company's business practices. Pentagon officials notified members of Congress Wednesday about the move to widen the Halliburton investigation, as the House Government Reform committee prepared for a first-ever hearing Thursday on alleged Iraq contracting abuses.

Halliburton's Kellogg Brown & Root subsidiary has been under mounting scrutiny since last fall over suspicions that a fuel contract the company signed in May had overcharged U.S. taxpayers by $61 million up to the end of September, and by about $20 million a month since then.

A Justice official suggested the department might inquire whether there was any violation of the federal False Claims Act. Under that law, a company found guilty of defrauding the government can be ordered to repay as much as three times the amount of the fraud. The government doesn't have to show any specific intent to defraud, only that a person or company knowingly presented a false claim.

Under Examination An expanded probe of Halliburton's fuel work in Iraq would join a lengthening list of areas in which the Houston-based contractor is under examination for its work there. The company, run until 2000 by Vice President Dick Cheney, has been widely criticized, particularly by Democrats, over how the Bush administration has handled billions of dollars of work in postwar Iraq.

Under Investigation

Halliburton has multiple contracts valued at up to $18 billion to support the Army and repair oilfields in Iraq. Under the contract now being investigated, KBR hauled gasoline and other fuel into Iraq from Kuwait and Turkey.

The State Department also has stepped in to investigate whether U.S. diplomats were improperly involved in steering the disputed fuel contract to a specific Kuwaiti supplier, Altanmia Commercial Marketing Co. Last month, Kuwait's parliament, with the backing of the country's powerful energy ministry, decided to open its own investigation.

At the same time, Pentagon officials are weighing whether to penalize KBR over yet another dispute involving Altanmia and hundreds of millions of dollars of fuel deliveries to Iraq since January.

This spat centers on a letter the Kuwait Petroleum Corp. says it sent to KBR in late January. In the letter, the state-owned oil company said it was prepared as of February to supply gasoline and other fuels directly to KBR, thus bypassing Altanmia and significantly reducing the U.S. government's cost.

KBR employees in Kuwait have told Army officials that they never received the letter, though officials in Kuwait said there is proof that the Kuwaitis faxed the letter to KBR offices. Since the end of January, KBR has signed off on additional Altanmia fuel contracts valued at more than $300 million, according to Army records.

Since it surfaced last week, the KPC letter has caused consternation within the Pentagon, in large part because the Army ruled in December that Kuwait's petroleum supplier had given KBR no choice but to deal directly with Altanmia.

Morris Tanner, the Army Corps of Engineers' top lawyer in Texas, said in a memo to other Army officials last week that the KPC letter "undermined" the Army's ruling. As a result, the Corps suspended an Altanmia contract valued at more than $160 million.

But after KBR officials insisted they had never received the letter and questioned its authenticity, the Corps lifted the suspension and went ahead with the deal. "Failing to do so will have a severe impact in Iraq," Mr. Tanner wrote.

The confusion over the letter has mystified Kuwait Petroleum officials. One petroleum industry executive in Kuwait said the letter was sent by DHL to Army Corps officials in Camp Doha. The KBR version went the same day by fax, he said, citing a time-stamped receipt that shows the transmission went through.

Moreover, the letter prompted a quick response from Altanmia executive Waleed Al Humaidhi, who in a letter to Kuwait Petroleum on the same day complained bitterly that his firm had been circumvented.

 The decision to go around Altanmia was approved by the Kuwaiti oil minister several days before the letter was sent, one executive said, and was the culmination of a discussion begun last November, when Kuwait Petroleum initially sought Army permission to deal directly with the U.S. instead of through Altanmia. At that time, the Army allegedly insisted on keeping Altanmia as an intermediary.

Ms. Hall said KBR had no record of receiving the Kuwait Petroleum letter. But even so, she said, "KPC would only authorize one fuel transporting company, Altanmia, to come onto its property to collect the fuel for transport to Iraq." KBR, she said, "delivered fuel to Iraq ... in ways completely consistent with government procurement policies."

According to Americans and Kuwaitis involved in the controversy, the main KBR official responsible for the fuel contract has been removed from his post and reassigned. In addition, John Weatherly, the contracting official at Camp Doha most involved in the contract, also has moved to a new position.

In Thursday's congressional hearing, House Democrats say they will present a number of documents they've gathered in recent weeks involving Halliburton contracts in Iraq. Among them are records from the Pentagon's Defense Energy Support Center showing that the U.S. military brought gasoline in from Kuwait last year at exactly half the price of the $2.64 a gallon charged by KBR through its Altanmia contract.

"These new findings follow months of mounting evidence that Halliburton has routinely and systematically overcharged the U.S. government," says Rep. Henry Waxman, a California Democrat, in a written briefing to fellow Democrats on the panel.

Beyond the fuel controversies, the Pentagon is investigating KBR's own disclosure that two of its employees took huge kickbacks as part of a $6.3 million overcharging scheme for food services. Accusations of systemic overcharging for meals led the Pentagon in January to suspend payments for more than $36 million in invoices. Halliburton later agreed to withhold billing for another $140 million after the Pentagon questioned whether the company had engaged in "substantial overcharging."

Halliburton's various disagreements with the government led the company this week to warn investors that refunding or withholding billing on substantial portions of its government work could "materially and adversely affect our liquidity."

Is Halliburton guilty of Iraqi gas gouging? A study released Wednesday by two Democratic congressmen accuses the energy services company of "highway robbery."





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