[A-List] Shock and oil: Iraq's billions & the White House connection

["Charles Brown" <cbrown@xxxxxxxxxxxxxxxxx>]

Shock and oil: Iraq's billions & the White House
Connection

Stephen Foley reports from New York
Published: 14 January 2007

The American company appointed to advise the US
government on the economic reconstruction of Iraq has
paid hundreds of thousands of dollars into Republican
Party coffers and has admitted that its own finances
are in chaos because of accounting errors and bad
management. ( yea "errors"; try "enrons" - CB)

BearingPoint is fighting to restore its reputation in
the US after falling more than a year behind in
reporting its own financial results, prompting legal
actions from its creditors and shareholders.

According to the Center for Responsive Politics,
BearingPoint employees gave $117,000 (£60,000) to the
2000 and 2004 Bush election campaigns, more than any
other Iraq contractor. Other recipients include three
prominent Congressmen on the House of Representatives'
defence sub-committee, which oversees defence
department contracts.

One of the biggest single contributors to
BearingPoint's in-house political fund was James
Horner, who heads the company's emerging markets
business which is working in Iraq and Afghanistan. He
donated $5,000 in August 2005.

The company's shares have collapsed to a third of
their value when the firm listed in 2001, and it faces
being thrown out of the New York Stock Exchange
altogether. Despite annual revenues of $3.4bn, the
company made a loss of $722m in 2005. Those figures
were released only last month, nine months late, and
the company has not yet been able to report any fully
audited figures at all for 2006.

Analysts in the US claim the reason is a culture of
poor management controls stretching back to before the
company was carved out of KPMG, the global accounting
giant, at the start of the decade. A litany of
failings included invoices going astray, poorly
trained accounting staff and a failure to work out the
tax implications of having so many employees working
in foreign countries.

The chaos is not the result of malfeasance, but is
"embarrassing and inexcusable" none the less,
according to Harry You, a former computer company
finance chief brought in to head BearingPoint in 2005
after it fired its long-standing previous chief
executive, the former US army captain Randolph Blazer.
BearingPoint did not return calls asking for comment
yesterday.

BearingPoint is being paid $240m for its work in Iraq,
winning an initial contract from the US Agency for
International Development (USAid) within weeks of the
fall of Saddam Hussein in 2003. It was charged with
supporting the then Coalition Provisional Authority to
introduce policies "which are designed to create a
competitive private sector". Its role is to examine
laws, regulations and institutions that regulate
trade, commerce and investment, and to advise
ministries and the central bank.

Last week The Independent on Sunday revealed that a
BearingPoint employee, based in the US embassy in
Baghdad, had been tasked with advising the Iraqi
Ministry of Oil on drawing up a new hydrocarbon law.
The legislation, which is due to be presented to
Iraq's parliament within days, will give Western oil
companies a large slice of profits from the country's
oil fields in exchange for investing in new oil
infrastructure.

BearingPoint's first task in Iraq in 2003 was to help
to plan the introduction of a new currency, and it was
hoped that it would eventually organise small loans to
Iraqi entrepreneurs to stimulate a significant market
economy. The contract award was immediately criticised
by public integrity watchdogs and by the company's
rivals, because BearingPoint advisers to USAid had a
hand in drafting the requirements set out in the
tender. It spent five months helping USAid to 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.

USAid's independent inspector ruled that
"BearingPoint's extensive involvement in the
development of the Iraq economic reform program
creates the appearance of unfair competitive advantage
in the contract award process". The company said it
was selected through a transparent and competitive
bidding process.

Across the world, BearingPoint has become, thanks to
USAid funding, a part of the US government's strategy
of spreading free-market reforms to developing
countries and America's allies. Elsewhere in the
Middle East it is advising the government of Jordan on
how to minimise the regulation of business and reform
its tax policies in order to attract foreign
investment; in Egypt it is advising on customs reform
and respect for international companies' patents.

It has won more than $100m of business in Afghanistan
since American troops invaded in 2002, and has been
helping to build a banking system, training civil
servants in the finance ministry and offering advice
on economic policy.

Its economic reconstruction work grew out of early
work in eastern Europe after the fall of communism,
and became a significant contributor to the business
after it won contracts in the former Yugoslavia
following US intervention there.

The company changed its name to BearingPoint from KPMG
Consulting in 2002, shortly after separating from its
parent company. In the years since, contracts with the
US government have proved the highlight of the
business, while its work for private company clients
has failed to live up to hopes. In part because of its
reliance on the US federal government - which accounts
for about 30 per cent of revenues - BearingPoint has
dramatically stepped up its attempts to buy influence
in Washington. Its contracts in Iraq and Afghanistan
coincide with a big increase in its lobbying efforts
on Capitol Hill. In 2005, the latest year for which
figures have been collated, BearingPoint paid $1m to
lobbyists, equalling the record total it paid in 2003.
That is five times its average annual bill for
lobbyists prior to the war in Iraq.

It also dramatically increased its political
contributions in the run-up to the midterm elections,
distributing $120,000 to candidates and campaign
groups from its employee-sponsored political fund.
That compares with $61,000 in the 2004 elections