Waxman v. Rummy

[Ian Murray <seamus2001@xxxxxxxxx>]

Congress of the United States
                      House of Representatives
                   Committee on Government Reform
                 2157 Rayburn House Office Building
                      Washington, DC 20515-6143

                       Majority (202) 225-5074
                      Facsimile (202) 225-3974
                       Minority (202) 225-5051
                        www.house.gov/reform

         Henry A. Waxman, California, Ranking Minority Member

                           April 30, 2003


The Honorable Donald H. Rumsfeld
Secretary of Defense
1000 Defense Pentagon
Washington, DC 20301

Dear Secretary Rumsfeld:

I am writing about Halliburton's ties to countries that sponsor
terrorism.

       Halliburton has recently been awarded a leading - and
lucrative - role in the U.S. war against terrorism. Yet there is
also evidence from press accounts and other sources that
indicates that Halliburton has profited from numerous business
dealings with state sponsors of terrorism, including two of the
three members of President Bush's "axis of evil." I would like to
know what the Defense Department knows about these ties and
whether you think this should be a matter of concern to the
Congress and the American taxpayer.

       Republicans in the Administration and Congress have
previously expressed great concern about American citizens and
companies trading with countries despite U.S. embargoes. For
example, the Vice President's chief of staff testified that Marc
Rich, who was granted a pardon by President Clinton, could be
considered a "traitor" for trading with Iran even if his actions
were technically legal. These same concerns appear to be
implicated by Halliburton's conduct, yet rather than being
criticized, the company is rewarded with valuable government
contracts.


     Halliburton's Activities in Nations that Sponsor Terrorism

       In press accounts and SEC filings, Halliburton and its
subsidiaries have been linked to three nations known for their
support of terrorism: Iran, Iraq, and Libya. Since at least the
1980s, federal laws have prohibited U.S. companies from doing
business in one or more of these countries. Yet Halliburton
appears to have sought to circumvent these restrictions by
setting up subsidiaries in foreign countries and territories such
as the Cayman Islands. These actions started as early as 1984;
they appear to have continued during the period between 1995 and
2000, when Vice President Cheney headed the company; and they are
apparently ongoing even today.


                                Iran

       President Bush has declared that Iran poses a potential
threat to the United States. In his 2002 State of the Union
address, he described how Iran "aggressively pursues" weapons of
mass destruction and "exports terror, while an unelected few
repress the Iranian people's hope for freedom." Iran, he
memorably declared, is part of:

       an axis of evil, arming to threaten the peace of the world.
       By seeking weapons of mass destruction, these regimes pose a
       grave and growing danger. They could provide these arms to
       terrorists, giving them the means to match their hatred.
       They could attack our allies or attempt to blackmail the
       United States. In any of these cases, the price of
       indifference would be catastrophic.[1]

According to the State Department, Iran stands out as "the most
active state sponsor of terrorism." Iran's government is
"involved in the planning and support of terrorist acts and
supported a variety of groups that use terrorism to pursue their
goals."[2]

       As a result of the country's terrorist links and pursuit of
weapons of mass destruction, President Clinton issued an
executive order in 1995 banning U.S. trade and investment in
Iran, including the trading of Iranian oil overseas by U.S.
companies. Earlier that same year, President Clinton had issued
an executive order barring U.S. investment in Iran's energy
sector. In 1996, the U.S. Congress passed the Iran-Libya
Sanctions Act, which allowed for U.S. sanctions against foreign
companies participating in Iran's oil industry.

       Halliburton, however, was among several U.S. companies that
circumvented these restrictions on trading with Iran by providing
the country with oil equipment.[3] It apparently did this by
conducting its business in Iran through foreign subsidiaries.
Indeed, Vice President Cheney has even defended this policy.
According to the Financial Times, he "has said the company is
allowed to operate legally in Iran through its foreign
subsidiaries."[4] Analysts have disagreed with this claim,
suggesting that Halliburton's deals with Iran may, in fact, have
violated U.S. law.[5]

       The company apparently continues to do work in Iran even
now. This work is reportedly being done through a Cayman Islands
subsidiary, Halliburton Products and Services, which opened an
office in Tehran in February 2000.[6] A company brochure offered by
the subsidiary apparently states that the company has done work
on two offshore Iranian drilling contracts and says that "[w]e
are committed to position ourselves in a market that offers huge
growth potential."[7] Halliburton recently agreed to reevaluate its
work in Iran after sustained pressure from shareholders,
particularly the New York City Police and Fire Department Pension
Funds.[8]


                                Iraq

       In 1990, following Iraq's invasion of Kuwait, President
George H.W. Bush imposed economic sanctions, including a complete
trade embargo, on Iraq. The sanctions ban the export of goods,
technology, and services to Iraq. Criminal penalties for
violating the Iraqi sanctions range up to 12 years in jail and
$1,000,000 in fines.[9]

       Despite these sanctions, the Washington Post has reported
that Halliburton performed work in Iraq while Vice President
Cheney was leading the company. Halliburton had stakes in two
companies that signed contracts to sell over $73 million in oil
production equipment and spare parts to Iraq while Mr. Cheney was
CEO. The companies were subsidiaries of a joint venture between
Dresser industries - which Halliburton acquired in 1998 - and
Ingersoll-Rand, another large equipment maker. From 1997 through
mid-2000, the subsidiaries sold water and sewage treatment pumps,
spare parts for oil facilities, and pipeline equipment to Iraq.[10]

       The Vice President initially tried to deny this involvement
in Iran. In July 2002, he stated on national television: "I had a
firm policy that we wouldn't do anything in Iraq, even - even
arrangements that were supposedly legal.... [W]e've not done any
business in Iraq since the sanctions [were] imposed, and I had a
standing policy that I wouldn't do that."[11] A month later,
confronted with an admission by a Halliburton spokesman that the
company indeed did business with Iraq, Vice President Cheney
admitted that "[w]hen we took over Dresser, we inherited two
joint ventures with Ingersoll-Rand that were selling some parts
into Iraq," but he said he did not know of this at the time. Mr.
Cheney also said that "[s]hortly after we took control of
Dresser, we divested ourselves of those two companies."[12]

       Both of these statements, however, have been contradicted by
other evidence. Two former senior executives of the Halliburton
subsidiaries say they knew of no policy against doing business
with Iraq.[13] One of the executives also said that he was certain
that Mr. Cheney would have known about the business with Iraq.[14]
Furthermore, Halliburton did not divest itself of the
subsidiaries "shortly" after Halliburton took control of Dresser.
Instead, the firms traded with Iraq for more than a year under
Mr. Cheney, signing almost $30 million in contracts.[15]


                                Libya

       Libya has been implicated in a number of terrorist
incidents, including attacks at the Rome and Vienna airports in
December 1985; the April 1986 bombing of a Berlin nightclub
frequented by armed services personnel; and the bombing of Pan Am
Flight 103 over Lockerbie, Scotland, in December 1988, which
killed 270 people. As a result of these ties to terrorism, the
United States has implemented a series of over 20 sanctions
against Libya since 1973 that ban a wide variety of economic
activities. Some of the most significant sanctions were put in
place by President Reagan in 1986, in response to the Qaddafi
regime's repeated use and support of terrorism against the United
States and other countries. Those sanctions ban most sales of
goods, technology, and services to Libya. They provide for
criminal penalties of up to 10 years in prison and $500,000 in
corporate and $250,000 in individual fines.[16]

       Despite these sanctions and the Libyan regime's
well-documented history of sponsoring terrorism, Brown & Root, a
Halliburton construction subsidiary, has worked on a water
project in Libya since the 1980s. This project, called the "Great
Man-Made River Project," is a system of underground pipes and
wells that are purportedly intended to carry water. Some experts
believe that the pipes actually have a military purpose. The
pipes are large enough to accommodate military vehicles and
appear to be more elaborate than is needed for holding water.[17]
According to one defense expert, referring to the late North
Korean leader, Libya "seems to have taken a leaf out of Kim II
Sung's book and created a potential military arsenal
underground."[18]

       When the project began in 1984, Brown & Root prepared the
feasibility studies and drafted the specifications.[19] After the
1986 U.S. embargo on trade with Libya, Brown & Root transferred
the work to its British office. As of 1997, it was still the
project manager.[20]

       Halliburton continues to work in Libya today. The company's
latest annual report specifically identifies "restrictions on our
ability to provide products and services to Iran, Iraq and Libya"
as among the "risks and uncertainties" that the company faces.[21]

       In addition, Halliburton was fined $3.8 million in 1995 for
re-exporting U.S. goods through a foreign subsidiary to Libya in
violation of U.S. sanctions.[22]


Halliburton's Contracts with the Defense Department and Other
Agencies

       Despite its apparent connections with terrorist states,
Halliburton appears to be one of the main companies profiting
from the war on terror. In May 2001, Brown & Root was awarded a
five-year, $300-million contract to provide logistical support to
the Navy. As of August 2002, the Navy had reportedly given Brown
& Root $53 million in work orders over the past 15 months,
including $37 million to build detention cells at Guantanamo Bay,
Cuba, where terrorist suspects captured in Afghanistan are being
held.[23]

       In December 2001, Brown & Root was awarded an exclusive,
ten-year contract to provide support services to the Army. The
contract has no dollar limit and it is reportedly the only
logistical arrangement by the Army without an estimated cost.[24]
It allows Brown & Root to recover its expenses plus profits.[25] It
appears that this contract has been quite lucrative for the
company, producing over $800 million in revenues. Some of the
work has involved supporting U.S. military bases in
Afghanistan.[26]

       Brown & Root was also awarded a cost reimbursable
design-build contract valued in excess of $100 million for
construction of the new U.S. Embassy compound in Kabul,
Afghanistan.[27] In addition, the U.S. Department of State awarded
Brown & Root two contracts for security upgrades and general
construction work at multiple facilities worth at least $70
million.[28]

       Most recently, the U.S. Army Corps of Engineers entered into
a no-bid contract with Brown & Root to extinguish oil well fires
and repair the oil infrastructure in Iraq. That contract is worth
up to $7 billion.[29] Halliburton was also one of a handful of
companies secretly invited to bid on a USAID construction
contract to rebuild Iraq worth up to $680 million.

       Halliburton regards this work fighting terrorism as a
"growth opportunity" for the company. According to its 2002
annual shareholder report:

       We expect growth opportunities to exist for additional
       security and defense support to government agencies in the
       United States and other countries. Demand for these services
       is expected to grow as a result of the armed conflict in the
       Middle East and as governmental agencies seek to control
       costs and promote efficiencies by outsourcing these
       functions. We also expect growth due to new demands created
       by increased efforts to combat terrorism and enhance
       homeland security.[30]


                              Questions

       If true, these facts have potentially serious implications.
It appears that a company that has performed - and apparently is
continuing to perform - work for state sponsors of terrorism is
being given a prominent role in the Administration's war on
terrorism.

       Republicans in the Administration and Congress have been
quick to express concern about Americans trading with nations
upon which the U.S. has imposed embargoes. After President
Clinton pardoned a fugitive financier, Marc Rich, who had
allegedly violated the Iranian oil embargo, Republicans and
Democrats alike expressed outrage. A House report detailed Mr.
Rich's trades with such countries as Iran, Iraq, and Libya and
denounced Mr. Rich as a man who "built his fortune by trading
with so many enemies of the United States."[31] Rep. Christopher
Shays, Vice-Chairman of the House Government Reform Committee,
labeled Mr. Rich a "traitor."[32] Even Lewis Libby, the Vice
President's chief of staff and a former lawyer for Mr. Rich,
conceded that, while his former client's conduct may not have
been illegal, "you could consider him a traitor for trading with
Iran during that period."[33]

       While Halliburton's activities appear to raise similar
concerns, the Administration has avoided criticizing the company
and has instead rewarded it with lucrative contracts. Congress
and the American taxpayer should know more about these contracts
and Halliburton's relationship with Iran, Iraq, and Libya. I
therefore respectfully request answers to the following
questions:

1. What does the Defense Department know about the work of
Halliburton or any of its subsidiaries in any nation that is
suspected of supporting terrorism?

2. Has the Administration determined whether Halliburton's work
in Iran, Iraq, and Libya complies with all applicable laws and
regulations? If not, does the Administration intend to make such
a determination before issuing further contracts or task orders
to Halliburton?

3. Was the Administration aware of and did it take into account
Halliburton's work in Iran, Iraq, and Libya when it awarded
contracts and task orders to the company and its subsidiaries?

4. What steps, if any, has the Administration taken or does it
plan to take to ensure that taxpayer dollars do not go to
companies that do business with state sponsors of terrorism -
particularly when those dollars are being spent to combat
terrorism?

5. How many contracts has the Defense Department awarded to
Halliburton since September 11, 2001, and what is the value of
these contracts?

6. How many task orders has the Defense Department issued to
Halliburton since September 11, 201, and what is the value of
these task orders?

I look forward to receiving a response to these important
questions.

Sincerely

Henry A. Waxman
Ranking Minority Member

-=-=-

Notes:

1 President, State of the Union Address (Jan. 29, 2002) (online
at
http://www.whitehouse.gov/news/releases/2002/01/20020129-ll.html)
.

2 U.S. Department of State, Patterns of Global Terrorism 2001
(May 2002).

3 U.S. Companies Move Quietly into Iranian Markets, Financial
Times (Oct. 5, 2000).

4 Id.

5 Iran Throwing off Its Isolation, Washington Post (Mar. 31,
2001); See Halliburton Connected to Office in Iran, Wall Street
Journal (Feb. 8, 2001).

6 Halliburton Connected to Office in Iran, Wall Street Journal
(Feb. 8, 2001). "[A] U.S. official said a Halliburton office in
Tehran would violate at least the spirit of American law." Id.

7 Id.

8 In 2002, the New York City Comptroller submitted a shareholder
resolution on behalf of the New York City Police and Fire
Department Pension Funds asking for a review of Halliburton's
actions in Iran. New York City Comptroller, Press Release (Mar.
21, 2003). After the Securities and Exchange Commission refused
to let the company avoid putting the resolution to a vote,
Halliburton agreed to review its Iranian operations and the
resolution was withdrawn. Id. See New York City Police and Fire
Pension Funds, Proposed Shareholder Resolution re. Halliburton
Company Review and Report on Operations in Iran (online at
http://www.comptroller.nyc.gov/press/pdfs/HalliburtonResolution3-
21-03.pdf).

9 U.S. Department of the Treasury, Office of Foreign Assets
Control, Iraq: What You Need to Know about the U.S. Embargo (Mar.
12, 2003).

10 Firm 's Iraq Deals Greater than Cheney Has Said, Washington
Post (June 23, 2001).

11 This Week, ABC News (July 30, 2000).

12 This Week, ABC News (Aug. 27, 2000).

13 Firm 's Iraq Deals Greater than Cheney Has Said, supra note
10.

14 Id.

15 Id.

16 U.S. Department of the Treasury, Office of Foreign Assets
Control, Libya: What You Need to Know about the U.S. Embargo
(July 26, 2001).

17 Libya's Vast Desert Pipeline Could Be Conduit for Troops, New
York Times (Dec. 2, 1997).

19 Id.

20 Id.

21 Securities and Exchange Commission, Halliburton Company Form
10-K (Dec. 31, 2002). The report also identifies Libya as one of
the "[Countries where we operate which have significant amounts
of political risk." Id.

22 Cheney Profited Richly from His Time in Office, Baltimore Sun
(Aug. 16, 2000).

23 Halliburton Subsidiary Overcame Bid Protest, Fraud
Investigation to Land Military Contracts, Associated Press (Aug.
4, 2002).

24 Id.

25 A Contract to Spend, MotherJones.com (May 23, 2002).

26 Will Halliburton Clean Up? The Company That Dick Cheney Once
Ran Stands to Make Millions Rebuilding Iraq, Fortune (Apr. 14,
2003).

27 Halliburton, Halliburton Announces Third Quarter Results (Nov.
7, 2002).

28 Id.; Fair Disclosure Wire, Fourth Quarter 2002 Halliburton
Company Earnings Conference Call (Feb. 20, 2003).

29 Letter from Lt. Gen. Robert B. Flowers to Rep. Henry A. Waxman
(Apr. 8, 2003).

30 Halliburton, 2002 Annual Report (undated).

31 House Committee on Government Reform, Justice Undone: Clemency
Decisions in the Clinton White House, 107th Cong., 2nd Report,
v.l, 110-115 (2002) (H. Rept. 107-454). Describing Mr. Rich's
activities in Libya, the report noted that "[u]nlike the other
American oil companies, Rich ignored the oil embargoes and
executive orders of the Reagan Administration designed to punish
the terrorist-sponsoring state." Id.

32 House Committee on Government Reform, Hearing on the
Controversial Pardon of International Fugitive Marc Rich, 107th
Cong., 109 (Feb. 8, 2001) (H. Rept. 107-11).

33 House Committee on Government Reform, Hearing on the
Controversial Pardon of International Fugitive Marc Rich, 107th
Cong., 491 (Mar. 1, 2001) (H. Rept. 107-11).

-=-=-

PDF copy of Re. Waxman's letter is available at
http://www.truthout.org/mm_01/4.wax.rums_050203.pdf