Kerry Attacks Cheney Through His Business Ties to Halliburton

By T. Christian Miller and Maria L. LaGanga

Los Angeles Times

September 18, 2004

ALBUQUERQUE — Sen. John F. Kerry attacked Vice President Dick Cheney on Friday on an issue that has simmered, but so far failed to reach full boil in this year's White House race: Halliburton.

Cheney ran Houston-based Halliburton between 1995 and 2000, a time when the oil services giant had immersed itself in controversial business dealings from Iran to Nigeria to Wall Street. As vice president, he still gets money as part of his retirement package from Halliburton, even as the federal government has paid the firm billions of dollars for its work in rebuilding Iraq.

On Friday, Kerry ripped Cheney's ties in a speech that sought to make Halliburton a prime example of a series of mistakes that Democrats say the administration has committed in Iraq.

Halliburton was awarded government contracts for work in Iraq, some of them won without competitive bidding. Investigations have since turned up evidence of overcharging, waste and kickbacks involving the firm.

"Dick Cheney's old company, Halliburton, has profited from the mess in Iraq at the expense of American troops and taxpayers," Kerry said at a campaign stop in Albuquerque. "While Halliburton has been engaging in massive overcharging, wasteful practices under this no-bid contract, Dick Cheney has continued to receive compensation from his former company."

Kerry frequently has used Halliburton as an icon for abuse by corporate special interests, but Friday was the first time the Democratic presidential nominee targeted Cheney's link to it. The barrage was continuing evidence of the more aggressive posture Kerry has adopted on the campaign trail since augmenting his staff with veterans from the Clinton White House in recent weeks.

Kerry's attack on the stump was accompanied by a new television ad that began airing Friday in Oregon, where Cheney flew to campaign. It will also be shown in other battleground states. The ad criticized the money the Bush administration has spent so far in Iraq.

"Halliburton go t billions in no-bid contracts in Iraq. What did we get? A $200-billion bill for Iraq. Lost jobs. Rising healthcare costs. It's time for a new direction," the ad says.

"Who is minding the store while all of this is happening? Who's in charge?" Kerry demanded in his speech.

Cheney spokeswoman Anne Womack called the Kerry charges "recycled, old attacks."

Bush campaign spokesman Steve Schmidt dismissed the charges as "baseless" and "hypocrisy," countering that a couple of Kerry's own fundraisers were lobbyists for Halliburton.

It's uncertain whether Kerry's new line of attack will damage President Bush by linking Cheney to the controversies surrounding Halliburton.

According to Halliburton's internal polling, a majority of Americans have not heard of the firm, and fewer still have made the link between it and Cheney. But the Kerry campaign has cited Democratic polling, which shows that questions about Halliburton's dealings in Iraq are of concern to many voters.

Ha lliburton, which had $16.3 billion in revenue in 2003, operates in more than 120 countries, usually as a subcontractor for big oil companies. The company and its subsidiaries provide a variety of services, from drilling oil wells to building refineries.

As Halliburton has been buffeted by criticism over its work in Iraq, it has become increasingly difficult to separate politics from actual wrongdoing. Democrats in Congress have tarred Halliburton — and by extension, Cheney — with accusations that range from bribes to obtain a multimillion-dollar oil deal in Nigeria to overcharging for cans of Coke in Iraq.

Also, more than $6 million in anti-Halliburton ads have been spent by pro-Kerry groups in battleground states.

But a Halliburton official questioned the political damage these attacks have inflicted on Bush's reelection bid.

"These are Democratic attacks against an American company to achieve a political end," said one company official, who requested anonymity. "E verybody recognizes that."

Cheney has defended himself against the criticism that his compensation package conflicts with his vice presidential duties. He signed a deferred-compensation plan with Halliburton in 1998, two years before he resigned to run for vice president.

Such plans are common for top executives. They allow highly paid employees to defer some of their income until after they retire — when their earnings decline and their tax liability is lower. According to the White House, Cheney received $147,579 in deferred compensation in 2001, followed by $162,392 in 2002 and $178,437 last year.

As vice president, Cheney makes $203,000 a year.

Cheney also has taken out an insurance policy to ensure that he continues to receive his retirement payments even if Halliburton goes bankrupt. And he placed options for 433,000 shares of Halliburton stock he earned into a charitable trust. He disclaims management and economic interest in those shares, which will be sold at t he trustee's discretion, with the after-tax proceeds going to charity.

The Congressional Research Service said last year that Cheney's deferred-compensation plan could be considered an economic tie to Halliburton.

The arrangement does raise questions, said David Leach, managing director of ECG Advisors, a compensation consulting firm in Los Angeles.

"It does not give the appearance of arm's-length transaction," said Leach. "To avoid criticism, he should have cut all ties by taking his deferred compensation as a lump sum when he left. This gives the appearance of conflict, because the ties are not completely broken."

Controversies surround Halliburton on several fronts. The first concerns its dealings in Iraq. In 2001, a year after Cheney stepped down as its chief executive, Halliburton won an open competition for a 10-year, multibillion-dollar logistics contract to supply the U.S. military. There is no evidence that Cheney influenced the decision.

But as Iraq mushroome d into the largest conflict since Vietnam, the so-called Logcap contract became a reliable moneymaker for Halliburton. Under the contract terms, the company charges the government at cost for any purchases, then adds a relatively small profit margin. Halliburton is in line to receive more than $7.8 billion in revenue from the contract.

But the profits have not come cheap. A total of 45 employees and subcontractors have been killed in Iraq. And the company has endured repeated accusations that it used the contract's built-in profit margins to run up unnecessary charges and thereby defraud taxpayers.

Pentagon auditors found evidence that the company billed for more than $180 million in meals it never served.

Democrats led by Rep. Henry A. Waxman of Los Angeles produced whistle blowers accusing the company of bilking taxpayers for fancy towels embroidered with its logo, putting up employees in luxury hotels and abandoning Mercedes-Benz trucks. While some of those accusations proved to be true, it is less clear how widespread or how costly they were.

There is also a federal criminal investigation into whether Halliburton officials took a $6-million kickback to help a Kuwaiti firm win a subcontract.

Attracting even more attention are the circumstances surrounding a Pentagon decision to award another contract worth up to $7 billion to Halliburton in the days before the war. That contract, to restore Iraq's oil fields, was awarded by a group of Bush political appointees without competitive bidding.

Cheney's chief of staff attended a meeting where the decision was discussed before the award was announced. The aide, I. Lewis "Scooter" Libby, has said that no information was passed on to Cheney.

The contract decision was criticized by the Government Accountability Office, the watchdog agency for Congress.

Kerry on Friday charged that Bush administration officials had mismanaged "almost every aspect of [the Iraq] war … all the way to turning a bl ind eye to the massive overcharging." So far, the Iraq work hasn't been a big plus for Halliburton's bottom line, analysts say.

In this year's second quarter, for instance, Halliburton said its Iraq work generated $1.7 billion in revenue and $23 million in pre-tax operating earnings. That means Halliburton earned 1.4 cents of pretax profit for every $1 in revenue it received.

That's well below Halliburton's historical pretax profit margins of 8% to 12% over the last decade. The modest earnings are blamed on the high costs of operating in a war zone or possible company missteps.

Halliburton has come under renewed fire for its dealings in Iran. A federal grand jury in Houston is investigating whether the firm violated U.S. sanctions by operating in Iran through a Cayman Islands subsidiary headquartered in Dubai.

Unlike the current Iraq contracts, the company's efforts to do business in Iran occurred under Cheney's watch.

U.S. companies may do business in Iran only throug h foreign-owned subsidiaries that operate independently of the parent firm. It is unclear when Halliburton's subsidiary, Halliburton Products and Services Ltd., began its business in Iran, though it reportedly opened in 2000.

The Iran dealings have the potential to hit closest to Cheney. Using the contacts he formed during decades of government work, Cheney sought to expand Halliburton's reach overseas. He was simultaneously an outspoken advocate during his tenure as chief executive for putting an end to sanctions against Iran, which he called "bad policy."

"We're kept out of [Iran] primarily by our own government, which has made a decision that U.S. firms should not be allowed to invest significantly in Iran, and I think that's a mistake," Cheney told the World Petroleum Congress in a 2000 speech, before Bush, then Texas' governor, tapped him as his running mate on the Republican ticket.

Halliburton is also a target in ongoing investigations in France, Nigeria and the U.S. in to whether a consortium of it and other companies paid about $160 million in bribes beginning in 1995 to obtain contracts for a natural gas plant in Nigeria.

Halliburton has maintained that it played little role in the deal, since it became a member of the consortium only in 1998 by buying Dresser Industries, another company that was already a member. Cheney was Halliburton's CEO at the time.

However, documents recently obtained by the Los Angeles Times show that after becoming part of the consortium, Halliburton played an important role in retaining a lawyer accused of shuttling money between the consortium and the Nigerian government.

Cheney's office referred questions about the Nigeria case to Halliburton. Wendy Hall, a Halliburton spokeswoman, said the company had found no evidence that would implicate Cheney in wrongdoing.

This August, Halliburton paid $7.5 million to the Securities and Exchange Commission to settle an investigation of an accounting practice that appeared to artificially boost the company's revenue. The questionable practice occurred while Cheney was in charge.

The firm admitted no wrongdoing in agreeing to pay the fine.

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Times staff writers James Gerstenzang, Kathy Kristof, Ken Silverstein, Richard Simon and James F. Peltz contributed to this report.