Halliburton Bribery Scandal Deepens
Editor's Note: New information has been added June 6, 2005, at the
end of this story regarding KBR procurement manager Laszlo Tibold.
Overlooking a private beach on the Persian Gulf, some 40 miles south of Kuwait city, is the Khalifa Resort. A hotel website claims no less than a dozen swimming pools and offers its guests activities such as windsurfing, banana boat rides and deep sea fishing. Every single one of the 84 luxurious air-conditioned villas face the pools.
In late 2002, a company from Texas, Kellogg, Brown and Root (KBR), a subsidiary of Halliburton, arrived and took up residence in the villas. Senior managers stayed at the even more luxurious Kuwaiti Hilton paying $200 per person, per night. The total hotel tab soon reached $1.5 million per month.
The company was deployed to Kuwait to support the 150,000 or so Army troops pouring into the country in preparation for the March 2003 invasion of Iraq. The work was part of a sweeping ten-year contract awarded in December 2001 to provide logistical international support services to the U.S. Army, known as the Logistics Civil Augmentation Program, or LOGCAP.
From food services to latrine cleaning, trucks to cots and tents, gymnasiums and showers, to generators and air conditioners -- you name it, KBR supplied it. Subsequently, the Pentagon awarded the company a no-bid contract -- which eventually ballooned into $2.5 billion -- to plan for and repair oil pipelines and wells damaged during the invasion.
While KBR held these overall agreements, the company's Kuwait employees, led by Tom Crum, the director of KBR's office in the Middle East, and Robert "Butch" Gatlin, head of procurement, handed off the actual work to subcontractors flooding into the KBR offices from around the area, looking to get a piece of the lucrative wartime business.
Billions of dollars in work would soon be subcontracted by a staff quickly assembled by KBR on the eve of the war. These subcontracts soon became the center of controversial headlines about questionable agreements, including $186 million in bloated overcharges on meals served to troops and sky-high prices on oil and fuel deliveries, totally over $108 million in excessive costs.
The headlines reflect what Pentagon auditors found in May 2004 to be "systemic deficiencies" in KBR's business practices. Sometimes, contracts for work were nowhere to be found. Others appeared carelessly written with little or no effort in seeking competitive offers. Many proved to be highly inflated or showed little documentation of work completed or goods delivered.
Some KBR employees allegedly asked for more than just goods and services in return, according to at least one internal memo from the United States embassy in Kuwait. It was common knowledge "that anyone visiting their seaside villas who offers to provide services will be asked for a bribe," the August 6, 2003, memo stated, quoting officials from a local Kuwaiti company named Altanmia.
CorpWatch interviews with numerous former KBR workers and contractors outline similar patterns of contract mismanagement, but few were willing to go on the record. They say they are concerned about their future livelihoods, providing for their families and continuing their careers. Ongoing criminal investigations, however, by the U.S. Justice Department have recently accused several participants with wrongdoing.
"He was a powerful person in contracting and you could tell he felt the power," said one KBR subcontractor.
In February 2003, Mazon was given the job of soliciting bids from potential subcontractors to supply fuel tanker trucks at a U.S. military airport in Kuwait for a six-month period from March through August of 2003. The company's estimated cost for this six-month contract was about $685,000.
Mazon got at least two bids -- one from an unnamed Kuwaiti company for about $1.9 million and another from a company called La Nouvelle, run by Ali Hijazi, a thought to be Lebanese by several sources, for nearly $1.7 million.
An Illinois grand jury is now alleging that Mazon fraudulently inflated both bids before the contract was awarded, more than tripling them to $6.2 million for the unnamed company and $5.5 million for La Nouvelle. La Nouvelle then won the contract on the basis that it had submitted the lower bid.
In June 2003, Mazon quit his job. Then three months after leaving KBR, he was accused of receiving a $1 million payment from La Nouvelle In an indictment issued mid-March 2005 by the grand jury. "Mazon and Hijazi also executed a promissory note as a ruse to make the $1 million payment appear to be a ... loan from Hijazi to Mazon," the indictment reads.
On March 16, 2005, Mazon was arrested in Norcross, Georgia, just outside the city of Atlanta and charged with four counts of major fraud and six counts of wire fraud. He waived his right to appear before an Atlanta court the next day and was sent to Rock Island, Illinois, where the United States Army Field Support Command is based, the military authority which issued the fuel tanker contract. Hijazi was charged but has not been apprehended yet.
If convicted, Mazon faces a maximum penalty for up to 10 years in prison and a fine of $5 million for each count of major fraud and no more than 20 years in prison and a fine of up to $250,000 for each count of wire fraud.
Marie deYoung, a meticulous former Army chaplain spent five months working for KBR in Kuwait where she was in charge of bringing subcontracts up to date. She says she found plenty of problems with the contracts with La Nouvelle and other companies.
Taking her complaints to Congress last June, deYoung testified that while reviewing those contracts, she found La Nouvelle had billed monthly for 37,200 cases of soda at a cost of $1.50 per case but delivered only 37,200 cans. She also testified that KBR was paying La Nouvelle up to $1.2 million a month to provide laundry service, equivalent to $100 per 15-pound bag. Under a separate contract with the same company, KBR paid only $28 a bag, she said.
Hijazi, the company's managing partner, is described by several who met him as arriving at business meetings in a Land Rover, alternately dressed in polo shirts and business suits.
"He was very charming," says deYoung. "Everyone from La Novelle was charming."
Meanwhile, La Nouvelle is also currently embroiled in a lawsuit against KBR that was filed in the U.S. District Court of Eastern Virginia on October 15, 2004. The company originally claimed that KBR stiffed La Nouvelle by as much as $240 million in unpaid bills and lost equipment on more than two dozen outstanding contracts. KBR in turn disputes the matter, claiming that La Nouvelle contracts were terminated, in part, because the company "may" have paid kickbacks to KBR employees.
In a sworn statement to the court filed in February 2005, Hijazi denies that he or any of his firm's employees were involved in any kickback scheme. "I would not have condoned that," he said.
Al Homoud, another La Nouvelle partner, refused to answer questions from CorpWatch. "I really cannot say anything at this time," he said, referring further questions to Jennifer Thomas, the company spokeswoman in Washington, DC.
In a prepared e-mail statement Thomas said that Hijazi and La Nouvelle offered to fully cooperate with the United States Justice Department several months ago in the investigation of La Nouvelle's business relationship with KBR.
"Regrettably, the Department of Justice proceeded without Mr. Hijazi's assistance or input," the statement said. "Mr. Hijazi is surprised and disappointed by last week's developments. The allegations in the indictment are simply untrue, and Mr. Hijazi intends to fight the allegations vigorously."
Neither Mazon, nor his lawyer of record, former criminal prosecutor John Scott Arthur of Olympia Fields, Illinois, could be contacted for comment. Halliburton also has yet to comment to CorpWatch.
Halliburton Admits Problems
Several other KBR managers in Kuwait have quit or were fired in mysterious circumstances in what appears to be a major house-cleaning, once the news started to circulate about overcharging and fraud.
The first indication of these problems came in December 2003, when Halliburton publicly announced that it had returned $6.3 million to the military and admitted to the Pentagon that two unnamed KBR employees had taken kickbacks in return for a lucrative contract from an unnamed Kuwaiti company. (It is still not clear whether Mazon was one of the two employees.)
An internal KBR memo, dated May 2003, also cautioned employees not to "discard, shred, delete or dispose" of any documents relating to La Nouvelle and two other companies - Altanmia and Tamimi. Both companies have also been accused of possible overcharges in their billings.
In November 2004, Halliburton filed a declaration with the Securities and Exchange Commission stating that the Pentagon would be investigating two employees who worked on the Iraq contracts.
"The Inspector General's Office may investigate whether these two employees may have solicited and/or accepted payments from these third-party subcontractors while they were employed by us," the company stated. Once again, no names were disclosed.
Other KBR Managers
At least one other KBR procurement managers was apparently fired following questionable circumstances. In postings on a Web blog titled "A Minute Longer - A Soldier's Tale," Laszlo Tibold, who was responsible for procurement at Camp Anaconda, was accused of awarding a gravel contract at five times the price of a competing offer.
A March 12, 2004 posting to the website, credited to the email address of Randy Harl, chairman of KBR, says "Mr. Tibold has since been fired for his contract-writing there at Camp Anaconda, along with some of his buddies. However their contracts still remain and we continue to pay against them."
"Butch" Gatlin, the man in charge of procurement in Kuwait, has also left KBR. On Feb.15, 2004, Gatlin sent a terse letter to his bosses, which read: "This project has grown to such proportion and the issues and problems which have ensured (sic), I feel my leadership and management are ineffectifve (sic) and non-productive. I therefore request to tenure (sic) my resignation with this project, effectife (sic) immediately."
On April 10, 2004, less than two months later Gatlin wrote to Tom Crum, re-iterating his resignation as a KBR employee, and simultaneously asking for work as a sub-contractor, causing a ripple of concern at the company.
"I am generally pretty skeptical about doing business with a former employee," KBR lawyer Chris Heinrich wrote in another internal memo obtained by CorpWatch. "There is not a law or a company policy that prohibits us from doing so, but we need to be sure about what kind of business he is starting and who he is aligned with. He must have a Kuwaiti sponsor or he cannot have a business. We need to have him fully disclose all the pertinent info regarding his business and then decide if we will allow him to bid on work."
Rumors continue to swirl about who might next be charged with fraud.
Marie deYoung believes the indictments issued against Mazon and Hijazi may be only a curtain-raiser for things to come.
"So many contracts were legally 'off-the-wall," she says. "Either they didn't know what they were doing or there was possible colluding going on."
She said that many of the company managers in Kuwait who frequented "the beach, getting tans," regularly overlooked overpricing and padding in billings.
The charges against Mazon and Hijazi, she estimates, are "just the tip of the iceberg."
David Phinney is a journalist and broadcaster based in Washington, DC, whose work has appeared in The Los Angeles Times, New York Times and on ABC and PBS. He can be contacted at: firstname.lastname@example.org
* Additional research by Pratap Chatterjee.
New Information Added June 6, 2005:
Laszlo Tibold recently contacted CorpWatch after the original publishing of this story, insisting that he resigned from KBR with accolades and that he was never fired from KBR. As far as the gravel contract is concerned, Tibold said the original contractor was not providing enough gravel or the needed quality to cover an area the size of several football fields to accommodate the 30 trucks arriving and unloading at Camp Anaconda every day.
Tibold said the new gravel agreement called for deliveries of fives times the quantitiy of gravel for five times the price, hence, the same price for the same amount, but with the appropriate quality of gravel.
"In view of the facts, the well meaning mole obviously was not aware of all the facts and/or he has difficulty with his algebra," Tibold said.
Tibold, a career engineer and Vietnam veteran, said he located a second contractor that could meet the required contract on time and budget. "I suspect the first contractor is the one that is complaining," he said.
Now working as a manufacturing consultant in Hungry, Tibold said he resigned because of the ongoing dangers in Iraq and Camp Anaconda. "We were getting half a dozen mortar attacks a day," he said.
If anyone is to blame for KBR's poor contracting process in Iraq, it is KBR's senior management and planners at the U.S. Defense Department who were woefully unprepared for establishing an immediate presence and occupying the war-torn country. When he first arrived at Anaconda, KBR failed to provide even the most basic of office supplies, let alone computers, reliable telephones, contract forms or a list of pre-approved contractors to work with.
"Everyone was in pure reactionary mode," he said, adding that KBR's staff at Camp Anaconda began with six employees who were burdened with work "by industry standards" that only a staff of 185 could effectively handle. After a month, KBR's staff at Camp Anaconda was increased to 30, he said, and was responsible for writing contracts totaling a value in the hundreds of millions of dollars.
"KBR had no clue," he said. "They didn't know what they were getting into."
Editor's Note: Since the publication of this article, a number of Halliburton employees have written in to question the quality of the accommodations the Khalifa resort. The description of this hotel is based on a web description of the Khalifa by a property company, which can be found at http://www.jfkw.com, not on an actual visit to the place. Halliburton employees say they found the resort to be less than clean and luxurious, indeed many complained about the Khalifa as dirty and over-grown with weeds. .
On a similar note, an earlier version of this article described the resort as a Hilton property - we understand that Halliburton officials stayed at several hotels in Kuwait, including both the Kuwaiti Hilton and the Khalifa, but that these are different venues. We apologize for the confusion.
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