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April 11, 2003
Pay Dirt or Payola? How Halliburton Strikes it Rich
by William Baue
A number of practices have generated profits as well as controversy for Halliburton, the company
where Vice President Dick Cheney served six years as CEO.
SocialFunds.com --
Halliburton
(ticker: HAL), the oilfield-services and construction company where Vice President Dick Cheney
served as CEO from 1995 to 2000, has an uncanny penchant for landing lucrative but controversial
government contracts. A broad survey of Halliburton's questionable practices, which includes
operating in states that sponsor terrorism, artificially inflating its stock price, purchasing a
company with huge asbestos lawsuits pending, and selling detonators for weapons of mass destruction
to terrorist states, dates back to at least 1987 and continues into the present.
 An April 8, 2003 letter from Lt. Gen.
Robert Flowers of the U.S. Army Corps of Engineers to Rep. Henry Waxman (D-CA) reveals that
Halliburton subsidiary Kellogg Brown & Root (KBR) has scored a major contract to extinguish
oil-well fires in Iraq. The two-year contract has a ceiling of $7 billion, with additional fees of
up to seven percent, or $490 million.
That same day, Mr. Waxman fired off two letters
asking the U.S. General Accounting Office (GAO) to investigate whether the awarding of contracts
like this one results from ongoing connections between Mr. Cheney and Halliburton. One letter
cites a statement in the current issue of Fortune that claims Halliburton still pays Mr.
Cheney "up to $1 million a year in deferred compensation." This is on top of the $33 million he
received in stock upon stepping down when he was appointed Vice President.
"These ties
between the Vice President and Halliburton have raised concerns about whether the company has
received favorable treatment from the Administration," writes Mr. Waxman.
Halliburton
rejects this contention.
"The Vice President has absolutely nothing to do with the
awarding of defense contracts, the bidding process, or the current work orders," said Wendy Hall,
Halliburton's public relations manager.
"KBR was selected to extinguish the oil-well
fires based on the fact that KBR is the only contractor that could commence implementing the plan
on extremely short notice," Ms. Hall told SocialFunds.com, echoing precisely Lt. Gen. Flowers's
letter.
Halliburton is also contending with shareowner action related to the company's
operations in Iran. On November 12, 2002, the New York City Police and Fire Department Pension
Funds submitted a shareowner resolution regarding the company's office in Iran, which is run by its
Cayman Islands subsidiary, Halliburton Products and Services. The resolution points out that U.S.
law restricts trade by American companies in states, such as Iran, that are designated by the U.S.
State Department as "sponsors of terrorism."
"The company believes that the operations
of its subsidiaries in Iran are in compliance with U.S. laws," Ms. Hall told SocialFunds.com.
In March, the Securities and Exchange Commission (SEC) rejected Halliburton's appeal to
omit the resolution from its proxy. Immediately thereafter, the company agreed to fulfill the
terms of the resolution by establishing a Board committee to review the potential financial and
reputational risks of its Iranian operations. New York City Comptroller William Thompson, the
fiduciary for the pension funds that own $18 million in Halliburton stock, withdrew the resolution.
Whereas some investors choose to use their position as shareowners to encourage
Halliburton to adopt more responsible corporate policies and practices, other investors choose to
avoid ownership in the company.
"The company generally has a good environmental and safety
record, but there have been problems in these areas as well," said Julie Gorte, director of social
research at the Calvert Group. "Corporate governance, business ethics, nuclear power, weapons
contracting, and defense projects are all problems from Calvert's standpoint; we do not invest in
the company." Calvert manages 20 socially responsible investment (SRI) mutual funds.
The
Domini 400 Social Index (DSI), which is managed by KLD Research & Analytics, Inc., also excludes
Halliburton. Research provided by KLD and Calvert identifies a number of specific problems at
Halliburton.
For example, in 1998 Mr. Cheney negotiated for Halliburton the $7.7 billion
acquisition of Dresser Industries, a rival company that was saddled with numerous asbestos-related
lawsuits. In December 2002, Halliburton agreed to settle more than $4 billion in claims against
Dresser and KBR.
There is also a class action lawsuit against Halliburton that alleges
the company artificially inflated its stock price between June 1999 and May 2002 by having its
then-accountant Arthur Andersen booking uncollected cost overruns on construction projects as
revenues. The SEC had been gathering information on this issue and formalized its investigation
into the matter in December 2002.
In a final note of irony, Halliburton pleaded guilty in
1995 to criminal charges of violating a U.S. ban on exports to Libya by selling Col. Muammar
el-Qaddafi six pulse neutron generators between 1987 and 1989. These devices fall into the dual
use category: in addition to functioning as oil- and gas-well survey tools, they can be used to
detonate nuclear weapons.
©
SRI World Group, Inc. All Rights Reserved.
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