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Investigative Report: Cheney Led Halliburton to…</A>
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Investigative Report
Cheney Led Halliburton
To Feast at Federal Trough
State Department Questioned Deal
With Firm Linked to Russian Mob
By Knut Royce and Nathaniel Heller
(Washington, August 2) Under the guidance of Richard Cheney, a
get-the-government-out-of-my-face conservative, Halliburton Company over the
past five years has emerged as a corporate welfare hog, benefiting from at
least $3.8 billion in federal contracts and taxpayer-insured loans.
INTERNET LINKS :
- Alfa Bank
- BP-Amoco
- Halliburton Company
- Overseas Private Investment Corp.
- U.S. Export-Import Bank
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One of these loans was approved in April by the U.S. Export-Import Bank. It
guaranteed $489 million in credits to a Russian oil company whose roots are
imbedded in a legacy of KGB and Communist Party corruption, as well as drug
trafficking and organized crime funds, according to Russian and U.S. sources
and documents.
Those claims are hotly disputed by the Russian oil firm’s holding company.
Halliburton, which lobbied for the Ex-Im loan after the State Department
initially asserted that the deal would run counter to the "national
interest,” will receive $292 million of those funds to refurbish a massive
Siberian oil field owned by the Russian company, the Tyumen Oil Co., which is
controlled by a conglomerate called the Alfa Group.
The April Ex-Im taxpayer-insured loan, which has the effect of reducing the
borrower’s interest rate and extending its repayment term, is but the latest
of a series of government bank guarantees from which Halliburton has
benefited under Cheney, who joined the company as chairman and chief
executive officer in 1995.
Since then Halliburton and its subsidiaries have undertaken foreign projects
in which Ex-Im and its sister U.S. bank, the Overseas Private Investment
Corp., have guaranteed or made direct loans totaling $1.5 billion, mostly
over the last two years. That compares with a total of about $100 million the
government banks insured and loaned in the five years before Cheney joined
the company.
Under Cheney, Halliburton—largely through its Brown & Root subsidiary—has
garnered $2.3 billion in U.S. government contracts. This is almost double the
$1.2 billion it earned from the government in the five years before he
arrived. Most of the contracts have been with the U.S. Army for engineering
work in a variety of hot spots, including Bosnia, Albania, Kosovo and Haiti.
Halliburton spokeswoman Wendy Hall issued this statement:
"The Ex-Im Bank loan to Tyumen Oil Co. was carefully investigated by the
Ex-Im Bank and approved by its governing body.
Halliburton’s participation in the loan complies with all applicable United
States law and Ex-Im Bank regulation.
The loan proceeds will be used to export millions of dollars of goods and
services from the U.S. to Russia for much needed oil field improvements.
"These exports will create many jobs in the U.S.
"Any innuendo that Halliburton or Dick Cheney has acted improperly in
connection with the Ex-Im Bank loan is false and misleading."
Though there is no evidence that Cheney has espoused business dealings with
criminal organizations, Cheney has said publicly that the government should
lift restrictions on U.S. corporations in countries that the U.S. government
says have sponsored terrorism, such as Libya and Iran.
High-level access
Wall Street analysts praise Cheney’s stewardship of the company and attribute
his ability to attract government contracts and grants to his high-level
access to the corridors of power that stems from his days as defense
secretary under President George Bush. If he becomes vice president,
according to a Halliburton official who admires Cheney but asked to remain
anonymous, "the company’s government contracts would obviously go through the
roof.”
If Halliburton has benefited from government generosity, it also has
reciprocated with substantial political contributions, largely to
Republicans. During Cheney’s five years at the helm, the company has donated
$1,212,000 in soft and hard money to candidates and parties, according to
numbers compiled by the non-partisan Center for Responsive Politics. In the
five years prior to his arrival, the company had given $534,750.
Though the White House has been Democratic during those years, Congress,
which appropriates funds for OPIC and the Ex-Im bank, has been controlled by
Republicans.
The goodwill generated by those political contributions and extensive
lobbying by Halliburton and its allies on the Tyumen project helped save the
day after the White House and State Department in December directed the Ex-Im
Bank to delay approval of the $489 million credit guarantee. The
administration wanted the breathing space after complaints by Western
investors and companies that they had been defrauded by Tyumen in an
unrelated dispute.
One of the aggrieved firms was BP-Amoco, the largest oil and gas producer in
the United States. It and the others claimed that through fraud and other
unsavory practices in a Russian bankruptcy proceeding, Tyumen had effectively
"stolen” a vast oil field in which they held substantial equity.
BP-Amoco commissioned a private investigative report on Tyumen, which was
slipped to the CIA through an intermediary.
That report, a CIA official confirmed, contained 2 1/2 pages labeled
"criminal situation.’ The CIA promptly classified the report "secret’ and
passed it along to the Ex-Im Bank. Further, the CIA briefed Ex-Im about its
own material on Tyumen in December and told the bank that the BP-Amoco
investigative report "tracked” with its own information.
'Criminal situation'
The CIA declined to discuss with The Public i what was contained in the brief
section labeled "criminal situation."
Marsha E. Berry, vice president of communications for the Ex-Im Bank, said
that the bank was "not aware of Tyumen's connections to the mob. We take all
due diligence in researching our partners and making sure that they are
legitimate."
An Ex-Im attorney who worked on the Tyumen account said that the bank checked
with both the CIA and the U.S. Embassy in Moscow and concluded that there was
"no evidence to support the allegations” raised in the BP-Amoco report, which
he said included links to Russian organized crime. He would not further
discuss the allegations. He said that the CIA had rated Tyumen in the upper
quartile of Russian oil companies in above-board business practices.
Some allegations of organized crime and drug activities involving Tyumen’s
parent company, the Alfa Group, had been made public in Russia last year.
The allegations were contained in a report delivered in 1997 by anonymous
officials from the FSB (the Russian equivalent of the FBI) to the national
security committee of the Duma, or lower house of parliament.
A Russian-American specialist on business practices in the former Soviet
Union who has worked with the White House and Pentagon told The Public i that
the allegations contained in the 1997 report have been the subject of an
investigation by the FSB but that the probe, for unexplained reasons, had
been "put away for a better day."
Some of the key elements in the FSB report, a translation of which was
obtained by The Public i, are virtually identical to those provided to a
former senior American intelligence officer two years earlier by a former KGB
major who had been part of the Soviet spy agency’s ideological
counterintelligence branch.
The former U.S. intelligence officer, who asked not to be further identified,
wrote a contemporaneous report of what the former KGB major, at the time
working for two banks formed by the KGB, told him in 1995.The intelligence
specialist provided a copy of his report to The Public i.
Money laundering, drug trafficking
That document and the FSB report claim that Alfa Bank, one of Russia’s
largest and most profitable, as well as Alfa Eko, a trading company, had been
deeply involved in the early 1990s in laundering of Russian and Colombian
drug money and in trafficking drugs from the Far East to Europe.
The former KGB major, who with the fall of communism in the late 1980s had
himself been involved in the plan by the KGB and Communist Party to loot
state enterprises, said that Alfa Bank was founded with party and KGB funds,
and quickly attracted rogue agents who had served in anti-organized-crime
units. "They (the rogue agents on the bank’s payroll) quickly determined that
dealing in drugs would bring the highest profits with literally no risk in
Russia," according to the former KGB officer.
He claimed that a "large channel of heroin transit was established from Burma
through Laos, Vietnam, to the Far East [Siberia]." From there the drugs were
camouflaged as flour and sugar shipments and forwarded on to Germany. The
drug operation was controlled by a Chechen mob family, he said.
The FSB report, too, claimed that the Alfa Group’s top executives, oligarchs
Mikhail Fridman and Pyotr Aven, "allegedly participated in the transit of
drugs from Southeast Asia through Russia and into Europe."
Reached by telephone, Alexander Tolchinskiy, an officer of Alfa Bank in
Moscow, described as "nonsense” the reports that Alfa or its bosses had been
involved in the trafficking of drugs or the laundering of drug profits.
Another Alfa official said that the reports were planted by representatives
of a competing company, whom he would not identify, which wanted to take over
the commodities trade.
'Way off the mark'
A lawyer at the blue-chip Washington law firm of Akin, Gump, which represents
Tyumen, said that the claims that the company’s top officers had been
involved in narcotics trafficking and money laundering were "way off the
mark.” The lawyer declined to be further identified.
Rory Davenport of Fleischman Hillard, which handles Tyumen’s public relations
in Washington, said that his firm had performed a background check on Tyumen
and "there was no concern” about Tyumen's alleged mob connection.
Both the FSB and KGB reports cite an event in 1995 in which residents of a
Siberian town became "intoxicated," according to the American’s report, and
"poisoned," according to the FSB report, after they had eaten heroin-laced
sugar that had been shipped in a rail car container leased to Alfa Eko, which
specializes in the shipment of foodstuffs.
The account from the former KGB officer was that a railroad worker had stolen
a sack of sugar from the container and sold it to the persons who became ill.
The FSB document said that the incident occurred in Khabarovsk, a large city
in Siberia. The former KGB officer only described the location as Siberia.
The FSB report said that within days of the incident, Ministry of Internal
Affairs (MVD) agents conducted raids of Alfa Eko buildings and found "drugs
and other compromising documentation."
Both reports claim that Alfa Bank has laundered drug funds from Russian and
Colombian drug cartels.
The FSB document claims that at the end of 1993, a top Alfa official met with
Gilberto Rodriguez Orejuela, the now-imprisoned financial mastermind of
Colombia’s notorious Cali cartel, "to conclude an agreement about the
transfer of money into Alfa Bank from offshore zones such as the Bahamas,
Gibraltar and others. The plan was to insert it back into the Russian economy
through the purchase of stock in Russian companies."
The account from the former KGB officer is unclear about Alfa’s alleged role
with Rodriguez, but apparently confirms that "in 1993-94 there were attempts
of the so-called ‘Chess Player’ [Rodriguez’s nickname] to launder and
legalize large amounts of criminal money in Russia.’ He reported that there
was evidence "regarding [Alfa Bank’s] involvement with the money laundering
of . . . Latin American drug cartels."
Pattern not unusual
The former KGB officer claimed that the Alfa empire had its roots in a
cooperative formed by KGB officers in 1987 to import computers. It would
profit by avoiding import duties and launder funds by creating phony invoices
to themselves reflecting 500 percent markups in their cost.
The FSB document said that in the 1980s, Alfa’s Fridman "secretly cooperated
with operatives of the KGB," was active in the Komsomol (Communist Youth
League) and established the cooperatives Gelios and Orsk to purchase
computers from abroad.
The former U.S. intelligence officer who interviewed the ex-KGB major said
that such a pattern was not unusual. He said that the KGB and Komsomol often
teamed up with bright young entrepreneurs like Fridman in the late 1980s and
early 1990s and provided seed money to launch private ventures, often
involving the importing of computers or the formation of banks. He said that
Russian oligarch Mikhail Khodorkovsky, whose reputedly heavily mobbed-up
Menatep bank folded in 1998, also got his seed money from the Komsomol and
also initially dealt in computers. He said that 47 percent of the KGB agents
in the Soviet Union had been groomed by Komsomol.
The FSB report also claims that top officials of the Alfa Group "cooperated"
with a number of Russian crime organizations, notably the notorious Solntsevo
mob family in Moscow. The Russian-American specialist on business practices
in Russia, who has a wide array of contacts inside Russia’s law enforcement
and intelligence communities, agreed that Alfa Bank, as well as others, are
used by the Solntsevo crime family.
As with most of Russia’s post-Soviet privatization efforts, Alfa Group’s
takeover of Tyumen Oil was complicated and fraught with allegations of
impropriety. In July of 1997, Novy Holdings, a joint venture involving Alfa
and a New York-based Russian-American firm, Access Industries, purchased a 40
percent stake in Tyumen Oil from the Russian government for roughly $810
million. The sale, however, was not without controversy. Russian President
Boris Yeltsin himself instructed his privatization czar, Deputy Prime
Minister Alfred Kokh, to "personally control the investment tender of the TNK
company [Tyumen Oil]” because he was concerned that Tyumen’s worth might have
been grossly undervalued due to Alfa’s improper influence on the audit of the
oil giant.
A second cash auction for the remainder of the oil company was scheduled for
later that year, with most analysts predicting that Alfa would seek to
increase its stake to a majority position. But the auction was suspended in
November of 1997, drawing criticism that the government was deliberately
delaying the sale of Tyumen in order to give Alfa additional time to raise
the necessary funds it needed to take control of the company. The most
outspoken critic of Alfa’s attempt to wrest control of Tyumen was Viktor
Paly, general director of Nizhnevartovskneftegaz, Tyumen Oil’s production
subsidiary. Paly held a 9% stake in Tyumen Oil through an off-shore company
Cadet Establishment.
By February of 1998, however, following meetings at Alfa’s offices in Moscow,
Paly agreed to divest his stake in Tyumen Oil to Alfa. One month later, Alfa
bought an additional 1.17 percent of Tyumen Oil as part of the long-delayed
second auction, raising its total stake in the oil company to a 51 percent
controlling position.
Was Cheney's chief of staff
Tyumen could have significant access to the White House should the
Bush-Cheney ticket win in the November presidential elections. Tyumen’s lead
attorney at Akin Gump is James C. Langdon Jr., a managing partner at the
firm. He is also one of George W. Bush’s "Pioneers,” one of the elite fund
raisers who have brought in at least $100,000 for the Republican presidential
hopeful.
Last June in Washington, Langdon helped coordinate a $2.2 million fund raiser
for Bush, and agreed to help recruit 100 lawyers and lobbyists in the capital
to raise $25,000 each. Langdon’s secretary told The Public i that he was
away on travel this week and could not be immediately reached.
Tyumen could also look to one of Cheney’s deputies for access should the
Republicans triumph in November. One of Halliburton’s top lobbyists, Dave
Gribbin, was Cheney’s chief of staff at the Defense Department during the
Bush administration, and his lobbying activities have borne fruit for
Halliburton over the last several years.
As with Halliburton’s campaign donations, the company’s lobbying expenditures
increased under Cheney’s watch. In 1996, the company spent $280,000 on
lobbying. In 1997, the company increased those expenditures to $360,000, to
$540,000 in 1998, and to $600,000 in 1999.That upward trend parallels the
increasing success Halliburton has had in winning government contracts,
loans, and guarantees under Cheney’s direction.
Not surprisingly, several key issues relating to Halliburton’s success in
securing government largesse appear frequently on the company’s lobbying
reports. Among them are "OPIC Reauthorization,” Defense Appropriations
Bills,” and "Foreign Operations Appropriations Bills Funding EXIM, OPIC, and
TDA” [the Trade and Development Agency, a government agency similar to Ex-Im
and one that also funds Halliburton projects around the world]. Gribbin also
lists "EXIM,” "OPIC,” and "TDA” as federal agencies that were contacted as
part of the company’s lobbying activities. Gribbin did not return repeated
calls from The Public i.
In no small irony, the official Bush Web site, recently revamped to
accommodate the addition of Cheney to the ticket, notes in the "Foreign
Policy” section that the duo supports "redirecting American assistance,
investment and loans to the Russian people, not to the bank accounts of
corrupt officials.”
Export-Import Bank and Overseas Private Investment Corp. projects involving
Halliburton: 1990- 2000
Year Amount Type Project Country
Ex-Im Bank:
1990 $311,482 guarantee Entreprise Nationale de Geophysique SP
Algeria
1990 $311,482 loan Entreprise Nationale de Geophysique SP Algeria
1991 $2,975,030 guarantee Entreprise Nationale de Geophysique SP
Algeria
1991 $2,975,030 loan Entreprise Nationale de Geophysique SP Algeria
1992 $1,055,730 guarantee Entreprise Nationale de Geophysique SP
Algeria
1992 $1,055,730 loan Entreprise Nationale de Geophysique SP Algeria
1992 $29,742,049 guarantee Sonatrach Algeria
1992 $52,064,663 guarantee Sonatrach Algeria
*1994 $266,271,425 guarantee Samotlornefgaz Russia
1996 $88,535,400 guarantee Special Purpose Entity Angola
1997 $134,604,799 guarantee Sonatrach Algeria
1997 $15,393,372 guarantee Sonatrach Algeria
1998 $161,139,799 guarantee Pemex Project Funding Master Trust, The
Mexico
1998 $375,379,380 guarantee Pemex Project Funding Master Trust, The
Mexico
1999 $64,151,962 loan Soc National de Combustiveis de Angola Angola
2000 $400,000,001 guarantee Pemex Project Funding Master Trust, The
Mexico
2000 $36,838,454 guarantee Samotlornefgaz Russia
$1,632,805,788
OPIC
1997 $100,000,000 insurance offshore gas development Bangladesh
* Carried over to year 2000 as part of guarantee to Tyumen.
Halliburton's fiscal year 1999 U.S. government contracts by agency (include
subsidiaries of Halliburton)
Agency Total Amount No. of
Transactions
Department of Defense - Navy $28,180,000 326
Department of Defense - Army (Except Corps of Engineers) $624,926,000
461
Department of Defense - Air Force (Headquarters) $6,310,000 20
Department of Defense - Army Corps of Engineers $267,000 2
Department of Defense - Army Corps of Engineers -$4,654,000 2
Department of Defense - Defense Information Systems Agency $332,000 1
Department of Health and Human Services - National Institutes of Health
$40,477,000 280
Department of Interior - Geological Survey $27,000 1
Department of Interior - Minerals Management Service $50,000 1
Department of Interior - National Park Service $99,000 3
Department of State $31,200,000 7
Environmental Protection Agency $172,000 1
National Aeronautics and Space Administration $52,901,000 136
$780,287,000 1241
Knut Royce is a senior fellow and Nathaniel Heller is the James R. Soles
Fellow at the Center for Public Integrity. They were assisted by researchers
Gil Shochat and Amy Zader.
------------------------------------------------------------------------
Related Reports:
* As chief executive of Halliburton Company, Dick Cheney profited directly
from the sanctions placed on Iraq after the Gulf War.
(In These Times, Nov. 13)
* U.S. embassies assisted Cheney firm.
(Associated Press, Oct. 26)
* Cheney's standard of living soars in private sector.
(Los Angeles Times, Oct. 19)
* Dick Cheney is confused about how he made money; government loans and
contracts helped Cheney and Halliburton make millions, Gore campaign says.
(New York Times, Oct. 11) (free registration required)
* GOP ticket just loves corporate welfare.
(Lars Erik Nelson column, New York Daily News, Oct. 11)
* The attack by Vladimir Putin, president of Russia, on media barons has
intimidated the country's powerful tycoons, shattering their cozy world of
corruption and inside dealing. (New York Times Magazine, Oct. 8)
* Dick Cheney Needed to Come Clean; Why Joe Lieberman Didn't Out Him.
(commentary by David J. Ledermann, a Detroit attorney. (TomPaine.Com. Oct. 6)
* Bush-Cheney campaign turns spotlight on Halliburton.
(Dallas Morning News, Sept. 20)
* Dick Cheney's role in the compensation packages of other CEOs could add a
complicating factor to his defense of the $13.6 million in stock and options
that he received after leaving Halliburton to become Texas Gov. George W.
Bush's running mate. (Washington Post, Aug. 30)
* Mixed reviews for Cheney in chief executive role at Halliburton. (New
York Times, Aug. 24) (Free registration required)
* Out of D.C., Cheney still carried clout (Chicago Tribune, Aug. 10) (Free
registration required)
* Cheney linked to oil-loans funding. (the Guardian, London, Aug. 5)
* Primary ways to nail jelly. (Harold Evans commentary, the Guardian,
London, Aug. 7)
------------------------------------------------------------------------
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