Lawmakers, Including Republicans, Criticize Pentagon on Disputed Billing by Halliburton

Published: June 22, 2005

WASHINGTON, June 21 - Republicans joined longtime Democratic critics in Congress on Tuesday to berate the Pentagon for withholding information about the Halliburton Corporation's disputed billing under a $2.5 billion contract for Iraqi oil site repairs and fuel imports.

Saying the Pentagon is acting as if "it has something to hide," Representative Christopher Shays, Republican of Connecticut, said at a hearing that he would support issuing a subpoena to the Pentagon next week if the administration did not provide long-requested documents relating to the contract, which was awarded to Halliburton in early 2003 without competition.

Mr. Shays is chairman of the House Subcommittee on National Security, Emerging Threats and International Relations, which held the hearing.

The subcommittee seeks in particular to explore why Defense Department officials tried to keep secret their own auditors' findings last fall that questioned the validity of more than $200 million of Halliburton invoices under the 2003 contract.

Lawmakers from both parties expressed frustration with the Pentagon at the session, which is the first Congressional hearing to be devoted specifically to American management of $19.6 billion in Iraqi funds.

The money, mainly from oil revenue, was gathered in an account called the Development Fund for Iraq, which was controlled by the United States from early 2003 to mid-2004, when sovereignty was transferred to an interim Iraqi government.

The fund is the successor to the so-called oil-for-food aid program, in which the United Nations monitored Iraqi oil sales and revenue in the final years of Saddam Hussein's rule, and which has been a subject of more than a dozen Congressional hearings over allegations of mismanagement and corruption.

Although it has received little attention by comparison, the subsequent American handling of Iraqi funds "has discredited the United States and, I think, brought shame to our nation," Dennis J. Kucinich, Democrat of Ohio, said at the hearing. He was referring to findings by federal auditors that the occupation authority spent billions, in addition to the disputed Halliburton contract, with little oversight.

Most of the money spent under the 2003 oil repair and fuels contract with the Halliburton subsidiary Kellogg Brown & Root was drawn from Iraqi funds, which a United Nations resolution authorized the American-led alliance to use "in a transparent manner" and for the good of Iraq.

Last winter, when United Nations and Congressional overseers asked to see internal Pentagon audits of the oil contract, they were given copies in which all of the questioned charges and most of the critical remarks about Kellogg were blacked out, or redacted.

"The redactions violated the commitment to transparency and regretfully make it appear D.O.D. has something to hide," Mr. Shays told a panel of Defense Department officials at the hearing. He accused the Pentagon of "deferring completely to the contractor's absurdly expansive view of what constitutes proprietary information and must be shielded from view."

Unedited copies of some of the Pentagon audits were leaked in March to Representative Henry A. Waxman, Democrat of California, who released them publicly.

At the subcommittee hearing on Tuesday, Mr. Waxman said that in a recent private briefing, Pentagon officials had disclosed that Kellogg Brown & Root had been allowed to dictate the redactions.

Pentagon officials said at the hearing that the department's general counsel had advised them that details of the audits, including alleged overcharges, could not be released without the contractor's permission. Independent experts on contracting have disputed that view.

In a series of reports, a federal agency created by Congress to monitor reconstruction spending in Iraq has criticized the occupation authority for poor financial management of both Iraqi and American funds, opening the way to fraud.

In January the agency, the Special Inspector General for Iraq Reconstruction, concluded that $8.8 billion had been provided to Iraqi ministries with poor oversight or controls. Among other problems, it described ministries that claimed pay for thousands of "ghost employees."

The former chief of the occupation authority, L. Paul Bremer III, argued then that officials were being held to an impossible standard and that in the emergency after the invasion it was vital to get ministries started and pay in the hands of Iraqis.

Another report by the monitoring agency found evidence of fraud by American officials who dispensed small development grants in the region around Hilla in south-central Iraq.

More than $7 million in cash is missing from that office, and criminal investigations are under way.

Mr. Waxman, who has been the most persistent Congressional critic of spending controls in Iraq, released a report on Tuesday called "U.S. Mismanagement of Iraqi Funds."

It describes the huge transfers of cash, mainly in $100 bills, from the Federal Reserve Bank of New York to Iraq.

Because Iraq does not have a well-functioning banking system, payments to ministries and many contractors there have been in cash, in American currency, making it hard to monitor spending. Between May 2003 and June 2004, the report found, the Federal Reserve shipped $12 billion in cash to Iraq, all drawn from the account of the Development Fund for Iraq.

In June 2004 alone - the final month of American control over Iraqi funds - officials urgently shipped more than $4 billion so they could allocate the money before the transfer of sovereignty to Iraqis, Mr. Waxman said.

Yet "no certified public accounting firm was hired to monitor disbursements" of all that cash, Mr. Waxman said.