by Lou Dubose
As LBJ's fortunes grew, so did those of his patron. In 1947, Brown & Root had barely made a list of the top fifty construction companies in the country. By 1965 it was number two, and by 1969 number one, with sales of $1.6 billion. As noted in Dan Briody's book, The Halliburton Agenda, most of the momentum took place while Johnson was president. The escalation of the Vietnam War proved a boon to the company. In wartime, when quick results are demanded, few quibbled over massive cost overruns. So ubiquitous were the company's government projects in Vietnam that war protesters dubbed it "Burn and Loot."
The two firms, which merged in 1963, had much in common. Both were based in Texas. Both were vehemently antiunion and anticommunist. And both of their strong-minded founders, Erle Halliburton and Herman Brown, each of whom would likely have objected to the merger, had died in the previous decade.
The period that followed the Brown & Root / Halliburton merger has been called Halliburton's Golden Age. By 1981, revenues had shot up to $8.5 billion, profits were $674 million, and Halliburton employed more than 110,000 workers. But the company had lost its political rainmakers. The oil bust of the 1980s hit Halliburton hard, and profits sank. More than half the employees were laid off. Painful downsizing and consolidation continued into the early 1990s. By 1992 the financial chemotherapy had started to work. It also didn't hurt Halliburton's prospects when government contracts started to flow again, including a very important Army logistics plan commissioned by Secretary of Defense Dick Cheney, which promised a revenue stream that could save the company from the economic roller coaster of oil and gas. Over the three and a half years before Cheney took the reins of Halliburton on October 1, 1995, the company's stock rose 82 percent.
Cheney had lucked into an ideal situation. He was inheriting a company on the upswing, recruited by a board with relatively low expectations of his management prowess. "When we brought Cheney in, it really wasn't to run operations, it was to make the proper strategic decisions, and to establish relationships," Chairman Tom Cruikshank subsequently told The New York Times. Halliburton wanted Cheney's Rolodex, and in particular, his contacts in the Middle East.
Unfortunately for the company, Cheney was not content to be a door opener or a celebrity CEO.
By now the world is aware of the dangers of collateral damage when Dick Cheney goes hunting. Certainly, Austin lawyer Harry Whittington, whom the vice president inadvertently shot in the face, knows. In 2004, the Sierra Club also got a taste. It petitioned U.S. Supreme Court justice Antonin Scalia—to no avail—to recuse himself after he and his pal the vice president went duck hunting just before the court ruled on whether Cheney's energy task force logs could remain secret. The environmental group lost that one, as did the interest of open government.
Halliburton stockholders and employees can also count themselves among those who have suffered when Cheney shouldered his shotgun. In January 1998, Dick Cheney, Halliburton CEO, went quail hunting in South Texas with Bill Bradford, the chairman of Dresser Industries. In a glimpse of how small Cheney's circle of loyalty can be, the two men had three ranches in the area from which to choose: his old friend James Baker's ancestral spread, the hunting camp of George Brown's daughter Nancy Negley, and the almost fifty-thousand-acre ranch of Halliburton board member and former Ford administration ambassador Anne Armstrong. (Years later Negley would be present when Cheney peppered Whittington nearly to death with buckshot on Armstrong's ranch.) Neither Cheney nor Bradford have said where their hunt took place.
Prior to Cheney's joining Halliburton, the two rival Dallas-based oil service companies had discussed merging, but not much had come of the talks. When Cheney arrived at Halliburton, merger mania gripped corporate America. The 1990s would see massive consolidations in the oilpatch, including the pairing of Exxon and Mobil, BP and Amoco, and Chevron and Texaco. By 1998, Cheney had already successfully absorbed several smaller companies. In particular, analysts cheered his acquisition of Landmark Graphics, a software company that produces computer models of hydrocarbon reserves. After joining Halliburton, Landmark posted its highest quarterly revenues since it was founded in 1982.
Dresser was a company of another magnitude altogether. A merger with Dresser would create the largest oil services and construction firm in the world. Cheney believed that Halliburton needed to become the Wal-Mart of oil service companies in order to survive. He envisioned a corporation that would do everything from locate the oil reserves to build the offshore platforms to extract the crude from the ground. As part of his vision, he centralized control within Halliburton, leading one former executive quoted in Fortune magazine to compare the company's bureaucracy to "the Soviet navy."
During the quail hunt, Cheney suggested to Bradford that Dresser and Halliburton renew their merger talks. Over the next two months, the men met secretly at the Crescent Court, a Dallas hotel, to work out the details. In February 1998, the two sides agreed that Halliburton would purchase Dresser for $7.7 billion. On paper it made sense. Other than oilfield and engineering departments, most of their divisions did not overlap. Cheney said that he and Bradford did not expect the kinds of devastating layoffs then employed by merger kings like Al "Chainsaw" Dunlap of Sunbeam Corp. But his timing proved disastrous. By the time the two companies finished the last of the paperwork in September 1998, the price of oil had plummeted. Halliburton purchased Dresser at the top of the market at a 16 percent premium. To help compensate, Cheney immediately slashed ten thousand jobs.
The worst was yet to come. The companies were so comfortable with each other that the full range of normal due diligence investigations was restricted. This may be why a thorough detailing of Dresser's asbestos liability was not included in the prospectus explaining the deal that was sent to the shareholders of both companies. Cheney would be safely in the White House by the time it became clear that he had saddled Halliburton with $4 billion worth of asbestos liability.
Cheney's failure to take the asbestos threat more seriously may have derived from a false sense of security. He believed that Halliburton had already escaped Brown & Root's liability for the cancer-causing fiber through a clever corporate shell game. In 1996, not long after Cheney joined the company, Halliburton spun off a wholly owned subsidiary called Highland Insurance Group. Once Highland was separated from its corporate parent, Halliburton asserted that thirty thousand asbestos claims against Brown & Root belonged to Highland. This came as a shock to Highland investors, as a letter signed by Cheney explaining the spin-off to stockholders failed to mention the liability. It wouldn't be until 2002, two years after Cheney's departure, that the Delaware Supreme Court closed the door on Halliburton's scheme to avoid liability, forcing the company to spend $80 million to settle the asbestos cases.
Cheney apologists assert that there is no way he could have known just how bad Dresser's asbestos claims would be. Yet even by 1998, litigation frenzy over worker exposure to asbestos had bankrupted dozens of companies. And it wasn't as if Dresser had a tangential relationship to the workplace carcinogen. A Pittsburgh division of the company called Harbison-Walker had used asbestos until 1970 in insulating bricks and coatings it sold. Most of the 66,000 asbestos claims aimed at the company could be traced to Harbison-Walker, which Dresser had spun off several years before the merger with Halliburton. While the new owner of Harbison-Walker had promised to cover claims filed after 1992, in mid-1998, prior to completion of the merger, it demanded that Dresser take on more of the burden. Halliburton later claimed ignorance of the pre-merger demand.
The real bleeding started in December 2001 when Halliburton revealed that it would have to pay three large asbestos awards. Its stock fell 42.5 percent in a day, to $12 a share. Claims swelled to 274,000 by the end of 2001. In the beginning of 2002, Harbison-Walker filed for bankruptcy, leaving its liability to Halliburton, whose stock tumbled to $9 a share. As Cheney sat in his West Wing office and contemplated taking out Saddam Hussein, Halliburton found its salvation in a "prepackaged Chapter 11 proceeding." The bankruptcy deal all
owed Halliburton to jettison its liability and save the company. In exchange, it paid $5.1 billion in cash and stock, of which insurers paid $1.4 billion, to be held in trust for current and future asbestos victims.
Dick Cheney didn't just avoid any consequences, political or otherwise, from the ill effects of buying Dresser. His company lavishly rewarded him for his folly. In December 1998, Halliburton gave Cheney a $1.5 million bonus for "bringing the Dresser merger to a successful conclusion."
Asbestos would not be the only problem Halliburton would inherit from Dresser. It also acquired an emerging corruption scandal in Nigeria involving secret bank accounts and a shady lawyer doling out government bribes. Consistently ranked among the most corrupt in the global community, the West African nation is just one of many dysfunctional and authoritarian places where a Cheney-led Halliburton did business. Halliburton's rogues' gallery of pariah-state clients also included Iraq, Iran, Burma, Libya, Indonesia, and Azerbaijan. Cheney has defended Halliburton's operations in countries that regularly abused the human rights of their citizens, and even some that exported terrorism, by simply stating, "We go where the business is."
In a speech to the Cato Institute in 1998, CEO Cheney made the case that his company could ill afford the luxury of factoring ethics into where it operated. "The good Lord didn't see fit to put oil and gas only where there are democratically elected regimes friendly to the United States," he noted. "Occasionally we have to operate in places where, all things considered, one would not normally choose to go."
It's not surprising that bottom-line-oriented businessmen would rationalize dealing with despots or even paying off foreign officials. Government authority exists to restrain such corrosive behavior. Cheney has seen it from both sides and is nothing if not consistent: oil and gas trump government authority, and they certainly supersede human rights considerations. Cheney put this attitude on display in a tour of former Soviet bloc countries in the spring of 2006. During a stop in Lithuania, he castigated Russian president Vladimir Putin for "unfairly and improperly" restricting the rights of his people and using oil and gas as "tools of intimidation." The next day, in Kazakhstan, which has an abysmal human rights record but extensive gas and oil fields, Cheney said hardly a word about one of the most repressive regimes on the planet. A month later, Putin fired back on the Today show. "I think your vice president's expression there is like his bad shot on his hunting trip," the Russian president said. "I believe that his concerns do not look sincere and therefore they are not convincing."
Whether Dick Cheney put his business above the law in Nigeria is the subject of a seemingly stalled Department of Justice and Securities and Exchange Commission investigation. The reason we even know about the case is that France, Italy, Switzerland, and Nigeria have also investigated. All of these countries as well as the United States have statutes making it illegal to bribe a foreign official to obtain business. The U.S. bribery inquiry has dragged on for at least three years without a definitive answer to a simple question: Did Halliburton, under Dick Cheney, violate the Foreign Corrupt Practices Act (FCPA) in Nigeria?
Somebody broke the law, by Halliburton's own admission. "We have reason to believe, based on the ongoing investigations, that payments may have been made to Nigerian officials," the company has stated. Considering what's already on the public record, the company position seems understated.
When Cheney bought Dresser, its subsidiary M. W. Kellogg had likely been involved in illegal activities in Nigeria since at least the early 1990s, about the time it joined the international business consortium TSKJ to bid on a contract to build a gas liquefaction complex at Bonny Island in Rivers State, Nigeria. According to documents Halliburton provided to foreign investigators and made public as part of an inquiry in France, the consortium agreed to pay London-based lawyer Jeffrey Tesler $180 million to smooth the way for the Nigerian contracts. In a French deposition, Teslar claimed the $180 million was used to obtain Nigerian currency for the project. He has denied the money went for bribes. In 1995, TSKJ won the $2.2 billion contract.
Tesler reportedly was a financial adviser to Nigerian dictator General Sani Abacha. He also had a longtime relationship with A. Jack Stanley, the head of Kellogg's operations in Nigeria. When Halliburton took over Dresser, Cheney named Stanley chairman of the newly formed Kellogg Brown & Root subsidiary. Cheney told an industry newsletter that before the merger went through, what worried him the most was integrating Kellogg with Brown & Root. He happily reported that it had gone more smoothly than he had thought it would, in part because of Stanley. In March 1999, TSKJ won another Nigerian contract, worth $1.4 billion, to build more facilities on Bonny Island. French media would later report that Tesler deposited as much as a million dollars in a Swiss bank account controlled by Stanley. How the money was disbursed and to whom is still unclear.
In 2003, while Cheney enjoyed unprecedented power in the White House, an executive with one of the companies in the consortium revealed to French investigators the existence of the $180-million slush fund. A year after the involvement of the French, the SEC and DOJ joined the investigation. The U.S. Attorney for the Southern District of Texas in Houston convened a grand jury and issued subpoenas for documents from both Halliburton and Stanley. Investigators have interviewed Stanley at least three times. Stanley's lawyer refuses to comment. Halliburton has said that it is cooperating with all of the investigations.
Halliburton has communicated to shareholders that its internal investigation uncovered plans for payments to Nigerian officials beginning as early as 1995, as well as bid rigging by Stanley and other employees dating possibly as far back as the mid-1980s. In June 2004, well after the investigation had begun, the company ended its relationship with Stanley. "The termination occurred because of violations of Halliburton's Code of Business Conduct that allegedly involved the receipt of improper personal benefits in connection with TSKJ's construction of the natural gas liquefaction facility in Nigeria," reported Halliburton.
Around the same time, the SEC broadened its investigation to include Halliburton's conduct abroad over the past twenty years. If the agency ever finishes its exhaustive review and determines that the company violated the Foreign Corrupt Practices Act, Halliburton could be barred from receiving government money. At stake would be $6.6 billion in federal contracts. The company has already indicated that if charged, it would ask for "administrative agreements or waivers from the DoD and other agencies to avoid suspension or disbarment." With its former CEO as vice president and Halliburton an essential cog in the War on Terror, it's doubtful the company would be denied a waiver.
Evidence has yet to surface that Cheney knew of any illegal activities undertaken in the company's name, and the degree to which Dick Cheney had a permissive approach to the Federal Corrupt Practices Act may well take subpoenas to pry out. There is plenty of evidence that the vice president is willing to disregard legislation with which he differs. One need look no further than his chief of staff David Addington and the more than eight hundred signing statements he has helped inspire, in which President Bush declares he will interpret the law as he sees fit. Such legal flexibility is harder to conjure when you're just the executive of a corporation rather than a country. Nonetheless, one can imagine Cheney taking a dim view of the Foreign Corrupt Practices Act. Passed in 1977 as part of Congress's Watergate-era reforms, the law emboldens federal regulators and represents government intrusion into the activities of corporations.
With a few exceptions, Cheney has been outspoken in his opposition to the use of the government's economic power to impose unilateral international sanctions. "I think it is a false dichotomy to be told that we have to choose between commercial interests and other interests that the United States might have in a particular country or region around the world," he declared to the Cato Institute crowd, before making a case for constructive engagement.
As a congressman in 1986, Cheney was one of only eighty-three representatives to vote against overriding President
Ronald Reagan's veto of a South African sanctions bill. At the Cato conference, he even extended his argument to Cuba, the third rail of presidential politics. A better approach to Cuba would be to create a West Berlin-type enclave of Cuban democracy and free enterprise out at the U.S. Navy base in Guantánamo Bay, Cheney reportedly said. Less than a decade later, as vice president, he did help transform Guantanámo—into a place of torture and indefinite detention. Yet as CEO, Cheney's defiance of sanctions while at Halliburton put the company in legal jeopardy. As with the Nigeria bribery allegations, federal investigations into Halliburton's possible violations of U.S. sanctions are ongoing.
Cheney's political opposition to sanctions didn't stop at speeches. Human rights activists in the 1990s, encouraged by the role of sanctions in South Africa's transformation and Democratic control of the White House, hoped to use U.S. economic power to force change on some of the world's worst regimes. In their sights were countries such as Burma, Haiti, Nigeria, and Uzbekistan. Responding to their efforts, in 1997 Halliburton helped found a lobby group called USA Engage to fight the growing sanctions movement. Cheney and USA Engage argued that unilateral sanctions didn't work and only hurt U.S. companies. The new association successfully fought off a bill that would have imposed sanctions on foreign governments that persecute religious groups. It opposed but failed to halt bipartisan bills that impose sanctions on financial transactions with governments that support terrorist activities, and one to bar American investment in Iran and Libya.