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Investigative
Report 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.
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. 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. Halliburton
spokeswoman Wendy Hall issued this statement: 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.” 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. 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. 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. 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. 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." 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. 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
*
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)
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:
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