Taking on the Halliburton Mess

By

Mobolaji Aluko

 NIGERIA TODAY ONLINE The authoritative and most widely read Nigerian publication abroad Daily briefing on key political & economic events affecting Nigeria Available by e-mail subscription Monday-Friday (Except public holidays). Osborne Jetty Complex, Osborne Road, Ikoyi, Lagos. Tel: 791 4196 , 0803 307 1088. London: 0208 279 2078 or 07956 263 704 E-Mail: Nigeria2Day@AOL.Com (Published since 1989) Monday 19 May 2003 Investigations Inside Nigeria........ The many holes in Halli's Burton The journey from Nigeria Today Online's premises on Osborne Road, Ikoyi, to oil services giant, Halliburton's office on Ajose Adeogun, Victoria Island, took thirty minutes last Monday. After negotiating a slight bottleneck at the traffic junction at Pees Galleria, it was smooth sailing through Rewane Road onto Falomo Bridge and then Ozumba Mbadiwe, through Adetokunbo Ademola, then into V.I. extension. Halliburton is a relatively unknown multinational compared with the likes of Shell, Mobil or Chevron, but is easily recognisable on that busy street where it is located. Ask any Okada motorbike rider or taxi driver and the response is the same. ''Dem dey for that corner. Walahi....you no go miss am''.

On getting to the imposing granite laced edifice, one is immediately confronted with a retinue of security guards. At least four uniformed men are stationed at the entrance, two are programmed to stand sentry, whilst a further three or so are in the reception. ''What can we do for you sir?'' one of the guards with the biceps of the late Dick Tiger, Nigeria's former world boxing champion asked in a polite manner. Before my response, yet another question. ''Do you have an appointment?'' If you are in this business of ours, you'll feel like an intruder behind the firm's iron gates. ''I don't have an appointment but I must see your boss concerning a scandal involving the company'' I told the guard. ''Scandal? Sho! Please wait sir, let me call them upstairs''.

Moments later I was ushered through the reception and then to the third floor. On my neck hung the obligatory visitors identification. I was handed over to a bespectacled slim tall Caucasian man who introduced himself as David Mladenka. At first I thought he was a South Africa, but that assumption soon evaporated as he spoke with a Texan accent. Mladenka, a Czech American has been in Nigeria for over three years and is due to relocate to Saudi Arabia in less than a month. He is Halliburton's Energy Services Country Manager, Business Development & Technology. In attendance was Chika Nnoli of the The Law Union, a reputable law practice. After exchanging pleasantries we got down to business. My mission was to get Halliburton to shed more light on its admission that its Nigerian subsidiary, KBR, actually paid $2.4 million (about N300 million) bung to tax officials in Nigeria in order to reduce its tax liabilities. Mladenka said he was aware of the report but could not add anything. ''Halliburton has no connection with KBR in Nigeria'' he explained. ''We are separate entities''. KBR he said are far away in Abuja. I requested for KBR's contact details which he readily obliged. ''Speak with John Aylward'' he suggested. ''But don't you think Halliburton is vicariously liable as the parent company?'' I asked. David's response didn't change.

In the end it was obvious, we'll have to call Abuja for the information we needed. After that he stood up...a body language that meant, our meeting had ended. I understood the signal. When you've lived in Europe for over twenty years, you take such cues seriously. As he saw me out, we went past the office of one of the Nigerian directors, Chief Charles Nsirim. We shook hands and quickly went through the same discussion I'd had with David. ''We operate independently from KBR and cannot help you in this matter'' Chief Nsirim, a seasoned technocrat said. Our meeting was conducted whilst standing and may have lasted for five minutes.

In a short while, I was at the reception where I handed over my visitors tag, and made my way out of the building. Halliburton, the second biggest oil services company in the world had been ill prepared for such an encounter. That no prepared statement had been issued on the bribery admission after five days when major international newswires had reported the story, is a classic example of how best not to conduct crisis management. On getting back to the office, we contacted KBR's office in Abuja. All efforts came to naught. For four days the phone rang and no one was there to attend to it. Our investigation later, showed that KBR and the man we were looking for, John Aylward was actually in Victoria Island. Mladenka was to tell me in a second encounter that the Abuja office was more of a ''one man and his dog operation''. In this case there was no dog. For Aylward, it was ''Me, myself and I''.

 Hence, when he's out no one attends to the phone. In the second encounter with Mladenka, he admitted that the bribery report was embarrassing to the company. ''We have over 90,000 employees and they are all aware of our code of conduct. When things go wrong, we investigate and deal with it. We will ensure that the laws of Nigeria and the United States take its course before this matter is closed''. Asked if the matter has been reported to the police, his answer ? ''I don't know''. Halliburton : Caught in a Tax Web Corporate executives are always adept at coining phrases and words that make very unpleasant state of affairs seem less intolerable. It was the corporate world that added these euphemisms to our lexicon: downsizing, restructuring and rationalisation.

As words, they may seem tolerable, but their consequences are not. They all result in job cuts and lay-off in companies that have stressed their expediency. Now a new euphemism known as improper payments have been added to the list and it was introduced by executives of Halliburton, an oil-service giant with head office in Houston, United States. Just what exactly are improper payments? This illustration might help. Sometime in 2001, a smartly-dressed man clutching a briefcase walked into the Kellogg Brown and Roots (KBR) Abuja office. KBR is Halliburton's subsidiary. He introduced himself as a tax consultant to the officials of the company who were obviously elated on finding such an expert on tax matters. His proposal to facilitate a favourable tax treatment for the company must have been seen as fair, since his visits continued well into 2002. For helping the company enjoy an illicit tax moratorium, the consultant was paid a whopping $2.4m.

One year later, that closet affair had become public knowledge. The consultant was simply an impostor. He was discovered to be a Nigerian tax official. These facts emerged during an audit of the Nigerian office of KBR, an engineering, construction and oil field services firm that is, at present, building a liquidfield natural gas plant and an offshore oil and gas terminal in Nigeria. ˜The (improper) payment were made to obtain favourable tax treatment and clearly violated our code of business conduct and our internal control procedure Halliburton's officials said. Upon discovery, the officials say, the matter was reported to America's securities and exchange commission (SEC). Such responsive attitude ought to attract a plaudit. Zelma Branch, Halliburton's  Global Public Relations Officer, thinks so too.

While this is an unfortunate situation she says ˜the real story here is that our system works. Our existing processes uncovered the issue, it was immediately reported to the SEC of course we all wish these things didn't occur, but with over 92,000 employees worldwide we know they occasionally do. We can all take comfort however, that on these rare occasions where our employees act improperly, we discover it, we get to the bottom of it, we hold people accountable for their actions, and we do the right thing by our shareholders, our customer and our host governments around the world But that applause, apparently, has to wait for a later date after it would have been determined whether Halliburton truly deserves one-and not knocks for its role in the affair. That possibility is not far-fetched given the subterfuge that had characterised Halliburton's handling of the incident.

First it coined a more agreeable but rather vague term, improper payments When it could have stated, explicitly, that its subsidiary has breached an important company ethics which prohibits commercial bribery. According to the provision of this section, company policy prohibits commercial bribes, kickbacks and other similar pay offs and benefits paid to any suppliers or customers. That slip- or ploy  may be excused as measures, consistent with corporate damage control. But they were not helped by this statement made by Branch: We have conducted an investigation assisted by outside legal counsel. Based on the finding of the investigation, several employees were terminated (SIC). None of Halliburton's senior officers were involved. Yet, when we demanded from Branch, the names of the guilty officials, who she said had been sacked, the response was couched in obvious subterfuges. The same applied to the request for the identity of the Nigerian tax official.

As frustrating as those responses proved to be, they were nevertheless much more tolerable than that offered by officials of the Halliburton office, in Lagos, which simply took the art of damage control to ludicrous heights. An official at the unmarked Halliburton's office on Yunis Bashorun Street, Victoria island, who introduced himself as David Mladenka said that, ˜Halliburton has no connection with KBR in Nigeria. We are separate entities. Speak with €˜John Aylward. He explained that Allward was in charge of KBR Abuja office. Repeated dial of their (KBR) telephone line was unsuccessful. It rang and rang without response; each unanswered call deepening further the mystery that surrounds the multimillion dollar scam. A tax consultant who spoke with Nigeria Today Online on the condition that his identity be concealed, said the mystery may never be unravelled.

Given the amount involved and the calibre of officials who are probable culprits, KBR file in the Federal Inland Revenue office might never be found, he explained. So how would claims by Halliburton that KBRs tax liabilities in Nigeria is approximately $5million be verified? In order words, their tax liability could be much higher than that. Indeed. It did not make economic sense to pay $2.4million in bribes, when almost an equal addition would have solved the problem, legitimately. Yet, even if the liabilities were not more than that, the figure is quite substantial. And, the growing public outcry underscores that.

This is one of the ways that these multinationals are killing local industries, says Rev. David Ugolor, co-ordinator of the African Network for Economic and environmental justice. €˜With a company spending such a huge sum to seek preferential treatment, how will local firms be able to compete with them? Ugolor then urged president Olusegun Obasanjo to order a probe into the issue. The consequences could be messy for both company and country. KBR, for example, enjoy a remarkable profile, having won several multi-billion dollar contracts in major oil sites in Nigeria. Surely, the company's financial future faces grave risk if the inquiry, which sources say the presidency had ordered, proves unfavourable. And, if it does, what implications will that have on Nigeria's economic development, especially in the oil sector?

Of course, whatever implications it have would be in addition to the huge amount which Nigeria must have lost in tax earnings to KBRs default. This is one aspect that critics and prosecutors, perhaps, will not let go easily: the thought that KBR may have contributed to Nigeria’s underdevelopment; denying the state badly needed revenue that ought to serve as fund for its crumbled infrastructure, medicare and education. According to officials of Halliburton, the payments were made between 2001 and 2002. However, this crime might have been running much earlier successfully. The company's scandal ridden history gives a large room for all sort of suspicious speculation. For how long has the company been slipping through the tax net? Just one year, implicitly, based on their filing to the American SEC. Could that self-convicting report Halliburton claimed it made to SEC have been induced by realisation that its foreign activities were being investigated? And, why has a whole year lapsed without the company notifying security agencies of its host government to commence investigation into a criminal conduct, said to have been discovered over a year ago?

Possibly, the answer lies in Mr Shola Amore's explanation. Amore, a Chief Superintendent of Police and Press Officer at the Force Criminal Investigation Department annexe, Alagbon, told Nigeria Today Online that the company's reluctance to report the matter to the police might be due to the knowledge that they, as much as the recipients of the bribe, would be deemed guilty in law. Halliburton may be prosecuted Adebimpe Balogun, president of the Chartered Institute of Taxation of Nigeria (CITN), comments on the Halliburton bribery scandal. She spoke with Nigeria Today Online's Laurence Ani and Malagu Oumarou-Sanda. What are the possible sanctions for somebody who offers bribe in order to receive a favourable tax treatment? First of all, you have to prove that it was actually a bribe. If that is established, there's actually a penalty for that in law; for tax officials involved in fraudulent activities. It involves a jail term on conviction. That is for the tax official. And for any company official involved in that, the amount such a person has to pay is not fixed, apart from the tax liability which has to be paid.

In this instance, where the company involved has actually admitted it made some improper payments to some tax officials, what are the likely penalty? Corporate bodies cannot be imprisoned, but the directors involved, or any company official that is responsible for such action, would have to answer to the offence in court. But in this instance, the company has failed to release the names of the officials it said were involved, and also the identity of the individual to whom it claimed the payments was made? Well that is going to be a bit difficult, because then it means the state will have to prosecute the company for owning up to having paid bribe, and then get to the bottom of it. Would you say the issue of tax evasion is quite prevalent in the country? I believe it is prevalent. There's no doubt about that. It is not everybody that declares everything that ought to be declared.

 _____ Controversy trails Halliburton Halliburton's officially quoted address in Lagos, Nigeria is Ajose Adeogun Street on Victoria island. But the company is actually located on Yunis Bashorun Sreet where its main entrance can be found. Perhaps it is deliberate or maybe it is not. Founded in 1919, Halliburton is one of the world’s largest providers of products and services to the oil and gas industries. The company adds value through the entire lifecycle of oil and gas reservoirs and provides and integrates products and services starting with exploration and development. It also moves through production, operations, maintenance, conversion and refining to infrastructure and abandonment. Its energy services group offers a broad range of products and services to upstream oil and gas customers worldwide, ranging from the manufacturing of drill bits and other down hole and completion tools and pressure pumping services to sub-sea engineering. KBR, the engineering and construction group serves the energy industry by designing and building liquefied natural gas plants, refining and processing plants, production facilities and offshore and onshore pipelines. Its non energy business meets the engineering and construction needs of governments and civil infrastructure customers. KBR also provides operations and maintenance for a wide variety of facilities.

 Late last year, KBR completed the fabrication, integration and onshore commissioning phase of the EPK contract for the floating production, storage and offloading (FPSO) vessel, the sea eagle for Shell Petroleum Development Company of Nigeria (SPDC). Reports indicate that the company is already facing questions over its business practises in Iraq and its accounting practices. Penultimate Tuesday, a United States lawmaker stated that the US military had revealed for the first time, that KBR had a contract encompassing the operation of Iraqi oil fields as against a previous disclosure that the US Army corps of Engineers had described the contract given to Halliburton as involving oil well fire fighting. On May 2, the Army sent a letter to Henry Waxman, a top ranking democrat in the House of Representatives. The letter contained answers to questions Waxman had sent, part of which was to find out the extent of Halliburton's involvement in Iraqi oil sector.

The revelations from the army show that the contract also included operations of facilities and distribution of products. The US Vice President, Dick Cheney was Chief executive officer of the company in 1995 when Halliburton was a second tier firm within the oil and energy industries. As Secretary of Defence during the Gulf war, Cheney has international contacts which Halliburton's executives built on to propel the company to the front role of the industry, making it one of the two biggest in the world.

Under his leadership, Halliburton expanded overseas, swelling its domestic portfolio into foreign markets. He also led an aggressive acquisition of competitors, an offensive strategy which took place in a period of falling oil prices. During his leadership of the company, he also criticized US sanctions against countries like Iran, Iraq and Libya described as rogue states in a 1998 speech. He had complained in a July 26, 2000 edition of the Washington Post that the sanctions are nearly always politically motivated by domestic pressure and the need for the US congress to appeal to some domestic constituency. Cheney was to later retire from Halliburton in 2000 to actualize his political dream which saw him later become the US Vice president. On his leaving, he sold his stock holdings in May 2000 in the company which fetched him a whopping $5million. He was also given a retirement benefit worth $20 million.

 At the time Cheney was chief executive, Nigeria was recording her worst human rights violations. KBR was scrutinized heavily by human rights organizations world wide for doing business in Nigeria at that time. The Environmental Rights Action (ERA) alleged that KBR collaborated with Nigeria's mobile police unit and shot and killed a protester. The report, which was written by Wayne Madsen in the 2000 edition of The Progressive also alleged similar role on the part of Shell and Chevron in the mobilization of the kill and go unit to protect their property.

In March this year, Halliburton launched an investigation involving US and Nigerian government officials over theft of a radioactive device used at its Nigerian operations that officials feared could be used to make a dirty bomb , an explosive device designed to scatter radioactivity in a densely populated area. The theft occurred between the Nigerian oil rich cities of Warri and Port Harcourt. Expert opinion indicate that if the devices radio active material were combined with a pound of TNT and exploded, an area covering 60 city blocks would be contaminated with a radiation dose in excess of safety guidelines of the Environmental Protection Agency.

Halliburton also had extensive investments and contracts in Indonesia. One of its contracts was cancelled by the Indonesia government during a purge of corruptly awarded contracts under the government of Suharto. Indonesia Corruption Watch named KBR among 59 companies using collusive, corruptive and nepostic deals involving former president Suharto's family. Halliburton was also deeply involved in Lybia where it grossed 44.7 million dollars in 1993. After sanctions on Libya were imposed, its earnings dropped to $12.4 million in 1994. The company has continue to do business in Lybia despite a US lawmaker accusing it of undermining American foreign policy to the full extent allowed by law. Accusation of mounting fraudulent practices here continue to besiege the company.

Last week, Judicial Watch Incorporated, a self-described non-partisan group in the US which investigates and prosecutes corporation by government officials filed suit on behalf of some shareholders against Cheney and 13 other Halliburton directors. Also joined in the suit are Halliburton and its accounting firm Arthur Anderson LLP and Arthur Anderson world-wide. The suit charges Cheney and Halliburton with fraudulent accounting practices and misleading press releases resulting in over-valuation of the company's shares leading to shareholder losses. The suit alleged that Halliburton overstated revenues of 445 million dollars from 1999 through the end of 2001. The suit which was filed in US District Court in Dallas has two of the shareholders Stephen S. Stephens of Indian and Lyle and Deaner J. lionberger of New Mexico listed as plaintiffs.

 ______________________________________________________________________ Meanwhile, Investigations inside the US...... The Guardian May 19, 2003 Nigerians in U.S. seek probe of Cheney's oil firm >From Laolu Akande, New York HALLIBURTON, the oil services company formerly headed by United States Vice President Dick Cheney, is rigorously denying complicity in the $2.5 million tax evasion scam by its subsidiary in Nigeria, KBR. But Nigerian lawyers and professionals in New York's famous financial district, Wall Street, are demanding legal action against the company as would have been the case if the alleged crime had been committed in the U.S. The apparent evasion was blown open last week in media reports that quoted the company's mandatory regulatory filings.

Halliburton's Public Relations Manager in Houston, in a written response on Wednesday told The Guardian that the scam only showed that the company's internal system works and that its management acted in good faith by immediately launching a probe once the impropriety was discovered. The spokesperson, Wendy Hall said in the statement: "Over a year ago, we self-reported this issue to the SEC and it has been in each of our publicly filed financial statements since then." Hall noted that "while this is an unfortunate situation, the real story here is that our system works." She stated that the issue was uncovered by "our existing processes, it was immediately reported to the SEC, we immediately investigated the issue, and all the necessary actions were taken when the facts were uncovered, including the termination of those involved." The Public Relations Manager continued: "

Of course, we all wish these things didn't occur, but with over 92,000 employees worldwide, we know they occasionally do. We can all take comfort, however, that on those rare occasions where our employees act improperly, we discover it. We get to the bottom of it; we hold people accountable for their actions and we do the right thing by our shareholders, our customers, and our host governments around the world." The Guardian asked particularly whether the company already informed the Nigerian government about the development and whether it would co-operate with Nigerian authorities on an investigation, but the response was not very direct.

Hall simply said: "When Halliburton discovered the improper payments through a routine audit, it launched an investigation assisted by outside legal counsel and notified the SEC. Because the SEC investigation is not complete, we believe it is inappropriate to provide any further details at this time." But the President of the New York- based Nigerian Lawyers Association (NLA), Mr. Shamsey Oloko, said: "It is quite ironic that a major company from the U.S. has disclosed its complicity in the aiding and abetting of bribery in Nigeria." Oloko, a leading U.S. taxation lawyer, added that although Halliburton acknowledges the illegality of its conduct, there is a need for a criminal prosecution of the indicted officials. "It remains to be seen whether the principal actors will be properly subject to criminal prosecution," he said, stressing that the payment of bribe totalling $2.4 million in Nigeria "is a particularly egregious and unlawful behavior, under both Nigerian and U.S. laws." Oloko called on the U.S. authorities to bring those involved to justice. " All involved thereof must be appropriately charged and brought to justice, as would have been the case if the misconduct took place in Halliburton's home country, the U.S.," he said.

A Washington DC attorney, who is also a Nigerian, Mr. Emmanuel Ogebe expressed worry that "this report is not very encouraging for the fight against corruption in Nigeria if a company linked so closely to a highly placed U.S. official such as the VP did not have the good sense to avoid such a scandal." Another Nigerian, who is a financial professional in New York, preferred anonymity being a representative of the New York Stock Exchange, NYSE/NASD member firm. He said: "Normally, publicly quoted companies must file all sorts of documents to the regulatory agency such as SEC. Documents regarding their financial as well as stock transactions by "insiders" - major shareholders or subsidiaries as a matter of public record. " Observers have punctured the impression of self-confession being created by Halliburton, arguing that the company reported the scam only because it had no choice.

The NYSE/NASD representative added that the filings "must reveal all pertinent information and, according to recent laws, the CEO's must attest to the truthfulness and authenticity of such information." A Nigerian Stock broker on Wall Street, Mr. Tunde Aboyade-Cole, however observed that "we should be grateful that this was found out because of the vigilance of the auditors and/or the relevant regulatory bodies. Aboyade-Cole argued that Halliburton would not have voluntarily confessed if the U.S. regulatory system or disclosure requirements had not compelled it to do so. But he also noted that such practices are widespread in Nigeria "and it involves most of the foreign companies operating there.

In fact, construction/engineering companies are notorious for bribery, contract inflation and serving as conduit for getting looted funds into safe havens like Switzerland." Aboyade-Cole hoped the Nigerian embassy would liaise with the relevant investigating bodies to get the facts "so that we can conduct our own investigation and mete out our own punishment to our nationals that colluded with them." He said the oil company would have to pay the outstanding taxes, which, by its own reckoning, might be about $5 million.

May 2003