Top U.S. contractor in Iraq skirts U.S. taxes offshore

bush

(Thu, 06 Mar 2008 10:03:02 -0500) --- With an estimated $16 billion in contracts, KBR is by far the largest
contractor in Iraq, with eight times the work of its nearest
competitor.

The no-bid contract it received in 2002 to rebuild Iraq's oil
infrastructure and a multibillion-dollar contract to provide support
services to troops have long drawn scrutiny because Vice President
Dick Cheney was Halliburton's chief executive from 1995 until he
joined the Republican ticket with President Bush in 2000.

The largest of the Cayman Islands shell companies - called Service
Employers International Inc., which is now listed as having more than
20,000 workers in Iraq, according to KBR - was created two years
before Cheney became Halliburton's chief executive.

But a second Cayman Islands company called Overseas Administrative
Services, which now is listed as the employer of 1,020 mostly
managerial workers in Iraq, was established two months after Cheney's
appointment.

Cheney's office at the White House referred questions to his personal
lawyer, who did not return phone calls.

...................................................................................................

Heather Browne, a spokeswoman for KBR, acknowledged via e-mail that
the two Cayman Islands companies were set up "in order to allow us to
reduce certain tax obligations of the company and its employees."

...............................................................................................................

The practice enables KBR to avoid paying unemployment taxes in Texas,
where the company is registered, amounting to between $20 and $559 per
American employee per year, depending on the company's rate of
turnover.

As a result, workers hired through the Cayman Island companies cannot
receive unemployment assistance should they lose their jobs.

In interviews with more than a dozen KBR workers registered through
the Cayman Islands companies, most said they did not realize that they
had been employed by a foreign firm until they arrived in Iraq and
were told by their foremen, or until they returned home and applied
for unemployment benefits.

"They never explained it to us," said Arthur Faust, 57, who got a job
loading convoys in Iraq in 2004 after putting his resume on
KBRcareers.com and going to orientation with KBR officials in Houston.

....................................................................................................

Halliburton, a Houston-based oil conglomerate, acquired Brown & Root
in 1962.

And after the Vietnam cease-fire agreement in 1973, it all but stopped
doing overseas military work for two decades.

But in 1991, during the Gulf War, Halliburton decided to try to revive
its military business.

The next year, Brown & Root won a $3.9 million contract from the
Defense Department under Secretary Dick Cheney to develop contingency
plans to support, feed, house, and maintain the US military in 13 hot
spots around the world.

That small contract soon grew into a massive logistical-support
contract under which the company did everything from building military
camps to cooking meals and providing transportation for troops.

Under the contract, the military agreed to reimburse Brown & Root for
all expenses, and to pay a profit of between 1 and 9 percent,
depending on performance.

.............................................................................................

A former Halliburton executive who was in a senior position at the
company in the early 1990s said construction companies that avoid
taxes by setting up foreign subsidiaries have obvious advantages in
bidding for military contracts.

...............................................................................................

Critics of tax loopholes note that the use of offshore shell companies
to avoid payroll taxes places a greater burden on other taxpayers.

"The argument that by not paying taxes they are saving the government
money is just absurd," said Robert McIntyre, director of Citizens for
Tax Justice, a Washington advocacy group.

To the people listed as its workers, Service Employers International
Inc. - known to them as SEII - remains something of a mystery.

"Does anybody know what or where in the Grand Cayman Islands SEII is
located?" a recently returned worker wrote in a complaint about the
company on JobVent.com, an employment website.

He speculated that the office in the Cayman Islands must be "the size
of a jail cell . . . with only a desk and chair."

In fact, the address on file at the Registry of Companies in the
Cayman Islands leads to a nondescript building in the Grand Cayman
business district that houses Trident Trust, one of the Caymans'
largest offshore registered agents.

........................................................................................................

The real managers of Service Employers International work out of KBR's
office in Dubai.

KBR and Halliburton, which also moved to Dubai, severed ties last
year.

Both KBR and the US military appear to regard Service Employers
International and KBR interchangeably, except for tax purposes.

.....................................................................................................

Some workers said they were told that Service Employers International
was just KBR's payroll company.

Others mistook the name as a reference to the well-known, large union,
Service Employees International.

Henry Bunting, a Houston man who served as a procurement officer for a
KBR project in Iraq in 2003, said he first found out that he was
working for a foreign subsidiary when he looked closely at his
paycheck.

"Their whole mindset was deceit," Bunting said.

He said that he wrote to KBR several times asking for a W-2 form so he
could file his taxes, but that KBR never responded.

David Boiles, a truck driver in Iraq from 2004 to 2006, said that he
realized he was working for Service Employers International when he
arrived in Iraq and his foreman told him he was not a KBR employee,
despite the fact that his military-issued identification card said
"KBR."

"At first, I didn't believe him," Boiles said.

Danny Langford, a Texas pipe-fitter who was sent to work in a water
treatment plant in southern Iraq in July 2003, said he, too, initially
believed that he was an employee of KBR.

But when he allegedly got ill from chemicals at the plant and was
terminated that fall, he said, his application for unemployment
compensation was rejected because he worked for a foreign company.

"Now, I don't know who I was working for," he said in a telephone
interview.

.....................................................................................................

Last year a Senate subcommittee estimated that US corporations avoid
paying $30 and $60 billion annually in income taxes by using offshore
tax havens.

Senators Carl Levin, a Michigan Democrat; Barack Obama, an Illinois
Democrat; and Norm Coleman, a Minnesota Republican, are trying to pass
the Stop Tax Haven Abuse Act, which would give the US Treasury
Department the authority to take special measures against foreign
jurisdictions that impede US tax enforcement.

American companies that evade payroll taxes face fines or other
criminal penalties.

From The Boston Globe, 3/6/08:

www.boston.com

Top Iraq contractor skirts US taxes offshore

Shell companies in Cayman Islands allow KBR to avoid Medicare, Social
Security deductions

CAYMAN ISLANDS -

Kellogg Brown & Root, the nation's top Iraq war contractor and until
last year a subsidiary of Halliburton Corp., has avoided paying
hundreds of millions of dollars in federal Medicare and Social
Security taxes by hiring workers through shell companies based in this
tropical tax haven.

More than 21,000 people working for KBR in Iraq - including about
10,500 Americans - are listed as employees of two companies that exist
in a computer file on the fourth floor of a building on a palm-studded
boulevard here in the Caribbean.

Neither company has an office or phone number in the Cayman Islands.

The Defense Department has known since at least 2004 that KBR was
avoiding taxes by declaring its American workers as employees of
Cayman Islands shell companies, and officials said the move allowed
KBR to perform the work more cheaply, saving Defense dollars.

But the use of the loophole results in a significantly greater loss of
revenue to the government as a whole, particularly to the Social
Security and Medicare trust funds.

And the creation of shell companies in places such as the Cayman
Islands to avoid taxes has long been attacked by members of Congress.

_____________________________________________________

Turns yer stomach, eh?

Harry

Harry Hope (rivrvu@ix.netcom.com).

You may contact Vunet.org staff via E-mail address (MSN, Yahoo! or email) : ">Contact Us.

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