WASHINGTON - The United States has charged a former employee of the U.S. construction
giant Halliburton and a Kuwaiti subcontractor with defrauding the U.S. government
of millions of dollars in a contract scam in Iraq, one day after an international
watchdog group warned that lax oversight was threatening the reconstruction
Two men Jeff Alex Mazon, a former employee of Kellogg, Brown & Root
(KBR), a subsidiary of Houston-based Halliburton Co.; and Ali Hijazi, the managing
partner of a Kuwaiti business, LaNouvelle General Trading and Contracting Company
were indicted on charges of devising a scheme to defraud the United States
of more than $3.5 million.
The charges are related to the awarding of a subcontract to LaNouvelle to supply
fuel tankers for U.S. military operations in Iraq before the U.S. invasion of
Iraq in March 2003.
The indictment alleges Mazon rigged a bid he received from Hijazi of LaNouvelle
for fuel tankers to ensure that LaNouvelle would be overpaid. It also said that
Mazon, 36, allegedly inflated the competitor's bid to ensure that LaNouvelle's
bid would be the lowest.
Mazon allegedly tripled both bids and, in February 2003, on behalf of KBR,
Mazon awarded the subcontract for fuel operations at the airport to LaNouvelle.
The subcontract specified that KBR was to pay LaNouvelle more than $5.5 million,
nearly $5 million more than the KBR estimate of the job about $680,000.
Hijazi allegedly presented Mazon with a $1 million check in exchange for Mazon's
favorable treatment of LaNouvelle.
The investigation is one of several involving Halliburton and its subsidiaries,
which are working to support the U.S. occupation in the Middle East.
The charges surfaced only a day after the international watchdog group Transparency
International said in its "Global
Corruption Report 2005" that profiteering threatens to undermine the
reconstruction of Iraq, where most of the companies operating are U.S.-based.
"When the size of a bribe takes precedence over value for money, the results
are shoddy construction and poor infrastructure management," said Peter
Eigen, chairman of Transparency International (TI), in a statement. "Corruption
wastes money, bankrupts countries, and costs lives."
The TI report called for the adoption of more aggressive anti-corruption measures
as Iraq rebuilds.
"Corruption thrives in a context of confusion and change," the report
says, adding that the occupied Arab country was especially vulnerable due to
its recent history of conflict, tyranny, and mismanagement as well as "the
sizable reconstruction funds that have been pledged by the international community."
The organization said that the new Iraqi government, U.S. forces and international
donors need to place more emphasis on decentralizing governance, loans, and
aid projects, and they need to support Iraq's local media as an independent
The report also identifies management of Iraq's oil revenue as a priority.
"Funds poured into rebuilding countries such as Iraq must be safeguarded
against corruption," Eigen said.
Authors of the report on Iraq say that most of the anticipated spending on
building and procurement has not yet occurred.
"If urgent steps are not taken Iraq will become the biggest corruption
scandal in history," the authors say.
Attempts by donors like the World Bank and the International Monetary Fund
(IMF) to hasten the pace of reconstruction can heighten the chances of waste
and fraud, they argued.
Transparency International said that current standards of supervision by donors
and implementing agencies are not yet sufficient. Broad consultation and multilayered
monitoring that involve local communities are necessary to reduce the risks
of corruption, the report said.
"The example of Iraq is particularly dismal in this respect," says
It referred to how the Coalition Provisional Authority (CPA) and U.S. Department
of Defense initially had only 80 people examining the largest reconstruction
program in history, half the number needed according to the Association of Inspectors
General, and eventually outsourced oversight to private companies, giving rise
to potential conflicts of interest.
The report also said that many U.S. contractors in Iraq have been wasteful
and taken what many would see as excessive profits, both of which can be attributed
to "cost-plus" contracts. These are deals in which companies are reimbursed
for all costs with an additional percentage added as guaranteed profit.
It said that U.S. rules in Iraq still allow the government to award an unspecified
amount of future work to approved contractors.
"This system restricts the ability of poorly connected and smaller companies
from bidding for contracts," it said.
The report also faulted the phenomenon of "contract bundling," which
joins together two or more separate procurement requirements into a super-sized
contract, effectively disqualifying smaller companies because only the very
largest contractors are able to compete.
Other case studies of large-scale infrastructure projects around the world
that have been plagued by corruption include dam projects in Lesotho, Argentina,
and Uganda; a waste incinerator in Cologne, Germany; and the Bataan nuclear
power plant in the Philippines.