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Bush Relatives Keep Cashing In With Military Contracts

by WS Editors

May 15, 2006 | Foreign Policy, Politics


While U.S. military personnel fight and die, and Iraqis die from injury or disease in their war-blighted communities, Washington insiders, including relatives of the president, continue to benefit financially from the war.

The total extent of war profiteering under this administration exceeds the scope of a newsletter or even of a full-length book. Halliburton, the giant oil-field-services corporation—headed by Vice President Cheney for five years—continues to receive Iraq contracts, even following public exposure of at least $170 million in overbilling. Halliburton recently announced that its first quarter profit for this year rose 34 percent, and the company told analysts in April that it is beginning a series of price increases “driven by strong demand.” Halliburton’s subsidiary Kellogg Brown & Root (KBR), associated with the most controversial Iraq contracts, intends to go public with a stock offering, expected to raise some $550 million. KBR was the biggest U.S. contractor in Iraq from 2002 through 2004, according to the Center for Public Integrity.

The major U.S. oil companies, including Chevron, where Secretary of State Condoleezza Rice was a director, garner record profits from war-boosted crude oil prices while the White House opposes a windfall-profits tax. (The combined profits for just the first quarter of 2006 for ExxonMobil, Chevron and ConocoPhillips totaled some $16 billion.) Lynne Cheney, wife of the vice president, formerly sat on the board of top U.S. defense contractor Lockheed Martin. Condi Rice and I. Lewis Libby, Cheney’s now indicted former chief of staff, sat on the board of the Rand Corporation, another immense federal contractor. Secretary of Defense Donald Rumsfeld went to Iraq to visit Saddam Hussein, back in the dictator’s palmy days, partly to put in a word on behalf of pipeline work for Bechtel, the giant construction company, which is now a major Iraq contractor.

ALL IN THE FAMILY—As the Washington Spectator previously reported, financial ties connecting the First Family to the “war on terror” have been numerous and pervasive. Former president George H.W. Bush served until fall 2003 on the board of defense giant the Carlyle Group, now broken up, which won billions of U.S. tax dollars in military and security contracts. A limited liability company in D.C. called New Bridge Strategies, established to generate business in Iraq, put Neil M. Bush, a younger brother of the president, under contract at $60,000 per year. An obscure, short-lived company named Nour USA, based in Virginia and connected to Marvin P. Bush, youngest brother of the president, received a controversial $327 million contract from the U.S. Coalition Provisional Authority in Iraq. The broad-ranging contract for a raft of products from a new company raised so many questions that it was canceled. However, a new private company called Anham Joint Venture replaced Nour and comprises most of the same members. Members of joint ventures, unlike those of corporations, are not required under Virginia law to be listed in the public record. The revised company also has received Iraq contracts.

A TALE OF CONTRACTS AND CONNECTIONS—In St. Louis, Missouri, Engineered Support Systems (ESSI), where an uncle of the president, William H.T. Bush, joined the board of directors in election year 2000, illustrates the nexus between White House policy and companies that benefit from it. ESSI, now merged with another major contractor, advertises itself as offering “advanced sustainment solutions, including the design, manufacture and supply of integrated military electronics, support equipment and technical and logistics services for all branches of America’s armed forces and certain foreign militaries, homeland security forces and selected government and intelligence agencies.”

After experiencing a jump in sales from $365 million in 2001 to $1 billion in 2005 under the Bush administration, largely from government contracts, ESSI was sold in January 2006 to DRS Technologies of New Jersey. The Los Angeles Times reported that William Bush, the uncle, reaped $2.7 million from the sale. Bush, who told the Times that he never makes telephone calls to the “202 [Washington, D.C.] area code,” received about $1.9 million in cash and $800,000 worth of stock in the merged company, which continues to acquire sizable military contracts.
DRS spokesperson Patricia Williamson said in response to e-mailed questions to her about the president’s uncle that William Bush’s presence on the ESSI board was “absolutely not” a factor in the acquisition of the company.

According to DRS, Bear Stearns, the brokerage company “served as financial advisor to DRS on the transaction. Merrill Lynch & Co., Inc. also served as financial advisor to DRS for the purpose of rendering a fairness opinion. Lehman Brothers Inc. served as financial advisor to ESSI on the transaction.”

All three companies—Bear Stearns, Merrill Lynch, and Lehman Brothers—are linked to the Bush team personally and financially. Among other connections, the president’s brother Marvin P. Bush once worked at the brokerage then called Shearson Lehman; Merrill Lynch incorporated the former G.H. Walker firm, founded by the president’s grandfather George Herbert Walker; and Bear Stearns chairman and CEO James Cayne was a Bush “Pioneer,” raising over $100,000 for the 2004 Bush campaign. According to Texans for Public Justice, a public-interest group, “Bear Stearns’s threats to move to New Jersey in the 1990s netted $105 million in tax breaks and other corporate welfare from New York City. In 1997 Mayor Rudolph Giuliani’s administration awarded $75 million of this welfare to Bear, which in 2003 hired Giuliani to launch a new investment fund of companies that sell anti-terrorism products.” Hiring these firms to monitor a merger of defense contractors would seem to resemble hiring an escort service to chaperone a fraternity party.

A company spokesman told the press that the sale moved DRS from “the Standard & Poor’s Small-Cap 600 Index to the Standard & Poor’s Mid-Cap 400 Index.” The company predicts that “approximately $2.9 billion in annual revenues [are] expected for fiscal 2007.”

Among the products DRS has offered are the so-called Chem-Bio Protective Shelters, purchased by the U.S. Army on going into Iraq but proven to be unneeded once the troops invaded, there being no caches of WMDs around. The company continued to receive contracts for these chem-bio shelters, as well as for various chemical decontamination products, through the entire period of the unsuccessful search for biological and chemical weapons in Iraq.

The company has also received multiple contracts from the armed services for its mobile field power generators. The generators are designed to go wherever needed to provide electrical power in locations where it would otherwise not be available. In July 2001, the company announced that it had received a U.S. Army contract worth up to $175 million for tactical quiet generator sets, stating that “bids were solicited on Dec. 19, 2000.” Thus the ink was barely dry on Mr. Justice Scalia’s opinion letting Team Bush into the White House when these bids for quiet generators were solicited. Evidently someone in the Pentagon foresaw that there would be a demand for them.

According to a company representative for the division of DRS that produces mobile generators, DRS has not sent any generators to Baghdad, even though there’s a power shortage. Generators were also not deployed in the great blackout of 2003 in the U.S. or sent to the Gulf Coast after Hurricane Katrina hit in 2005. When asked about why the company had not donated any mobile power generators during these calamities, DRS’s Patricia Williamson responded: “DRS is a defense contractor and as such, is requested by the government via formal contracts to build a specified number of units. . . . If the government requests the company to build spares, it will, if that is part of a contract’s requirements. . . . DRS cannot decide on its own to deliver government property elsewhere.”

AIR FORCE ALERT—Assuming that the mobile generators work, the question arises as to why they would not be deployed by government agencies in any large-scale disaster affecting power supply. But the question also arises as to whether they really do work. Both the Air Force and the Army awarded contracts to Engineered Support Systems for supplying some mobile generators to them, but in November 2004, the Air Force issued a stop-work order on the contracts because of reliability issues with the generators.

For several months, ESSI did not make public this Air Force stop-work order, which was eventually lifted. In the meantime, in January 2005, William H.T. Bush received about $450,000 for selling some of his stock in ESSI. As the Los Angeles Times reported in an item not covered by the press in the nation’s capital, several insiders sold stock in the months before the stop-work order was disclosed, the president’s uncle among them. When ESSI finally announced the existence of the stop-work order, in June 2005, its stock dropped 11 percent. The SEC informed ESSI in September 2005, while its proposed sale to DRS was moving forward, that it was broadening its investigation of the company to include the stop-work order and the interim stock sales.

ESSI continued to receive contracts. The stop-work order was lifted in October 2005. On October 11, 2005, it announced that it had been awarded another $24.5 million contract to supply Chem-Bio Protective Shelters to the Army, and a $3 million contract for heating and air-conditioning upgrades for reserve intelligence units, including installing uninterruptible power supplies.
But company problems continued to be disclosed. Tim McLaughlin of the St. Louis Post-Dispatchreported that when the deal with DRS was arranged, Engineered Support Systems approved the payment of a “success fee” of $5 million to its chairman, Michael Shanahan, but did not disclose the fee to DRS until after the merger, according to SEC filings. Shanahan’s son, Michael Shanahan, Jr., was a member of the insurance brokerage company that sold ESSI insurance for two years, resulting in commissions for the younger Shanahanand an investigation by the Securities and Exchange Commission for the company. According to thePost-Dispatch, ESSI commissions to Shanahan’s son’s insurance brokerage rose 90 percent, to $1.5 million, in fiscal 2005. In December 2004 the SEC launched a formal investigation of insider trading by the company and of the insurance commissions it was paying.

Federal prosecutors in the U.S. Attorney’s Office in St. Louis have also begun investigating the delayed stop-work order announcement. In the insider trades after the stop order but before the announcement, ESSI directors and executives sold more than $30 million worth of stock; only some of the trades were for transactions necessary to prevent options from expiring.

SUSPICIONS AROUSED—Further difficulties have arisen. The state attorney general’s office in Missouri is also investigating ESSI’s doings. The company is being sued in the state of Maryland over matters connected to its acquisition of a Maryland company three years ago. The Inspector General of the Air Force has recommended that the Air Force suspend a major contract with the company because of problems connected with fallout from the Darleen Druyun case. Druyun, a former Pentagon official who was imprisoned for inappropriate assistance to Boeing, also supervised some ESSI’s contracts, including “sole source,” or no-bid, contracts.

Congressman Henry Waxman (D-CA) has submitted two letters about ESSI to Defense Secretary Donald Rumsfeld, requesting documents pertaining to its dealings with the armed services. In March 2005, Waxman requested unredacted copies of all Engineered Support Systems contracts with the Pentagon or Iraq’s Coalition Provisional Authority, along with “any justification and approval documentation for sole source contracts” with ESSI. Noting that the president’s uncle sat on the board of the company and that $158 million of company contracts had been referred to the Air Force Inspector General’s office for investigation, Waxman also requested a DOD briefing regarding the process by which the contracts had been awarded and managed, and the rationale for the investigation. No reply.

A second letter to Rumsfeld from Waxman, dated April 6, 2006, notes that the Air Force IG found that Darleen Druyun pushed Engineered Support Systems from the beginning, recommending that the company receive a 33-year, $1.7 billion contract instead of the $158 million contract it received. Waxman also notes that the company received a $42 million contract for vehicle overhaul, even though the Marines could do the repairs for $19 million less. Using ESSI increased transportation costs by $641,000. In an effort to investigate why Druyun was so determined to assist this company in the first place, Waxman is also requesting all e-mail correspondence between the company and Druyun. The requests for documents and information have not been honored thus far.

Over seven days in April 2006, DRS Technologies announced a $142 million contract for infrared systems for the Canadian and Dutch navies, a $34 million contract for diagnostic systems for U.S. Army vehicles, a $222 million contract to provide communications services for multi-national forces in Iraq, an $18 million contract to refurbish military trailers deployed in Operation Iraqi Freedom, a $21 million contract for driver vision enhancers for U.S. Army vehicles, and a $20 million contract for electronics test support for Army ground vehicles. Media outlets in the Washington, D.C., region have largely disregarded the company’s contracts and its problems.

It is reasonable to conclude that the interaction of federal policy and corporate profit that is a pattern for the Bush administration has not been oriented toward national security. Consider the incongruity between the administration’s fabrications about nonexistent “weapons of mass destruction” in Iraq, on the one hand, and its negligence and dereliction of duty, on the other hand, that allowed caches of actual munitions to be stolen and then used against our troops.

It is also only too reasonable to predict that similar destabilizations are in store for the foreseeable future, under administration policy. Without much fanfare, the world’s single biggest American embassy is currently being constructed in Baghdad, to be staffed by 900 Americans and several hundred Iraqis. The U.S. is erecting several permanent military bases in the region, to be guarded for years to come by service personnel and privately hired security squads. Every such project becomes, first, a cachepot for contractors; then, a target for anti-American feeling intensified by these projects; and then, a locus for more contracting in the military-security sector, with a corresponding drain on resources for all other needs.

Thus, Washington’s famous “revolving door” is now revolving in a bloody geopolitical vicious circle.

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