Winners And Losers In The American Warfare State

By Sherwood Ross, Aug. 17, 2009

“On my last day in Iraq,” veteran McClatchy News correspondent Leila Fadel wrote August 9th, “as on my first day in Iraq, I couldn’t see what the United States and its allies had accomplished. …I couldn’t understand what thousands of American soldiers had died for and why hundreds of thousands of Iraqis had been killed.”

Quite a few oil company CEO’s and “defense” industry executives, however, do have a pretty good idea of why the war Fadel deplored is being fought. As Michael Cherkasky, president of Kroll Inc., said a year after the Iraq invasion boosted his security firm’s profits 231 percent: “It’s the Gold Rush.” What follows is a brief look at some of the outfits that cashed in, and at the multitudes that got took.

“Defense Earnings Continue to Soar,” Renae Merle wrote in The Washington Post on July 30, 2007. “Several of Washington’s largest defense contractors said last week that they continue to benefit from a boom in spending on the wars in Iraq and Afghanistan…” Merle added, “Profit reports from Northrop Grumman, General Dynamics and Lockheed Martin showed particularly strong results in operations in the region.” More recently, Boeing’s second-quarter earnings this year rose 17 percent, Associated Press reported, in part because of what AP called “robust defense sales.”

But war, it turns out, is not only unhealthy for human beings, it is not uniformly good for the economy. Many sectors suffer, including non-defense employment, as a war can destroy more jobs than it creates. While the makers of warplanes may be flying high, these are “Tough Times For Commercial Aerospace,” Business Week reported July 13th. “The sector is contending with the deepening global recession, declining air traffic, capacity cuts by airlines, and reduced availability of financing for aircraft purchases.”

The general public suffers, too. “As President Bush tried to fight the war without increasing taxes, the Iraq war has displaced private investment and/or government expenditures, including investments in infrastructure, R&D and education: they are less than they would otherwise have been,” write Joseph Stiglitz and Linda Bilmes in “The Three Trillion Dollar War”(Norton). Stiglitz holds a Nobel Prize in economics and Bilmes is former assistant secretary of the U.S. Department of Commerce. They say government money spent in Iraq does not stimulate the economy in the way that the same amounts spent at home would.

The war has also starved countless firms for expansion bucks. “Higher borrowing costs for business since the beginning of the Iraq war are bleeding manufacturing investment,” Greg Palast wrote in “Armed Madhouse”(Plume). And when entrepreneurs---who hire so many---lack growth capital, job creation takes a real hit.

We might recall too, the millions abroad who filled the streets to protest President Bush’s impending attack on Iraq and who have quit buying U.S. products, further reducing sales and employment. “American firms, especially those that have become icons, like McDonald’s and Coca-Cola, may also suffer, not so much from explicit boycotts as from a broader sense of dislike of all things American,” Stiglitz and Bilmes write. “America’s standing in the world has never been lower,” they say, noting that in 2007, U.S. “favorable” ratings plunged to 29 percent in Indonesia and nine percent in Turkey. “Large numbers of wealthy people in the Middle East---where the oil money and inequality put individual wealth in the billions---have shifted banking from America to elsewhere,” they say.

Because the Iraq war crippled that country’s oil industry, output fell, supplies tightened, and, according to Palast, “World prices leaped to reflect the shortfall…” What’s more, he points out, after the Iraq invasion the Saudis withheld more than a million barrels of oil a day from the market. “The one-year 121% post-invasion jump in the price of crude, from under $30 a barrel to over $60, sucked that $120 billion windfall to the Saudis from SUV drivers and factory owners in the West.” Count the Saudis among the big winners.

The oil spike subtracted 1.2% from the gross domestic product, “costing the USA just over one million jobs,” Palast reckoned. Stiglitz and Bilmes said the oil price spike means “American families have had to spend about 5 percent more of their income on gasoline and heating than before.” Last year, the Iraq and Afghan wars cost each American household $138 per month in taxes, they estimated. Count the Joneses among the big losers.

Palast writes, “It has been a very good war for Big Oil---courtesy of OPEC price hikes. The five oil giants saw profits rise from $34 billion in 2002 to $81 billion in 2004…But this tsunami of black ink was nothing compared to the wave of $120 billion in profits to come in 2006: $15.6 billion for Conoco, $17.1 billion for Chevron and the Mother of All Earnings, Exxon’s $39.5 billion in 2006 on sales of $378 billion.

Palast notes the oil firms have their own reserves whose value is tied to OPEC’s price targets, and “The rise in the price of oil after the first three years of the war boosted the value of the reserves of ExxonMobil oil alone by just over $666 billion…Chevron Oil, where Condoleezza Rice had served as a director, gained a quarter trillion dollars in value…I calculate that the top five oil operators saw their reserves rise in value by over $2.363 trillion.” Who’s surprised when Forbes reports of the ten most profitable corporations in the world five are now oil and gas companies---Exxon-Mobil, Royal Dutch Shell, BP, Chevron, and Petro-China.

“Since the Iraq War began,” Matthew Rothschild, editor of The Progressive wrote, “aerospace and defense industry stocks have more than doubled. General Dynamics did even better than that. Its stock has tripled.” An Associated Press account published July 23rd observed: “With the military fighting two wars and Pentagon budgets on a steady upward rise, defense companies regularly posted huge gains in profits and rosier earnings forecasts during recent quarters. Even as the rest of the economy tumbled last fall, military contractors, with the federal government as their primary customer, were a relative safe haven.”

Among the big winners are top Pentagon contractors, as ranked by WashingtonTechnology.com as of 2008. Halliburton spun off KBR in 2007 and their operations are covered later. Data was selected for typical years 2007-09.

1.Lockheed Martin
2. Boeing
3. KBR
4. Northrop Grumman
5. General Dynamics
6. Raytheon
7. SAIC
8. L-3 Communciations
9. EDS Corporation
10. Fluor Corporation

# Lockheed Martin, of Bethesda, Md., a major warplane builder, in 2007 alone earned profits of $3 billion on sales of nearly $42 billion.

# Boeing, of Chicago, saw its 2007 net profit shoot up 84% to $4 billion, fed by “strong growth in defense earnings,” according to an Agence France-Presse report.

# Northrop Grumman, of Los Angeles, a manufacturer of bombers, warships and military electronics, had 2007 profits of $1.8 billion on sales of $32 billion.

# General Dynamics, of Falls Church, Va., had profits in 2008 of about $2.5 billion on sales of $29 billion. It makes tanks, combat vehicles, and mission-critical information systems.

# Raytheon, of Waltham, Mass, reported about $23 billion in sales for 2008. It is the world’s largest missile maker and Bloomberg News says it is benefiting from “higher domestic defense spending and U.S. arms exports.”

# Scientific International Applications Corp., of La Jolla, Calif., an engineering and technology supplier to the Pentagon, had sales of $10 billion for fiscal year ending Jan. 31, 2009, and net income of $452 million.

# L-3, of New York City, has enjoyed sales growth of about 25% a year recently. Its total 2008 sales of $15 billion brought it profits of nearly $900 million. Its primary customer is the Defense Department, to which it supplies high tech surveillance and reconnaissance systems.

# EDS Corp., of Plano, Tex., purchased by Hewlett-Packard in May, 2008, had 2007 sales of nearly $20 billion. Its priority project is building the $12 billion Navy-Marine Corps Intranet, said to be the largest private network in the world.

# Fluor Corp., of Irvine, Tex., an engineering and construction firm, had net earnings of $720 million in 2008 on sales of $22 billion.

The good times continue to roll for military contractors under President Obama, who has increased the Pentagon’s budget by 4 percent to a total of about $700 billion. One reason military contractors fare so well is that no-bid contracts with built-in profit margins tumble out of the Pentagon cornucopia directly into their laps. The element of “risk,” so basic to capitalism, has been trampled by Pentagon purchasing agents even as its top brass rattle their missiles at socialist governments abroad. If this isn’t enough, in 2004 the Bush administration slipped a special provision into tax legislation to cut the tax on war profits to 7% compared to 21% paid by most U.S. manufacturers.

Former Halliburton subsidiary KBR, according to author Pratap Chatterjee in his “Halliburton’s Army”(Nation Books), raked in “more than $25 billion since the company won a ten-year contract in late 2001 to supply U.S. troops in combat situations around the world.” As all know, President Bush’s Vice President Dick Cheney previously headed Halliburton (1995-2000) and landed in the White House the same year Halliburton got its humungous outsourcing contract. Earlier, as Defense Secretary, (1989-1993) Cheney sparked the revolutionary change to outsourcing military support services to the privateers. Today, Halliburton ranks among the biggest “defense” winners of all.

Halliburton’s army “employs enough people to staff one hundred battalions, a total of more than 50,000 personnel who work for KBR, a contract that is now projected to reach $150 billion,” Chatterjee writes. “Together with the workers who are rebuilding Iraq’s infrastructure and the private security divisions of companies like Blackwater, Halliburton’s Army now outnumber the uniformed soldiers on the ground in Iraq.”

Accompanying Pentagon outsourcing, Chatterjee writes, “is the potential for bribery, corruption, and fraud. Dozens of Halliburton/KBR workers and their subcontractors have already been arrested and charged, and several are already serving jail terms for stealing millions of dollars, notably from Camp Arifjan in Kuwait.”

There’s likely no better example of how Halliburton/KBR literally burned taxpayers’ dollars than its destruction of $85,000 Mercedes and Volvo trucks when they got flat tires and were abandoned. James Warren, a convoy truck driver testified to the Government Affairs Committee in July, 2004, “KBR didn’t seem to care what happened to its trucks…It was common to torch trucks that we abandoned…even though we all carried chains and could have towed them to be repaired.”

Bunnatine Greenhouse, once top contract official at the U.S. Army Corps of Engineers, made headlines by demanding old-fashioned free enterprise competitive bidding. She told a Senate committee in 2005: “I can unequivocally state the abuse related to contracts awarded to KBR represents the most blatant and improper abuse I have witnessed” in 20 years of working on government contracts. Greenhouse was demoted for her adherence to the law, Chatterjee said, but she became a cover girl at “Fraud” magazine and was honored by the Giraffe Society, a tribute to one Federal employee who stuck her neck out.

Tales of Halliburton/KBR’s alleged swindles fill books. Rory Maybee, a former Halliburton/KBR contractor who worked at dining facilities in Camp Anaconda in 2004 told the U.S. Senate Democratic Policy Committee “that the company often provided rotten food to the troops and often charged the army for 20 thousand meals a day when it was serving only ten thousand.” Food swindling, though, is small potatoes. Say Stiglitz and Bilmes: “KBR has also been implicated in a lucrative insurance scam that has gouged U.S. taxpayers for at least $600 million.”

To fatten profit margins, contractors who cheat U.S. taxpayers apparently think nothing of underpaying their help. “While the executives of KBR, Blackwater, and other firms are making profits, many of those performing the menial work, such as cooking, driving, cleaning, and laundry, are poorly paid nationals from India, Pakistan, and other Asian and African countries,” Stiglitz and Bilmes write. “Indian cooks are reported to earn $3-$5 a day. At the same time, KBR bills the American taxpayer $100 per load of laundry.” Blackwater, the security firm repeatedly charged with shoot-first tactics, fraudulently obtained small-business set-aside contracts worth more than $144 million, they assert.

According to “Blackwater”(Nation Books) by Jeremy Scahill, the security firm in 2004 got a five-year contract to protect U.S. officials in Iraq totaling $229 million but as of June, 2006, just two years into the contract, it had been paid $321 million, and by late 2007 it had been paid more than $750 million. Scahill reports an audit charged that Blackwater included profit in its overhead and its total costs. The result was “not only in a duplication of profit but a pyramiding of profit since in effect Blackwater is applying profit to profit.” Scahill writes, “The audit also alleged that the company tried to inflate its profits by representing different Blackwater divisions as wholly separate companies.”

“As of summer, 2007, there were more ‘private contractors’ deployed on the U.S. government payroll in Iraq (180,000) than there were actual soldiers (160,000),” Scahill said. “These contractors worked for some 630 companies and drew personnel from more than 100 countries around the globe. …This meant the U.S. military had actually become the junior partner in the coalition that occupies Iraq.” And each Blackwater operative was costing the American taxpayers $1,222 per day. The Defense Department remains, of course, America’s No. 1 Employer, with 2.3 million workers (roughly twice the size of Wal-Mart, which has 1.2 million staffers) perhaps because America’s biggest export is war.

“Who pays Halliburton and Bechtel?” philosopher Noam Chomsky asks rhetorically in his “Imperial Ambitions” (Metropolitan Books). “The U.S. taxpayer,” he answers. “The same taxpayers fund the military-corporate system of weapons manufacturers and technology companies that bombed Iraq. So first you destroy Iraq, then you rebuild it. It’s a transfer of wealth from the general population to narrow sectors of the population.” It’s also been a body blow to Iraq, killing a million inhabitants, forcing two million into exile and millions more out of their homes. Incredibly, the U.S. proposed to reconstruct the nation it invaded with their oil revenues---and then, after taking perhaps $8 billion left the job undone. (Since the U.S. kept no records of how the dough was dispensed, it is not possible to identify the recipients.)

As Stiglitz and Bilmes remind us, “The money spent on Iraq could have been spent on schools, roads, or research. These investments yield high returns.” In an article in the August 24th Nation, policy analyst Georgia Levenson Keohane cites the Center on Budget and Policy Priorities to the effect that 48 states are reporting deficits totaling nearly $166 billion, projected to reach, cumulatively, $350 billion-$370 billion by 2011. “Although many states have attempted tax increases, these are politically challenging and often insufficient to close the gaps. Consequently, statehouses have been forced to cut vital services at a time when the need for them is ever more desperate,” Keohane writes.

In the same issue, reporter Marc Cooper notes the poverty rate in Los Angeles county borders on 20 percent; that California’s schools are ranked 47th nationally; that the state college system has suspended admissions for Spring, 2010; that thousands of state workers are being laid off and/or forced to take furlough days; that unemployment has reached 12 percent; that state parks are being closed; that personal bankruptcies peaked last; that one in four “capsized mortgages in the U.S. is in California.” Plus, California’s bond rating is just above the junk level and it faces a $26 billion budget shortfall.

California’s woes need to be examined in the light of the $116 billion the National Priorities Project of Northampton, Mass., says its taxpayers have shelled out for the wars in Afghanistan and Iraq since 2001. Those same dollars roughly would put four million California students through a four-year college. Bear in mind, too, outlays for those wars are but a fraction of all Pentagon spending, so the total military tax bill is far higher than $116 billion to California.

In calling for a reduction in military spending, Rep. Barney Frank (D.-Mass.) said, "The math is compelling: if we do not make reductions approximating 25 percent of the military budget starting fairly soon, it will be impossible to continue to fund an adequate level of domestic activity even with a repeal of Bush's tax cuts for the very wealthy….(American] well-being is far more endangered by a proposal for substantial reductions in Medicare, Social Security or other important domestic areas than it would be by canceling weapons systems that have no justification from any threat we are likely to face." On the other hand, maybe Americans want to keep paying to operate 2,000 domestic and foreign military bases and spend more money on armies and weapons of death than all other nations combined. Maybe they like living in the greatest Warfare State the world has ever known. My hunch, though, is a lot of Americans haven’t connected the country’s looming bankruptcy with the greedy, gang from the military-industrial complex out to control the planet, its people, and its precious resources.

After the long-suffering civilian population of Iraq, whose crime was having oil---a country Steiglitz says that has been rendered virtually unlivable---the big losers are the American taxpayers who are bleeding income, jobs, and quality of life, not just sacrificing family members, on behalf of a runaway war machine. California’s plight is being repeated everywhere. A great nation is being looted and millions of its citizens are being pauperized before our eyes.

(Sherwood Ross is a Miami-based public relations consultant who has worked as a reporter for major dailies, a publicist in the civil rights movement, and as a wire service columnist. Reach him at sherwoodr1@yahoo.com or visit his web site Sherwood Ross Associates.)

Blackwater Founder Implicated in Murder

By Jeremy Scahill, The Nation, Aug. 4, 2009

A former Blackwater employee and an ex-US Marine who has worked as a security operative for the company have made a series of explosive allegations in sworn statements filed on August 3 in federal court in Virginia. The two men claim that the company's owner, Erik Prince, may have murdered or facilitated the murder of individuals who were cooperating with federal authorities investigating the company. The former employee also alleges that Prince "views himself as a Christian crusader tasked with eliminating Muslims and the Islamic faith from the globe," and that Prince's companies "encouraged and rewarded the destruction of Iraqi life."

In their testimony, both men also allege that Blackwater was smuggling weapons into Iraq. One of the men alleges that Prince turned a profit by transporting "illegal" or "unlawful" weapons into the country on Prince's private planes. They also charge that Prince and other Blackwater executives destroyed incriminating videos, emails and other documents and have intentionally deceived the US State Department and other federal agencies. The identities of the two individuals were sealed out of concerns for their safety.

These allegations, and a series of other charges, are contained in sworn affidavits, given under penalty of perjury, filed late at night on August 3 in the Eastern District of Virginia as part of a seventy-page motion by lawyers for Iraqi civilians suing Blackwater for alleged war crimes and other misconduct. Susan Burke, a private attorney working in conjunction with the Center for Constitutional Rights, is suing Blackwater in five separate civil cases filed in the Washington, DC, area. They were recently consolidated before Judge T.S. Ellis III of the Eastern District of Virginia for pretrial motions. Burke filed the August 3 motion in response to Blackwater's motion to dismiss the case. Blackwater asserts that Prince and the company are innocent of any wrongdoing and that they were professionally performing their duties on behalf of their employer, the US State Department.

click here to read the full article

KBR 2Q profit surges 40 percent on revenue boost

AP, Forbes.com, July 30, 2009

HOUSTON -- Engineering and construction company KBR Inc. posted second-quarter earnings that topped Wall Street expectations as revenue rose on work in its energy and power projects and contracts in Iraq.

Net income of $67 million, or 42 cents per share, was up 40 percent from $48 million, or 28 cents per share, in the same quarter last year.

Revenue of $3.1 billion for the quarter ended June 30 rose 17 percent from $2.66 billion in the same quarter in 2008.

Analysts surveyed by Thomson Reuters expected KBR, a former Halliburton subsidiary, to earn 41 cents per share on revenue of $2.9 billion.

Income for the Houston-based company's engineering, procurement, construction and related services business rose to $65 million from $39 million in the quarter due to various liquefied natural gas, offshore energy and engineering projects.

KBR booked income in its government and infrastructure business of $80 million in the quarter, up from $63 million in the year-ago period, including work in Iraq and other military and public works projects.

And income from KBR's services business - North American construction and Canadian and other international operations - increased to $29 million from $17 million.

Backlog at the end of the quarter was $12.3 billion with "no material project cancellations" during the period, the company said. That's down slightly from $12.8 billion in the first quarter.

Bill Utt, chairman, president, and CEO, said KBR's markets are showing "positive indicators toward projects moving forward over the next few years."

Utt told analysts on a conference call that KBR will not protest the outcome of two awards to other engineering and construction companies for U.S. Army work in Afghanistan. DynCorp International Inc. and Fluor Corp. were awarded a combined $3 billion contract earlier this month for support services to U.S. troops.

Barclay's Capital analyst Andrew Kaplowitz said investors have already priced in the loss of the contracts for KBR stock. However, investors are getting more interested in KBR the closer the company gets to large projects such as the development of the Gorgon gas fields off Australia, he said.

Meanwhile, KBR faces investigations over accusations that, with military officials, it failed to protect a Green Beret who was electrocuted while showering in his barracks in Iraq. It also faces allegations about the safety of an Iraqi water treatment plant it rebuilt and, with Halliburton, faces lawsuits claiming health hazards from open-air pits used to burn refuse in Iraq and Afghanistan.

KBR says it's reviewing the charges and Halliburton insists it was improperly named and expects to be dismissed from the case.

Kaplowitz said the lawsuits and investigations are "more background noise right now."

"Sometimes, it will get a little louder and sometimes it will get a little softer," he said.

Shares rose 78 cents, or 4 percent, to close $20.37.

The Threads of the Story: Surreal Honduras

By CLIFTON ROSS, CounterPunch, July 24 - 26 2009, issue

Gabriel Garcia Màrquez could easily have written "A Hundred Years of Solitude" in any country of Central America. It's a region replete with characters and magical landscapes and myths with power to make the hair stand up on the back of your neck when you merely hear them. There's the one about the gringo who visited the mining region of Cabañas and soon thereafter the water turned bad and the fish in the river died and the people all began to die simply because a mysterious gringo passed through.

That's the story as Miguel Rivera tells it. His brother, Marcelo Rivera was the latest victim of the newly organized death squads, formed from what appears to be a triad of power: Pacific Rim (a Canadian multinational), the ARENA party (the political party organized by the death squad killer of Monsignor Romero, Roberto D'Aubuisson) and the "maras" or gang members.

Of course Miguel, who has a deep and even scientific knowledge of his locale, is aware that the myth is just that: a small story that reveals a larger, hidden truth, in this case that a "Gringo" multinational indeed entered the area, but the reason for the deaths was the heavy metal waste from the mining that was poured into the community's water.

In cultures and states where telling the exact truth can lead to one's death, it's always more convenient to wrap the story in myth. Those who unpackage the myths, like Marcelo Rivera, often disappear into thin air -- that is, until they're found, as he was, naked, castrated and murdered after being horribly tortured: his fingernails had all been pulled out; his face had been disfigured so much that his brother could only identify him by his nose; the beatings had broken his skull. Finally, after he had been strangled to death, his body was thrown in a sixty-foot well, covered with chicken manure, dirt, and pieces of meat.

The right wing press did, of course, repeat the official story that Marcelo had fallen in with "mara" gangsters and drank with them, but editors had the integrity to also print a counterpoint that everyone who knew Marcelo had quite clear: that the victim of the unholy triad of moneyed power in El Salvador never drank nor hung out with the maras. His hero was Monsignor Romero and Miguel says the last time he saw his brother he was wearing a t-shirt with the image of that martyr on it.

There's a significant difference between El Salvador under the FMLN where power in the media is actively being contested, and Honduras where there is a blackout of the opposition perspective. Another difference is that the ARENA party has lost control of the military and has to rely on "maras" to do its dirty work while in Honduras the government hasn't yet had to consider recruiting "civilian contractors" from the 100,000 or so "maras" operating in Central America. Thus far the military has been quite happy to do the job of eliminating or terrorizing opponents under the "golpista" Honduran government (coup government) of Micheletti. On July 5, for example, the military fired with machine guns on a crowd numbering in the thousands. This is the unofficial story, of course. The papers, including El Heraldo, claimed that the military had fired on the crowd with rubber bullets. Officially, also, only one person died. Protestors say that there were eight or nine victims who died on the way to the hospital, and whose bodies were disappeared. Given the machine gun fire, it's only surprising that more didn't die.

The Honduran government of the 1980s found it had no need to replicate the widespread massacres being carried out in El Salvador and Guatemala. It was able to selectively eliminate a couple hundred leaders of the opposition and take care of its problem with the "subversives." But in order to maintain control over the rest of the population and assure its docility and compliance, like anywhere else, it required a press willing and able to cloak a damning reality in a less threatening myth.

Once again Honduran reporters are being called in to do overtime in psyops. Granted, the press in Honduras under the "golpista" government isn't any worse than Fox News. That being said, everything having to do with the news around the recent "golpe" (coup) has a quality that ranges from surreal interpretation to black propaganda. It would seem that the journalists of the major papers of Honduras really were frustrated writers of dystopian science fiction.

One Honduran tells me she saw a murder in her neighborhood that was multiplied in the journalistic alchemy of the Honduran press by six the following day. I keep that in mind as I sit here in my hotel room in Tegucigalpa, leafing through what my wife back home would call "the daily pack of lies."

As I try to discern the Honduran narrative of the "golpe" I recall the copy of the article I left behind in El Salvador, printed in a right wing paper -- and, unfortunately, the newspapers are all right wing in El Salvador, with the exception of the Diario Co-Latino, the latter a blessing not bestowed upon Honduras. The Salvadoran article was based on a piece that appeared in Honduras' El Heraldo. The author claimed to have in possession secret documents that indicated that President Hugo Chavez was working with a large number of "maras" who he was arming and paying, and also infiltrating his own military to do a lightning attack and kill high-ranking officials of the Micheletti government. Supposedly residents have seen armed men in inaccessible regions of the country. Does that sound like the narrative of "Al Qaeda sleeper cells" doped up on the Koran ready to attack Bush's America? Only the names, places and drugs of choice have changed.

I'm looking here at a full page ad in La Tribuna from Tuesday, the 21st, paid for by "Hondurans for Democracy." There is a photo, in the top half, of Chavez aiming a gun. Beside the photo is the caption "Chavez calls for violence and wants bloodshed in Honduras" Beneath that picture is a crowd shot of Hondurans dressed in white (the color of the Conservative Nationalist Party) and holding the blue flags of Honduras. The caption reads, "But Hondurans want peace, unity, democracy and freedom." Ah, behold the foreign devil who has brought death to our peaceful little country. It's a variation on the diabolic gringo myth, but in reverse, since Chavez has been a counterforce to the "deadly gringo."

The following day, (Wednesday, July 22) El Heraldo has an interview with Alejando Peña Esclusa, a right wing Colombian who is president of UnoAmerica, described as "a democracy organization (sic: organización democracia) of Colombia." The headline reads, "The FARC [Fuerzas Armadas Revolucionarias de Colombia), Narcotrafficking and ALBA (Bolivarian Alternative of the Americas) are all the same thing." The surrealism doesn't end with the title, which makes laughable connections between a program of solidarity created by Venezuela to share its wealth with loans and grants to Latin America to facilitate growth and development, and narcotics trafficking and a guerrilla that, while it taxes the cocaine trade, seems to have fewer connections to the actual trade than does the Uribe government.

Esclusa develops his surreal story in this large-spread article on page 6: He says that the coup "has kept Honduras from falling into the project of Hugo Chavez and saved democracy from the Constitutional coup which Zelaya hoped to undertake." What was the "Constitutional coup" Zelaya was plotting? To bring people more deeply into the political process of the country by asking them if they'd like to write a new constitution. So according to Esclusa, the military coup was a way of saving "democracy" by taking it away. And the project of Chavez, well, ask 60-70% of Venezuelans who support Chavez and they'll tell you that his project is to move the country from "representative to participatory democracy." But the interview with Esclusa gets even wilder: "the principle element of the disturbances in Honduras is not "Mel" Zelaya nor the discussion of whether or not he returns" (this would come as a surprise to the hundreds of thousands of people marching daily in Honduras for the single purpose of having their president return) "but it is Hugo Chavez who finances the dirty campaign, buying minds ("conciencias") so as to disinform about Honduran reality."

Again, the utterly implausible charge that Chavez, and not the golpistas, is behind all the country's problems. For Esclusa, the solution is simple: Isolate Chavez from Honduras and all the problems will be solved.

What's fascinating about this analysis is that there's not even a hint of truth in it. First of all, the marches aren't financed by anyone but the marchers. And secondly, the only Venezuelan I've seen has been an old friend who is a documentary filmmaker--and probably the last Venezuelan journalist in the country since Telesur was chased out. Noticeably absent from the marches is even the slightest mention of Chavez or Venezuela, neither of which appear in any of the chants, placards, discussions, programs, or anything else. There's only one message: "Golpistas Leave! Bring Mel Home."

In this surreal world where Chavez is working with narco gangsters and infiltrating along the coast, paying people to demonstrate, the poor golpistas are also unfairly being persecuted by "the OAS, UN and the international community."

This line was repeated to me the other day in the hotel by the woman behind the desk, who identified herself as a National Party supporter. She almost whined as she told me that "everyone is against us." Does that sound a little paranoid? When a sane person is told that everyone is opposed to what he or she is doing, that person begins to reflect again on his or her actions. Not so Micheletti; not so Mr. Esclusa; not so the National Party and Liberal Party members who went out on the 23rd on the march for "peace, unity, democracy and freedom."

Then the bombshell: According to Mr. Esclusa, the FARC, a guerrilla force of 30,000 with shrinking power, is the force behind all the presidents who are part of ALBA which is, in turn, a project of the FARC and financed by cocaine money.

If this were the ravings of a madman in the street, we could afford to ignore him. But this interview is published in one of Honduras' two major newspapers, with big headlines, a photo of Esclusa, on page 6. And obviously the government is taking this same paranoid siege narrative seriously because on page eight is the story and headline, "Honduras Breaks Diplomatic Relations with Venezuela" and the subhead reads, "Venezuelan officials, in a confrontational attitude, warn they won't leave the country. The [Honduras] Chancellor cancels the consular visa of Iranians for fear of terrorism."

Now that's interesting. Honduras breaks relations with Venezuela and it's Venezuela that is being confrontational. Takes you back to the bad old days of Bush and the Saddam Hussein "menace" doesn't it? Then there are the Iranians, whose government has never so much as threatened anyone in Latin America, yet who now "feared as terrorist." Wild rumor, speculation on a fantastic level: Vice Chancellor Marta Lorena Alvarado says that "we've confirmed the existence of terrorist Iranian cells in Latin America and considering that there are direct trips from Teheran... to Venezuela and from Venezuela to Nicaragua... there's concern that there's been a terrorist incursion into [Honduras]."

Here we've definitively returned to the bad old days of Rumsfeld, Cheney and Bush with the Amber, Yellow and Orange alerts when supposed "sleeper" cells that were never uncovered or identified were sleepwalking the US.

These are but a few of the jewels from the Honduran press. You could do with it as I did when I first confronted it in the hotel with the woman behind the desk: you could try reasoning with it. You could, as I did, say, isn't the very definition of a coup when an elected representative is removed from office and, rather than being held and tried and convicted or returned to office, is sent out of the country into exile at gunpoint. But the response is just as wild: "They were trying to prevent bloodshed. If they kept him here, his followers would cause bloodshed." But we're to believe that the people who sent the military to the airport on July 5th to machine gun protesters are really concerned about bloodshed? By the look on the woman's face, a gringo has come to town and poisoned the water.

Clifton Ross is the writer and director of Venezuela: Revolution from the Inside Out and Translations from Silence, a book of poetry introduced by Jack Hirschman available at: www.freedomvoices.org. He can be reached at: clifross@gmail.com

The Cowboys of Kabul

How a pair of bankrupt Texas grandparents cashed in on Afghanistan's contracting bonanza.
By Daniel Schulman, Mother Jones, July 27, 2009

It was March 2002, and Del and Barbara Spier were flat broke. The Texas couple, grandparents of five and owners of a small, Houston-based private investigations firm, were more than $260,000 in debt. They carried balances as high as $18,600 on more than a dozen credit cards and were saddled with $80,000 in outstanding bank loans and a $95,000 mortgage. In their bankruptcy filing, the Spiers' company, which they founded in 1987 and named the Agency for Investigation and Protective Services, was deemed of "no marketable value."

Although their circumstances looked dire, the Spiers were about to become millionaires. By May, Barbara Spier had filed the paperwork to form a new corporation called US Protection and Investigations. Soon, thanks to the contracting sweepstakes that was the war in Afghanistan, she was signing an $8.4 million deal with the Louis Berger Group. The multinational construction and engineering company had landed a $214 million contract to rebuild Afghanistan's infrastructure—roads, water and sanitation, power and dams—from the United States Agency for International Development (USAID). USPI's job was to provide security for contractors repairing a 300-mile road stretching from Kabul to Kandahar.

Much of the work was to be done in remote and dangerous territory, prone to sporadic Taliban assaults and blighted with unexploded Soviet-era ordnance and land mines. "Sections of the Road are subject to hijackings, robberies, and killings," Berger acknowledged in its contract with USPI. "Organized terrorist groups are operating within the Road corridor environs, and expatriates have been intentionally targeted in recent incidents." Safeguarding the hundreds of contractors working on the road, the construction conglomerate warned, would be "challenging."

Given the stakes of the project—key to the effort to stabilize Afghanistan—USPI was a strange choice. Berger could have turned to a well-established security outfit with deep experience in conflict zones. Instead, it handed a noncompete contract to a firm with no reputation to speak of and a freshly bankrupted management team.

For the Spiers, the Berger windfall engineered a life-changing turnaround. And they might have lived happily ever after, too, except for one thing: They were defrauding the government, according to the Justice Department, filing phony receipts and billing for ghost employees to bilk millions of dollars from programs aimed at rebuilding the country's war-ravaged infrastructure. (The case will go to trial in September.) Their alleged exploits, many of which have not previously been reported, offer one of the most vivid pictures yet to emerge from Afghanistan's Wild West contracting bonanza.

Tales of epic fraud—of double billing and bid rigging, of kickbacks and theft—have dogged the reconstruction efforts in Iraq and Afghanistan. Not only are taxpayers unwittingly enriching fly-by-night contractors, corrupt officials, and local power brokers, but unscrupulous operators are undermining the prospects for progress that US troops have given their lives to make possible.

And it's proven very tough to stop them. In Iraq, despite great efforts to improve accountability, investigations and audits have barely scratched the surface, Stuart Bowen, the special inspector general for Iraq reconstruction, has acknowledged. Afghanistan has received even less scrutiny. In conflict zones, it's always difficult to weed out fraudulent invoices from legitimate expenses, to discern patronage contracts from necessary ones. Afghanistan's cash-based economy, primitive infrastructure, corrupt government, and deteriorating security situation make it exponentially harder. With oversight woefully thin and auditors scarce, the bombed-out country has been a Disneyland for profiteers. "It's just a shame," says a former Louis Berger official. "That money should have gone towards the development of Afghanistan rather than into people's pockets."

Payoffs and Warlords: "Loyalty Is Rented"

The story of USPI's rapid transformation from a mom-and-pop startup to a security behemoth begins in 2002, before the company was awarded a single contract. That year, Berger hired Del Spier as its security director in Afghanistan. "The program manager for Berger at the time, Jim Myers, he liked the way Del operated and he brought Del in," says a former Marine who worked for USPI. Another ex-employee explains how USPI entered the picture: "When they needed a full-time security presence, Del was the natural choice. He was already working for Berger. He was the guy there. So Berger said to him, 'We're not going to put this out to bid. We're going to give you an in-house contract.'"

A quiet man with a rugged demeanor, a thick Texas drawl, and the cowboy boots to match, Del, who's 73, told his employees stories of working as an intelligence operator during the Vietnam War for Air America, the CIA-run airline. In the early '90s, when he was heading a company called Del Spier & Associates, he'd worked in Algeria for Bechtel, helping to protect its employees from attacks by Islamic militants.

Barbara, who's 59, had always handled the administrative end of things.

She was a mover and shaker in Houston, active in local professional organizations. She once served as the president of the Federation of Houston Professional Women; the National Association of Women Business Owners even named her Houston's Woman Business Owner of the Year. In Afghanistan, she took a keen interest in the plight of Afghan women.

USPI's contract required the company to protect stretches of terrain so vast that it would have been too costly to hire enough US or expat contractors for the job. But Del had a solution. He brokered a deal with Afghanistan's fledgling Ministry of Interior, which agreed to loan USPI hundreds of its troops—a coterie of ragtag militiamen under the command of a notorious warlord named General Din Mohammad Jurat. Accused of a range of criminal activity (including the murder of a man whose wife he wanted for his own), Jurat had been described to Human Rights Watch in 2003 as a "maniac" and "dangerous." In 2007, Afghanistan's then attorney general, Abdul Jabar Sabet, alleged that Jurat and his bodyguards attacked him in a botched kidnapping attempt. "His allegiance was to one entity and to one entity alone," says an ex-USPI employee who dealt with Jurat. "That was the US dollar."

In an arrangement that would have far-reaching consequences, USPI essentially partnered with the former Northern Alliance commander, paying his soldiers a $5 per diem for performing guard duties. According to multiple sources familiar with USPI's operations, the firm went on to cut similar deals with power brokers throughout the country—basically buying the allegiance of tribal leaders and provincial officials as the road construction work passed through terrain under their control. "If you wanted security, you had to pay off the warlord or whoever controlled that region," says the former Berger official. In some cases, he says, militia commanders were paid simply to ensure "they're not going to attack you."

He adds, "There was a saying in Kabul: 'Loyalty is rented.'" And it went to the highest bidder.

The company's Afghan recruits were ill trained and unpredictable, according to a former USPI security coordinator. "If it came down to a firefight, they would have bailed on us," he says. "A lot of them were kids really. I remember trying to teach them how to shoot and they had no idea how to handle an AK." Others, he said, "were ex-Taliban, or even current Taliban, but the fact that they weren't attacking us along the way—whatever worked for us worked."

Employing Afghan guards may have solved the manpower issue. But it may have also worked against one of the international community's crucial goals: demilitarizing armed factions. In 2005, the International Crisis Group reported that USPI's hiring practices had in fact served to strengthen militia commanders "politically, militarily, and economically." Many of USPI's guards, this NGO said, had "used their authority to engage in criminal activity, including drug trafficking." A former USPI supervisor told me of guards who as a side project set up roadblocks on the stretches of road they were supposed to be protecting, extorting money from passersby. The former Berger official says the situation was a catch-22. "If you don't pay them off, they kill your security staff and your contractors," he says. "If you do pay them off, it exacerbates the problem for the future."

Yet as risky as this relationship may have seemed, the deployment of Afghan guards, overseen by US and international security coordinators employed by USPI, became the firm's business model—and a lucrative one. Building on its foundation with Berger, USPI drummed up contracts with the World Bank, the Japan International Cooperation Agency (that country's version of USAID), the United Nations, and a range of private businesses, including local banks and hotels. In September 2004, it won another USAID subcontract, via Berger, this one worth more than $20 million. Eventually, USPI provided security for Berger's entire Afghanistan operation.

By 2006, USPI claimed to employ more than 3,000 Afghan guards, along with 160 US and expat employees, and had a significant presence throughout the country, especially in Kabul, where guard shacks bearing its logo were a common sight. "It basically grew into a monster," the former Berger official says. On its website, the company described itself as "the foremost private security company working in support of Operation Enduring Freedom in Afghanistan." Its stated goal? To "help bring about change and improvement for the people of Afghanistan."

Without question, USPI's role in Afghanistan had brought about change and improvement for the Spiers. In Kabul, they took up residence in a luxurious compound that some of their employees jokingly called the "marble palace." In their bedroom, an ex-employee adds, was a safe that sometimes contained upward of $1 million cash, used to bankroll USPI's operation.

The former USPI security coordinator told me, "I remember at one point seeing boxes of cash that they were bringing in. I thought, 'Wow, that's really fucking weird.'"

Accounts Deceivable: "They Were Double and Triple Billing"

On August 28, 2007, Afghan police, FBI and USAID agents, and Blackwater contractors descended on USPI's Kabul offices, weapons drawn. "Have you ever seen a dynamic entry, where people are clearing rooms out with guns locked and loaded and shoving a gun in your face? That's the way Blackwater did their entry into the house," says a former USPI supervisor. Agents seized computers and contraband weapons and carted off bags full of company records. Meanwhile, federal authorities were executing a search warrant at USPI's Texas headquarters. Since 2005, federal investigators had quietly been amassing evidence that USPI had defrauded the US government in connection with its USAID subcontracts. Now they were making their move.

Suspicions about USPI's business practices had been circulating through USAID's Afghanistan operation since the fall of 2004, according to Patrick Fine, who took over as the agency's mission director that July. "There wasn't anything obvious that made it look like there was obvious corruption there," he says. "My recollection is feeling from just a business point of view, feeling uncomfortable about our ability to verify the bills that we were getting. So you get a bill and it says they're employing 250 guys in a certain sector, at $5 a day. My recollection is of saying, 'How do we verify that this number of people actually worked for this number of days?' It was that kind of question being raised by USAID, by the project managers."

He continues, "That led us to ask questions like, 'Is there some system that you can audit to see that they're actually delivering what they say they're delivering?' As soon as USAID had some suspicion that there might be something awry in the business practices, we brought in the inspector general. There wasn't any delay or dithering there."

The resulting investigation confirmed Fine's concerns, and then some. A copy of the search warrant application seeking permission to carry out the Texas raid noted that USPI's initial Berger contract, awarded in June 2003 for $8.4 million, had ballooned to $36 million by August 2005—and it outlined a host of allegations pointing to the potential cause of some of those overruns. Investigators said they'd "obtained evidence showing that USPI deliberately and systematically created phony receipts and invoices to justify the billing of millions of dollars in expenditures for which USPI did not have supporting documentation."

An audit by accounting firm A.F. Ferguson & Company of USPI's billing records between June 2003 and March 2005 had turned up $17 million in costs that lacked "adequate documentation," and another $160,830 in charges that were deemed ineligible. "Officials for USPI initially claimed not to have most of the supporting documentation for the $17 million in questioned costs," according to the warrant application. "However, they later provided receipts and invoices to support the billings." These records, investigators determined, were fakes: "Government investigators learned from a witness that he, with the assistance of other USPI employees in Kabul, Afghanistan, and with the knowledge of Del Spier…witnessed and/or participated in the fabrication of receipts and invoices to support the $17 million in questioned costs." To make the invoices appear authentic, the USPI employee said, he and other employees were directed to deposit them in a warehouse where the company stored fuel.

There was more: Another USPI employee "stated that only about 50 percent of the guards for which USPI billed LBGI actually existed" and that Del Spier regularly overbilled for personnel. Not only were personnel records fabricated, this source said, but Del's executive assistant, an Afghan named Behzad Mehr, routinely created fake invoices from nonexistent companies for fuel and vehicles. According to one USPI informant, Bill Dupre, the company's operations manager in Afghanistan, instructed new employees to inflate costs in order to cover expenses like office supplies, ammo, and other items: "You were to put an extra 10 or 15 guards on the payroll that did not exist." The government alleged that "Del Spier knows about all these activities." It also claims that Barbara had been involved in the fraud as well, and had even been caught trying to deceive a federal auditor about invoicing Berger for an employee who was no longer working for the company.

After the raids in Kabul and Texas, the investigation churned on for more than a year. Then, in early October 2008, the feds swooped in, arresting Del and Barbara Spier in Texas and Bill Dupre in California. Also named in the indictment was Behzad Mehr, though a release issued by USAID noted that Del's right-hand man "remains a fugitive." (Several sources told me that Mehr was in fact imprisoned in a Kabul jail at the time, and he remains there today.) The four were hit with multiple fraud counts, charges that together carry prison sentences of up to 35 years and fines of as much as $1.5 million.

The indictment cites additional evidence of fraud, including a May 29, 2005, email exchange in which Mehr had requested Del Spier's permission to insert addresses and phone numbers on fabricated invoices. Not only did Del direct him to do so, the indictment states, but he also told Mehr "to obtain office space in the event that LBGI requested to see the companies' offices." According to court records, templates used to create phony invoices were discovered on computers belonging to Mehr and Barbara Spier. Image files containing the scanned signatures of MOI officials, presumably used to make invoices look genuine, were also recovered.

"They were double and triple billing for soldiers and screwing the contract on rental cars," a former USPI employee told me. "If they were renting a car for $750, they'd bill USAID $1,500. If they had 1,000 soldiers working, they'd get 3,000 thumbprints on the pay sheets and submit it." He adds, "These were the kinds of things they did."

Kabul’s Wild West: "We Were Our Own Little Warlords"

There were plenty of warning signs, says Steve Appleton. A retired colonel in the Canadian army, Appleton took over in June 2005 as the manager of road construction projects in Afghanistan for the United Nations Office of Project Services. UNOPS had received a $35 million USAID grant to build a network of secondary roads throughout the country. This work might have gone to Louis Berger, had its own projects not been vastly over budget. (The price tag of its $214 million contract ultimately climbed to more than $700 million.) "There was no more appetite" to make Berger the prime contractor, Appleton told me recently from Kabul, but USAID still made sure Berger got a piece of the action. The agency stipulated that UNOPS had to subcontract out the engineering aspects of the job to Berger. And with Berger came USPI.

Early in his tenure, Appleton began to hear grumbling about USPI from a variety of sources: Berger employees, members of the UN's security branch, USAID officials, and other security contractors. Not only were there complaints about the accuracy of the firm's accounting practices, but there were serious criticisms of USPI's performance of its core mission: protecting the vital work of rebuilding Afghanistan.

According to Appleton, "USPI was absolutely detested by Afghan civilians" and had developed a reputation for being "very aggressive and very cowboyish." Among other things, he says, "They would fire before they would see where the firing was coming from. They would put down spec fire. That was just unacceptable." (Patrick Fine, who no longer works for USAID, had a different take: "They seemed to be doing their job," he says. "I never had a performance issue with them.")

The former USPI security coordinator says there was little management or oversight of the company's employees in the field. He found the company totally disorganized, its management secretive. "They kept so much stuff in the dark," he recalls. "I never signed a contract with that company," he adds. "I was thrown into it. Here's a bulletproof vest, here's a couple of grenades, here's an AK." Like a mafia payout, his $600-a-day salary came in an envelope jammed with cash. "There was a lot of cash going around," he says.

He and other ex-USPI employees tell of being dangerously underequipped, issued faulty weapons and Land Cruisers that would frequently break down on perilous stretches of road. "I was really thrown out there… without any proper gear. They didn't care, Del and Barbara." It wasn't until he went out to take target practice one day that he realized his USPI-issued AK-47 was broken. "It would only do single shot. I had to cock it every time I fired it. I thought, 'Holy fuck, thank god I didn't get in a firefight, because it would have been over really quick.'"

The equipment situation got so bad that at one point he was forced to take matters into his own hands, leading a raid on a one-time Taliban weapons depot in order to secure RPGs for his men. ("I found a Conex box filled with Russian RPGs still in the plastic.")

Berger contractors and subcontractors would complain bitterly about USPI. "I personally did not find them very professional," says Danie Steyn, an engineer who worked on Berger's road projects. "As a matter of fact, some individuals were acting like prima donnas, and considered themselves untouchable." At one point, he says, a complement of USPI's Afghan guards left him "stranded next to the road" without protection "while they set off to pray."

Such incidents weren't unusual, says the security coordinator. "Louis Berger was always complaining to us," he says. "Our guards would just take off, leave them in the middle of nowhere. I'd get sat phone calls saying, 'Where the fuck are the guards! We're out here in the middle of nowhere by ourselves!'"

According to the former security coordinator, whose account is supported by a variety of wire reports, USPI's guards were taking heavy casualties. "USPI lost a lot of guys," he says. "We were out in the desert getting pretty much executed."

"The operations were so hands-off," he adds. "They stuck people in bad places, and you had to do what you had to do to make sure you didn't get killed." He continues, "We were our own little warlords over there. We did our own thing. I could have shot a guy in the head on the side of the road and nobody would have said a thing."

Guarding USPI's Interests: "You Just Didn't Mess With Their Contract"

In September 2005, one of USPI's American employees did shoot an Afghan in the head—a 37-year-old named Noor Ahmed who worked for the firm as a translator. Although the incident landed the company briefly in the news, the identity of the shooter has never been previously reported. Two former USPI employees told me it was an ex-Marine named Todd Rhodes. (Rhodes was killed in Iraq in August 2006 while working for the private security firm Cochise.) The former USPI supervisor insisted the shooting was justified, that Ahmed "drew down into a firing position on him and Todd shot him in self-defense." Yet questions remain about the shooting and whether it was fully investigated. While the ex-USPI supervisor says Afghanistan's Ministry of Interior "did a quick investigation" and cleared Rhodes of wrongdoing, the company spirited him out of the country before a formal probe could be launched. The provincial police chief has said he sent a team to USPI's compound to investigate but was barred from entering by the company's guards.

The incident only fueled Appleton's concerns. He decided to see about severing USPI's relationship with UNOPS—its contract was due to expire later that summer anyway. USPI could rebid for the work, but Appleton was determined to find the company best equipped to keep contractors safe. In the end, he says, "USAID balked," convincing him that UNOPS should extend the contract for another three months while the security situation was reviewed. (USAID did not respond to a detailed request for comment.)

"All the while we were getting smoked out there in terms of casualties and fatalities on the roads project," Appleton says. "I don't think anyone's ever come clean with what the numbers were. We had more casualties than US soldiers in Afghanistan in 2005 and 2006. We were getting creamed. We had international security coordinators with USPI getting beheaded. We had Turkish contractors getting wiped out. We had Afghan security guys in the employ of USPI getting smoked. It got so bad that I led a group with LBG to contact the US Embassy to say, 'You've got to better arm us because we're getting creamed out there.'" He adds, "USPI had adopted a real cowboy approach with regards to, 'Bring 'em on. We'll create the peace by simply killing enough of them.'"

Appleton tried again to cancel the contract. Eventually several security companies, including Aegis, a well-regarded British firm, were approached about taking over the task. But before very long, Berger resisted.

In June 2006 Fred Chace, then Berger's deputy operations manager in Afghanistan, sent Appleton a memo recommending against removing USPI from the project. (Mother Jones obtained a copy, and Appleton confirmed its authenticity.) The memo ("Subject: USPI Termination") lays out myriad criticisms of the company's work. "Over the course of the project, USPI has continued to be non-responsive to the needs of the Employer," Chace wrote. "The primary complaint with USPI is the failure of their Kabul management to support their field security advisors and to comply with the requirements of UNOPS in regard to reporting and other administrative functions…UNOPS has also expressed its concerns over the ability of USPI to assure that their security force has a sufficient supply of ammunition to fight off any attack on the projects."

Chace also noted that "one of the criticisms of USPI has been their ragtag MOI soldiers," but raised concerns about cutting off the warlords that USPI was dealing with. "Considering the probable flow of the money, it would be a security risk to the project…if they did anything that disrupted that flow of money," he explained, adding that for this reason Aegis had also proposed using MOI guards, as well as members of the Afghan National Police. Chace, who declined an interview request, acknowledged in the memo that Aegis "is an experienced and qualified firm. There is no doubt about that." But, he concluded, "It does not appear that there is any economic benefit to changing security providers; in fact it could cost the program up to $900K more…We are not convinced that this transition could be made without any initial impacts that could jeopardize the security of the staff and result in further damages by the possible suspension of the work due to a decrease in security until Aegis is up to force."

Appleton had hit a brick wall. He was puzzled. "It was just a mom-and-pop organization out of Texas," he says. "These guys were amateurs. It just didn't make any sense."

But Appleton believes he finally discovered why Berger officials were so reluctant to tamper with USPI's contract—and why Del Spier and his company may have landed the work in the first place. Once, Appleton asked Berger officials why USPI was hired. "The answer I got back was that Jim Myers and Del go way back," he says. Myers was the engineer in charge of Berger's Afghanistan operation, and the official who worked most closely with USPI. "Jim Myers was a 100 percent supporter of USPI and Del," explains the former Berger official. "He wouldn't accept criticisms of them. Certainly, he would never have entertained—ever, ever—removing USPI. Ever, despite anything. You just didn't mess with their contract." He continues, "It was just understood that there must have been a relationship between USPI and somebody in Berger, or Jim. That was just the way it was. That was the only logical reason why that would be in place...It was a relationship issue."

Other sources told me that Myers and Del Spier had a long-standing friendship. "It was all very incestuous," says an ex-USPI employee. Confirms the former supervisor, "They have a very close relationship."

(When I reached Myers, who retired in 2007, at his home in Northport, Washington, he repeatedly denied having any history with USPI's founders. Moreover, he insisted that his relationship with Del was "no more friendly than with any other subcontractor. I worked with all of them.")

"How far back it went into the halls of LBG, I don't know," says Appleton. "But the running joke in Kabul when Del and Barbara Spier got arrested was that all the executive officers' doors at LBG were slamming shut." It appears that Del and Barbara are chummy with other Berger honchos, too. Just last February, Fred Berger, the chairman of the Louis Berger Group, attended a fundraiser in Houston for the American University of Afghanistan, of which he's a founding trustee. Also in attendance were the Spiers, and Berger made a point of introducing his guest to Del and Barbara. (The Louis Berger Group did not respond to a detailed request for comment, citing the ongoing criminal case.)

Even some of the company's own employees wondered why USPI had been trusted to protect hundreds of millions of dollars worth of infrastructure projects, and the lives of the men and women building them. "In terms of how they got in, it didn't make any sense," the former USPI security coordinator recalls. He says he at first "figured they were pretty well established. It wasn't until I went online and googled them and saw their website looked like something an 8 year-old made on Microsoft Front Page that I was like, 'What is going on?' That just kind of blew me away. But I figured, 'Well, they got these contracts for some reason.'"

Appleton places part of the blame with USAID for allowing Berger to hire USPI in the first place. "Why USAID would even want to do that when there was so much at stake is mind-boggling." I asked Patrick Fine, the former USAID official (who, like Appleton, inherited USPI's services), why the firm had been allowed to take on such a critical task. He responded by describing the strain of operating in post-invasion Afghanistan. "People just don't understand unless you've lived through it the kind of pressure to deliver results," he told me. "In this case to get that road built under difficult circumstances in a very short timeframe. Expediency becomes the driving force."

Fraudsters of the Reconstruction: "It's Endemic"

By now, things have come full circle for Del and Barbara Spier. They lifted themselves out of bankruptcy and struck it rich, only to wind up in jeopardy of losing everything once again. In February, the Justice Department filed a complaint seeking to seize the half-million dollar Hempstead, Texas, home the Spiers purchased in 2005 partly with proceeds from the alleged fraud scheme. Their passports have been taken away, and they must gain permission to leave the state of Texas. USPI wrapped up its last USAID subcontract this winter, shortly after the firm was placed on the federal government's Excluded Parties List. This designation precludes the company from receiving any government work pending the outcome of the criminal case, which goes to trial in late September. (The Spiers and their lawyers declined interview requests.)

But USPI remains very much active in Afghanistan, with the Spiers calling the shots from Texas. A recent visitor to Kabul told me of seeing USPI's guards posted at a variety of restaurants and local businesses. "As things are getting more dangerous, they're getting more business," says the former Marine who worked for USPI and who remains in touch with Del Spier. But Appleton, who now runs his own consulting firm focused on strengthening Afghan businesses, says the company is hardly the player it once was. "They're doing the rinky-dink jobs now, a restaurant here and there. They're not nearly as pervasive."

Though the Justice Department appears to have a strong case, some USPI alums remain fiercely loyal to their former employer. "Del Spier would have fired anyone in a heartbeat if he found out that anyone was ripping him off and ripping the government off," says the former USPI supervisor. "From what I know of Del, he tried to do an honest job over here." He blamed the charges on a "vendetta" by the lead USAID investigator in the case—which also appears to be part of the strategy the Spiers' attorneys are employing—while at the same time suggesting that Del's assistant, Behzad Mehr, may have "jury-rigged the numbers." He adds, "This is killing Del."

If the Spiers, along with Bill Dupre, are found guilty of fraud, it's likely their case represents one small chapter in a much larger story of reconstruction-related corruption in Afghanistan. Almost everyone I spoke with for this story told of a culture of graft so pervasive in the country that payoffs and kickbacks are considered part of doing business. "Any company over there, when you hire local Afghans, they're all on the take," Myers told me. "Every goddamn one of them. When you look at it in retrospect, you can't really blame them. Hell, they never made any money in their lives. So if they've got a chance to rip somebody off, they're going to do it."

It's not just the Afghans, of course. Amidst the chaos of war and insurgency, foreign contractors and others have surely siphoned off a share of the reconstruction money pouring into the country. Even members of the military have attempted to parlay the absence of oversight into a payday. In mid-June, two Army officers who served at Bagram Airfield pleaded guilty to charges of fraud and bribery for accepting kickbacks in exchange for steering work to contractors.

"It's just endemic," says the former Berger official, adding that many of these schemes were "hiding in plain sight." For instance, he says, he knows of people working on reconstruction projects who received several hundred thousand dollars in bribes from subcontractors. "They were the ones who had to sign off on the quantities, on the number of vehicles, on the invoicing," he says. "The contractor puts in a false invoice, they pay off the guy, the guy certifies it and submits it to USAID. No one's the wiser. The contractor makes money and the guy supervising it makes money." Laughing ruefully, he adds, "They bought a small plane for one of them. A small plane."

The fact that opportunists have enriched themselves off projects that were intended to lay the foundation for a stable Afghan society makes this all the more tragic, he says. But he thinks that perhaps there's a lesson to be taken away from all of this—from USPI's story, from Afghanistan's flawed reconstruction. "Everyone's accountable in the end," he says. But there's a big difference between being accountable and being held to account. The latter comes only after you've been caught.

Daniel Schulman is the associate editor in Mother Jones' Washington bureau. For more of his stories, click here. To follow him on Twitter, click here.

Military Weighs Private Security on Front Lines

Firm Could Have Broad Protection Authority in Afghanistan
By Walter Pincus, washingtonpost.com, July 26, 2009

The U.S. military command is considering contracting a private firm to manage security on the front lines of the war in Afghanistan, even as Defense Secretary Robert M. Gates says that the Pentagon intends to cut back on the use of private security contractors.

On a Web site listing federal business opportunities, the Army this month published a notice soliciting information from prospective contractors who would develop a security plan for 50 or more forward operating bases and smaller command outposts across Afghanistan.

Although the U.S. military has contracted out security services to protect individuals, military bases and other facilities in Iraq and Afghanistan, this contract would award a commercial company unusually broad "theater-wide" authority to protect forward operating bases in a war zone.

"The contractor shall be responsible for providing security services, developing, implementing, adequately staffing, and managing a security program," the notice said, adding that the contractor would have to be available "24 hours a day, seven days a week."

The U.S. military currently has 72 contracts that provide 5,600 civilian guards, mostly local Afghans, at forward bases across Afghanistan, according to Lt. Cmdr. Christine M. Sidenstricker, chief of media operations for U.S. Forces-Afghanistan. The intent of the proposed contract is to bring all "disparate and subordinate contracts" under single, theater-wide management at a time when the U.S. forces are expanding, she said.

The Army has not issued a formal proposal for a contract, but the notice says that interested companies should reply by Wednesday and that a formal request for proposals should follow. The "anticipated award date" for a contract is Dec. 1, according to the notice.

The request for information comes as Gates is moving to put soldiers back in charge of security roles that contractors have filled in recent years. Drawing on its experience in Iraq and Afghanistan, the Defense Department recently organized a task force to measure the military's dependence on contractor support in training and security, with the goal of determining an appropriate mix.

Lawmakers, too, have raised concerns about the cost of contractors and about outsourcing what have traditionally been government roles.

The Commission on Wartime Contracting, a bipartisan congressional panel, noted in a recent report that in previous wars, military police protected bases while other service members pursued the enemy. "Contractors are now literally in the center of the battlefield in unprecedented numbers," the commission said, creating "a need to define specific functions that are not appropriate for performance by contractors in a contingency operation."

Meanwhile, Sen. Claire McCaskill (D-Mo.), chairman of the Senate subcommittee on contracting oversight, said her panel had "revealed major concerns about the use of private security contractors in Afghanistan." She added that a hard look needs to be taken "at where we have gone wrong in the past, to ensure that the military does not repeat history."

Afghan forward operating bases are often considered dangerous posts. An American soldier was critically injured this month when insurgents attacked Forward Operating Base Salerno, near the eastern border town of Khost. Two U.S. troops died July 4 at Combat Outpost Zerok, also near the Pakistan border, in an insurgent assault.

In the worst attack on an outpost, roughly 200 insurgents broke through security walls last year at an outpost in Konar province and killed nine American soldiers. Sen. James Webb (D-Va.), a member of the Armed Services Committee, recently asked the Pentagon's inspector general to investigate whether security at the post was adequate.

With Afghan army and police officers totaling roughly 160,000, and the number of U.S. service members in Afghanistan set to grow to 68,000 by year's end, the U.S. military is moving to protect the facilities where personnel will be based. But many experts say commanders do not have enough forces.

"We don't want to waste scarce Afghan army and police, so we must be creative," said Michael E. O'Hanlon, a senior fellow and military expert at the Brookings Institution.

But O'Hanlon also said he is concerned that if contractors were to take over security at forward operating bases, they would be the first to see hostile fire, and they -- not soldiers -- would have to decide whether to employ weapons against an enemy.

Instead of hiring a private firm, O'Hanlon said, the Americans and Afghans could create a local version of Iraq's Facilities Protection Service, the modestly trained but government-paid guard force that was pulled together to provide protection for government ministries in Baghdad and the oil fields. "We should create a different branch of the Afghan security forces that has minimal training," he said.

At a town hall meeting at Fort Drum, N.Y., on July 16, Gates said that the military had let contracting "grow without the kind of controls that we should" have had. The purpose, he said, was "to try and free up as many soldiers for actual combat duty, rather than having them do things that civilian contractors could do."

Contractors, Gates noted, have done a variety of jobs, including running dining facilities and doing laundry, cleaning chores and security work. "So, we're kind of going back through all of these roles, at this point, to figure out where military ought to be doing these things and where civilian contractors can be," he said.

Moving Chess Pieces: The Illusion of Withdrawal in Iraq

By Janet Weil, CODEPINK, Oxdown Gazette, June 30, 2009

Today, all U.S. troops must be withdrawn from Iraqi cities, including U.S. bases in Baghdad, according to the Status Of Forces Agreement (SOFA) between the U.S. and Iraq. The Iraqi government will also take legal responsibility for the actions of U.S. troops and have legal jurisdiction over American soldiers who commit crimes off-base and off-duty, and the SOFA will grant permission to U.S. troops for military operations, as well as ban the U.S. from staging attacks on other countries from Iraq.

While it may seem like a step forward toward ending the six-year occupation of Iraq, the Pentagon is doing what it can to dodge or play down these SOFA stipulations. In recent weeks, it has been re-classifying bases and troops, hiring “corporate security” mercenaries, and preventing Iraq from having jurisdiction over those actions. It'll get away with it too, as Congress never ratified the SOFA, and because many are justifying further occupation under the banner of keeping Iraq secure.

Leading up to the June 30th deadline, the Pentagon has been playing shell games with bases and with soldiers. City limits have been modified to exempt bases from the agreement and soldiers who have moved out of cities are now encircling them. As Erik Leaver points out in his article “A Withdrawal in Name Only,” three thousand troops stationed at the FOB Falcon, located within Baghdad, will not be moving, because Iraqi and American military officials simply decided it wasn’t within the city limits. And thousands of troops in bases sleeping outside the cities will continue to serve in “support” and “advisory” roles in the day.

And while troops may be moving out of the cities, they are not moving out of the country just yet. The military has been expanding and building new bases in rural areas to accommodate the movement of soldiers, and Congress just passed a bill that includes more funding for military construction in Iraq. In reality, only 30,000 troops have left Iraq since September last year and 134,000 troops still remain.

But the 132,000 military contractors in Iraq are the real loophole. How do they fit into the withdrawal plan? How many of them will stay past June 30th? Or past 2011? Military contractors have been used extensively in the War in Iraq to evade legal accountability and hide the true cost – and body count – of the war. In fact, mercenaries may be on the rise and will spark additional violence in the country.

Arab-American journalist Dahr Jamail points out the violence in Iraq has largely been quelled because the U.S. has paid Iraqi resistance fighters to keep the peace, and the increase in violent resistance in May and June is due to many fighters losing their paychecks from the US government. In his blog, MidEast Dispatches, Jamail writes:

“Attacks against U.S. forces are once again on the rise in places like Baghdad and Fallujah, where the Iraqi resistance was fiercest before so many of them joined the Sahwa (Sons of Iraq, also referred to as Awakening Councils) and began taking payments from the U.S. military in exchange for halting attacks against the occupiers and agreeing to join the fight against al-Qaeda in Iraq. Daily we are watching Sahwa members leave their security posts."

He further explains that many Iraqis are rejoining the resistance in protest of losing their paychecks and increasing government attacks, and thus, have stopped targeting al-Qaeda.

Instead of continuing to pay these resistance fighters, the U.S. plans to replace some soldiers and Marines in Iraq with mercenaries -- private U.S. contractors and corporations. This new occupying force will continue to alienate Iraqis and delay any real Iraqi independence.

But despite working all the loopholes, the U.S. never officially committed to playing by the rules of an Iraq withdrawal, anyway. In 2007 and 2009, members of Congress including then-Senator Hillary Clinton believed the SOFA should have been ratified by Senate to be legitimate. During the 2008 presidential campaign, Clinton urged Obama to sign on to her legislation that would have required Bush to bring the SOFA to Senate first. Obama, a member of the Senate Foreign Relations Committee, never agreed to do so. But once Clinton dropped her opposition to Obama’s unanimous selection as the Democratic presidential nominee, and was rewarded by being chosen as Secretary of State, she put her SOFA principle aside and now supports an agreement that only one country – Iraq – has ratified. The U.S. Senate's role in ratifying bilateral agreements has been nullified, a development that should worry all who have been concerned about a “unitary executive” and an increasingly weakened Congress.

Even in Iraq, withdrawal plans have been undermined. The Iraqi parliament planned to ratify the SOFA under a national referendum this month. But recently the Iraqi cabinet decided to reschedule to align with the national parliamentary elections in January 2010. The SOFA is widely unpopular and seen as legitimizing the US occupation until 2011. If it goes to a vote, it will likely be defeated. So Prime Minister Nouri al-Maliki and other Iraqi leaders have colluded with both the Bush and Obama administrations to subvert the will of the Iraqi people.

If by July 31 however the Iraq SOFA is not referendum-ratified or a 12-month cancellation notice issued, it will expire. If it expires, the U.S. will be in Iraq without legal authorization and U.S. forces may be subject to lock down until the matter is resolved. Under these conditions, U.S. troops will no longer have the bilateral protections – effectively left in a legal and political limbo.

Ultimately, the Pentagon must stop playing chess games to slow down a real withdrawal. And our leaders in the White House and Congress – who just passed another $70 billion for the war – must take real leadership to end this war, including withdrawing all our troops, ending the use of military contractors, stop funding any permanent bases in Iraq, and allowing the Iraqi people the space to reclaim their country.

Janet Weil is a CODEPINK staff member based in San Francisco. Her nephew is preparing to be deployed to Afghanistan in November.

Lawsuit now accuses Xe contractors of murder, kidnapping

By Bill Sizemore, The Virginian-Pilot, July 2, 2009

A just-amended lawsuit alleges six additional instances of unprovoked attacks on Iraqi civilians by Blackwater contractors.

Three people, including a 9-year-old boy, are said to have died.

Also added to the suit is a racketeering count accusing Blackwater founder Erik Prince of running an ongoing criminal enterprise involved in, among other things, kidnapping and child prostitution.

The latest charges, filed this week in U.S. District Court in Alexandria, bring to more than 60 the number of Iraqis allegedly killed or wounded since 2005 by armed Blackwater contractors guarding U.S. diplomatic personnel in Iraq.

The Moyock, N.C.-based security company, since renamed Xe, earned more than $1 billion under that contract before the State Department, under pressure from the Iraqi government, let it lapse in May.

One of the new plaintiffs is the estate of Akram Khalid Sa'ed Jasim, 9, who died when Blackwater shooters allegedly opened fire on a minivan returning from the Baghdad airport on July 1, 2007. The boy was traveling with his extended family, who had gone to the airport to apply for passports.

The Blackwater guards also shot the boy's mother in the back as she bent over trying to shield her 3-month-old daughter, who nevertheless was shot in the face, according to the lawsuit. The boy's father, uncle and cousin also were wounded.

The racketeering count added to the suit this week accuses Prince's companies of engaging in murder, weapons smuggling, money laundering, tax evasion, kidnapping, child prostitution, illegal drug use and destruction of evidence.

The companies are accused of carrying out three or more kidnappings using three airplanes, identified in the suit by their tail numbers. Susan Burke, the plaintiffs' lawyer, said Wednesday that the kidnappings appear to have been so-called "extraordinary renditions" in which suspects are taken to other countries for interrogation.

The child prostitution charge involves young Iraqi girls allegedly being brought to the Blackwater compound in Baghdad's fortified Green Zone, identified in the lawsuit as the "Blackwater Man Camp," to provide oral sex to contractors for $1.

The purpose of the racketeering allegations is to demonstrate a "pattern of illegality" by Xe and its affiliated companies, Burke said.

If the court rules against Xe on the racketeering count, it could dissolve the company or place restrictions on its future activities.

"What we're very, very worried about is this company hurting other people going forward around the globe," Burke said. "They're moving into Africa, they're moving into other places, and we believe they need judicial supervision."

Anne Tyrrell, a Xe spokeswoman, said the company "rejects these allegations, which are largely identical to past allegations made by the same group of attorneys in other, unrelated cases."

Bill Sizemore, (757) 446-2276, bill.sizemore@pilotonline.com

Senate Investigates Blackwater Subsidiary

Fatal Shooting Incident in Afghanistan
By Faiza Virani, CBS News, July 1, 2009

The Senate Armed Services Committee is investigating the private security firm Paravant LLC which provides contracted services to the U.S. Army in Afghanistan and Iraq. Paravant is a subsidiary of Xe, formerly known as Blackwater, owned by Erik D. Prince, president of The Prince Group.

Steven McClain and Justin Cannon, two former Paravant security personnel stationed in Afghanistan, were involved in a fatal shooting incident that left one Afghan civilian dead and two others wounded in Kabul on May 5, 2009.

In a letter obtained exclusively by CBS News dated June 18, Senator Carl Levin, Chairman of the Senate Armed Services Committee, demanded Mr. Prince’s cooperation in investigating the role of private security contractors and sub-contractors employed by his firm in Afghanistan and Iraq. The Senator has also requested specific documents concerning security contracts and weapons policies and practices as part of their inquiry.

The two contractors involved in the shooting were hired to help the U.S. Army train Afghan troops. The incident occurred in Kabul, Afghanistan as they were driving their interpreters back to a base when a car crashed into them. The vehicle that struck them did not turn away, instead made a u-turn and headed towards them again at which point the men, feeling threatened, opened fire at the approaching vehicle, killing one and wounding two others according to their lawyer Daniel J. Callahan.

The committee is conducting a broad investigation into private security contractors whilst specifically investigating the actions of Paravant and the May 5th incident. The committee will also be probing disciplinary action taken by Paravant for noncompliance with corporate policies.

Senator Levin’s committee is demanding the release of documents regarding the company’s screening and hiring process, rules allowing contract personnel to carry and transport weapons and ammunition, as well as their use of deadly force.

McClain and Cannon, the two former Paravant employees, said through their attorney Callahan that the company supplied them with AK-47s instructing them to carry them at all times even though the permit allowing these men to operate in Afghanistan prohibited the possession of arms.

The men further state that their questions about the use of weapons were ignored and told it was "above their pay grade" to be asking such questions. The incident remains under investigation by the US Army’s Criminal Investigation Command.

Callahan told CBS News that Paravant has "intended to make scapegoats out of his clients" by alleging that they were intoxicated during this incident, and that Paravant had not supplied them with weapons for the duration of their operations in Afghanistan. His clients were not off duty or acting out on their own as they were transporting their interpreters, said Callahan.

Last year, a federal grand jury indicted five Blackwater security guards for the shooting death of 17 Iraqi civilians in 2007. The Prince Group that owns the company Blackwater. subsequently lost their contract in Iraq and re-named their company Xe which currently operates in Afghanistan.

The Senate Armed Services Committee would not comment on the pending investigation.

Audit Finds That U.S. Overpaid Blackwater

By YOCHI J. DREAZEN, The Wall Street Journal, June 17, 2009

WASHINGTON -- A government audit found that the State Department overpaid the contract-security firm once known as Blackwater Worldwide by tens of millions of dollars because the company failed to properly staff its teams in Iraq.

The report didn't identify any specific security breaches, but it said the State Department should have withheld at least $55 million in payments to the company because of the shortfalls.

The audit by the Special Inspector General for Iraq Reconstruction and the State Department's Inspector General said the firm didn't employ enough guards, medics, marksmen and dog handlers to fully man the teams, which were responsible for protecting the U.S. ambassador to Iraq and other high-level officials.

The failure to consistently field the right numbers of guards endangered the U.S. officials whom the company was being paid to protect, the report concluded.

"We believe the full manning of protective details is important to the safety of the principal being protected, as well as to the members of the protective details," the audit noted. "Insufficient manning exposed the department to unnecessary risk."

The audit also found that Blackwater, which this year changed its name to Xe, sometimes overcharged for airfare to and from Iraq and failed to properly account for some equipment received from the U.S. government.

Anne Tyrell, a company spokeswoman, said it had been "fully compliant with the terms and conditions of the contract." Ms. Tyrrell said the company believed it was entitled to all of the disputed $55 million.

Officials in the State Department's Diplomatic Security office, which oversaw the contract, referred questions to the department's Bureau of Administration, which declined to comment.

The audit is the latest report to raise questions about Blackwater, which was for years the best known Western contractor in Iraq. Under the new name, Xe, the company is seeking new contracts worth tens of millions of dollars in Afghanistan for services ranging from training Afghan personnel to flying cargo for the U.S. military.

Blackwater wound down its Iraq operations earlier this year, after the Iraqi government refused to renew its operating license because of a 2007 shooting incident involving one of its security teams in which 17 Iraqis died. In December, U.S. prosecutors charged five former Blackwater guards with manslaughter and weapons charges for their alleged roles in the incident. Families of several of the dead Iraqis have also sued Blackwater in federal court seeking financial compensation.

The company also faces civil and criminal scrutiny stemming from the alleged killing of an Iraqi guard by a Blackwater employee inside Baghdad's heavily protected Green Zone on Christmas Eve 2006.

In Afghanistan, four U.S. contractors affiliated with Xe are under U.S. military investigation in the shooting of a civilian vehicle in Kabul last month, wounding at least two Afghan civilians.

The company has said it is cooperating with the investigations into all three incidents but denied responsibility. When the five former guards were indicted in December, the company said it didn't believe "criminal violations occurred" but that the men should be held accountable for any wrongdoing. The company fired the guard involved in the Christmas Eve shooting, fined him thousands of dollars and sent him back to the U.S.

Last month, the company said it terminated the contracts of all four of the guards involved in the Kabul shooting.

Write to Yochi J. Dreazen at yochi.dreazen@wsj.com