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THE CHENEY FACTOR; Political CEO proves risky business for Halliburton

February 22, 2004 (Houston Chronicle) -- Halliburton's troubles mount with every day. The Houston-based construction and oil field services conglomerate is dogged by disputed billings for work in Iraq, allegations of bribes paid in Nigeria and a Senate inquiry into a subsidiary's work in terrorist-sponsoring Iran.

However, the growing pantheon of Halliburton's ills can be summed up in two words: Dick Cheney.

Cheney headed Halliburton between service as defense secretary under the first President Bush and as vice president under the second. Because of its connection with Cheney and the billions of dollars it bills U.S. taxpayers for work in Iraq and around the globe, Halliburton is subject to intense scrutiny. The news media, opponents of George W. Bush's administration and government investigators are all looking into Halliburton's dealings to see if the company has done something wrong.

Halliburton recently informed the Securities and Exchange Commission and investors that its connection to Cheney had become "a risk factor" that could adversely affect its business.

Halliburton's troubles with Cheney began long before the company was awarded no-bid emergency contracts to repair Iraqi oil fields. As Halliburton's CEO, Cheney orchestrated the company's merger with Dresser Industries. Unknown at the time, the acquisition brought with it more than $ 4 billion in asbestos-related liabilities.

Years later, U.S. and French authorities are investigating allegations that, while Cheney was in charge, a consortium involving Halliburton paid $ 180 million in bribes to Nigerian officials.

The company's current chairman, David Lesar, recently told the Chronicle's editorial board that during his tenure Cheney helped the company to grow. Ironically, Lesar said, Cheney viewed the government as a difficult customer and was leery of bidding on government contracts.

However, Cheney has long been a strong and influential proponent of privatizing government services, particularly the military logistics performed by Halliburton subsidiary KBR. Lesar said earnings from work in Iraq provide a small portion of Halliburton's profits, but help the bottom line when the oil and gas business cycle turns down.

The public relations damage Halliburton suffers because of its past association with Cheney is aggravated by Cheney's bent for secrecy and refusal to reveal which energy company executives he met with when crafting the administration's policy on energy. Halliburton, which is still paying deferred compensation to Cheney, has become a code word for administration cronyism.

In a jibe at the company's success in winning government contracts in Iraq, late-night television host David Letterman said that when the taxpayers go to make out the $ 80 billion check to pay for postwar reconstruction and military operations, "remember, there are two 'L's in Halliburton."

To its credit, Halliburton's internal auditors caught several instances of bribes and illegal kickbacks. For example, Halliburton auditors reported that an employee of a subsidiary had paid more than $ 2 million in bribes to a Nigerian tax official. Left unanswered is how a "low-level employee" could channel that much money from the company to the pockets of a corrupt official.

Halliburton is engaged in a public relations campaign to tell its side of the story and extol its unique competencies. But as long as Dick Cheney is in office and Halliburton seeks billions in federal contract work, the public is likely to regard the connection with suspicion.

The lesson for Halliburton is that hiring an influential politician, particularly a partisan lightning rod such as Cheney, can impose what is known in securities filings as a risk factor.