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Halliburton criminal probe opened
Feb. 24, 2004

By CBS MarketWatch

DALLAS (CBS.MW) -- The Pentagon has opened a criminal probe of Halliburton after auditors found that a subsidiary of the oil-service giant might have overcharged for gasoline delivered to Iraq via a Kuwaiti subcontractor.

A Pentagon spokesperson said Tuesday the Defense Criminal Investigative Service of the Inspector General's office launched a criminal investigation of Halliburton unit Kellogg, Brown & Root on Jan. 29.

Defense Department auditors found the unit may have overcharged as much as $61 million for fuel shipped into Iraq from Kuwait. The subcontractor is Altanmia Commercial Marketing Co.

Houston-based Halliburton (HAL: news, chart, profile) has maintained that it delivered fuel to Iraq at the best possible price and that the Army Corps of Engineers approved the shipments. Halliburton was formerly headed by Vice President Dick Cheney.

Halliburton spokesperson Wendy Hall said in an e-mail that the company hasn't been notified of the criminal investigation. But she said that if true, it is a normal, routine step in any kind of high profile inquiry. "In the current political environment, it is to be expected. This is a step toward resolution of the issue."

Shares registered little reaction to the latest news, sending the stock up 2 cents to close at $31.04.

"It is important to understand that this is a method of further studying the issue and not a condemnation of KBR processes," Hall said. "It is also important to understand the difference between fact and allegations. It is not fact that KBR has overcharged."

Hall added that KBR had no wish to ship fuel, but that it has had to keep control of the process until others prove they're up to the task.

"Thee US Army Corps of Engineers approved that the fuel be delivered from Kuwait, even though it was at a higher cost than Turkey," she said. "It's unfair to accuse Halliburton of paying too much for Kuwaiti fuel when we were told to buy the fuel and given approval to purchase it from a specific supplier. Working for the government means that the process and paperwork must be followed perfectly under urgent conditions."

In a letter Tuesday, Democratic lawmakers Henry Waxman and John Dingell urged the Inspector General to investigate a decision by the U.S. Army Corps of Engineers "to waive the requirement that Halliburton provide data justifying its high gasoline prices. We have received information that indicates that this waiver may have been granted under false premises."

The letter says that the Corps' "unprecedented action" has as its basis Kuwaiti law, which prohibits Altanmia "from submitting certified cost and pricing data to Halliburton and the Corps of Engineers."

Waxman and Dingell say that "independent sources" told them there is no law prohibiting companies in that country from issuing that kind of data.

"We do not know the full story behind the decision to grant Halliburton a waiver from cost and pricing data," Waxman and Dingell wrote. "But as you can see, what we have learned raises many questions about the waiver and the suspect rationale on which it was granted."

Earlier developments

In January, Halliburton credited the government $6.3 million in case a government audit confirmed overcharges for contract work in Iraq. The company said its auditors discovered possible overcharges by a Kuwaiti subcontractor and there might have been improper payments made to one or two former employees.

Halliburton has also temporarily suspended certain invoicing of subcontractor food services for U.S. soldiers as it works with the Army to reconcile the differences between meals ordered by the Department of Defense and the number of meals actually served to the troops.

Halliburton is providing meal planning, food purchase and meal preparation services for soldiers through its KBR subsidiary.